UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549




                                    FORM 10-Q

(Mark One)
( X )          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 2003

                                       OR

(   )         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

             For the transition period from             to
                                            -----------    ------------

                         Commission File Number 0-18279
                        --------------------------------

                        TRI-COUNTY FINANCIAL CORPORATION
             -----------------------------------------------------
             (Exact name of registrant as specified in its charter)

Maryland                                                          52-1652138
-------------------------------                                 ----------------
(State of other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                               Identification No.)

3035 Leonardtown Road, Waldorf, Maryland                            20601
-------------------------------------------                     ------------
     (Address of principal executive offices)                    (Zip Code)

                                 (301) 843-0854
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

                                       N/A
              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing  requirements  for the past 90 days.  Yes 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 --- ---

     Indicate the number of shares  outstanding of each of the issuer's  classes
of common stock, as of the latest practical date.

     As of October 10, 2003 registrant had outstanding  756,460 shares of Common
Stock.

<PAGE>

TRI-COUNTY FINANCIAL CORPORATION

FORM 10-Q
INDEX
-----


PART I - FINANCIAL INFORMATION                                          PAGE
                                                                        ----

   Item 1 - Financial Statements

     Consolidated Balance Sheets - September 30, 2003
       (Unaudited) and December 31, 2002                                 3

     Consolidated Statements of Income and Comprehensive Income -
       Three and Nine Months Ended September 30, 2003
       (Unaudited) and 2002                                              4-5

     Consolidated Statements of Cash Flows - Nine Months
       Ended September 30, 2003
       (Unaudited) and 2002 (Unaudited)                                  6-7

     Notes to Consolidated Financial Statements                          8-10

Item 2 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                       10-17

Item 3 - Quantitative and Qualitative Disclosure about Market Risk       18

Item 4 - Controls and Procedures                                         18

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings                                               19
Item 2 - Change in Securities and Use of Proceeds                        19
Item 3 - Default upon Senior Securities                                  19
Item 4 - Submission of Matters to a Vote of Security Holders             19
Item 5 - Other Information                                               19
Item 6 - Exhibits and Reports on Form 8-K                                19


SIGNATURES                                                               20




                                       2
<PAGE>

ITEM I. FINANCIAL STATEMENTS
TRI-COUNTY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2003 (UNAUDITED) AND DECEMBER 31, 2002
<TABLE>
<CAPTION>

                                                  ASSETS
                                                                     September 30, 2003           December 31, 2002
<S>                                                                        <C>                          <C>

Cash and due from banks                                              $     11,213,506             $   10,356,932
Interest-bearing deposits with banks                                        6,646,826                 15,179,851
Investment securities available for sale - at fair value                   45,420,912                 41,826,113
Investment securities held to maturity - at amortized cost                 45,929,159                  2,841,807
Stock in Federal Home Loan Bank and Federal Reserve Bank - at cost          4,602,250                  2,736,750
Loans held for sale                                                           616,250                  1,262,667
Loans receivable - net of allowance for loan losses
of $2,408,910 and $2,314,074, respectively                                206,123,174                197,449,282
Premises and equipment, net                                                 5,498,501                  5,736,395
Foreclosed real estate                                                        706,764                    716,014
Accrued interest receivable                                                 1,325,120                  1,042,453
Bank owned life insurance                                                   5,847,696                         --
Other assets                                                                9,074,507                  3,025,431
                                                                      ---------------              -------------
Total assets                                                          $   337,156,969              $ 282,173,695
                                                                      ===============              =============

                                   LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Noninterest-bearing deposits                                          $    29,754,430              $  33,045,310
Interest-bearing deposits                                                 187,427,155                169,979,802
                                                                      ---------------              -------------
Total deposits                                                            217,181,585                203,025,112
Short-term borrowings                                                      27,671,430                    752,298
Long-term debt                                                             63,058,996                 48,170,000
Accrued expenses and other liabilities                                      2,162,065                  3,353,520
                                                                      ---------------              -------------
Total liabilities                                                         310,074,076                255,300,930
                                                                      ---------------              -------------

STOCKHOLDERS' EQUITY:
Common stock - par value $.01; authorized - 15,000,000 shares;
 issued - 752,240 and 759,778 shares, respectively                              7,522                      7,598
Additional paid in capital                                                  7,810,776                  7,716,906
Retained earnings                                                          19,604,356                 18,817,615
Accumulated other comprehensive (loss) income                                (229,618)                   493,691
Unearned ESOP shares                                                         (110,143)                  (163,045)
                                                                      ---------------              -------------
Total stockholders' equity                                                 27,082,893                 26,872,765
                                                                      ---------------              -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $   337,156,969              $ 282,173,695
                                                                      ===============              =============
</TABLE>

See notes to consolidated financial statements




                                       3
<PAGE>



TRI-COUNTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002


<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                  SEPTEMBER 30,                   SEPTEMBER 30,
                                                           -----------------------          ----------------------
                                                             2003          2002             2003            2002
<S>                                                           <C>          <C>               <C>             <C>
INTEREST INCOME:
   Interest and fees on loans                              $3,361,521    $3,604,299      $10,016,346    $10,671,659
   Taxable interest and dividends on
    investment securities                                     843,200       662,707        1,978,374      1,921,272
   Interest on bank deposits                                    5,903        14,928           58,084         63,748
                                                           ----------    ----------      -----------    -----------
        Total interest income                               4,210,624     4,281,934       12,052,804     12,656,679
                                                           ----------    ----------      -----------    -----------

INTEREST EXPENSE:
   Interest on deposits                                       696,914       865,583        2,167,049      2,640,487
   Interest on long term debt                                 725,273       617,390        1,993,929      1,884,127
   Interest on short term debt and
    other borrowings                                            9,637         1,403           10,884          5,549
                                                           ----------    ----------      -----------    -----------
        Total interest expense                              1,431,824     1,484,376        4,171,862      4,530,163
                                                           ----------    ----------      -----------    -----------

NET INTEREST INCOME                                         2,778,800     2,797,558        7,880,942      8,126,516
PROVISION FOR LOAN LOSSES                                      31,013        30,000          145,340        130,000
                                                           ----------    ----------      -----------    -----------

NET INTEREST INCOME AFTER PROVISION FOR
 LOAN LOSSES                                                2,747,787     2,767,558        7,735,602      7,996,516
                                                           ----------    ----------      -----------    -----------

