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 ended June 30, 2005

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT

For the transition period from              to             .

Commission File Number: 000-49909

Community First Financial Corporation

(Exact name of registrant as specified in charter)

Virginia	81-0556879
(State or other Jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1646 Graves Mill Road

Lynchburg, Virginia 24502

(Address of principle executive office and telephone number)

(434) 386-6300

(Issuer’s telephone number)

Check whether the Company (1) has 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 Bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

State the number of shares outstanding of each of the Company’s classes of common stock, as of the latest practicable date: 1,162,326 shares of common stock were outstanding as of July 28, 2005.

Transitional Small Business Disclosure Format:    Yes  ¨    No  x

		Page No.
Part I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2005 (un-audited) and December 31, 2004	4
	Consolidated Statements of Income For the Three Months Ended June 30, 2005 and 2004 (un-audited)	5
	Consolidated Statements of Income For the Six Months Ended June 30, 2005 and 2004 (un-audited)	6
	Consolidated Statement of Cash Flows For the Six Months Ended June 30, 2005 and 2004 (un-audited)	7
	Notes to Financial Statements	8
	Selected Balance Sheet Data	11
Item 2.	Management’s Discussion and Analysis	12
Item 3.	Controls and Procedures	16
Part II.	OTHER INFORMATION	16
Item 1.	Legal Proceedings	16
Item 2.	Changes in Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	17
Item 6.	Exhibits	17
	SIGNATURES	18

2

PART 1 FINANCIAL INFORMATION

Item 1. Financial Statements

The following is the un-audited consolidated Balance Sheet of Community First Financial Corporation as of June 30, 2005, and the related un-audited consolidated Statements of Income for the three-month and six-month periods ended June 30, 2005 and 2004, and Cash Flows for the six months ended June 30, 2005 and 2004. The consolidated Balance Sheet presented as of December 31, 2004 has been derived from the financial statements that have been audited by the Bank’s independent public accountants.

3

CONSOLIDATED BALANCE SHEETS

June 30, 2005 (un-audited) and December 31, 2004

(000’s Omitted Except per Share Data)

	June 30, 2005			December 31, 2004
ASSETS
Cash and due from banks	$	10,787		$	7,237
Interest-bearing deposits with banks		240			223
Securities available for sale		7,471			10,508
Restricted equity securities		879			886
Loans:
Loans, less unearned income		138,310			130,534
Less: allowance for loan losses		(1,351	)		(1,392	)
Loans, net		136,959			129,142
Premises and equipment, net		4,171			4,277
Accrued interest receivable		620			546
Other assets		3,803			3,719
Total Assets	$	164,930		$	156,538
LIABILITIES
Deposits:
Non-interest-bearing demand	$	21,595		$	17,616
Interest-bearing deposits		125,306			121,824
Total Deposits		146,901			139,440
Fed Funds Purchased		746			275
Subordinated Debt		2,500			2,500
Accrued interest payable		395			309
Other liabilities		154			166
Total Liabilities		150,696			142,690
SHAREHOLDERS’ EQUITY
Preferred stock, $10 par value: 1,000,000 shares authorized; 300,000
shares issued and outstanding at June 30, 2005 and December 31, 2004		2,971			2,971
Common stock, no par value: 10,000,000 shares authorized;
1,162,326 shares issued and outstanding at June 30, 2005 and December 31, 2004		9,650			9,650
Retained earnings		1,682			1,268
Accumulated other comprehensive income (loss)		(69	)		(41	)
Total Shareholders’ Equity		14,234			13,848
Total Liabilities and Shareholders’ Equity	$	164,930		$	156,538

See accompanying notes to financial statements

4

CONSOLIDATED STATEMENTS OF INCOME

For the three months ended June 30, 2005 and 2004

(un-audited)

(000’s Omitted Except Per Share Data)

