|Selected Consolidated Financial Data**community financial****2001**
ANNUAL REPORT |  | 
|--------------------------------------------------------------------------------- |  | 

|                                                                         | At March 31,                      
|------------------------------------------------------------------------ | ----------------------------------
|                                                                         | **2001**                          
|                                                                         | (In Thousands)                    
|**Selected Financial Condition Data:**                                   |                                   
|Total assets                                                             | $270,176                          
|Loans receivable, net                                                    | 214,558                           
|Investment securities & other earning assets (1)                         | 44,421                            
|Real estate owned, net                                                   | 451                               
|Deposits                                                                 | 174,307                           
|Advances and other borrowed money                                        | 67,422                            
|Stockholders' equity                                                     | 25,805                            
|                                                                         |                                   
|                                                                         | Year Ended March 31,              
|                                                                         | **2001**                          
|                                                                         | (In Thousands)                    
|**Selected Operations Data:**                                           
|Total interest income                                                    | $ 20,047                          
|Total interest expense                                                   | 11,914                            
|Net interest income                                                      | 8,133                             
|Provision for loan losses                                                | 320                               
|Net interest income after provision  for loan losses                     | 7,813                             
|Service charges and fees on loans                                        | 2,811                             
|Gain on sale of securities                                               | -                                 
|Other noninterest income (2)                                             | 88                                
|Noninterest expenses                                                     | 8,241                             
|Income before income taxes                                               | 2,471                             
|Income taxes                                                             | 728                               
|Net income                                                               | $ 1,743                           
|                                                                         |                                   
|                                                                         | At or For the Year Ended March 31,
|                                                                         | **2001**                          
|**Other Data:**                                                          |                                   
|Average interest-earning assets to  average interest-bearing liabilities | 107.04%                           
|Average interest rate spread during year                                 | 2.96                              
|Non-performing assets to total assets                                    | .43                               
|Return on assets (ratio of net  income to average total assets)          | .68                               
|Return on equity (ratio of net  income to average equity)                | 6.81                              
|Equity-to-assets ratio (ratio of  average equity to average assets)      | 9.97                              
|                                                                         |                                   
|**Per Share Data:**                                                      |                                   
|Net income - diluted                                                     | $       .72                       
|Book value                                                               | 10.99                             
|Dividends                                                                | .32                               
|Dividend payout ratio                                                    | 44.75%                            
|Number of full-service offices                                           | 6                                 

(1) Includes federal funds sold, securities purchased under resale agreements and overnight deposits.
(2) Other income includes customer service fees and commissions, gain or loss on disposal of property and other items.
(3) Includes a special one-time assessment of approximately $671,000 to capitalize the SAIF insurance fund.

1

|President's Letter**community financial****2001**ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|***Dear Stockholder:***

This past year has been one of continued growth
and improved earnings for Community Financial.
Despite uncertain financial markets and a
slowing national economy, Community Financial
had earnings of $1,743,000 or $0.72 per diluted
share as compared to $1,324,000 or $0.52 per
diluted share for the fiscal year ended March 31,
2000, a 32% increase. More significantly, core
earnings (earnings before non-recurring income
and expense items) improved by 65%, from
$1,059,000 or $0.42 per diluted share to
$1,743,000 or $0.72 per diluted share for the
fiscal year ended March 31, 2001.  The increase
in earnings for the past year was attributable
primarily to increases in both net interest income
and fees on loans and deposits, as the average
balances of both increased during the fiscal year.

Although the business environment was
challenging during the year, we experienced
healthy increases in both loans and deposits. Net
loans increased from $189.7 million on March 31,
2000, to $214.5 million on March 31, 2001, a
13% increase, and deposits increased from
$158.6 million on March 31, 2000 to $174.3
million on March 31, 2001, a 10% increase.

Community Financial is continuing to benefit from
its expansion into the Hampton Roads market of
Virginia.  The region continues to grow and add
to the profitability of the Company contributing
approximately 21% of the gross interest on loans
this past year. We are also pleased to report that
Community Bank's wholly owned subsidiary,
Community First Mortgage Corporation, has
contributed to our profitability this year which is
particularly encouraging since the mortgage
market was soft during a good part of the fiscal
year due to higher interest rates.

Our newest office on Richmond Road in
Staunton has enjoyed excellent growth during its
first full year of operation with deposits in excess
of $9.5 million. A large number of these accounts
are with new customers of |  | [PICTURE OF JAMES R. COOKE, JR.]

[PICTURE OF P. DOUGLAS RICHARD]

Community Bank, thus we are increasing our
market share while providing an additional
convenience for our customers. We were very
pleased that we were able to deliver increased
earnings during this fiscal year despite having to
absorb start-up costs and expenses associated
with our newest location. We will continue to
evaluate additional opportunities to improve our
products and services and to enhance our branch
network, however, when making these decisions
we must be mindful of the need to protect our
earnings trend.

Last year your Board and Management made a
commitment to pause and refocus our energies
on improving profitability. We hope you feel that
we have begun the process to accomplish that
goal. Maintaining controlled but profitable growth
continues to be our main focus as we begin the
coming year. Our staff has worked diligently this
past year and is dedicated to the continued
success of the Company.

Our greatest concern for fiscal year 2002 is the
risk of an economic correction. Company
performance reflects the economic environment,
so a continued downturn could adversely impact
our business. We feel that the Federal Reserve's
aggressive reduction in interest rates will benefit
our Company, and stabilize the economy
resulting in the potential for continued
improvement in Community Financial's earnings
for fiscal year 2002.

|                                                                                                                                                                                                                                       |  | President's Letter
**community financial****2001**ANNUAL REPORT                                                                                                                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|[BAR GRAPH]**EARNINGS PER SHARE**

              Dollars

1997       0.68       0.85*

1998       0.70

1999       0.71

2000       0.52

2001       0.72

Year Ended March 31

*  EPS before one-time assessment to
recapitalize SAIF |  | [BAR GRAPH]**NET INCOME**

              Dollars in Thousands

1997       1,735       2,151*

1998       1,805

1999       1,8482000       1,324

2001       1,743

Year Ended March 31

*  Net Income Before One Time Assessment to
Recapitalize SAIF
|                                                                                                                                                                                                                                       |  |                                                                                                                                                                                                                                                       
|[BAR GRAPH]**STOCKHOLDERS' EQUITY TO AVERAGE ASSETS**

              Percentage

1997       13.81

1998       13.89

1999       13.52

2000       11.66

2001       9.97

Year Ended March 31                                          |  | [BAR GRAPH]**TOTAL ASSETS**

              Dollars in Thousands

1997       167,707

1998       183,894

1999       200,810

2000       243,077

2001       270,176

Year Ended March 31                                                              

Our operating results for the year give us confidence that Community Bank will continue to profitably
provide the same friendly, personalized service and competitive products that the communities we serve
have enjoyed and come to expect for the past 73 years. We would like to thank our dedicated
employees, leaders on the board, our customers, and shareholders for their commitment and support.