NONINTEREST INCOME:
   Loan appraisal, credit, and miscellaneous charges           76,151        57,921          206,130        146,269
   Net gain on sale of loans held for sale                    135,036        81,557          499,726        289,539
   Service charges                                            120,756       242,534          459,580        727,903
   Other income                                                   819         4,901            9,073         18,610
                                                           ----------    ----------      -----------    -----------

        Total noninterest income                              332,762       386,913        1,174,509      1,182,321
                                                           ----------    ----------      -----------    -----------

NONINTEREST EXPENSE:
  Salary and employee benefits                              1,305,584     1,031,744        3,530,637      3,129,922
  Occupancy expense                                           175,459       200,914          547,306        592,582
  Advertising                                                  89,140        91,675          224,066        254,641
  Loss on disposal of obsolete equipment                           --            --               --         65,104
  Data processing expense                                     103,042        94,102          297,075        432,558
  Depreciation of furniture, fixtures, and equipment          132,022        58,380          361,761        279,576
  Telephone communications                                     33,407        74,794          136,139        268,174
  ATM expenses                                                 71,153        51,686          197,622        123,638
  Office supplies                                              28,582        32,572          104,420        136,292
  Valuation allowance on foreclosed real estate                    --            --               --      1,044,070
  Office equipment expense                                     29,629        34,537          109,602        114,510
  Other expenses                                              222,146       363,342          755,577        979,035
                                                           ----------    ----------      -----------    -----------
      Total noninterest expense                             2,190,164     2,033,746        6,264,205      7,420,102
                                                           ----------    ----------      -----------    -----------
</TABLE>



                                       4
<PAGE>

TRI-COUNTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (CONTINUED)

<TABLE>
<CAPTION>

<S>                                                             <C>        <C>               <C>            <C>
INCOME BEFORE INCOME TAXES                                    890,385     1,120,725       2,645,906       1,758,735
INCOME TAX EXPENSE                                            293,550       391,000         898,765         621,000
                                                           ----------    ----------      ----------     -----------
NET INCOME                                                    596,835       729,725       1,747,141       1,137,735

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
   Net unrealized holding gains (losses) arising
   during the period                                         (475,055)      (10,628)       (723,309)        (33,056)
                                                           ----------    ----------      ----------     -----------
COMPREHENSIVE INCOME                                       $  121,780    $  719,097      $1,023,832     $ 1,104,679
                                                           ==========    ==========      ==========     ===========

EARNINGS PER SHARE
   Basic                                                   $     0.79    $     0.96      $     2.32     $      1.49
   Diluted                                                       0.75          0.91            2.20            1.41
</TABLE>

See notes to consolidated financial statements





                                       5
<PAGE>


TRI-COUNTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
<TABLE>
<CAPTION>
                                                                                  NINE MONTHS ENDED
                                                                                    SEPTEMBER 30,
                                                                        -----------------------------------
                                                                                2003                 2002
<S>                                                                             <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                             $ 1,747,141            $  1,137,735
Adjustments to reconcile net income to net
  cash (used) provided by operating activities:
  Valuation allowance on foreclosed real estate                                 --               1,044,070
  Provision for loan losses                                                145,340                 130,000
  Depreciation and amortization                                            474,900                 339,392
  Loss on disposal of obsolete equipment                                        --                  65,104
  Net amortization of premium/discount on investment securities            367,646                  21,869
  Deferred income tax benefit                                              (29,000)               (477,000)
  Increase in accrued interest receivable                                 (282,667)                (82,492)
  Increase in deferred loan fees                                           (43,588)                (41,248)
  Increase in accounts payable, accrued expenses, and other
   liabilities                                                          (1,191,455)              1,856,145
  Decrease (Increase) in other assets                                      213,052              (1,220,565)
  Gain on disposal of premises and equipment                                    --                  (4,458)
  Origination of loans held for sale                                   (16,246,950)            (13,860,196)
  Gain on sales of loans held for sale                                    (499,725)               (289,540)
  Proceeds from sale of loans held for sale                             17,393,092              12,518,971
                                                                      ------------            ------------
            Net cash provided by operating activities                    2,047,786               1,137,787
                                                                      ------------            ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Net decrease in interest-bearing deposits with banks                   8,533,025               4,619,965
  Purchase of investment securities available for sale                 (63,963,745)            (43,041,197)
  Proceeds from sale, redemption or principal payments
    of investment securities available for sale                         58,892,560              36,394,570
  Purchase of investment securities held to maturity                   (45,833,440)             (1,201,212)
  Proceeds from maturities or principal payments
    of investment securities held to maturity                            2,746,088               1,201,946
  Net purchase of FHLB and FRB stock                                    (1,865,500)                     --
  Loans originated or acquired                                        (132,967,284)            (67,672,186)
  Principal collected on loans                                         124,191,640              66,716,172
  Proceeds from disposal of premises and equipment                              --                  13,000
  Purchase of bank owned life insurance policies                        (5,847,696)                     --
  Purchase of foreclosed real estate                                            --                 (29,562)
  Purchase of premises and equipment                                      (237,006)             (1,142,287)
  Proceeds from foreclosed real estate                                       9,250                 309,046
                                                                     -------------            ------------

         Net cash used in investing activities                         (56,342,108)             (3,831,745)
                                                                     -------------            ------------
</TABLE>


                                       6
<PAGE>



TRI-COUNTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(CONTINUED)
<TABLE>
<CAPTION>
                                                                            NINE MONTHS ENDED
                                                                                SEPTEMBER
                                                                                   30,
                                                                ---------------------------------------
                                                                     2003                      2002
<S>                                                                  <C>                       <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase in deposits                                      $14,156,473                 $9,262,695
  Proceeds from long-term borrowings                             15,000,000                         --
  Payments of long-term borrowings                                 (111,004)                (1,400,000)
  Net increase (decrease) in other borrowed funds                26,919,132                 (1,078,569)
  Exercise of stock options                                          54,375                    141,906
  Net change in unearned ESOP shares                                 92,459                     47,999
  Dividends paid                                                   (422,361)                  (385,129)
  Redemption of common stock                                       (538,178)                  (280,090)
                                                                -----------                 ----------

        Net cash provided by financing activities                55,150,896                  6,308,812
                                                                -----------                 ----------

