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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended September 30, 2004 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 
  Maryland
(State of other jurisdiction of
incorporation or organization)
    
    52-1652138
(I.R.S. Employer
Identification No.)
 3035 Leonardtown Road, Waldorf, Maryland
(Address of principal executive offices)
    
    20601
(Zip Code)
 (301) 843-0854
(Registrants telephone number, including area code) 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) As of October 29, 2004 registrant had outstanding 767,859 shares of Common
Stock.




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TRI-COUNTY FINANCIAL CORPORATION FORM 10-Q
    
    INDEX
 PagePART I  FINANCIAL INFORMATIONItem 1 - Financial Statements (Unaudited)Consolidated Balance Sheets  September 30, 2004
and December 31, 2003
    
    
    3Consolidated Statements of Income and Comprehensive Income -
Three and Nine Months Ended September 30, 2004 and 2003
    
    
    4 - 5Consolidated Statements of Cash Flows  Nine Months
Ended September 30, 2004 and 2003
    
    
    6 - 7Notes to Consolidated Financial Statements
    
    
    8 - 9Item 2- Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    10 - 16Item 3 - Quantitative and Qualitative Disclosure about Market Risk
    
    
    16Item 4  Controls and Procedures
    
    
    16 - 17PART II  OTHER INFORMATIONItem 1  Legal ProceedingsItem 2  Unregistered Sales of Equity Securities and Use of ProceedsItem 3  Defaults Upon Senior SecuritiesItem 4  Submission of Matters to a Vote of Security HoldersItem 5  Other InformationItem 6 - Exhibits and Reports on Form 8-K
    
    
    17 - 18SIGNATURES
    
    
    19EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-31.2 SECTION 302 CERTIFICATION OF THE CFOEX-32 SECTION 906 CERTIFICATION OF THE CEO & CFO
  2




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PART I. FINANCIAL INFORMATION 
 ITEM I. FINANCIAL
STATEMENTS
 TRI-COUNTY FINANCIAL
CORPORATION
 
 CONSOLIDATED BALANCE
SHEETS SEPTEMBER 30, 2004 AND DECEMBER 31, 2003 (Unaudited)
 September 30, 2004
    
    December 31, 2003ASSETSCash and due from banks
    
    $
    2,103,232
    
    
    $
    2,319,300Interest-bearing deposits with banks
    
    
    10,509,814
    
    
    
    8,912,332Fed Funds sold
    
    
    173,699
    
    
    
    938,166Investment securities available for sale  at fair value
    
    
    17,245,476
    
    
    
    38,290,074Investment securities held to maturity  at amortized cost
    
    
    168,168,533
    
    
    
    61,605,175Stock in Federal Home Loan Bank and Federal Reserve Bank  at cost
    
    
    6,112,000
    
    
    
    4,776,850Loans held for sale
    
    
    
    
    
    
    474,880Loans receivable  net of allowance for loan losses
of $2,931,216 and $2,572,799 respectively
    
    
    275,441,175
    
    
    
    217,740,153Premises and equipment, net
    
    
    5,823,631
    
    
    
    5,580,189Foreclosed real estate
    
    
    534,561
    
    
    
    706,764Accrued interest receivable
    
    
    1,787,170
    
    
    
    1,318,318Investment in bank owned life insurance
    
    
    6,143,088
    
    
    
    5,921,544Other assets
    
    
    2,281,542
    
    
    
    3,146,247Total assets
    
    $
    496,323,921
    
    
    $
    351,729,992LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIES:Noninterest-bearing deposits
    
    $
    32,303,034
    
    
    $
    29,270,007Interest-bearing deposits
    
    
    224,269,917
    
    
    
    198,284,561Total deposits
    
    
    256,572,951
    
    
    
    227,554,568Short-term borrowings
    
    
    122,699,813
    
    
    
    31,191,285Long-term debt
    
    
    77,939,247
    
    
    
    63,051,176Guaranteed preferred beneficial interest in junior Subordinated Debentures
    
    
    7,000,000
    
    
    
    Accrued expenses and other liabilities
    
    
    2,055,982
    
    
    
    2,021,053Total liabilities
    
    
    466,267,993
    
    
    
    323,818,082STOCKHOLDERS EQUITY:Common stock  par value $.01; authorized - 15,000,000 shares;
issued - 1,147,190 and 1,129,917 shares, respectively
    
    
    11,472
    
    
    
    11,300Additional Paid in Capital
    
    
    8,223,167
    
    
    
    7,971,269Retained earnings
    
    
    21,895,341
    
    
    
    20,071,630Accumulated other comprehensive loss
    
    
    41,264
    
    
    
    (3,130
    )Unearned ESOP shares
    
    
    (115,316
    )
    
    
    (139,159
    )Total stockholders equity
    
    
    30,055,928
    
    
    
    27,911,910TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    496,323,921
    
    
    $
    351,729,992
 See notes to consolidated financial statements *Share and per share data have been retroactively adjusted to effect a three-for-two common stock split declared on October 22, 2004 as if it had occurred January 1, 2003 3