	2005			2004
Interest Income:
Interest and fees on loans	$	2,324		$	2,095
Investment securities		73			63
Federal funds sold		4			6
Other interest income		2			-0	-
Total interest income		2,403			2,164
Interest Expense:
Federal funds purchased		14			1
Money market and Now accounts		98			107
Savings		17			74
Time deposits, $100,000 and over		186			125
Other time deposits		576			432
Other borrowed funds		35			23
Total interest expense		926			762
Net interest income		1,477			1,402
Provision for loan losses		(96	)		(310	)
Net interest income after provision for loan losses		1,381			1,092
Non-interest income:
Service charges on deposit accounts		72			74
Other service charges and fees		68			25
Other non-interest income		39			1
Total non-interest income		179			100
Non-interest expense:
Salaries and employee benefits		550			581
Occupancy		83			79
Equipment expense		71			91
Marketing expense		40			44
Operating supplies		44			37
Legal and professional fees		157			143
Other expenses		262			162
Total non-interest expense		1,207			1,137
Net income before income tax expense		353			55
Income tax expense		94			9
Net Income	$	259		$	46
Net income per common share, basic (1)	$	0.22		$	0.04
Net income per common share, diluted (1)	$	0.16		$	0.03
Weighted average common shares outstanding, basic		1,162,326			1,162,336
Weighted average common shares outstanding, diluted		1,603,596			1,557,578

(1) Adjusted for 6 for 5 stock split on October 25, 2004

See accompanying notes to financial statements

5

CONSOLIDATED STATEMENTS OF INCOME

For the six months ended June 30, 2005 and 2004

(un-audited)

(000’s Omitted Except Per Share Data)

	2005			2004
Interest Income:
Interest and fees on loans	$	4,516		$	4,195
Investment securities		152			90
Federal funds sold		8			17
Other interest income		3			-0	-
Total interest income		4,679			4,302
Interest Expense:
Federal funds purchased		26			1
Money market and Now accounts		229			281
Savings		27			75
Time deposits, $100,000 and over		348			263
Other time deposits		1,050			909
Other borrowed funds		67			47
Total interest expense		1,747			1,576
Net interest income		2,932			2,726
Provision for loan losses		(189	)		(436	)
Net interest income after provision for loan losses		2,743			2,290
Non-interest income:
Service charges on deposit accounts		144			144
Other service charges and fees		110			48
Other non-interest income		89			3
Total non-interest income		343			195
Non-interest expense:
Salaries and employee benefits		1,241			1,191
Occupancy		167			157
Equipment expense		147			175
Marketing expense		86			74
Operating supplies		88			79
Legal and professional fees		312			252
Other expenses		456			275
Total non-interest expense		2,497			2,203
Net income before income tax expense		589			282
Income tax expense		175			105
Net Income	$	414		$	177
Net income per common share, basic (1)	$	0.36		$	0.15
Net income per common share, diluted (1)	$	0.26		$	0.11
Weighted average common shares outstanding, basic		1,162,326			1,162,336
Weighted average common shares outstanding, diluted		1,613,768			1,548,958

(1) Adjusted for 6 for 5 stock split on October 25, 2004

See accompanying notes to financial statements

6

CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended June 30, 2005 and 2004

(un-audited)

(000’s Omitted Except Per Share Data)