INCREASE IN CASH AND CASH EQUIVALENTS                               856,574                  3,614,854

CASH AND CASH EQUIVALENTS - JANUARY 1                            10,356,932                    693,439

CASH AND CASH EQUIVALENTS - SEPTEMBER 30                        $11,213,506                 $4,308,293
                                                                ===========                 ==========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the nine months for:
Interest                                                        $ 2,697,029                 $4,773,641
                                                                ===========                 ==========
Income taxes                                                    $ 1,422,869                 $1,130,000
                                                                ===========                 ==========
Noncash transfers from loans to other assets                    $        --                 $1,040,000
                                                                ===========                 ==========
</TABLE>




                                       7
<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------

1.   BASIS OF PRESENTATION

     General - The  consolidated  financial  statements of Tri-County  Financial
     Corporation (the "Company") and its wholly owned subsidiary, Community Bank
     of Tri-County  (the "Bank")  included herein are unaudited;  however,  they
     reflect all adjustments  consisting only of normal recurring accruals that,
     in the opinion of  Management,  are necessary to present fairly the results
     for  the  periods  presented.  Certain  information  and  note  disclosures
     normally  included in  financial  statements  prepared in  accordance  with
     accounting  principles  generally  accepted in the United States of America
     have been condensed or omitted pursuant to the rules and regulations of the
     Securities  and  Exchange   Commission.   The  Company  believes  that  the
     disclosures are adequate to make the information  presented not misleading.
     There have been no significant changes to the Company's Accounting Policies
     as disclosed in the 2002 Annual  Report.  The results of operations for the
     nine months ended September 30, 2003 are not necessarily  indicative of the
     results of operations to be expected for the remainder of the year. Certain
     previously  reported  amounts  have been  restated  to  conform to the 2003
     presentation.

     It is suggested  that these  consolidated  financial  statements be read in
     conjunction with the consolidated  financial  statements and notes included
     in the Company's Annual Report for the year ended December 31, 2002.

2.   NATURE OF BUSINESS

     The  Company,  through its bank  subsidiary,  provides  domestic  financial
     services  primarily in southern  Maryland.  The primary financial  services
     include  real  estate,   commercial  and  consumer  lending,   as  well  as
     traditional demand deposits and savings products.


3.   INCOME TAXES

     The Company uses the  liability  method of  accounting  for income taxes as
     required  by SFAS  No.  109,  "Accounting  for  Income  Taxes."  Under  the
     liability method,  deferred-tax assets and liabilities are determined based
     on differences between the financial statement carrying amounts and the tax
     bases of existing assets and liabilities (i.e.,  temporary differences) and
     are  measured  at the  enacted  rates  that  will be in effect  when  these
     differences reverse.


4.   EARNINGS PER SHARE

     Earnings  per  common  share are  computed  by  dividing  net income by the
     weighted  average  number of common shares  outstanding  during the period.
     Diluted net income per common  share is computed by dividing  net income by
     the weighted average number of common shares outstanding during the period,
     including any potential dilutive common shares outstanding, such as options
     and warrants. As of September 30, 2003, 7,916 shares were excluded from the
     diluted net income per share computation  because the option price exceeded
     the  average   market   price  and   therefore,   their   effect  would  be
     anti-dilutive.  Basic and diluted  earnings per share,  have been  computed
     based on  weighted-average  common and common equivalent shares outstanding
     as follows:


               THREE MONTHS ENDED         NINE MONTHS ENDED
                 SEPTEMBER 30,              SEPTEMBER 30,
            -------------------------  ------------------------
                2003        2002           2003       2002

Basic         751,633     763,084        752,334     761,563

Diluted       793,649     806,291        794,556     804,971

                                       8
<PAGE>

5.   STOCK-BASED COMPENSATION

     The  Company has adopted  the  disclosure-only  provisions  of SFAS No. 123
     "Accounting for Stock-Based  Compensation" and SFAS No. 148 "Accounting for
     Stock-Based Compensation-Transition and Disclosure", but applies Accounting
     Principles Board Opinion No. 25 and related  interpretations  in accounting
     for its Plan.  No  compensation  expense  related to the Plan was  recorded
     during the nine months ended  September 30, 2003 and 2002.   If the Company
     had elected to recognize compensation cost based on fair value at the grant
     dates for awards under the Plan  consistent  with the method  prescribed by
     SFAS No. 123,  net income and earnings per share would have been changed to
     the pro forma amounts as follows for the nine months ended September 30.


                                                2003                    2002
                                                ----                    ----
     Net Income as reported                  $1,747,141              $1,137,735

     Less pro forma stock based compensation
      expense determined under the
      fair value method, net of tax effects.
                                                173,261                 109,390
                                             ----------              ----------
      Pro forma net income                   $1,573,880              $1,028,345
                                             ==========              ==========

      Net income per share
      Basic - as reported                    $     2.32              $     1.49
      Basic - pro forma                      $     2.09              $     1.35
      Diluted - as reported                  $     2.20              $     1.41
      Diluted - pro forma                    $     1.98              $     1.28


6.   NEW ACCOUNTING STANDARDS

     In July 2002, the FASB issued Statement of Financial  Accounting  Standards
     No. 146 Accounting for Costs  Associated with Exit or Disposal  Activities"
     ("SFAS  No.  146").   The  requirements  of  SFAS  No.  146  are  effective
     prospectively for qualifying  activities initiated after December 31, 2002.
     SFAS No. 146 applies to costs  associated with an exit activity,  including
     restructuring,  or with a disposal of long-lived  assets. The Statement has
     had no effect on the Company's financial statements.

     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of Indebtedness of Others"  ("Interpretation No. 45"). Beginning
     in 2003, Interpretation No. 45 requires recognition of liabilities as their
     fair value for newly issued guarantees.  The adoption of Interpretation No.
     45 did not have a material effect on the Company's financial statements.

                                       9
<PAGE>

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation - Transition  and  Disclosure"  (SFAS No. 148").  SFAS No. 148
     amends SFAS No. 123,  "Accounting for Stock-Based  Compensation."  SFAS No.
     148 provides  alternative  methods of transition for a voluntary  change to
     the fair value-based method of accounting for stock-based  compensation and
     required  disclosure in both annual and interim financial  statements about
     the method of accounting for stock-based compensation and the effect of the
     method used on  reported  results.  The Company has adopted the  disclosure
     provisions  of SFAS  No.  148.  The  Company  has not  changed  to the fair
     value-based method of accounting for stock-based compensation.