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TRI-COUNTY FINANCIAL CORPORATION 
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)  NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003INTEREST INCOME:Interest and fees on loans
    
    $
    4,210,202
    
    
    $
    3,361,521
    
    
    $
    11,549,192
    
    
    $
    10,016,346Taxable interest and dividends on investment securities
    
    
    1,725,835
    
    
    
    639,236
    
    
    
    3,592,995
    
    
    
    1,824,636Interest on bank deposits
    
    
    7,321
    
    
    
    5,903
    
    
    
    16,096
    
    
    
    58,084Total interest income
    
    
    5,943,358
    
    
    
    4,006,660
    
    
    
    15,158,283
    
    
    
    11,899,066INTEREST EXPENSE:Interest on deposits
    
    
    842,329
    
    
    
    696,914
    
    
    
    2,290,241
    
    
    
    2,167,049Interest on long term debt
    
    
    928,546
    
    
    
    725,273
    
    
    
    2,467,717
    
    
    
    1,993,929Interest on other borrowings
    
    
    315,333
    
    
    
    9,637
    
    
    
    494,574
    
    
    
    10,884Total interest expense
    
    
    2,086,208
    
    
    
    1,431,824
    
    
    
    5,252,532
    
    
    
    4,171,862NET INTEREST INCOME
    
    
    3,857,150
    
    
    
    2,574,836
    
    
    
    9,905,751
    
    
    
    7,727,204PROVISION FOR LOAN LOSSES
    
    
    232,996
    
    
    
    31,013
    
    
    
    316,970
    
    
    
    145,340NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
    
    
    3,624,154
    
    
    
    2,543,823
    
    
    
    9,588,781
    
    
    
    7,581,864NONINTEREST INCOME:Loan appraisal, credit, and miscellaneous charges
    
    
    67,071
    
    
    
    76,151
    
    
    
    215,023
    
    
    
    206,130Net gain on sale of loans held for sale
    
    
    
    
    
    
    135,036
    
    
    
    21,404
    
    
    
    499,726Income from bank owned life insurance
    
    
    73,848
    
    
    
    76,869
    
    
    
    221,544
    
    
    
    153,738Service charges
    
    
    280,078
    
    
    
    247,851
    
    
    
    820,783
    
    
    
    459,580Loss on the sale of available for sale investment securities
    
    
    
    
    
    
    
    
    
    
    (126,875
    )
    
    
    (126,875
    )Other income
    
    
    8,250
    
    
    
    819
    
    
    
    8,250
    
    
    
    9,073Total noninterest income
    
    
    302,372
    
    
    
    536,726
    
    
    
    1,160,129
    
    
    
    1,328,247
 4




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TRI-COUNTY FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)  NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 continued
 Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003NONINTEREST EXPENSE:Salary and employee benefits
    
    
    1,305,832
    
    
    
    1,305,584
    
    
    
    3,921,756
    
    
    
    3,530,637Occupancy expense
    
    
    185,484
    
    
    
    175,459
    
    
    
    575,624
    
    
    
    547,306Advertising
    
    
    128,084
    
    
    
    89,140
    
    
    
    368,314
    
    
    
    224,066Data processing expense
    
    
    122,348
    
    
    
    103,042
    
    
    
    411,568
    
    
    
    297,075Depreciation of furniture, fixtures, and equipment
    
    
    107,700
    
    
    
    132,022
    
    
    
    287,900
    
    
    
    361,761Telephone communications
    
    
    26,961
    
    
    
    33,407
    
    
    
    84,416
    
    
    
    136,139ATM expenses
    
    
    87,345
    
    
    
    71,153
    
    
    
    251,218
    
    
    
    197,622Office supplies
    
    
    43,572
    
    
    
    28,582
    
    
    
    105,337
    
    
    
    104,420Valuation allowance on foreclosed real estate
    
    
    
    
    
    
    
    
    
    
    147,203
    
    
    
    Office equipment expense
    
    
    23,120
    
    
    
    29,629
    
    
    
    68,805
    
    
    
    109,602Other
    
    
    277,116
    
    
    
    222,146
    
    
    
    798,655
    
    
    
    755,577Total noninterest expense
    
    
    2,307,562
    
    
    
    2,190,164
    
    
    
    7,020,796
    
    
    
    6,264,205INCOME BEFORE INCOME TAXES
    
    
    1,618,964
    
    
    
    890,385
    
    
    
    3,728,114
    
    
    
    2,645,906INCOME TAXES
    
    
    537,658
    
    
    
    293,550
    
    
    
    954,034
    
    
    
    898,765NET INCOME
    
    
    1,081,306
    
    
    
    596,835
    
    
    
    2,774,080
    
    
    
    1,747,141OTHER COMPREHENSIVE INCOME, NET OF TAXNet unrealized holding gains (losses) arising during the period
    
    
    542,920
    
    
    
    (475,055
    )
    
    
    44,394
    
    
    
    (723,309
    )COMPREHENSIVE INCOME
    
    $
    1,624,226
    
    
    $
    121,780
    
    
    $
    2,818,474
    
    
    $
    1,023,832EARNINGS PER SHAREBasic
    
    $
    0.94
    
    
    $
    0.53
    
    
    $
    2.42
    
    
    $
    1.55Diluted
    
    
    0.90
    
    
    