/s/ James R. Cooke, Jr.James R. Cooke, Jr.Chairman of the Board/s/ P. Douglas RichardP. Douglas RichardPresident & CEO3NEXT PAGE


Board of Directors and Officers
**community financial****2001**ANNUAL REPORT

[PICTURE]*Pictured front row, left to right: P. Douglas
Richard, Jane C. Hickok, James R. Cooke, Jr.,
D.D.S. Back row, left to right: Charles F.
Andersen, M.D., Dale C. Smith, Charles W.
Fairchilds, Morgan N. Trimyer, Jr.***Hampton Roads Board of Directors**

[PICTURE]*Pictured, left to right: Chris P. Kyriakides, Robert
M. Thornton, William R. Waddell, James R.
Cooke, Jr., Berard Harrison, P. Douglas Richard,
Leslie Watson. Not pictured: Morgan N. Trimyer,
Jr.***Board of Directors****Charles F. Anderson, M.D.**Dr. Anderson is an orthopedic
surgeon in private practice in Waynesboro, Virginia.**James R. Cooke, Jr., D.D.S.**Dr. Cooke has been a practicing
dentist in Staunton, Virginia since 1965.

**Charles W. Fairchilds.**Mr. Fairchilds has been the President
of Allied Ready Mix Co., a concrete company located in
Waynesboro, Virginia since 1987.

**Jane C. Hickok.**Mrs. Hickok was elected Vice Chairman of
the Board in October 1994 and secretary of Community
Financial in October 1998. She retired as President and Chief
Executive Officer of Community Bank in October 1994 after
serving since 1984. Mrs. Hickok also retired as President and
Chief Executive Officer of Community Financial in January
1995, but continues to serve as a director of Community
Financial and Community Bank. Mrs. Hickok was elected as a
director of Community Bank in 1983 and as a director of
Community Financial in 1990 when it became the holding
company of Community Bank.

**P. Douglas Richard.**Mr. Richard was appointed the Acting
President and Chief Executive Officer of Community Financial
and Community Bank on January 12, 2000, and became the
President and Chief Executive Officer of Community Financial
and Community Bank on April 26, 2000. He was appointed to
the Board of Directors of Community Financial on April 26,
2000. From January 1, 1997, to January 12, 2000, Mr.
Richard was a Senior Vice President of Community Bank.
From December 1993 to January 1996, he was President and
Chief Executive Officer of Seaboard Bancorp.

**Dale C. Smith.**Mr. Smith is the General Manager and Chief
Executive Officer of Augusta Cooperative Farm Bureau, Inc.,
a farm supply and retail store.

**Morgan N. Trimyer, Jr.**Mr. Trimyer has served as Vice
President and Partner of Welton, Duke & Hawks, Inc., an
insurance company headquartered in Portsmouth, Virginia,
since 1984. He is also Vice President of Valley Insurance
Agency, Inc., located in Lexington, Virginia, and has 30 years
of experience in the insurance industry in Virginia.**Officers**P. Douglas RichardPresident & CEOR. Jerry GilesChief Financial OfficerBenny N. WernerSenior Vice PresidentNorman C. (Butch) Smiley, IIIVice President/Chief Lending OfficerPatsy D. ClemController/Vice PresidentChris P. KyriakidesRegional PresidentRobert M. (Bobby) HoffmanRegional Vice PresidentJane P. OremRegional Vice PresidentKathy H. WillisRegional Vice PresidentDianne F. CampbellAssistant Vice PresidentGary L. DavenportAssistant Vice PresidentKay T. DeanAssistant Vice PresidentDanny R. FieldsAssistant Vice PresidentDarlene A. HallAssistant Vice PresidentVirginia M. McCormackAssistant Vice PresidentRamona W. SavidgeAssistant Vice PresidentThomas R. WagnerAssistant Vice PresidentJoe P. ZakaibAssistant Vice PresidentTeresa M. LayneBranch OfficerMartha B. ChandlerAssistant Secretary
4NEXT PAGE



Management's Discussion & Analysis of Operations**community financial****2001**ANNUAL REPORTIntroduction


Community Financial Corporation ("Community
Financial") is a Virginia corporation. Certain of the information presented herein relates to Community Bank, a wholly
owned subsidiary of Community Financial and to Community First Mortgage Corporation, a wholly-owned subsidiary
of Community Bank.  References in this report to "we,""us" and "our" refer to Community Financial and/or Community
Bank as the context requires.


Community Financial and Community Bank, like all thrift
institutions and their holding companies, are subject to comprehensive regulation, examination and supervision by the
Office of Thrift Supervision, Department of the Treasury and the Federal Deposit Insurance Corporation.


Our net income is primarily dependent on the difference
or spread between the average yield earned on loans and investments and the average rate paid on deposits and
borrowings, as well as the relative amounts of such assets and liabilities.  The interest rate spread is affected by
regulatory, economic, and competitive factors that influence interest rates, loan demand and deposit flows. Like other
financial institutions, we are subject to interest rate risk to the degree that our interest-bearing liabilities, primarily
deposits and borrowings with short-and medium-term maturities, mature or reprice more rapidly, or on a different basis,
than our interest-earning assets, primarily loans with longer term maturities than deposits and borrowings. While having
liabilities that mature or reprice more frequently on average than assets maybe beneficial in times of declining interest
rates, such an asset/liability structure may result in lower net income or net losses during periods of rising interest rates,
unless offset by other non-interest income. Our net income is also affected by, among other things, gains on sale of
loans, mortgage-backed securities and investment securities, fee income, provision for loan and real estate losses,
operating expenses and income taxes.


Asset/LiabilityManagement


Management believes it is important to manage the
relationship between interest rates and the effect on our net portfolio value. This approach calculates the difference
between the present value of expected cash flows from assets and the present value of expected cash flows from
liabilities, as well as cash flows from off-balance sheet contracts.  Management of our assets and liabilities is done within
the context of the marketplace, and also within limits established by the Board of Directors on the amount of change
in net portfolio value which is acceptable given certain interest rate changes.