     In January 2003, the FASB issued  Interpretation No. 46,  "Consolidation of
     Variable  Interest  Entities"  ("Interpretation  No. 46"),  which  explains
     identification  of variable interest entities and the assessment of whether
     to consolidate  those  entities.  Interpretation  No. 46 requires  existing
     unconsolidated  variable  interest  entities  to be  consolidated  by their
     primary  beneficiaries  if the entities do not  effectively  disperse risks
     among the involved  parties.  The provisions of  Interpretation  No. 46 are
     effective for all financial  statements  issued after January 1, 2003.  The
     Company holds no significant  variable interest entities that would require
     disclosure or consolidation.

     In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
     Derivative  Instruments and Hedging  Activities"  (SFAS No. 149"). SFAS No.
     149 amends and clarifies accounting for derivative  instruments,  including
     certain derivative instruments imbedded in other contracts, and for hedging
     activities  under  Statement  133.  SFAS No. 149 is effective for contracts
     entered into or modified  after June 30, 2003,  with some  exceptions.  The
     Company does not believe  that SFAS No. 149 will have a material  impact on
     its financial statements.

     In May  2003,  the  FASB  issued  SFAS No.  150,  "Accounting  for  Certain
     Financial  Instruments with Characteristics of Both Liabilities and Equity"
     ("SFAS No.  150"),  effective  for  financial  instruments  entered into or
     modified  after May 31, 2003.  This  statement  established  standards  for
     classifying   and   measuring    certain    financial    instruments   with
     characteristics  of both liabilities and equity. It requires that an issuer
     classify a financial  instrument  that is within the scope of the statement
     as a  liability  rather  than  as an  equity,  such as  obligations  that a
     reporting entity can or must settle by issuing its own equity shares.  SFAS
     No.  150 did not  have  an  impact  on the  Company's  earnings,  financial
     condition or equity.

                                       10
<PAGE>

ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION

This  document  contains  forward-looking  statements  within the meaning of the
Private  Securities  Litigation  Reform Act of 1995,  including  discussions  of
Tri-County  Financial  Corporation's  (the  "Company's")  goals,  strategies and
expected  outcomes;  estimates  of risks and future  costs;  and  reports of the
Company's   ability  to  achieve   its   financial   and  other   goals.   These
forward-looking  statements are subject to  significant  known and unknown risks
and  uncertainties  because  they are based  upon  future  economic  conditions,
particularly  interest  rates,   competition  within  and  without  the  banking
industry,  changes in laws and regulations applicable to the Company and various
other matters.  Because of these  uncertainties,  there can be no assurance that
actual  results,  performance  or  achievements  of the Company  will not differ
materially  from any future results,  performance or  achievements  expressed or
implied by these forward-looking statements.

GENERAL

The Company is a bank  holding  company  organized in 1989 under the laws of the
State of Maryland. It presently owns all the outstanding shares of capital stock
of  the  Community  Bank  of  Tri-County  (the  "Bank"),  a   Maryland-chartered
commercial  bank.  The Company  engages in no  significant  activity  other than
holding  the  stock  of the  Bank  and  operating  the  business  of  the  Bank.
Accordingly,  the  information  set forth in this  report,  including  financial
statements and related data, relates primarily to the Bank and its subsidiaries.

The Bank serves the  southern  Maryland  area  through its main office and eight
branches  located in  Waldorf,  Bryans  Road,  Dunkirk,  Leonardtown,  La Plata,
Charlotte Hall, and California, Maryland. The Bank expects to open an additional
branch in Calvert County in  2004. The Bank is engaged  in the  commercial  and
retail  banking  business as authorized by the banking  statutes of the State of
Maryland and applicable  Federal  regulations.  The Bank accepts demand and time
deposits,  and originates loans to individuals,  associations,  partnerships and
corporations.  The Bank makes real estate loans including  residential first and
second  mortgage  loans,  home equity  lines of credit and  commercial  mortgage
loans. The Bank makes  commercial  loans including  secured and unsecured loans.
The Bank is a member of the Federal  Reserve and Federal Home Loan Bank ("FHLB")
Systems. The Savings Association  Insurance Fund ("SAIF") of the Federal Deposit
Insurance  Corporation  ("FDIC")  provides  deposit  insurance  coverage  up  to
applicable  limits.  In the fourth  quarter of 2003,  the Bank  expects to offer
Internet banking to its commercial and consumer  customers.  Management believes
that the  introduction  of an  internet  banking  capability  will  enable it to
compete for a larger share of customers in its market area.

Since its conversion to a state chartered  commercial bank in 1997, the Bank has
sought to increase its commercial,  commercial real estate, construction, second
mortgage,  home equity,  and consumer  lending  business as well as the level of
transactional  deposits to levels  consistent  with similarly  sized  commercial
banks. As a result of this emphasis, the Bank's percentage of assets invested in
residential first mortgage lending has declined since 1997. Conversely, targeted
loan types have increased.  The Bank has also seen an increase in  transactional
deposit  accounts  while the  percentage  of total  liabilities  represented  by
certificates  of deposits  has also  declined.  Management  believes  that these
changes will enhance the Bank's overall long-term financial performance.

Management recognizes that the shift in composition of the Bank's loan portfolio
will tend to increase its exposure to credit  losses.  The Bank has continued to
evaluate  its  allowance  for  loan  losses  and  the  associated  provision  to
compensate  for the  increased  risk.  Any  evaluation of the allowance for loan
losses is inherently  inexact and reflects  management's  assessment of economic
conditions  in the  Southern  Maryland  area as well  as  individual  borrower's
circumstances.  Management  believes that its allowance for loan losses reflects
the losses  inherent  in the loan  portfolio  as of the balance  sheet date. For
further  information on the Bank's  allowance for loan losses see the discussion
in the  financial  condition  section  of this  form and in the  section  titled
"Critical Accounting  Policies," as well as the relevant discussions in the Form
10-K and annual report for the year ended December 31, 2002.

During the second  quarter of 2002,  the Bank recorded a valuation  allowance on
certain  foreclosed real estate.  In addition the Bank incurred certain expenses
related  to its core  data  system  conversion  during  the same  period.  These
expenses did not recur in 2003,  which had the effect of decreasing  noninterest
expense in the current year to date period,  when compared to the same period in
2002.

In the last several quarters, the national economy has recovered fitfully from a
mild  recession  while our local economy has remained  strong in relation to the
national and statewide  economy.  Prospects for growth appear to be steady,  and
local employment remains strong. The Bank remains exposed to asset deterioration
should the local economy  experience a prolonged period of economic decline.  In
addition,  any Federal  Reserve  action on interest  rates may affect the Bank's
financial performance.