    0.50
    
    
    
    2.32
    
    
    
    1.47DIVIDENDS PAID PER SHARE
    
    
    
    
    
    
    
    
    
    
    .47
    
    
    
    .36
  *
    
    Share and per share data have been retroactively adjusted to effect a three-for-two common stock split declared on October 22, 2004 as if it had occurred
January 1, 2003 See notes to consolidated financial statements. 5




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TRI-COUNTY FINANCIAL CORPORATION 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)  NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
 Nine Months EndedSeptember 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    2,774,080
    
    
    $
    1,747,141Adjustments to reconcile net income to net
cash used by operating activities:Provision for loan losses
    
    
    316,970
    
    
    
    145,340Loss on investment securities
    
    
    126,875
    
    
    
    Depreciation and amortization
    
    
    450,764
    
    
    
    474,900Valuation allowance on foreclosed real estate
    
    
    147,203
    
    
    
    Net amortization of premium/discount on investment securities
    
    
    189,666
    
    
    
    367,646Gain on sales of loans held for sale
    
    
    (21,404
    )
    
    
    (499,725
    )Decrease in federal funds sold
    
    
    764,467
    
    
    
    Deferred income tax benefit
    
    
    (37,788
    )
    
    
    (29,000
    )Increase in accrued interest receivable
    
    
    (468,852
    )
    
    
    (282,667
    )Increase (decrease) in deferred loan fees
    
    
    65,278
    
    
    
    (43,588
    )Increase (decrease) in accounts payable, accrued expenses, and other liabilities
    
    
    72,716
    
    
    
    (1,191,455
    )Increase in other assets
    
    
    620,292
    
    
    
    213,052Origination of loans held for sale
    
    
    
    
    
    
    (16,246,950
    )Proceeds from sale of loans held for sale
    
    
    496,284
    
    
    
    17,393,092Net cash provided by operating activities
    
    
    5,496,551
    
    
    
    2,047,786CASH FLOWS FROM INVESTING ACTIVITIES:Net (increase) decrease in interest-bearing deposits with banks
    
    
    (1,597,482
    )
    
    
    8,533,025Purchase of investment securities available for sale
    
    
    (27,914,392
    )
    
    
    (63,963,745
    )Proceeds from sale, redemption or principal payments
of investment securities available for sale
    
    
    48,498,352
    
    
    
    58,892,560Purchase of investment securities held to maturity
    
    
    (132,068,945
    )
    
    
    (45,833,440
    )Proceeds from maturities or principal payments
of investment securities held to maturity
    
    
    25,716,946
    
    
    
    2,746,088Net purchase of FHLB and FRB stock
    
    
    (1,335,150
    )
    
    
    (1,865,500
    )Loans originated or acquired
    
    
    (148,832,804
    )
    
    
    (132,967,284
    )Principal collected on loans
    
    
    90,749,534
    
    
    
    124,191,640Purchase of Bank owned life insurance policies
    
    
    
    
    
    
    (5,847,696
    )Purchase of premises and equipment
    
    
    (685,956
    )
    
    
    (237,006
    )Proceeds from sale of assets
    
    
    (8,250
    )
    
    
    Proceeds from foreclosed real estate
    
    
    25,000
    
    
    
    9,250Net cash used in investing activities
    
    
    (147,453,147
    )
    
    
    (56,342,108
    )
 6




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TRI-COUNTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 continued Nine Months EndedSeptember 30,2004
    
    2003CASH FLOWS FROM FINANCING ACTIVITIES:Net increase in deposits
    
    $
    29,018,383
    
    
    $
    14,156,473Proceeds from long-term borrowings
    
    
    25,000,000
    
    
    
    15,000,000Payments of long-term borrowings
    
    
    (10,111,929
    )
    
    
    (111,004
    )Net increase in other borrowed funds
    
    
    91,508,528
    
    
    
    26,919,132Exercise of stock options
    
    
    223,474
    
    
    
    54,375Net change in unearned ESOP shares
    
    
    52,532
    
    
    
    92,459Dividends paid
    
    
    (541,633
    )
    
    
    (422,361
    )Redemption of common stock
    
    
    (408,827
    )
    
    
    (538,178
    )Trust Preferred Debentures
    
    
    7,000,000
    
    
    
    Net cash provided by financing activities
    
    
    141,740,528
    
    
    
    55,150,896(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (216,068
    )
    
    
    856,574CASH AND CASH EQUIVALENTS  JANUARY 1
    
    
    2,319,300
    
    
    
    10,356,932CASH AND CASH EQUIVALENTS  SEPTEMBER 30
    
    $
    2,103,232
    
    
    $
    11,213,506SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid during the nine months for:Interest
    
    $
    5,305,519
    
    
    $
    4,128,853Income taxes
    
    $
    437,500
    
    
    $
    1,422,869
 See notes to consolidated financial statements 7




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  1.
    