	2005			2004
Operating activities:
Net income	$	414		$	177
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for loan losses		189			436
Depreciation and amortization		148			163
Net amortization of premiums and accretion of discounts on securities		(5	)		9
Increase in cash surrender value of bank-owned life insurance		(85	)		-0	-
Decrease (increase) in interest receivable		(74	)		(25	)
Decrease (increase) in other assets		15			(180	)
Increase (decrease) in interest payable		86			(63	)
Net sales of loans available for sale		-0	-		202
Increase (decrease) in other liabilities		(12	)		(416	)
Net cash provided by (used in) operating activities		676			303
Investing activities:
Decrease (increase) in Fed funds sold		-0	-		2,146
Maturities and calls of investment securities		3,000			13,950
Purchase of investment securities		-0	-		(11,908	)
Redemptions of investment securities		7			36
Net (increase) decrease in total loans		(8,006	)		3,210
Purchase of premises and equipment		(42	)		(322	)
Net cash provided by (used in) investing activities		(5,041	)		7,112
Financing activities:
Net increase (decrease) in deposits		7,461			(7,852	)
Net increase in short-term borrowing		471			794
Net cash provided by (used in) financing activities		7,932			(7,058	)
Increase in cash and cash equivalents		3,567			357
Cash and cash equivalents at beginning of period		7,460			7,500
Cash and cash equivalents at end of period	$	11,027		$	7,857
Supplemental cash flow information:
Interest paid	$	1,661		$	1,639
Income taxes	$	169		$	510

See accompanying notes to financial statements

7

Form 10-QSB

June 30, 2005

Notes to financial statements

1. General

The accompanying un-audited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. In management’s opinion, the financial information, which is un-audited, reflects all adjustments necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods. The results of operations for the six-month periods ended June 30, 2005 and 2004 are not necessarily indicative of results to be expected for the full year. The statements should be read in conjunction with the Notes to Financial Statements included in the Company’s Annual Report for the year ended December 31, 2004.

On July 1, 2002, the Bank was acquired by Community First Financial Corporation (the Company), which was formed by the Bank on March 15, 2002 for the purpose of becoming the Bank’s parent holding Company. Each outstanding share of the Bank’s common stock was exchanged for one share of the Company’s common stock with the Bank becoming a wholly owned subsidiary of the Company. The Company’s primary purpose is to serve as the parent of the Bank. The transaction was accounted for in a manner similar to a pooling-of-interests whereby the historical book values of the Bank’s accounts were combined with the Company’s accounts on the date of the merger.

Community First Financial Corporation is located in Lynchburg, Virginia. The accounting and reporting policies of the Company and Bank follow generally accepted accounting principles and general practices within the financial services industry.

The consolidated financial statements include the accounts of the Company and the Bank. All significant inter-company accounts and transactions are eliminated in consolidation.

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 with banks.”

2. Loans are summarized as follows:

($000’s)	June 30, 2005			December 31, 2004
Commercial	$	21,479		$	19,109
Real estate:
Construction and land development		10,652			10,513
Farmland		262			371
Residential, 1-4 families		43,044			41,566
Residential, 5 or more families		3,591			3,861
Non farm, non residential		53,261			47,898
Consumer		4,978			5,255
Other		1,244			2,150
Total loans		138,511			130,723
Net deferred fees		(201	)		(189	)
Allowance for loan losses		(1,351	)		(1,392	)
Net loans	$	136,959		$	129,142

8

3. The following represents an analysis of changes in the allowance for loan loss for the six months ended June 30, 2005 and 2004.

	June 30
	2005			2004
Balance at beginning of period	$	1,392		$	2,129
Provision charged to operating expense		189			436
Recoveries of loans previously charged off		7			2
Loan charge-offs		(237	)		(1,218	)
Balance at end of period	$	1,351		$	1,349

4. Securities Available For Sale

The following sets forth the composition of securities available for sale, which are carried at approximate market value at June 30, 2005, and December 31, 2004.

($000’s)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
June 30, 2005
U.S. Government Agencies	$	7,255	$	-0-	$	(106	)	$	7,149
Equity Securities		322		-0-		-0-			322
Total	$	7,577	$	-0-	$	(106	)	$	7,471
December 31, 2004
U.S. Government Agencies	$	10,250	$	-0-	$	(64	)	$	10,186
Equity Securities		322		-0-		-0-			322
Total	$	10,572	$	-0-	$	(64	)	$	10,508

Securities with amortized costs of $1,490 at June 30, 2005 were pledged to secure public deposits as required by law.