Presented in the following table, as of March 31, 2001
and 2000, is an analysis of our interest rate risk as measured by changes in net portfolio value for instantaneous and
sustained parallel shifts in the yield curve, in 100 basis point increments, up and down 300 basis points and compared
to Board global policy limits and in accordance with Office of Thrift Supervision regulations, based on the assumptions
described below.  The Board limits have been established with consideration of the dollar impact of various rate changes
and our strong capital position.  As illustrated in the table, net portfolio value is more sensitive to rising rates than
declining rates.  This occurs principally because, as rates rise, the market value of fixed-rate loans decline due to both
the rate increase and slowing prepayments.  When interest rates decline, we do not experience a significant rise in market
value for fixed-rate loans because borrowers prepay at relatively high rates.  The value of our deposits and borrowings
changes in approximately the same proportion in rising or falling rate scenarios.



5NEXT PAGE



Community Financial Corporation**community financial****2001**ANNUAL REPORT**March 31, 2001**
**March 31, 2000**Change inInterest Rate(Basis Points)
Board Limit% Change
$ Changein NPV
% Changein NPV
$ Changein NPV
% Changein NPV(Dollars in Thousands)+300
-40%
**$-5,800**
**-18%**
$-10,701
-36%+200
-30
**-3,874**
**-12**
-6,883
-23+100
-20
**-2,744**
**-9**
-3,261
-11-0-
-
-
**-**
-
--100
-20
**1,499**
**5**
2,345
8-200
-30   ****
**2,930**
**9**
3,832
13-300
-40
**4,638**
**15**
5,588
19

Management generally works to maintain a neutral
position regarding interest rate risk. In the current interest rate environment, our customers are interested in obtaining
long term credit products and short term savings products.  Management has taken action to counter the effects of this
trend.  A significant effort has been made to reduce the duration and average life of our interest earning assets.  As of
March 31, 2001, approximately 54% of our gross loan portfolio consisted of loans which reprice during the life of the
loan.  We emphasize adjustable rate mortgage loans and have increased our portfolio of short-term consumer loans.
Longer term fixed-rate mortgage loans, 20 to 30 years, are generally sold in the secondary market. We are currently
originating fixed-rate loans for immediate sale only through our subsidiary, Community First Mortgage.

On the deposit side, management has worked to reduce
the impact of interest rate changes by emphasizing non-interest bearing or low interest deposit products and maintaining
competitive pricing on longer term certificates of deposit.  We have also used Federal Home Loan Bank advances to
provide funding for loan originations and to provide liquidity as needed.

In managing our asset/liability mix, we, at times,
depending on the relationship between long- and short-term interest rates, market conditions, and consumer preference,
may place somewhat greater emphasis on maximizing our net interest income than on strictly matching the interest rate
sensitivity of our assets and liabilities.  We believe the increased net income that may result from an acceptable
mismatch in the actual maturity or repricing of our asset and liability portfolio can provide sufficient returns to justify
the increased exposure to sudden and unexpected increases in interest rates which may result from such a mismatch.
We have established limits, which may change from time to time, on the level of acceptable interest rate risk. There can
be no assurance, however, that in the event of an adverse change in interest rates, our efforts to limit interest rate risk
will be successful.

As with any method of measuring interest rate risk,
certain short-comings are inherent in the method of analysis presented in the foregoing table.  For example, although
certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to
changes in market interest rates.  Also, the interest rates on certain types of assets and liabilities may fluctuate in advance
of changes in market interest rates, while interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates
on a short-term basis and over the life of the asset.  Further, in the event of a change in interest rates, expected rates of
pre-payments on loans and early withdrawals from certificates could likely deviate significantly from those assumed
in calculating the table.

| | Community Financial Corporation**community financial****2001**ANNUAL REPORT |  | 
| | --------------------------------------------------------------------------- |  | 

**Average Balances, Interest Rates and Yields**

The following table sets forth certain information relating to categories of our interest-earning assets and interest-bearing
liabilities for the periods indicated. All average balances are computed on a monthly basis. Non-accruing loans have
been included in the table as loans carrying a zero yield.

|                                                                      | **Year Ended March 31,**
|--------------------------------------------------------------------- | ------------------------
|                                                                      | 2001                    
|                                                                      | AverageBalance          
|                                                                      | (Dollars in Thousands)  
|Interest-Earning Assets                                              
|                                                                     
|Loans                                                                 | $204,475                
|Investment securitiesand other investments                            | 41,737                  
|Total interest-earningassets                                          | 246,212                 
|                                                                     
|Interest-Bearing Liabilities                                         
|                                                                     
|Deposits                                                              | 164,959                 
|FHLB advances andother borrowings                                     | 65,055                  
|Total interest-bearing liabilities                                    | 230,014                 
|                                                                     
|Net interest income/interest rate spread                              |                         
|                                                                     
|Net interest-earningassets/net yield oninterest-earning assets        | $16,198                 
|                                                                     
|Percentage of interest-earning assets to interest-bearing liabilities | 107.04%                 

7

|Community Financial Corporation**community financial****2001**ANNUAL REPORT |  | 
|--------------------------------------------------------------------------- |  | 

The following table sets forth our interest rate spread at the dates indicated.

|                                            | **March 31,**
|------------------------------------------- | -------------
|                                            | **2001**     
|                                           
|**Yield on**                               
|Loans                                       | 8.43%        
|Investment securities and other investments | 6.17%        
|Total interest-earning assets               | 8.05%        
|                                           
|**Cost of**                                
|Deposits                                    | 4.83%        
|FHLB advances and other borrowings          | 5.19%        
|Total interest-bearing liabilities          | 4.93%        
|                                           
|**Interest rate spread**                    | 3.12%        

**Rate/Volume Analysis**

The following table describes the extent to which changes
in interest rates and changes in volume of interest-related assets and liabilities have affected our interest income and
expenses during the periods indicated.  For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (change in volume multiplied by prior year
rate), (ii) changes in rate (change in rate multiplied by prior year volume), and (iii) total changes in rate and volume.
The combined effect of changes in both volume and rate, which cannot be separately identified, has been allocated
proportionately to the change due to volume and the change due to rate.

|                                               | **Year Ended March 31,**
|---------------------------------------------- | ------------------------
|                                               | 2001 v. 2000            
|                                               | Increase(Decrease)Due to
|                                               | Volume                  
|                                               | (Dollars in Thousands)  
|**Interest-Earning Assets**                   
|Loans                                          | $2,135                  
|                                              
|Investments securities and other   investments | 840                     
|Total interest-earnings assets                 | $2,975                  
|**Interest-Bearing Liabilities**              
|Deposits                                       | $   649                 
|FHLB advances and other borrowings             | 1,374                   
|Total interest-bearing liabilities             | $2,023                  
|**Net interest income**                        |                         

| | Community Financial Corporation**community financial****2001**ANNUAL REPORT |  | 
| | --------------------------------------------------------------------------- |  | 

Asset Quality

Asset quality is an important factor in the successful
operation of a financial institution. The loss of interest income and principal that may result from non-performing assets
has an adverse effect on earnings, while the resolution of those assets requires the use of capital and managerial
resources.