                                       11
<PAGE>

Residential  first  mortgage loan customers have reacted to lower interest rates
by continuing to refinance higher rate loans.  Because the Bank does not wish to
keep low  rate,  long  term,  fixed  rate  residential  first  mortgages  in its
portfolio,  these loans are then sold to third  parties with the Bank  retaining
servicing.  These  transactions  have led to a reduction  in  residential  first
mortgage  loan  balances.  The  Bank  continues  to  generate  a high  level  of
noninterest  income from these  transactions.  Other types of loans particularly
commercial real estate and commercial  lines of credit have increased.  The Bank
continues  to  generate a high  level of  non-interest  income  from the sale of
loans.

Although  the Bank's net interest  income had grown for several  quarters due to
increased assets and an increase in net interest margin, in the past quarter the
Bank's net interest margin narrowed.  This was caused by continuing decreases in
short term interest rates. These decreases in short term rates were reflected in
the Bank's interest rates on loans,  however,  because cost of funds has already
approached  a  historical  low point,  the Bank was unable to reduce its cost of
funds by an equal amount  resulting in a lower net interest  income.  Income tax
rates were comparable to the prior year.

In order to offset the effects of the narrowing  interest rate spread,  the Bank
increased its assets in the third quarter of 2003 by increasing  its holdings of
certain held to maturity  investments.  This  increase was  primarily  funded by
increases  in short  and long  term  borrowings  in 2003.  The  effect  of these
transactions  was to  increase  the  size  of the  Bank's  assets,  as  well  as
increasing  its net  interest  income.  The  transactions  decreased  the Bank's
capital  ratios.   The  Bank  remains  well  capitalized  under  all  applicable
regulations.

It is  anticipated  that any further  reductions  in interest  rates will have a
significant  adverse  effect  on  earnings  as rates  paid on  interest  bearing
liabilities,  which  are as low as 0.10% on NOW  accounts,  cannot  continue  to
decline at the same rate as yields on loans and investments.


SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                                                   NINE MONTHS ENDED
                                                                                    SEPTEMBER 30,
                                                                          ---------------------------------
                                                                                2003               2002
                                                                          ---------------      ------------
<S>                                                                             <C>                 <C>
Condensed Income Statement
Interest Income                                                             $12,052,804        $12,656,679
Interest Expense                                                              4,171,862          4,530,163
Net Interest Income                                                           7,880,942          8,126,516
Provision for Loan Loss                                                         145,340            130,000
Noninterest Income                                                            1,174,509          1,182,321
Noninterest Expense                                                           6,264,205          7,420,102
Income Before Income Taxes                                                    2,645,906          1,758,735
Income Taxes                                                                    898,765            621,000
Net Income                                                                  $ 1,747,141        $ 1,137,735


Per Common Share
Basic Earnings                                                              $      2.32        $      1.49
Diluted Earnings                                                                   2.20               1.41
Book Value                                                                  $     36.00        $     33.62


</TABLE>


                                       12
<PAGE>

RESULTS OF OPERATIONS

Net income for the nine month period ended September 30, 2003 totaled $1,747,141
($2.32  basic and $2.20  diluted  earnings per share)  compared  with a total of
$1,137,735  ($1.49  basic and $1.41  diluted  earnings  per  share) for the same
period in the  prior  year.  This  increase  of  $609,406  or 53.6%  was  caused
primarily by the reduction in noninterest expense,  this reduction was partially
offset by the decrease in net interest and noninterest income and an increase in
provision for loan losses.

For the nine month period ended September 30, 2003,  interest income declined by
$603,875  or 4.8% to  $12,052,804.  This  decline  was  caused by the  continued
decline in interest rates  particularly the declines in the Prime Rate, and one,
three, and five year U.S. Treasury rates. Many loan products are priced based on
these  rates.  This  decline in interest  rates was  partially  offset by higher
average asset balances, including the increase in investments noted above.

Interest  expense also  decreased to  $4,171,862 in the nine month period ending
September  30, 2003 as compared  to  $4,530,163  in the same period in the prior
year a decrease of $358,301  or 7.9%.  This  decrease  was a  reflection  of the
declining  interest rate  environment  experienced  during the last year.  These
lower interest rates more than offset the increases in liabilities including the
increased  borrowing noted above.  Interest expense also declined as a result of
the Bank's  increase in the  average  balances of  noninterest  bearing  deposit
accounts in the current period  compared to the prior year. Net interest  income
declined  due  to  the  Bank's  inability  to cut  interest  expense  due to the
historically  low  rates  paid on  deposits  prior to the  current  quarter.  As
interest  rates have  continued to fall on loans and  investments,  the Bank was
unable to reduce interest expense by the same amount as interest income fell.

Provision  for loan losses  increased  from prior year  levels to $145,340  from
$130,000  for the  nine  month  period  ending  September  30,  2003  and  2002,
respectively.  The  increase in  provision  expense  was caused by a  continuing
concentration  of the Bank's loan portfolio in commercial  loan  categories that
have higher levels of risk than residential mortgages.  Management will continue
to periodically  review its allowance for loan losses and the related  provision
and adjust as deemed  necessary.  This review will  include a review of economic
conditions  nationally  and locally,  as well as a review of the  performance of
significant major loans and the overall portfolio.

Noninterest  income  decreased to  $1,174,509  for the nine month period  ending
September  30,  2003,  a decrease  of $7,812 or .7% over the prior year total of
$1,182,321.  Loan appraisal,  credit,  and  miscellaneous  charges  increased by
$59,861 to $206,130.  Net gain on sale of loans also  increased to $499,726 from
the prior year total of  $289,539,  an  increase  of  $210,187  or 72.6%.  These
increases were caused by the high volume of loan  originations,  caused by lower
mortgage  interest rates.  Income from service  charges  declined from the prior
year to $459,580  from the prior year total of $727,903 a decline of $268,323 or
36.9%.  This  decline was caused by a write off of certain  originated  mortgage
servicing  rights  ("OMSR") and by an increased  rate of  amortization  of these
OMSR's in the current year. The write off and higher rate of  amortization  were
the  result of the  effect of lower  mortgage  loan  interest  rates on our OMSR
balances.  The lower rates had the effect of shortening  the projected  lives of
the servicing  assets,  reducing their fair value.  This reduction in fair value
was  recognized   through   $195,000  in  reductions  in  OMSR  balances  and  a
corresponding  reduction in mortgage servicing income. In addition average lives
for all OMSR's were shortened resulting in higher  amortization  expense related
to these  rights.  The higher  amortization  is reflected  in a lower  servicing
income. Other noninterest income decreased due to reductions in rental and other
noninterest income.