5. Deposits and other deposits

Included in deposits are certificates of deposit and other time deposits of $100,000 or more in the aggregate amount of $23.2 million and $18.9 million at June 30, 2005 and December 31, 2004 respectively.

6. Earnings Per Share

In 1999, the Financial Accounting Standards Board issued Statement No. 128, “Earnings per Share.” Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities. Diluted earnings per share are very similar to the previously reported fully diluted earnings per share. All earnings per share amount for all periods have been presented and, where appropriate, restated to conform to the Statement 128 requirements.

Weighted average shares for computation of basic earnings per share were 1,162,326 for the three months and six months ended June 30, 2005. Weighted average shares for computation of diluted earnings per share were 1,603,596 for the three months ended June 30, 2005 and 1,613,768 for the six months ended June 30, 2005.

9

7. Stock Based Compensation

The Company accounts for its stock-based compensation plans 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, but complies with the disclosure requirements set forth in the Statement (as amended by SFAS No. 148), which include disclosing pro forma net income as if the fair value based method of accounting had been applied.

	Three Months Ended June 30,
	2005			2004
Compensation cost recognized in income for all stock-based compensation awards	$	-0	-	$	-0	-
Pro forma net income, based on SFAS No. 123	$	259		$	39
Pro forma earnings per common share, based on SFAS No. 123	$	.22		$	.03
Pro forma earnings per fully dilutive common share, based on SFAS No. 123	$	.16		$	.03
	Six Months Ended June 30,
	2005			2004
Compensation cost recognized in income for all stock-based compensation awards	$	-0	-	$	-0	-
Pro forma net income, based on SFAS No. 123	$	414		$	164
Pro forma earnings per common share, based on SFAS No. 123	$	.36		$	.14
Pro forma earnings per fully dilutive common share, based on SFAS No. 123	$	.26		$	.11

10

Community First Financial Corporation

Selected Balance Sheet Data

($000’s)	June 30, 2005	December 31,2004
Selected Data at Period-end
Loans, net	136,959	129,142
Total securities available for sale	7,471	10,508
Total assets	164,930	156,538
Total deposits	146,901	139,440
Shareholders’ equity	14,234	13,848
Selected Data Daily Averages
Loans, net	133,586	130,749
Total securities available for sale	7,967	6,567
Total assets	158,816	155,490
Total deposits	140,133	138,790
Shareholders’ equity	14,021	13,491

11

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Amounts in thousands, except per share data and ratios)

In addition to historical information, the following discussion may contain forward looking statements regarding management’s earnings expectations and the anticipated effect of the Bank’s branching efforts. The actual results may differ as a result of several factors including, but not limited to, imposition of federal income taxes due to exhaustion of the tax loss carry forward, expenses associated with new facilities, changes in interest rates, increased competition, and deterioration in the quality of the loan portfolio.

This discussion, analysis and related financial information are presented to explain the significant factors which effected Community First Financial Corporation’s financial condition and results of operations for the three months and six months ending June 30, 2005 and 2004. This discussion should be read in conjunction with the financial statements and related notes.

Community First Bank is a Virginia state chartered Bank, and is located in Lynchburg, Virginia. The Bank began operations on October 14, 1999. Community First Financial Corporation acquired all outstanding shares of Community First Bank on July 1, 2002.

Comparison of Financial Condition at June 30, 2005 and December 31, 2004

Total assets increased from $156.5 million at December 31, 2004 to $164.9 million or 5.4% at June 30, 2005. The increase was due primarily to increase in loan volume. Deposits increased to $146.9 million from $139.4 million or 5.4% during the same period. Investment securities decreased by approximately $3.0 million during the six months period primarily due to the maturity of a U.S. Agency security.