    BASIS OF PRESENTATIONGeneral- The consolidated financial statements of Tri-County Financial
Corporation (the Company) and its wholly owned subsidiaries, Community
Bank of Tri-County (the Bank) and Tri-County Capital Trust I (Capital
Trust I) , 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.
The balances as of December 31, 2003 have been derived from audited
financial statements. There have been no significant changes to the
Companys accounting policies as disclosed in the 2003 Annual Report. The
results of operations for the three and nine months ended September 30,
2004 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 2004 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, 2003.2.
    
    NATURE OF BUSINESSThe 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 demand
deposits and savings products.3.
    
    INCOME TAXESThe 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 SHAREEarnings 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, 2004, there were no shares
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 after giving effect
to the three-for-two common stock split declared on October 22, 2004 as if
it had occurred on January 1, 2003. Outstanding shares were calculated as
follows: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Basic
    
    
    1,150,308
    
    
    
    1,127,450
    
    
    
    1,146,044
    
    
    
    1,128,501Diluted
    
    
    1,200,576
    
    
    
    1,190,474
    
    
    
    1,197,512
    
    
    
    1,191,834
 8




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5.
    
    STOCK-BASED COMPENSATIONThe Company has adopted the disclosure-only provisions of SFAS No. 123
Accounting for Stock-Based Compensation, which encourages all entities
to adopt a fair value based method of accounting for employee stock
compensation plans, whereby compensation is measured at the grant date
based on the value of the award and is recognized over the service period,
which is usually the vesting period. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic
value based method of accounting prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, whereby
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date (or other measurement date) over the amount an
employee must pay to acquire the stock. Stock options issued under the
Companys stock-based plans have no intrinsic value at the grant date, and
under Opinion No. 25 no compensation cost is recognized for them. The
Company has elected to continue with the accounting methodology in Opinion
No. 25. 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 three
and nine months ended September 30. Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net Income as reported
    
    $
    1,081,306
    
    
    $
    596,835
    
    
    $
    2,774,080
    
    
    $
    1,747,141Less pro forma stock
based compensation
expense
determined under the
fair value method, net
of tax
effects
    
    
    60,000
    
    
    
    
    
    
    
    308,579
    
    
    
    173,261Pro forma net income
    
    $
    1,021,306
    
    
    $
    596,835
    
    
    $
    2,465,501
    
    
    $
    1,573,880Net Income per shareBasic  as reported
    
    $
    0.94
    
    
    $
    0.53
    
    
    $
    2.42
    
    
    $
    1.55Basic  pro forma
    
    $
    0.89
    
    
    $
    0.53
    
    
    $
    2.15
    
    
    $
    1.39Diluted  as reported
    
    $
    0.90
    
    
    $
    0.50
    
    
    $
    2.32
    
    
    $
    1.47Diluted  pro forma
    
    $
    0.85
    
    
    $
    0.50
    
    
    $
    2.06
    
    
    $
    1.32
 Basic and diluted earnings per share have been computed based on
weighted-average common and common equivalent shares after giving effect
to the three-for-two common stock split declared on October 22, 2004 as if
it had occurred on January 1, 2003.  6. Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures On July 22, 2004, Tri County Capital Trust I (Capital Trust I), a
Delaware business trust formed, funded and wholly owned by the Company,
issued $7,000,000 of variable-rate capital securities with an interest
rate of 4.22% in a private pooled transaction. The variable rate is based
on the 90-day LIBOR rate plus 2.60%. The Trust used the proceeds from this
issuance to purchase $7.2 million of the Companys junior subordinated
debentures. The interest rate on the debentures and the trust preferred
securities is variable and adjusts quarterly. The Company has, through
various contractual arrangements, fully and unconditionally guaranteed all
of Capital Trust Is obligations with respect to the capital securities.
These capital securities qualify as Tier I capital and are presented in
the Consolidated Balance Sheets as Guaranteed Preferred Beneficial
Interests in Junior Subordinated Debentures. Both the capital securities
of Capital Trust I and the junior subordinated debentures are scheduled to
mature on July 22, 2034, unless called by the Company not earlier than
July 22, 2009. Costs associated with the issuance of the trust-preferred securities were
less than $10,000 and were expensed as period costs. 9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION This document contains forward-looking statements, which it intends to be
covered under the safe harbor provisions contained in the Private Securities
Litigation Reform Act of 1995. Such forward looking statements include
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 Community Bank of Tri-County (the Bank), a Maryland-chartered
commercial bank and Tri County Capital Trust I (Capital Trust I). 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 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, construction, home equity lines of
credit, commercial mortgages and consumer and commercial business 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. 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 and investment securities 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 expectations as
to future economic conditions in the Southern Maryland area as well as
individual borrowers circumstances. Management believes that its allowance
for loan losses is adequate. For further information on the Banks allowance
for loan losses see the discussion in the financial condition section of this
form, as well as the relevant discussions in the Form 10-K and annual report
for the year ended December 31, 2003. In July 2004, the Company formed a subsidiary that sold $7,000,000 in variable
rate capital securities in a private pooled transaction. The proceeds of the
sale were invested in the Bank. The Bank leveraged these additional funds by
buying securities that it funded primarily with reverse repurchase agreements.
These assets provided additional net interest income to the Company that
increased net income in the third quarter. The Company recognizes that the
purchase of securities in this manner may increase its exposure to a decrease
in net interest income should there be a series of interest rate increases.
The Company feels that these risks have been considered and that the Company is
well positioned to continue this program. It is the Companys intention to
gradually replace the investments and wholesale funding with loans and deposits
as the Bank grows. In the third quarter, the Federal Reserve increased the Federal Funds rate, but
the economy continues to grow at a slower pace than anticipated by many
economic observers. Locally, the economy is strong and