Noninterest expense for the six month period decreased by $1,155,897 or 15.6% to
$6,264,205  from  $7,420,102  in the same period for the prior year.  Salary and
employee  benefits  expense  increased by 12.8% or 400,715,  to $3,530,637  from
$3,129,922 for the same period in the prior year. The increase was  attributable
to an  increase  in  employees  and to  increases  in average  salary  costs per
employee.  Occupancy expense decreased  slightly from $592,582,  to $547,306,  a
decrease  of  7.6%  attributable  to  certain  nonrecurring  expenses  in  2002.
Advertising  declined to $224,066 from $254,641,  a decline of $30,575 or 12.0%.
Advertising declined due to a reduction in certain sales efforts in anticipation
of being  increased  in the  fourth  quarter.  In  2002,  the  Bank  recorded  a
nonrecurring  loss on certain  obsolete  equipment of $65,104.  Data  processing
expense also  declined to $297,075 from a prior year total of $432,558 a decline
of $135,483 or 31.3%. In 2002,  additional expenses were incurred related to the
systems conversion in May 2002. Depreciation of furniture fixtures and equipment
increased  to  $361,761  from the prior year total of  $279,576  an  increase of
$82,185 or 29.4%.  This increase was due to large investments in equipment added
during the prior year,  mostly  related to the  addition of new branches and new
equipment added for the 2002 system conversion. Telephone communications expense
declined to $136,139  from  $268,174 in the prior year, a decline of $132,035 or
49.2%. In 2002, extensive testing of the systems for conversion required the use
of phone  lines  increasing  costs.  Also in 2003 cost  control  and  efficiency


                                       13
<PAGE>

efforts by the Bank helped to reduce costs.  ATM expenses  increased to $197,622
from $123,638,  an increase of $73,984 or 59.8%. This increase was the result of
additional  branches and ATM activity in 2003. Office supplies expense decreased
to  $104,420  from the prior year  amount of  $136,292,  a decline of $31,872 or
23.4%. This decline was caused by additional  supplies expenses incurred in 2002
related to the systems  conversion.  The provision  for valuation  allowances on
foreclosed real estate declined from $1,044,070 as of September 30, 2003 to zero
in 2003 as no further  increases  to the  valuation  allowance  were  necessary.
Office equipment expenses decreased to $109,602 from 2002's level of $114,510, a
decrease  of $4,908 or 4.3%.  This  decrease  was  caused by the  retirement  of
certain equipment due to the systems conversion in 2002. Other expenses declined
to $755,577  from $979,035 a decline of $223,458 or 22.8%.  These  expenses were
lower based on certain cost control measures in 2003.  Income taxes increased to
$898,765 or 34.0% of pretax  income in the current year  compared to $621,000 or
35.3% of pretax  income  in the prior  year.  The  decrease  in the tax rate was
primarily attributable to an increase in certain tax exempt interest.

RESULTS OF OPERATIONS - THIRD QUARTER

The  Company  recorded  net  income for the third  quarter  of 2003 of  $596,835
compared to $729,725 for the same period in 2002. The decrease was the result of
a decline in net interest and  noninterest  income  combined with an increase in
noninterest expense compared to the same period in 2002.

Net interest  income declined by 0.7% to $2,778,800 in 2003 from $2,797,558 as a
result of the continued decline in interest rates noted above. The provision for
loan losses  increased by 3.4% to $31,013 in 2003 from $30,000 in 2002 primarily
because  of the  continued  concentration  of  lending  in  higher  credit  risk
products. Loan appraisal,  credit and miscellaneous charges and net gain on sale
of loans  held for sale  increased  by 31.5% and 65.6%,  to 76,151  and  $53,479
respectively as a result of the lower interest rate  environment  noted earlier.
Service  charges  declined to $120,756 from  $242,534,  a decline of $121,778 or
50.2%, as a result of the write off and higher amortization related to the lower
interest rates and shorter lives of the servicing  assets as discussed  earlier.
Other income amounts declined due to a decline in rental income.

Salary and employee expense increased to $1,305,584 from $1,031,744, an increase
of $273,840  or 26.5% due to an  increased  average  salary per  employee  and a
slightly higher number of employees.  Occupancy  expense  declined by $25,455 to
$175,459  from the prior  year's total of $200,914 a decline of 12.7% due to the
nonrecurring  costs of 2002 noted above.  Advertising  expenses also declined by
$2,535 or 2.8% to  $89,140,  this  decline  was the result of  delaying  certain
advertising expenses in 2003. Data processing expense increased to $103,042,  an
increase  of $8,940 or 9.5% over the prior year total of $94,102.  The  increase
reflects the addition of certain  capabilities  such as internet  banking in the
current  quarter.   Depreciation  of  furniture,  fixtures  and  equipment  also
increased  due to the large  amounts of  equipment  purchased in the prior year.
These expenses  increased by $73,642 or 126.1%.  Telephone  communications  also
decreased  to $33,407 or by 55.3%  under the prior year total of $74,794  due to
expenses in testing and  installing  the core data system in 2002.  ATM expenses
increased  by $19,467 or 37.7% to $71,153 in the current  year due to changes in
ATM  operations.  Office  supplies  expense  decreased to $28,582 from $32,572 a
decrease of $3,990 or 12.3% as prior year expenses were increased by the need to
change some supplies prior to conversion. Office equipment and other expense was
similarly reduced by the absence of conversion related items in 2003.

FINANCIAL CONDITION

Assets

Total assets as of September 30, 2003 increased by  $54,983,274 to  $337,156,969
from the  December  31,  2002  level of  $282,173,695.  Cash and due from  banks
increased by $856,574, or 8.3% from December 31, 2002's total.  Interest-bearing
deposits  with  banks  decreased  by  $8,533,025  or 56.2%  during the period to
$6,646,826  at September 30, 2003.  Investment  securities,  including  both the
available for sale and held to maturity  portfolios,  increased from $44,667,920
to $91,350,071  an increase of  $46,682,151 or 104.5%.  Increases were primarily
the result of  additional  purchases of  investments  using the proceeds of loan
prepayments,  additional short and long term  borrowings,  and the conversion of
interest  bearing  deposits to  investments.  Stock in the Federal Home Loan and
Federal  Reserve Banks  increased due to  additional  borrowings  related to the
leverage strategy mentioned above.