At March 31, 2001, total non-performing assets,
consisting of non-performing loans and real estate owned, were $1,156,000 or .43% of total assets compared to
$1,271,000 or .52% at March 31, 2000.  Non-performing assets at March 31, 2001 were comprised primarily of single
family and multi-unit residential properties delinquent 90 days or more.  At March 31, 2001, the largest property in non-performing assets was a single-family residential loan with an approximate value of $111,000.  Based on current market
values of the collateral securing these loans, management anticipates no significant losses in excess of the reserves for
losses previously recorded.  Due to an uncertain real estate market and the economy in general no assurances can be
given that our level of non-performing assets may not increase in the future.

We maintain an allowance for loan losses to provide for
estimated potential losses in our loan portfolio.  We determine the level of reserves based on loan performance, the value
of the collateral, economic and market conditions, and previous experience. We review the adequacy of the allowance
at least quarterly, utilizing our internal loan classifications system. During fiscal 2001, we increased our allowance for
loan losses $259,000 to $1,478,000 due primarily to the growth in loans.  Management believes that the loan loss reserve
is adequate.  We have had net charge-offs to our allowance for loan losses of $61,000, $381,000, and $161,000, for the
years ended March 31, 2001, 2000 and 1999, respectively. The decrease in net charge-offs from 2000 to 2001 is related
primarily to decreased foreclosures and increased recoveries in fiscal 2001. Although management believes it uses the
best information available, future adjustments to reserves may be necessary.

Financial Condition

Total assets increased $27.1million to $270.2 million at
March 31, 2001 as a result of increases in both investment securities of $5.3 million and loans receivable, net of $24.9
million. The increase in both loans receivable, net and investment securities was funded by increases in both borrowings
of $10.4 million and deposits of $15.7 million. The increase in deposits can be attributed primarily to an increase in time
deposits of $18.6 million. Management believes the increase in time deposits is primarily attributable to maintaining
competitive rates. The increase in loans receivable was due primarily to more competitive pricing on consumer loans.

Stockholders' equity increased $411,000 to $25.8 million
at March 31, 2001 compared to March 31, 2000. The increase was the result of $1.74 million of net income and an
increase in net unrealized gains of $950,000 on available for sale securities, offset by dividends paid to stockholders
of $780,000 and common stock repurchased of $1.5 million in fiscal 2001.

Results of Operations

Our results of operations depend primarily on the level
of our net interest income and noninterest income and the level of our operating expenses.  Net interest income depends
upon the value of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them.

**Comparison of Years Ended March 31, 2001 and 2000**

*General.*Net income for the year ended March 31, 2001
was $1,743,000 or $.72 diluted earnings per share compared to $1,324,000 or $.52 diluted earnings per share for the
year ended March 31, 2000. Net income increased due primarily to an increase in net interest income of $695,000.

Our return on average assets was .68% for the fiscal year
ended 2001compared to .60% for the fiscal year ended 2000.  Return on average equity was 6.81% for fiscal year ended
2001 compared to 5.11% for the fiscal year ended 2000. Average equity to average assets was 9.97%for the fiscal year
ended 2001 compared to 11.66% for the fiscal year ended 2000. We paid dividends to stockholders of $780,000 during
2001 and $819,000 during fiscal

9

|Community Financial Corporation**community financial****2001**ANNUAL REPORT |  | 
|--------------------------------------------------------------------------- |  | 

2000 representing a dividend payout ratio of 44.75% and 61.90%, respectively.

*Interest Income.*Total interest income increased to
$20,047,000 for the year ended March 31, 2001as compared to $16,154,000 for the year ended March 31, 2000.  The
increase in total interest income can be attributed to both increases in the average dollar volume of interest-earning
assets, primarily $14.5 million in investment securities and $25.7 million in loans receivable and an increase in the yield
on interest earning assets.  Average yields on total interest-earning assets increased from 7.84% in fiscal 2000 to 8.14%
for the current fiscal year due primarily to a higher market interest rate environment.

*Interest Expense.*  Total interest expense increased to
$11,914,000 for the year ended March 31, 2001 from $8,716,000 for the year ended March 31, 2000.  The increase in
total interest expense is attributable to increases in both the average dollar volume of interest-bearing liabilities of $38.0
million and the cost of interest-bearing liabilities.  The cost of funds increased from 4.54% for the year ended March
31, 2000 to 5.18% for the current year.  The increase in deposit balances was due primarily to an increase in certificates
of deposit for the current fiscal year.

*Provision for Loan Losses.*  The provision for loan losses
increased to $321,000 for the fiscal ended March 31, 2001 from $283,000 for the fiscal year ended March 31, 2000 due
primarily to an increase in loan growth for fiscal 2001.  We monitor our loan loss reserve on a quarterly basis and make
allocations as necessary.  Management believes that the level of our loan loss reserve is adequate. As of March 31, 2001,
the total allowance for loan losses amounted to $1,478,000.  At March 31, 2001, our total allowance as a percentage
of total loans receivable was .68%and as a percentage of total non-performing loans was 128%.

*Noninterest Income.*  Noninterest income decreased to
$2,899,000 in fiscal 2001 as compared to $3,196,000 for the year ended March 31, 2000, primarily due to a $601,000
decrease in gain on sale of securities, offset by increased fees and gains on sale of secondary mortgage loans of
$244,000 by Community First Mortgage Corporation, the bank's mortgage subsidiary.

*Noninterest Expense.*  Total non interest expense
decreased slightly to $8,241,000 for the year ended March 31, 2001 from $8,258,000 for the year ended March 31, 2000
due primarily to a $359,000 decrease in compensation expense offset by a $279,000 increase in occupancy expense.