Should Say the recovery appears to be getting stronger the housing market has
appreciated in reaction to continued low interest rates and a strong local job
market. National job markets also appear to be strengthening. These economic
factors have led to an overall consensus that the recovery is now solid and
that the Federal Reserve will likely raise rates for the next several quarters.
A series of sharp rate increases could negatively impact the Banks financial 10




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performance. This would be particularly true if these rate increases were more
rapid and sustained than the corresponding increases in the Banks yield on
assets. Other negative effects of a sharply higher interest rate environment
could include a drop in real estate values. A large sustained drop in real
estate values would negatively impact the Banks collateral on many of our
loans and could lead to asset quality problems. During the last two years, loan customers have reacted to lower interest rates
by continuing to refinance higher rate loans. This refinance activity has
decreased the interest rates earned on loans. In the last few quarters longer
term rates have increased slightly. These increases will have the effect of
decreasing refinance activity. If rates continue to rise, the Bank may also
see an increase in the popularity of adjustable rate mortgages in the
residential housing market. Higher rates will also decrease prepayments from
our investment portfolio. The Bank has been able to increase net interest
income from the prior year through growth in its balance sheet, which offset a
lower interest margin. Noninterest income decreased primarily due to a
reduction in the gain on the sale of loans, offset by an increase in service
charges. Noninterest expenses also increased primarily from increases in the
Banks size. An increase in the valuation allowance on foreclosed real estate
also increased expenses. Finally, the effective tax rate paid by the Company
decreased due to the donation of certain foreclosed property. SELECTED FINANCIAL DATA Nine Months EndedSeptember 30,2004
    
    2003Condensed Income StatementInterest Income
    
    $
    15,158,283
    
    
    $
    11,899,066Interest Expense
    
    
    5,252,532
    
    
    
    4,171,862Net Interest Income
    
    
    9,905,751
    
    
    
    7,727,204Provision for Loan Loss
    
    
    316,970
    
    
    
    145,340Noninterest Income
    
    
    1,160,129
    
    
    
    1,328,247Noninterest Expense
    
    
    7,020,796
    
    
    
    6,264,205Income Before Income Taxes
    
    
    3,728,114
    
    
    
    2,645,906Income Taxes
    
    
    954,034
    
    
    
    898,765Net Income
    
    $
    2,774,080
    
    
    $
    1,747,141Per Common Share *Basic Earnings
    
    $
    2.42
    
    
    $
    1.55Diluted Earnings
    
    
    2.32
    
    
    
    1.47Book Value
    
    $
    26.20
    
    
    $
    24.70
 *All per share amounts have been computed based on weighted-average common and
common equivalent shares after giving effect to the three-for-two common stock
split declared on October 22, 2004 as if it had occurred on January 1, 2003. RESULTS OF OPERATIONS

As noted above, all per share amounts have been computed based on
weighted-average common and common equivalent shares after giving effect to the
three-for-two common stock split declared on October 22, 2004 as if it had
occurred on January 1, 2003.
Net income for the nine month period ended September 30, 2004 totaled
$2,774,080 ($2.42 basic and $2.32 diluted earnings per share) compared with a
total of $1,747,141 ($1.55 basic and $1.47 diluted earnings per share) for the
same period in the prior year. This increase of $1,026,939 or 58.8% was caused
by an increase in net interest income, which was partially offset by an
increase in provision for loan losses, a decrease in noninterest income, an
increase in income tax expense, and an increase in noninterest expenses. For
the nine month period ended September 30, 2004, interest income increased by
$3,259,217 or 27.4% to $15,158,283. The increase was due to higher average
interest earning asset balances, including investments and loans, which were
partially offset by lower average rates on loans.



Interest expense also increased to $5,252,532 in the nine month period ending
September 30, 2004 as compared to $4,171,862 in the same period in the prior
year an increase of $1,080,670 or 25.9%. The increase was the result of higher
average balances, which more than offset lower average rates paid on advances
and deposits. The changes in average interest rates reflected several factors
including an increase in short term interest rates, changes in the composition
of borrowings, continued growth in certain deposit products, and continued
growth in certain loan products. Provision for loan losses increased from prior year levels to $316,970 from
$145,340 for the nine month period ending 11