Loans held for sale decreased to $616,250 from  $1,262,667 at December 31, 2002.
The Bank's loan portfolio  increased by $8,673,892 or 4.4% during the nine month
period ending  September 30, 2003 to $206,123,174  from December 2002's total of
$197,449,282.  The increase was  primarily the result of increases in the Bank's
portfolio  of  commercial  real  estate  loans in the nine month  period  ending
September 30, 2003,  these increases were partially offset by decreases in other
parts of the loan portfolio. At September 30, 2003 the Bank's allowance for loan
losses totals  $2,408,910 or 1.15% of loan balances as compared to $2,314,074 or
1.15% of loan balances at December 31, 2002.



                                       14
<PAGE>

Management's  determination  of the  adequacy  of the  allowance  is  based on a
periodic  evaluation of the portfolio  with  consideration  given to the overall
loss experience;  current economic conditions; volume, growth and composition of
the loan  portfolio;  financial  condition of the borrowers;  and other relevant
factors that, in  management's  judgment,  warrant  recognition  in providing an
adequate  allowance.  Management  believes that the allowance is adequate.  Loan
information  for  the  current  quarter  is  presented  below.  Additional  loan
information  for prior  years is  presented  in the Form 10-K for the year ended
December 31, 2002.
<TABLE>
<CAPTION>

LOAN PORTFOLIO                                          September 30,                       December 31,
                                                            2003                                2002
                                            -------------------------------------- -------------------------------
                                            Amount                     %           Amount              %
                                            ------                     -           ------              -
<S>                                           <C>                     <C>          <C>                <C>
Real Estate Loans
  Commercial                              $ 86,562,279               41.39%      $ 74,291,593        37.07%
  Residential first mortgage                41,854,081               20.01%        48,975,989        24.44%
  Construction and land development         15,474,655                7.40%        14,578,702         7.27%
  Home equity and second mortgage           18,520,426                8.85%        19,007,265         9.48%
Commercial loans                            42,195,561               20.17%        38,953,965        19.44%
Consumer loans                               4,549,099                2.17%         4,623,447         2.31%
                                          ------------              ------       ------------       ------
    Total loans                            209,156,101              100.00%       200,430,961       100.00%
  Less:  Deferred loan fees                    624,017                0.30%           667,605         0.33%
        Allowance for loan losses            2,408,910                1.15%         2,314,074         1.15%
                                          ------------              ------       ------------       ------
    Loans receivable net                   206,123,174                            197,449,282
                                          ------------                           ------------

<CAPTION>

Loan Loss Allowance
                                                   9 Months Ended                     9 Months Ended
                                                September 30, 2003                  September 30, 2002
                                                ------------------                  ------------------
<S>                                                     <C>                                 <C>
Beginning Balance                                  $ 2,314,074                         $ 2,281,581
Charge Offs                                            (51,233)                           (119,188)
Recoveries                                                 729                               2,795
                                                   -----------                         -----------
Net Charge offs                                        (50,504)                           (116,393)
Additions charged to operations                        145,340                             130,000
                                                   -----------                         -----------
Balance at end of period                           $ 2,408,910                         $ 2,295,188
                                                   ===========                         ===========

Ratio of net charge-offs during
 the period to loans                                      0.02%                               0.05%
                                                         =====                               =====


</TABLE>


                                       15
<PAGE>
<TABLE>
<CAPTION>

                                                    Balances as of              Balances as of
                                                  September 30, 2003          December 31, 2002
                                                ---------------------         ------------------
<S>                                                     <C>                         <C>

Restructured Loans                              $                  --         $               --
                                                ---------------------         ------------------

Accruing loans which are contracturally
 past due 90 days or more:                      $                  --         $          596,579
                                                ---------------------         ------------------

Loans accounted for on a nonaccrual basis       $             479,559         $               --
                                                ---------------------         ------------------

Total non- performing loans                     $             479,559         $          596,579

Non -performing loans to total loans                             0.23%                      0.30%
                                                              =======                    =======

Allowance for loan losses to non performing
loans                                                          502.32%                    381.91%
                                                              =======                    =======
</TABLE>


Premises and equipment  decreased  due to  depreciation  in the current  period.
Foreclosed  real estate declined to $706,014 at September 30, 2003 from $706,764
at December 31, 2002 due to partial  settlement  of one  property.  Other assets
increased to $3,226,811  from $3,025,431 at December 31, 2002. This increase was
primarily in deferred tax benefits  relating to the investment  portfolio.   The
Bank  invested  $5,700,000  in certain  life  insurance  instruments  which will
provide  supplemental  benefits to certain key executives and provide additional
noninterest income to the Bank.

Liabilities

Deposit balances  increased by $14,156,473 or 7.0% compared to December 31, 2002
balances of  $203,025,112.  This  increase  was  primarily  in interest  bearing
deposits.  The increase in interest bearing deposit accounts offset a decline in
noninterest  bearing  deposits.  Management  believes  that ongoing stock market
volatility has made bank deposits more attractive to the general  public.  Short
term borrowings increased to $27,671,430, an increase of $26,919,132, while long
term borrowings increased by $14,888,996. Proceeds of these borrowings were used
to purchase investment securities.

Stockholders' Equity

Stockholders'  equity increased  $210,128 or .8% to $27,082,893 at September 30,
2003 compared to $26,872,765 at December 31, 2002.  This reflects the net income
of $1,747,141 for the nine month period partially offset by the $723,309 decline
in accumulated other comprehensive income, and $422,361 in cash dividends. Other
changes in equity  occurred as a result of using  $538,178  for the purchase and
retirement  of shares,  the exercise of stock  options of $54,375,  and activity
related to the ESOP shares of $92,459.  Book value on a per share basis,  $36.00
at September  30, 2003,  as compared to $35.37 at December 31, 2002,  reflects a
1.8%  increase,  with a decrease in outstanding  shares  combined with the gains
noted previously.

LIQUIDITY AND CAPITAL RESOURCES

The Company  currently has no business  other than that of the Bank and does not
currently have any material funding commitments. The Company's principal sources
of liquidity are cash on hand and dividends  received from the Bank. The Bank is
subject to various regulatory restrictions on the payment of dividends.

The Bank's  principal  sources of funds for  investments  and operations are net
income,  deposits from its primary market area,  principal and interest payments
on loans,  interest received on investment securities and proceeds from maturing
investment securities. Its principal funding commitments are for the origination
or  purchase  of loans  and the  payment  of  maturing  deposits.  Deposits  are
considered  a  primary  source  of  funds  supporting  the  Bank's  lending  and
investment activities.