Total loans increased to $138.3 million at June 30, 2005 from $130.5 million at December 31, 2004 or 6.0% reflecting the Bank’s continuing growth strategies. The allowance for loan losses decreased to $1.351 million (0.98% of total loans) at June 30, 2005 from $1.392 million (1.07% of total loans) at December 31, 2004. Loan quality remains good. There were 12 loans in the amount of $536 thousand past due more than ninety days and eight loans totaling $1.1 million in non-accrual status at June 30, 2005. There were four loans past due more than ninety days in the amount of $301 thousand and four loans in the amount of $600 thousand in non-accrual status as of December 31, 2004. Management estimates that the loans ninety days or more past due and loans in non-accrual status will be reduced by approximately $800 thousand through reductions in principal or be paid off during the next 120 days and that no addition to the loan loss provision is required at this time.

Allowance for Loan Losses

The provision for loan losses was $189 thousand for the six months ended June 30, 2005 compared to $436 thousand or a 56.7% decrease over the same period in 2004. The Bank considers the allowance to be adequate based on the current loan portfolio. An ongoing evaluation of the allowance for loan losses is made to insure that the allowance for loan losses is at a sufficient level to absorb estimated losses in the Bank’s portfolio. As of June 30, 2005 the ratio of the allowance for loan losses to loans, net of unearned income was 0.98%. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in economic conditions. In addition, regulatory agencies, as an internal part of their examination process, periodically review the Bank’s allowance for loan losses. These agencies may require the Bank to recognize additions to the allowance based on their judgment about information available at the time of their examination.

12

Comparison of Results of Operations for the Three Months Ended June 30, 2005 and 2004

Net income - Net income for the three months ended June 30, 2005 was $259 thousand or $0.22 per basic weighted average share compared to $46 thousand or $0.04 per basic weighted average share for the same period last year. This increase of $213 thousand was due primarily to the increase in net interest income and mortgage fee income and decrease in the provision for loan losses.

Net interest income - Net interest income is the Bank’s primary source of earnings and represents the difference between interest and fees earned on earning assets and the interest expense paid on interest bearing liabilities. Net interest income before the provision for loan losses was $1.477 million for the three months of 2005 compared with $1.402 million for the three months of 2004, an increase of $75 thousand or 5.4%. Most of the increase was due to an increase in interest and fees on loans resulting from increased loan volume.

Non-interest income – Non-interest income consists of earnings generated primarily from service charges on deposit accounts, securities gains and other service charges, commissions and fees. The Bank’s non-interest income increased to $179 thousand for the three months in 2005 from $100 thousand for the same period in 2004, an increase of 79.0%. The majority of this income was due to mortgage origination fees and the increase in the cash surrender value of bank-owned life insurance.

Non-interest expense – The Bank’s non-interest expense increased to $1.207 million for the three months of 2005 from $1.137 million or 6.2% for the same period in 2004. This increase was due primarily to outside expenses including legal and professional fees and the cost of compliance with the Sarbanes-Oxley Act of 2002.

Comparison of Results of Operations for the six Months Ended June 30, 2005 and 2004

Net income - Net income for the six months ended June 30, 2005 was $414 thousand or $0.36 per basic weighted average share compared to $177 thousand or $0.15 per basic weighted average share for the same period last year. This increase of $237 thousand was due primarily to the increase in net interest income and mortgage fee income and decrease in the provision for loan losses. Annualized returns on average assets and average equity for the six months of 2005 were .52% and 5.91% respectively compared to 0.23% and 2.69% for the same period in 2004.

Net interest income - Net interest income is the Bank’s primary source of earnings and represents the difference between interest and fees earned on earning assets and the interest expense paid on interest bearing liabilities. Net interest income before the provision for loan losses was $2.932 million for the six months of 2005 compared with $2.726 million for the six months of 2004, an increase of $206 thousand or 7.6%. Most of the increase was due to an increase in interest and fees on loans resulting from increased loan volume.