*Taxes.*  Total taxes decreased to $728,000 during the year
ended March 31, 2001 from $770,000 during fiscal 2000.  The effective tax rate for the year ended March 31, 2001 was
29.4% as compared to 36.8% for the year ended March 31, 2000.  The decrease in taxes is attributable primarily to both
an increase in tax preferenced income and a change in bad debt losses.

**Comparison of Years Ended March 31, 2000 and 1999**

*General.*  Net income for the year ended March 31, 2000
was $1,324,000 or $.52 diluted earnings per share compared to $1,848,000 or $.71 diluted earnings per share for the
year ended March 31, 1999. Net income decreased due primarily to a decrease in the gain on the sale of available for
sale securities of $624,000 and an increase in noninterest expenses during the year ended March 31, 2000.

Our return on average assets was .60% for the fiscal year
ended 2000 compared to .96% for the fiscal year ended 1999.  Return on average equity was 5.11% for fiscal year ended
2000 compared to 7.12% for the fiscal year ended 1999.  Average equity to average assets was 11.66% for the fiscal
year ended 2000 compared to13.52% for the fiscal year ended 1999. We paid dividends to stockholders of $819,000
during 2000 and $796,000 during fiscal 1999 representing a dividend payout ratio of 61.90% and 43.11%, respectively.

*Interest Income.*  Total interest income increased to
$16,154,000 for the year ended March 31, 2000 as compared to $14,258,000 for the year ended March 31, 1999.  The
increase in total interest income can be attributed to an increase in the average dollar volume of interest-earning assets,
primarily $13.8 million in investment securities and $15.9 million in loans receivable, which was offset by a decrease
in the average yield on interest earning assets. Average yields on total interest-earning assets decreased from 8.09% in
fiscal 1999 to

| | Community Financial Corporation**community financial****2001**ANNUAL REPORT |  | 
| | --------------------------------------------------------------------------- |  | 

7.84% for fiscal 2000 due primarily to a more competitive and lower rate environment.

*Interest Expense.*  Total interest expense increased to
$8,716,000for the year ended March 31, 2000 from $7,333,000 for the year ended March 31, 1999. While the cost of
funds decreased from 4.64% for the year ended March 31, 1999 to 4.54% for fiscal 2000, the increase in interest expense
is attributable to increases in both the average balance of borrowings and deposits during the fiscal year.  The increase
in deposit balances was due primarily to increases in certificates of deposit for fiscal 2000.

*Provision for Loan Losses.*  The provision decreased to
$283,000 for the fiscal year ended March 31, 2000 from $360,000 for the fiscal year ended March 31, 1999 due
primarily to a decrease in non-performing assets for fiscal 2000. We monitor our loan loss reserve on a quarterly basis
and make allocations as necessary. Management believes that the level of our loan loss reserve was adequate.  As of
March 31, 2000, the total allowance for loan losses amounted to $1,218,000. At March 31, 2000, our total allowance
as a percentage of total loans receivable was .64%and as a percentage of total non-performing loans was 96%.

*Noninterest Income.*  Noninterest income increased to
$3,196,000in fiscal 2000 as compared to $2,638,000 for the year ended March 31, 1999, primarily due to increased fees
and gains on sale of secondary mortgage loans in the Bank's mortgage subsidiary, offset by a decrease in gain on sale
of securities.

*Noninterest Expense.*Total noninterest expense increased
to $8,258,000 for the year ended March 31, 2000 from $6,028,000 for the year March 31, 1999 due primarily to
compensation and other overhead related to Community First Mortgage Corporation's first full year of operation, a
contract settlement with a former Community Bank president and the opening of an additional branch in Staunton,
Virginia in October 1999.

*Taxes.*Total taxes decreased to $770,000 during the year
ended March 31, 2000 from $1,328,000 during fiscal 1999. The effective tax rate for the year ended March 31, 2000
was 36.8% as compared to 41.8% for the year ended March 31, 1999. The decrease in taxes is attributable primarily to
a decrease in income before income taxes, a decrease in the effective state income tax rate and purchases of investments
with reduced effective income tax rates.

Liquidity and Capital Resources

Our principal sources of funds are customer deposits,
advances from the Federal Home Loan Bank of Atlanta, amortization and prepayment of loans, proceeds from the sale
of loans and funds provided from operations.  Management maintains investments in liquid assets based upon its
assessment of (i) our need for funds, (ii) expected deposit flows, (iii) the yields available on short-term liquid assets,
(iv) the liquidity of our loan portfolio and (v) the objectives of our asset/liability management program.

Liquidity represents our ability to meet our on-going
funding requirements for contractual obligations, the credit needs of customers, withdrawal of customers' deposits and
operating expenses. Office of Thrift Supervision regulations require each savings association to maintain sufficient
liquidity to ensure its safe and sound operation.  We believe that we maintain sufficient levels of liquid assets to satisfy
our present and future financial obligations. At March 31, 2001, our liquid asset ratio was 8.4%.

Our dominant source of funds during the year ended
March 31, 2001 was from deposits which increased by $15.7 million.

Our cash decreased $2.3million from $7.4 million at
March 31, 2000 to $5.2 million at March 31, 2001. The decrease in cash was related to the increase in securities and
loans receivable.

At March 31, 2001, we had commitments to purchase
or originate $10.1 million of loans.  Certificates of deposit scheduled to mature in one year or less at March 31, 2001,
totaled $106.7 million.  Based on our historical experience, management believes that a significant portion of such
deposits will remain with us.  Management further believes that loan repayments and other sources of funds will be
adequate

11

|Community Financial Corporation**community financial****2001**ANNUAL REPORT |  | 
|--------------------------------------------------------------------------- |  | 

to meet our foreseeable short- and long-term liquidity needs.

At March 31, 2001, we had tangible and core capital of
8.21%of adjusted total assets, which was in excess of their respective requirements of 1.5% and 4.0%. We also had risk-based capital of 12.56% of risk weighted assets, which also exceeded its requirement of 8.0%.

Impact of Inflation and Changing Prices

The consolidated financial statements and related data
presented herein have been prepared in accordance with generally accepted accounting principles which require the
measurement of financial position and results of operations in terms of historical dollars without considering changes
in the relative purchasing power of money over time because of inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more
significant impact on a financial institution's performance than the effects of general levels of inflation.  Interest rates
do not necessarily move in the same direction or the same magnitude as the price of goods and services.  In the current
interest-rate environment, equity, maturity structure and quality of our assets and liabilities are critical to the
maintenance of acceptable performance levels.