The Bank's most liquid assets are cash and cash equivalents, which are cash on


                                       16
<PAGE>

hand,  amounts due from  financial  institutions,  federal funds sold, and money
market  mutual  funds.  The levels of such  assets are  dependent  on the Bank's
operating financing and investment  activities at any given time. The variations
in levels of cash and cash  equivalents  are  influenced  by  deposit  flows and
anticipated future deposit flows.

The Bank may borrow up to 35% of  consolidated  Bank  assets on a line of credit
available from the FHLB. As of September 30, 2003, the maximum  available  under
this line would be $118 million,  while current outstanding advances totaled $91
million. In order to draw on this line the Bank must have sufficient collateral.
Qualifying  collateral  includes  residential  1-4 family first mortgage  loans,
certain second mortgage loans, certain commercial real estate loans, and various
investment securities.


REGULATORY MATTERS

The Bank is subject to Federal  Reserve  Board capital  requirements  as well as
statutory  capital  requirements  imposed  under  Maryland law. At September 30,
2003, the Bank's  tangible,  leverage and risk-based  capital ratios were 7.70%,
7.69% and 11.85%, respectively.  These levels are well in excess of the required
4.0%, 4.0% and 8.0% ratios required by the Federal Reserve Board.

CRITICAL ACCOUNTING POLICIES

The Company's  financial  statements are prepared in accordance  with accounting
principles  generally  accepted  in the  United  States of America  (GAAP).  The
financial  information  contained  within  the  financial  statements  is,  to a
significant extent, financial information that is based on measures of financial
effects of  transactions  and events that have  already  occurred.  A variety of
factors could affect the ultimate value that is obtained when earning of income,
recognizing  an  expense,  recovering  an asset or  relieving a  liability.  The
Company uses  historical  loss factors as one in  determining  the inherent loss
that  may  be  present  in  its  loan  portfolio.  Actual  losses  could  differ
significantly  from the  historical  factors  used.  In addition GAAP itself may
change from one previously  acceptable  method to another  method.  Although the
economics of the Company's  transactions would be the same, the timing of events
that would impact the Company's transactions could change.

The Company considers the allowance for loan losses to be a critical  accounting
policy.  The  allowance for loan losses is an estimate of the losses that may be
sustained in our loan portfolio.  The allowance is based on two basic principles
of accounting : (1) SFAS 5, "Accounting for Contingencies",  which requires that
losses be accrued when they are probable of occurring and estimable and (2) SFAS
114,  "Accounting  by Creditors for  Impairment of a Loan",  which requires that
losses be accrued  based on the  differences  between  the value of  collateral,
present  value of  future  cash  flows or  values  that  are  observable  in the
secondary market and the loan balance.

Management has  significant  discretion in making the judgments  inherent in the
determination  of the  provision  and  allowance  for loan losses,  including in
connection  with  the  valuation  of  collateral,   a  borrower's  prospects  of
repayment,  and in establishing allowance factors on the formula allowance.  The
establishment  of  allowance  factors  is  a  continuing   exercise,   based  on
management's  continuing assessment of the global factors such as delinquencies,
loss  history,  trends  in the  volume  and term of  loans,  national  and local
economic  trends,  concentration  of  credit,  loan  classification,  and  other
factors. Changes in allowance factors will have a direct impact on the amount of
the provision and a corresponding  effect on net income.  Errors in management's
perception  and  assessment  of the  global  factors  and  their  impact  on the
portfolio  could result in the allowance  not being  adequate to cover losses in
the portfolio, and may result in additional provisions or chargeoffs.




                                       17
<PAGE>


ITEM 3 Quantitative and qualitative Disclosure about Market Risk

Not applicable.


ITEM 4 CONTROLS AND PROCEDURES

Controls and Procedures.

As of the end of the period  covered by this report,  management  of the Company
carried out an evaluation,  under the supervision and with the  participation of
the Company's  principal  executive officer and principal  financial officer, of
the effectiveness of the Company's disclosure controls and procedures.  Based on
this  evaluation,  the  Company's  principal  executive  officer  and  principal
financial  officer  concluded  that  the  Company's   disclosure   controls  and
procedures are effective in ensuring that  information  required to be disclosed
by the Company in reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms. It should be noted that the design of the Company's  disclosure  controls
and procedures is based in part upon certain  reasonable  assumptions  about the
likelihood of future events,  and there can be no reasonable  assurance that any
design of  disclosure  controls and  procedures  will  succeed in achieving  its
stated goals under all potential  future  conditions,  regardless of how remote,
but the Company's principal executive and financial officers have concluded that
the Company's  disclosure  controls and procedures are, in fact,  effective at a
reasonable assurance level.

In addition,  there have been no changes in the Company's  internal control over
financial  reporting  (to the extent  that  elements of  internal  control  over
financial  reporting are subsumed  within  disclosure  controls and  procedures)
identified in connection  with the evaluation  described in the above  paragraph
that occurred  during the Company's  last fiscal  quarter,  that has  materially
affected,  or is reasonably likely to materially  affect, the Company's internal
control over financial reporting.



                                       18
<PAGE>
                        TRI-COUNTY FINANCIAL CORPORATION
                        --------------------------------

                           PART II - OTHER INFORMATION
                           ---------------------------


Item 1 - Legal Proceedings -- None

Item 2 - Change in Securities and Use of Proceeds -- None

Item 3 - Default Upon Senior Securities -- None

Item 4 - Submission of Matters to a Vote of Security Holders -- None

Item 5 - Other Information -- None

Item 6 - Exhibits and Reports on Form 8-K


    (a)   Exhibits - The following exhibits are being filed with this Form 10-Q:

          Exhibit 31 - Rule 13a-14(a) Certifications

          Exhibit 32 - Section 1350 Certifications

     (b)  During  the  quarter  for which  this Form  10-Q is being  filed,  the
          registrant did not file any reports on Form 8-K.



                                       19
<PAGE>

                                   SIGNATURES

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




                                       Tri-County Financial Corporation:



Date: November 12, 2003                By:/s/ Michael L. Middleton
                                          -------------------------------------
                                          Michael L. Middleton, President
                                          and Chairman of the Board





Date: November 12, 2003                By:/s/ William J. Pasenelli
                                          -------------------------------------
                                          William J. Pasenelli, Executive
                                          Vice President and Chief
                                          Financial Officer