Non-interest income – Non-interest income consists of earnings generated primarily from service charges on deposit accounts, securities gains and other service charges, commissions and fees. The Bank’s non-interest income increased to $343 thousand for the six months in 2005 from $195 thousand for the same period in 2004, an increase of 75.9%. The majority of this income was due to mortgage origination fees and the increase in the cash surrender value of bank-owned life insurance.

Non-interest expense – The Bank’s non-interest expense increased to $2.497 million for the six months of 2005 from $2.203 million or 13.4% for the same period in 2004. This increase was due primarily to outside expenses including legal and professional fees and the cost of compliance with the Sarbanes-Oxley Act of 2002.

13

Liquidity and Capital

Liquidity is the ability to generate adequate cash flow to meet financial commitments and to fund customers’ demands for funds, either in terms of loan requests or deposit withdrawals. Liquidity may be provided by both assets and liabilities. Asset liquidity is derived from sources such as readily marketable investments, principal and interest payments on loans, and cash and due from banks. Liability liquidity is provided by core deposit growth from the Bank’s strong, stable consumer base. Management believes the liquidity of the Bank remains adequate, as sufficient assets are maintained on a short-term basis to meet the liquidity demands anticipated. Secondary sources are also available should the need arise. Management is not aware of any commitments or events that will result in or that are reasonably likely to result in a material increase or decrease in liquidity.

A summary of the Bank’s and the Company’s required and actual capital components as of June 30, 2005 follows (amounts in thousands):

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Community First Bank
Total Capital (to Risk Weighted Assets)	$	15,561	11.19	%	$	11,124	8.0	%	$	13,905	10.0	%
Tier 1 Capital (to Risk Weighted Assets)		14,220	10.23			5,562	4.0			8,343	6.0
Tier 1 Capital (to Average Assets)		14,220	9.03			6,302	4.0			7,878	5.0
Community First Financial Corporation
Total Capital (to Risk Weighted Assets)		18,155	12.82	%	$	11,328	8.0	%	$	14,160	10.0	%
Tier 1 Capital (to Risk Weighted Assets)		14,304	10.10			5,664	4.0			8,496	6.0
Tier 1 Capital (to Average Assets)		14,304	8.93			6,404	4.0			8,005	5.0

A summary of the Bank’s and the Company’s required and actual capital components as of December 31, 2004 follows (amounts in thousands):

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
Community First Bank
Total Capital (to Risk Weighted Assets)	$	15,158	11.73	%	$	10,336	8.0	%	$	12,920	10.0	%
Tier 1 Capital (to Risk Weighted Assets)		13,776	10.66			5,168	4.0			7,752	6.0
Tier 1 Capital (to Average Assets)		13,776	8.86			6,216	4.0			7,771	5.0
Community First Financial Corporation
Total Capital (to Risk Weighted Assets)	$	17,782	13.49	%	$	10,544	8.0	%	$	13,180	10.0	%
Tier 1 Capital (to Risk Weighted Assets)		13,890	10.54			5,272	4.0			7,908	6.0
Tier 1 Capital (to Average Assets)		13,890	8.83			6,293	4.0			7,867	5.0

There are no material commitments for capital expenditures as of June 30, 2005. In addition, there are no expected material changes in the mix or relative cost of capital resources.

14

GENERAL

Capital

On May 13, 2002, the Company’s shareholders approved an amendment to its articles of incorporation, which authorized the Company to issue up to 1,000,000 shares of preferred stock. Following the approval and pursuant to that charter amendment, the Company’s Board of Directors created a series of preferred stock consisting of 325,000 shares of non-cumulative, non-voting, convertible preferred stock. At June 30, 2004, the Company had sold 300,000 of those shares at a price of $10.00 per share providing capital of $3.0 million net of offering expenses.

The Company’s Board of Directors declared a 6 for 5 common stock split in the form of a 20% stock dividend payable October 25, 2004 to common stockholders of record on October 15, 2004. Holders of record of common stock as of the record date received one additional share of common stock for every five shares they owned on that date. Cash was paid for fractional shares. A total of 193,713 additional shares of common stock were issued as a result of this stock split.