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September 30, 2004 and 2003, respectively. The increase was caused by the
growth of the Banks loan portfolio, and by the establishment of a specific
allowance in the current quarter of $113,000 to provide for estimated losses on
certain consumer loans. 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 $1,160,129 for the nine month period ending
September 30, 2004, a decrease of $168,118 or 12.7% over the prior year total
of $1,328,247. Loan appraisal, credit, and miscellaneous charges increased by
$8,893 to $215,023. The Bank also recorded $221,544 in income from Bank Owned
Life Insurance (BOLI), compared to $153,738 in 2003, an increase of $67,806
or 44.1%. This increase was the result of a BOLI purchase at the end of the
first quarter of 2003. Service charges increased by $361,203 or 78.6% from the
prior year amount. The increase was due to strong increases in deposits,
increases in the sale of nondeposit products, and charges recorded in the prior
year against originated mortgage servicing rights. These increases were offset
by a decrease in gains from selling loans, which decreased to $21,404 from
$499,726, a decrease of $478,322 or 95.7%. This change reflects the Banks
preference to keep a higher proportion of loans in its portfolio. Finally the
Company recorded a loss on the sale of certain investment securities available
for sale, which reflected recognition of a loss in value of certain equity
securities and some losses related to selling mutual funds. Noninterest expense for the nine month period increased by $756,591 or 12.1% to
$7,020,796 from $6,264,205 for the same Whyperiod of the prior year. Salary and
employee benefits increased by 11.1% to $3,921,756 from $3,530,637 for the same
period of the prior year. The increase was attributable to an increase in
employees and to increases in average salary costs per employee. Benefits costs
also increased due to increases in insurance costs as well as the addition of
certain benefits. Occupancy expense increased to $575,624 from $547,306 an
increase of 5.2% due to additional locations and increased costs at certain
locations. Advertising increased to $368,314 from $224,066, an increase of
$144,248 or 64.4%. Advertising increased due to an increase in certain sales
efforts. Data processing expense increased to $411,568 from a prior year total
of $297,075 an increase of $114,493 or 38.5%. This increase was due to certain
nonrecurring expenses. Depreciation of furniture fixtures and equipment
decreased to $287,900 from the prior year total of $361,761 a decrease of
$73,861 or 20.4%. This decrease was the result of certain assets being fully
depreciated at the end of 2003. Telephone communications declined to $84,416
from $136,139 in the prior year, a decline of $51,723 or 38.0%. This decline
reflected a change in service providers, which offset higher usage. ATM related
expenses increased by $53,596 to $251,218 for the period ending September 30,
2004, an increase of 27.1% due to higher levels of activity, more ATMs, and
certain price increases by ATM service providers. Office supplies increased to
$105,337 from the prior year amount of $104,420, an increase of $917 or .88%.
The provision for valuation allowances on foreclosed real estate increased to
$147,203 as of September 30, 2004 from zero in 2003 as further increases to the
valuation allowance were considered necessary. Office equipment expenses
decreased to $68,805 from 2003s level of $109,602, a decrease of $40,797 or
37.2%. This decrease was caused by the retirement of certain equipment. Other
expenses increased to $798,655 from $755,577 an increase of $43,078 or 5.7%,
reflecting general increases in activity. Income taxes increased to $954,034
or 25.6% of pretax income in the current year compared to $898,765 or 34.0% of
pretax income in the prior year. The decrease in the effective tax rate was
primarily attributable to the contribution of a foreclosed property to an
environmental organization, which generated a current income tax deduction. RESULTS OF OPERATIONS  THIRD QUARTER The Company recorded net income for the third quarter of 2004 of $1,081,306
compared to $596,835 for the same period in 2003. The increase was the result
of an increase in net interest income partially offset by a decrease in
noninterest income and an increase in noninterest expense compared to the same
period in 2003. Net interest income increased by 49.8% to $3,857,150 in 2004
from $2,574,836 as a result of increased asset size offset by a slightly lower
net interest margin. The provision for loan losses increased by 651.3% to
$232,996 in 2004 from $31,013 in 2003. The increase was due to a provision of
$113,000 for a group of consumer loans in the quarter and continued strong loan
growth. Loan appraisal, credit and miscellaneous charges decreased by $9,080 or
11.9% to $67,071 due to market conditions. Gain on the sale of mortgage loans
decreased from $135,036 to zero because the Bank has not sold loans in the
current quarter. Service charges in 2004 were higher by $32,227 due to higher
levels of deposit activity. As noted in the discussion above, the Bank wrote
down certain equity securities available for sale and sold at a loss certain
mutual funds in the quarter, these activities were recorded as loss on the sale
of securities. Salary and employee expense was comparable from period to period. Occupancy
expense was up by 5.7% compared to the prior year due to higher costs at
certain branches. Advertising expenses increased by $38,944 or 43.7% to
$128,084, this increase was the result of increased marketing in 2004. Data
processing expense increased to $122,348, an increase of $19,306 or 18.7% over
the prior year total of $103,042. The increase reflects the addition of
certain capabilities such as internet banking in the past year. Depreciation of
furniture, fixtures and equipment declined due to the write down of large
amounts of equipment in the prior year. These expenses decreased by $24,322 or
18.4%. Telephone communications also decreased to $26,961 or by 19.3% under the
prior year total of $33,407 due to changes in phone service providers. ATM 12