Accounting Pronouncements

For a discussion of certain accounting pronouncements
implemented by us during fiscal 2001and new pronouncements which will be implemented in the future, see Summary
of Accounting Policies to Consolidated Financial Statements.

| | Community Financial Corporation**community financial****2001**ANNUAL REPORT |  | 
| | --------------------------------------------------------------------------- |  | 

|**BDO** | **BDO Seidman, LLPAccountants and Consultants** | 300 Arboretum Place, Suite 520Richmond, Virginia 23236Telephone: (804) 330-3092Fax: (804) 330-7753
|------- | ----------------------------------------------- | --------------------------------------------------------------------------------------------------

Report of Independent Certified Public Accountants

To the Board of Directors of
Community Financial Corporation
Staunton, Virginia

We have audited the accompanying consolidated balance
sheets of Community Financial Corporation and subsidiary as of March 31, 2001 and 2000, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three years in the period ended March 31,
2001. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial position of Community Financial Corporation and
subsidiary at March 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years
in the period ended March 31, 2001 in conformity with accounting procedures generally accepted in the United States
of America.

Richmond, Virginia
April 22, 2001

/s/ BDO Seidman, LLP

13

|Community Financial Corporation $amp; Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|-------------------------------------------------------------------------------------------- |  | 

**Consolidated Balance Sheets**

|**March 31,**                                                                                                    | **2001**             | 2000            
|---------------------------------------------------------------------------------------------------------------- | -------------------- | ----------------
|                                                                                                                
|**Assets**                                                                                                       |                      |                 
|Cash (including interest bearing deposits of       approximately **$2,697,000**and $1,908,000)                   | **$      5,168,499** | $      7,424,577
|Securities (Note 1)                                                                                             
|Held to maturity                                                                                                 | **29,905,180**       | 27,312,943      
|Available for sale                                                                                               | **8,421,433**        | 6,863,674       
|Investment in Federal Home Loan Bank stock,
       at cost (Note 6)                                              | **3,150,000**        | 1,950,000       
|Loans receivable, net (Notes 2 and 6)                                                                            | **214,557,798**      | 189,700,859     
|Real estate owned, net                                                                                           | **451,310**          | 823,002         
|Property and equipment, net (Note 3)                                                                             | **5,827,020**        | 6,627,869       
|Accrued interest receivable                                                                                      | **1,661,422**        | 1,288,112       
|Prepaid expenses and other assets                                                                                | **1,032,871**        | 1,086,330       
|                                                                                                                
|                                                                                                                 | **$270,175,533**     | $243,077,366    
|                                                                                                                
|**Liabilities and Stockholders' Equity**                                                                         |                      |                 
|**Liabilities**                                                                                                  |                      |                 
|Deposits (Note 4)                                                                                                | **$174,307,472**     | $158,568,275    
|Advances from Federal Home Loan Bank (Note 6)                                                                    | **63,000,000**       | 37,000,000      
|Securities sold under agreement to repurchase (Note 7)                                                           | **4,422,389**        | 20,000,000      
|Advance payments by borrowers
       for taxes and insurance                                                     | **293,168**          | 226,195         
|Other liabilities (Notes 8 and 12)                                                                               | **2,347,815**        | 1,888,821       
|                                                                                                                
|Total liabilities                                                                                                | **244,370,844**      | 217,683,291     
|                                                                                                                
|**Commitments and Contingencies**(Notes 12, 13, and 14)                                                          |                      |                 
|                                                                                                                
|**Stockholders' Equity**(Notes 10 and 13)                                                                        |                      |                 
|Preferred stock, $.01 par value, authorized
       3,000,000 shares, none outstanding                            | **-**                | -               
|Common stock, $.01 par value, 10,000,000 authorized
       shares, **2,348,832**and 2,511,526 shares outstanding | **23,488**           | 25,115          
|Additional paid-in capital                                                                                       | **4,500,450**        | 4,782,029       
|Retained earnings                                                                                                | **19,144,552**       | 19,401,019      
|Accumulated other comprehensive income (Note 9)                                                                  | **2,136,199**        | 1,185,912       
|                                                                                                                
|Total stockholders' equity                                                                                       | **25,804,689**       | 25,394,075      
|                                                                                                                
|                                                                                                                 | **$270,175,533**     | $243,077,366    
|                                                                                                                

*See accompanying summary of accounting policies and notes to consolidated financial statements.*

| | Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
| | ---------------------------------------------------------------------------------------- |  | 

**Consolidated Statements of Income**

|**Year Ended March 31,**                                       | **2001**        | 2000        | 1999       
|-------------------------------------------------------------- | --------------- | ----------- | -----------
|                                                              
|                                                               |                 |             |            
|**Interest income**                                            |                 |             |            
|Loans                                                          | **$17,347,457** | $14,565,894 | $13,665,754
|Investment securities                                          | **2,522,462**   | 1,448,006   | 348,965    
|Other investments                                              | **177,337**     | 140,048     | 243,468    
|                                                              
|Total interest income                                          | **20,047,256**  | 16,153,948  | 14,258,187 
|                                                               |                 |             |            
|**Interest expense**                                           |                 |             |            
|Deposits (Note 4)                                              | **7,709,614**   | 6,380,089   | 6,387,333  
|Borrowed money                                                 | **4,204,419**   | 2,335,487   | 945,198    
|                                                              
|Total interest expense                                         | **11,914,033**  | 8,715,576   | 7,332,531  
|                                                               |                 |             |            
|**Net interest income**                                        | **8,133,223**   | 7,438,372   | 6,925,656  
|**Provision for loan losses**(Note 2)                          | **320,635**     | 282,854     | 360,000    
|                                                              
|                                                               |                 |             |            
|**Net interest income after provision for
       loan losses** | **7,812,588**   | 7,155,518   | 6,565,656  
|                                                              
|                                                               |                 |             |            
|                                                               |                 |             |            
|**Noninterest income**                                         |                 |             |            
|**Service charges, fees and commissions**                      | **2,408,678**   | 1,366,212   | 1,327,680  
|Gain on sale of securities ****                                | **-**           | 601,412     | 1,224,721  
|Gain (loss) on sale of loans                                   | **412,650**     | 1,015,447   | 81,730     
|Other                                                          | **77,907**      | 213,400     | 3,449      
|                                                              
|Total noninterest income                                       | **2,899,235**   | 3,196,471   | 2,637,580  
|                                                              
|                                                               |                 |             |            
|**Noninterest expense**                                        |                 |             |            
|Compensation and employee benefits
       (Note 12)            | **4,485,382**   | 4,844,745   | 3,306,117  
|Occupancy                                                      | **1,520,556**   | 1,241,315   | 826,089    
|Data processing                                                | **164,750**     | 132,051     | 486,775    
|Insurance                                                      | **32,295**      | 72,530      | 82,317     
|Other                                                          | **2,037,783**   | 1,967,601   | 1,326,435  
|                                                              
|Total noninterest expense                                      | **8,240,766**   | 8,258,242   | 6,027,733  
|                                                              
|                                                               |                 |             |            
|**Income before income taxes**                                 | **2,471,057**   | 2,093,747   | 3,175,503  
|                                                              
|                                                               |                 |             |            
|**Income taxes**(Note 8)                                       |                 |             |            
|Current                                                        | **875,002**     | 920,799     | 1,175,168  
|Deferred                                                       | **(147,336)**   | (150,932)   | 152,789    
|                                                              
|Total income taxes                                             | **727,666**     | 769,867     | 1,327,957  
|                                                              
|                                                               |                 |             |            
|**Net income**                                                 | **$1,743,391**  | $1,323,880  | $1,847,546 
|                                                              
|                                                               |                 |             |            
|**Earnings per share**(Notes 11 and 13)                        |                 |             |            
|Basic                                                          | **$ .72**       | $ .52       | $ .72      
|Diluted                                                        | **$ .72**       | $ .52       | $ .71      