The Board also authorized on October 5, 2004, a cash dividend of $.50 per share on the Company’s 300,000 issued and outstanding shares of convertible preferred stock, representing the five percent dividend payable for the year 2004. The record and payment dates for this dividend are the same as those for the stock split as mentioned above.

As of January 12, 2005 the Company’s common stock became eligible to be traded on the Over-the-Counter Bulletin Board under the trading name CYFC.

Impact of Inflation and Changing Prices

The financial statements and related notes presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation.

Unlike many industrial companies, substantially all of the assets and virtually all of the liabilities of the Bank are monetary in nature. As a result, interest rates have a more significant impact on the Bank’s performance than the general level of inflation. Over short periods of time, interest rates may not necessarily move in the same direction or in the same magnitude as inflation.

FUTURE ACCOUNTING CONSIDERATIONS

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004) (“SFAS 123(R)”), Share-Based Payments. SFAS 123(R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments, such as stock options granted to employees. The Company will likely apply SFAS 123(R) on a modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted stock option awards that remain outstanding at the date of adoption and for options granted after the date of adoption. SFAS 123(R) will become effective for the Company in January, 2006.

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ITEM 3: CONTROLS AND PROCEDURES

The Bank’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the Bank’s disclosure controls and procedures as of the end of the period covered by this quarterly report, have concluded that the disclosure controls and procedures were effective as of the end of the period covered by this report. There were no changes in the Bank’s internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Bank’s internal controls over financial reporting.

Part II. OTHER INFORMATION

Item 1 - Legal Proceedings

In the normal course of business, the Company is involved in various legal proceedings. At March 31, 2005 and December 31, 2004, the Bank was involved in litigation over a correspondent loan relationship. This litigation was settled for $140,000 in May 2005. The Bank made an initial payment of $70,000 in May and a final payment of $70,000 will be made on or before September 30, 2005.

Item 2 - Change in Securities

None

Item 3 - Defaults Upon Senior Securities

Not applicable

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

The Company’s annual shareholders meeting was held May 9, 2005 at the Old City Cemetery, Lynchburg, Virginia and the following actions were approved:

Election of Directors

Class C, to serve until the 2008 Annual Meeting of Shareholders:

	FOR	PCT.		WITHHELD	PCT.		ABSTAIN	PCT.
R. Thomas Beach	716,626	99.4	%	4,320	0.6	%	None	0.0	%
Frank C. Crist, Jr.	718,246	99.6		2,700	0.4		None	0.0
John L. Wynne	717,046	99.5		3,900	0.5		None	0.0

The following directors’ terms of office continued after the meeting:

A. C. Coleman, Jr.

T. Scott Garrett

Thomas S. Mignogna

Larry H. Redmond

Daniel P. Thornton

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Appointment of Independent Auditor

Larrowe & Company, PLC, 104 Cranberry Road, Galax, Virginia was appointed the independent auditor for the year ending December 31, 2005.

FOR	PCT.		WITHHELD	PCT.		ABSTAIN	PCT.
707,423	98.1	%	11,963	1.7	%	1,560	0.2	%

Item 5 –Other Information

None.

Item 6 - Exhibits

31.1	Certification of CEO (302 Certification)
31.2	Certification of CFO (302 Certification)
32	Certification Pursuant to 18 U.S.C. Section 1350 (906 Certifications)

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SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the Bank has caused this report to be signed on its behalf by the undersigned thereunto duly authorized officers.

	COMMUNITY FIRST FINANCIAL CORPORATION
Date: August 9, 2005	/s/ John L. Wynne
	John L. Wynne
	President and CEO
Date: August 9, 2005	/s/ F. F. Falls
	F. F. Falls
	Vice President “Chief Financial Officer”

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