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expenses increased by $16,192 or 22.8% to $87,345 in the current year due to
changes in ATM operations. Office supplies expense increased to $43,572 from
$28,582 an increase of $14,990 or 52.5% over the prior year. These increases
were due to increased supplies expense for marketing purposes. Office equipment
and other expense were reduced by the retirement of certain equipment. Other
expenses increased by 24.7% due to higher levels of activity. The income tax
rate of 33.2% for 2004 was comparable to 2003s rate of 33.0%. 13




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FINANCIAL CONDITION Assets Total assets as of September 30, 2004 increased by $144,593,929 or 41.1% to
$496,323,921 from the December 31, 2003 level of $351,729,992. Cash and due
from banks decreased by $216,068 or 9.3% from December 31, 2003s total.
Interest-bearing deposits with banks increased by $1,597,482 or 17.9% during
the period to $10,509,814 at September 30, 2004. Fed funds sold declined to
$173,699 or by $764,467 from the December 31, 2003 total of $938,166.
Investment securities, including both the available for sale and held to
maturity portfolios, increased from $99,895,249 to $185,414,009 an increase of
$85,518,760 or 85.6%. These increases were the result of a leverage program to
increase Bank investments using wholesale funding. The equity needed for these
additional investments was provided by the sale of the variable rate capital
securities (trust preferred securities) as well as by additional earnings.
Stock in the Federal Home Loan Bank and Federal Reserve Banks increased due to
increased borrowing from the Federal Home Loan Bank system. Loans held for sale
declined to zero from $474,880 at December 31, 2003. This decline was caused by
the Banks decision to keep most of its current loan production in its
portfolio.
The Banks loan portfolio increased by $57,701,022 or 26.5% during the nine
month period ending September 30, 2004 to $275,441,175 from December 2003s
total of $217,740,153. The increase was primarily the result of an increase in
its portfolio of commercial real estate loans. The increase in commercial real
estate lending is a reflection of the strong local economy and continuing sales
efforts by the Bank in this area. At September 30, 2004 the Banks allowance
for loan losses totals $2,931,216 or 1.05% of loan balances as compared to
$2,572,799 or 1.16% of loan balances at December 31, 2003. 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.
Additional loan information for prior years is presented in the Form 10-K for
the year ended December 31, 2003: Loan Portfolio September 30,
    
    December 31,2004
    
    2003Amount
    
    %
    
    Amount
    
    %Real Estate LoansCommercial
    
    $
    133,475,275
    
    
    
    47.83
    %
    
    $
    93,824,812
    
    
    
    42.46
    %Residential first mortgage
    
    
    54,265,939
    
    
    
    19.44
    %
    
    
    42,971,076
    
    
    
    19.45
    %Construction and land development
    
    
    15,119,374
    
    
    
    5.42
    %
    
    
    19,598,992
    
    
    
    8.87
    %Home equity and second mortgage
    
    
    23,276,558
    
    
    
    8.34
    %
    
    
    19,561,771
    
    
    
    8.85
    %Commercial loans
    
    
    49,179,428
    
    
    
    17.62
    %
    
    
    40,909,132
    
    
    
    18.51
    %Consumer loans
    
    
    3,770,850
    
    
    
    1.35
    %
    
    
    4,096,926
    
    
    
    1.86
    %Total loans
    
    
    279,087,424
    
    
    
    100.00
    
    
    
    220,962,709
    
    
    
    100.00Less: Deferred loan fees
    
    
    715,034
    
    
    
    0.26
    %
    
    
    649,757
    
    
    
    0.29
    %Allowance for loan losses
    
    
    2,931,216
    
    
    
    1.05
    %
    
    
    2,572,799
    
    
    
    1.16
    %Loans receivable net
    
    $
    275,441,175
    
    
    
    
    
    
    $
    217,740,153
 Activity in the Allowance for Loan Losses 9 Months Ended
    
    9 Months EndedSeptember 30, 2004
    
    September 30, 2003Beginning Balance
    
    $
    2,572,799
    
    
    $
    2,314,074Charge Offs
    
    
    (1,040
    )
    
    
    (51,233
    )Recoveries
    
    
    42,487
    
    
    
    729Net Recoveries (Charge offs)
    
    
    41,447
    
    
    
    (50,504
    )Additions charged to operations
    
    
    316,970
    
    
    
    145,340Balance at end of period
    
    $
    2,931,216
    
    
    $
    2,408,910Ratio of net (recoveries) charge-offs
during the period to Total loans
    
    
    -0.02
    %
    
    
    0.02
    %
 14




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Balances as of
    
    Balances as ofSeptember 30, 2004
    
    December 31, 2003Restructured Loans
    
    $
    
    
    
    $
    Accruing loans which are contractually
past due 90 days or more:
    
    $
    
    
    