*See accompanying summary of accounting policies and notes to consolidated financial statements.*

15

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

**Consolidated Statements of Stockholders' Equity**

|                                                                                  | CommonStock | AdditionalPaid-inCapital | RetainedEarnings | AccumulatedOtherComprehensiveIncome | TotalStockholders'Equity
|--------------------------------------------------------------------------------- | ----------- | ------------------------ | ---------------- | ----------------------------------- | ------------------------
|                                                                                 
|**Balance, March 31, 1998**                                                       | $25,594     | $4,773,634               | $18,344,373      | $2,371,159                          | $25,514,760             
|Comprehensive income                                                             
|Net income                                                                        | -           | -                        | 1,847,546        | -                                   | 1,847,546               
|Change in unrealized gain on
       available for sale securities
       (Note 9) | -           | -                        | -                | (305,868)                           | (305,868)               
|Total comprehensive income                                                        | -           | -                        | -                | -                                   | 1,541,678               
|Cash dividends, $.31 per share                                                    | -           | -                        | (796,410)        | -                                   | (796,410)               
|Exercise of stock options (Note 13)                                               | 127         | 123,573                  | -                | -                                   | 123,700                 
|                                                                                 
|**Balance, March 31, 1999**                                                       | 25,721      | 4,897,207                | 19,395,509       | 2,065,291                           | 26,383,728              
|Comprehensive income                                                              |             |                          |                  |                                     |                         
|Net income                                                                        | -           | -                        | 1,323,880        | -                                   | 1,323,880               
|Change in unrealized gain on
       available for sale securities
       (Note 9) | -           | -                        | -                | (879,379)                           | (879,379)               
|Total comprehensive income                                                        | -           | -                        | -                | -                                   | 444,501                 
|Cash dividends, $.32 per share                                                    | -           | -                        | (819,493)        | -                                   | (819,493)               
|Repurchase of stock
       (60,620 shares) (Note 11)                              | (606)       | (115,178)                | (498,877)        | -                                   | (614,661)               
|                                                                                 
|**Balance, March 31, 2000**                                                       | 25,115      | 4,782,029                | 19,401,019       | 1,185,912                           | 25,394,075              
|Comprehensive income                                                              |             |                          |                  |                                     |                         
|Net income                                                                        | -           | -                        | 1,743,391        | -                                   | 1,743,391               
|Change in unrealized gain on available
       for sale securities (Note 9)        | -           | -                        | -                | 950,287                             | 950,287                 
|Total comprehensive income                                                        | -           | -                        | -                | -                                   | 2,693,678               
|Cash dividends, $.32 per share                                                    | -           | -                        | (780,102)        | -                                   | (780,102)               
|Exercise of stock options (Note 13)                                               | 60          | 38,940                   | -                | -                                   | 39,000                  
|Repurchase of stock (168,774 shares)
       (Note 11)                             | (1,687)     | (320,519)                | (1,219,756)      | -                                   | (1,541,962)             
|                                                                                 
|                                                                                 
|**Balance, March 31, 2001**                                                       | **$23,488** | **$4,500,450**           | **$19,144,552**  | **$2,136,199**                      | **$25,804,689**         
|                                                                                 

**Consolidated Statements of Cash Flows**

|**Year Ended March 31,**                                                         | **2001**         | 2000         | 1999         
|-------------------------------------------------------------------------------- | ---------------- | ------------ | -------------
|                                                                                
|**Operating activities**                                                         |                  |              |              
|Net income                                                                       | **$ 1,743,391**  | $ 1,323,880  | $ 1,847,546  
|Adjustments to reconcile net income to
net cash provided by operating activities |                  |              |              
|Provision for loan losses                                                        | **320,635**      | 282,854      | 360,000      
|Depreciation                                                                     | **742,575**      | 715,219      | 394,438      
|Amortization of premium and accretion
          of discount on securities, net   | **(65,031)**     | 3,662        | 5,238        
|Increase (decrease) in net deferred loan
          origination fees              | **(69)**         | (81,228)     | 21,510       
|Loans originated for sale                                                        | **(59,763,000)** | (59,081,330) | (19,528,255) 
|Proceeds from loan sales                                                         | **58,675,000**   | 59,083,634   | 19,130,400   
|                                                                                 |                  |              | *(continued)*

*See accompanying summary of accounting policies and notes to consolidated financial statements.*

| | Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
| | ---------------------------------------------------------------------------------------- |  | 