    $
    Loans accounted for on a nonaccrual
basis
    
    $
    517,601
    
    
    $
    379,544Total non- performing loans
    
    $
    517,601
    
    
    $
    379,544Non -performing loans to total loans
    
    
    0.22
    %
    
    
    0.17
    %Allowance for loan losses to non
performing loans
    
    
    512.16
    %
    
    
    626.46
    %
 Premises and equipment increased due to the renovation of parts of the home
office building, partially offset by depreciation. Foreclosed real estate
declined to $534,561 at September 30, 2004 from $706,764 at December 31, 2003
due to the donation of one property and an increase in the valuation allowance.
Other assets decreased to $2,281,542 from $3,146,247 at December 31, 2003. Liabilities Deposit balances increased by $29,018,383 or 12.8%No for the nine months ended
September 30, 2004. This increase was primarily in interest bearing deposits.
Management believes that ongoing stock market volatility combined with
questions about certain Mutual Fund operations has made bank deposits more
attractive to the general public. The Bank has also increased marketing efforts
for all deposit products in the current year. Short-term borrowings increased
to $122,699,813, an increase of $91,508,528, primarily to serve as a funding
for loan and investment growth. Long-term debt increased to $77,939,247 at
September 30, 2004, from $63,051,176 at December 31, 2003, to fund loan and
investment growth. As noted above, the Company sold $7,000,000 of
trust-preferred securities to increase regulatory capital at both the Bank and
parent company. Other liabilities increased to $2,055,982 at
September 30, 2004,
from $2,021,053 at December 31, 2003, an increase of 1.7%. Stockholders Equity Stockholders equity increased $2,144,019 or 7.7% to $30,055,928 at September
30, 2004 compared to $27,911,910 at December 31, 2003. This reflects the net
income of $2,774,080 for the nine month period. Other changes in equity
occurred as a result of a cash dividend of $541,633, using $408,828 to purchase
shares in the open market and retire them, the exercise of stock options of
$223,473, and activity related to the ESOP shares of $52,532. Book value
calculated on a per share basis after giving effect to the 3 for 2 stock split
announced on October 22, 2004 as if it occurred on January 1, 2003 was $26.20
at September 30, 2004, as compared to $24.70 at December 31, 2003, reflects a
6.07% increase, with a slight increase in outstanding shares, partially
offsetting the gains noted previously. LIQUIDITY AND CAPITAL RESOURCES The Company currently engages in no significant 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, proceeds from maturing
investment securities, reverse repurchase agreements and other borrowings. 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 15




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Banks lending and investment activities. The Banks most liquid assets are cash and cash equivalents, which are cash on
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 40% of consolidated Bank assets on a line of credit
available from the FHLB. As of September 30, 2004, the maximum available under
this line would be $199 million, while current outstanding advances totaled
$113 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,
2004, the Banks tangible, leverage and risk-based capital ratios were 9.32%,
10.79% and 11.65%, 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. We use historical loss factors as one in determining the inherent
loss that may be present in our loan portfolio. Actual losses could differ
significantly from the historical factors that we use. In addition GAAP itself
may change from one previously acceptable method to another method. Although
the economics of our transactions would be the same, the timing of events that
would impact our 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 income before taxes. 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. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. The Company qualifies as a small business issuer. 
 ITEM 4. 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 16




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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. 
 PART II  OTHER INFORMATION 
 Item 1  Legal Proceedings  The Company is not involved in any pending legal
proceedings. The Bank is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of business.
Such routine legal proceedings, in the aggregate, are believed by management to
be immaterial to the financial condition and results of operation of the
Company. 
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds 17




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(e)
    
    The following table sets forth information regarding the
Companys repurchases of its Common Stock during the quarter ended
September 30, 2004. (c)Total Numberof Shares
    
    (d)Purchased
    
    Maximum(a)
    
    
    
    
    
    as Part of
    
    Number of SharesTotal
    
    (b)
    
    Publicly
    
    that May Yet BeNumber of
    
    Average
    
    Announced Plans
    
    Purchased UnderShares
    
    Price Paid
    
    or
    
    the Plans orPeriod
    
    Purchased
    
    per Share
    
    Programs
    
    ProgramsJuly 2004
1st - 31st
    
    
    1,510
    
    
    
    46.73
    
    
    
    1,510
    
    
    
    3,227August 2004
1st - 31st
    
    
    2,923
    
    
    
    47.00
    
    
    
    2,923
    
    
    
    304September 2004
1st - 30th
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    304Total
    
    
    4,433
    
    
    
    46.91
    
    
    
    4,433
    
    
    
    304
 In an 8-K dated July 25, 2002, and in a press release dated July 23, 2002, the
Company announced a plan to buy up to 38,000 shares of its stock through open
market purchases. This offer was contingent upon market conditions and had no
time limit. On October 25, 2004 the company filed an 8-K announcing plans to
repurchase a further 38,000 shares (57,000 after giving effect to the stock
split announced on the same date) beginning after the third quarter 10-Q is
filed. 
 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  Exhibit 31 Rule 13a-14(a)/15d- 14(a) CertificationsExhibit 32 Section 1350 Certifications 18




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##### Table of Contents



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 15, 2004
    By:
    /s/
Michael L. MiddletonMichael L. Middleton, Presidentand Chairman of the Board Date: November 15, 2004
    By:
    /s/
William J. PasenelliWilliam J. Pasenelli, ExecutiveVice President and Chief
Financial Officer