**Consolidated Statements of Cash Flows (continued)**

|Deferred income taxes                                                       | **347,349**        | (401,119)    | (46,012)      
|--------------------------------------------------------------------------- | ------------------ | ------------ | --------------
|Gain on sale of securities                                                  | **-**              | (601,412)    | (1,224,721)   
|(Increase) decrease in other assets                                         | **(319,851)**      | (124,425)    | (720,091)     
|Increase in other liabilities                                               | **178,618**        | 104,920      | 241,986       
|                                                                           
|Net cash provided by operating activities                                   | **1,859,617**      | 1,224,655    | 482,039       
|                                                                           
|                                                                            |                    |              |               
|**Investing activities**                                                    |                    |              |               
|Proceeds from maturities of held to maturity
   securities                  | **2,162,552**      | 6,237,420    | 1,829,429     
|Purchase of held to maturity securities                                     | **(5,297,230)**    | (27,260,915) | (4,175,685)   
|Proceeds from sale of securities ****                                       | **-**              | 612,189      | 1,244,761     
|Purchase of available for sale securities ****                              | **-**              | (4,942,534)  | -             
|Net increase in loans                                                       | **(24,840,781)**   | (19,522,241) | (9,282,876)   
|Purchases of property and equipment                                         | **(99,971)**       | (1,292,303)  | (2,811,000)   
|Proceeds from sale of real estate owned                                     | **1,281,213**      | 559,904      | 308,351       
|Redemption of FHLB stock ****                                               | **-**              | 1,350,000    | 91,800        
|Purchase of FHLB stock                                                      | **(1,200,000)**    | (1,791,800)  | -             
|                                                                           
|                                                                            |                    |              |               
|Net cash absorbed by investing activities                                   | **(27,994,217)**   | (46,050,280) | (12,795,220)  
|                                                                           
|                                                                            |                    |              |               
|**Financing activities**                                                    |                    |              |               
|Net increase in certificates of   deposit                                   | **18,568,848**     | 4,793,639    | 4,887,457     
|Net increase (decrease)in savings and   checking deposits                   | **(2,829,651)**    | 759,560      | 9,963,446     
|Proceeds from issuance of common stock                                      | **39,000**         | -            | 123,700       
|Repurchase of stock                                                         | **(1,541,962)**    | (614,661)    | -             
|Increase (decrease) in securities sold under
   agreements to repurchase    | **(15,577,611)**   | 20,000,000   | -             
|Dividends paid                                                              | **(780,102)**      | (819,493)    | (796,410)     
|Proceeds from advances, net                                                 | **26,000,000**     | 18,000,000   | 1,000,000     
|                                                                           
|                                                                            |                    |              |               
|Net cash provided by financing activities                                   | **23,878,522**     | 42,119,045   | 15,178,193    
|                                                                           
|                                                                            |                    |              |               
|**Increase (decrease) in cash and cash
   equivalents**                     | **(2,256,078)**    | (2,706,580)  | 2,865,012     
|                                                                            |                    |              |               
|**Cash and cash equivalents**- beginning of year                            | **7,424,577**      | 10,131,157   | 7,266,145     
|                                                                           
|**Cash and cash equivalents**- end of year                                  | **$ 5,168,499**    | $ 7,424,577  | $ 10,131,157  
|                                                                           
|                                                                            |                    |              |               
|**Supplemental Disclosures of Cash
   Flow Information**                   
|                                                                           
|Cash payments of interest expense                                           | **$12,127,146**    | $ 8,722,056  | $ 7,363,055   
|                                                                           
|Cash payments of income taxes                                               | **$      456,114** | $    967,226 | $ 1,413,415   
|                                                                           
|                                                                            |                    |              |               
|**Supplemental Schedule of Non-Cash
   Investing and Financing Activities**
|                                                                           
|Transfers from loans to real estate
   acquired through foreclosure         | **$      909,521** | $ 1,031,173  | $      412,862
|                                                                           

*See accompanying summary of accounting policies and notes to consolidated financial statements.*

17

|Summary of Accounting Policies**community financial****2001**ANNUAL REPORT |  | 
|-------------------------------------------------------------------------- |  | 

Principles of Consolidation

The accompanying consolidated financial statements
include the accounts of Community Financial Corporation (the "Corporation") and its wholly-owned subsidiary,
Community Bank (the "Bank") and Community First Mortgage Corporation ("Community First Mortgage"), a wholly-owned subsidiary of the Bank. All material intercompany accounts and transactions have been eleminated in
consolidation.

Nature of Business and Regulatory Environment

The Bank is a federally chartered thrift and the primary
asset of the Corporation. The Corporation provides a full range of banking services to individual and corporate
customers through its wholly-owned subsidiary.  Community First Mortgage originates mortgage loans to sell to third-party investors.  The Office of Thrift Supervision ("OTS") is the primary regulator for federally chartered savings
associations, as well as savings and loan holding companies.  The Bank's deposits are insured up to applicable limits
by the Savings Association Insurance Fund ("SAIF"), which is administered by the Federal Deposit Insurance
Corporation ("FDIC').  The FDIC has specific authority to prescribe and enforce such regulations and issue such orders
as it deems necessary to prevent actions or practices by savings associations that pose a serious threat to the SAIF.  The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was effective January 1, 1993.  FDICIA
contained provisions which allow regulators to impose prompt corrective action on undercapitalized institutions in
accordance with a categorized capital-based system.

Estimates

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

Securities

Investments in debt securities classified as held-to-maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts using the level yield
method. Management has a positive intent and ability to hold these securities to maturity and, accordingly, adjustments
are not made for temporary declines in their market value below amortized cost. Investment in Federal Home Loan Bank
stock is stated at cost.  Investments in debt and equity securities classified as available-for-sale are stated at market value
with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders'
equity, net of tax effect, until realized.  Investments in debt and equity securities classified as trading are stated at market
value.  Unrealized holding gains and losses for trading securities are included in the statement of income.  Gains and
losses on the sale of securities are determined using the specific identification method.

Loans Receivable

Loans receivable consists primarily of long-term real
estate loans secured by first deeds of trust on single family residences, other residential property, commercial property
and land located primarily in the state of Virginia. Interest  income on mortgage loans is recorded when earned and is
recognized based on the level yield method.  The Corporation provides an allowance for accrued interest deemed to be
uncollectible, which is netted against accrued interest receivable in the consolidated balance sheets.  The Corporation
defers loan origination and commitment fees, net of certain direct loan origination costs, and the net deferred fees are
amortized into interest income over the lives of the related loans as yield adjustments.  Any unamortized net fees on
loans fully repaid or sold are recognized as income in the year of repayment or sale.  The Corporation places loans on
nonaccrual status after being delinquent greater than 90 days or earlier if the Corporation becomes aware that the
borrower has entered bankruptcy proceedings, or in situations in which the loans have developed inherent problems
prior to being 90 days delinquent that indicate payments of principal or interest will not be made in full.  Whenever the
accrual of interest is stopped, previously accrued but uncollected interest income is reversed.  Thereafter, interest is
recognized only as cash is received

| | Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
| | ---------------------------------------------------------------------------------------- |  | 

until the loan is reinstated to accrual status.

The allowance for loan losses is maintained at a level
considered by management to be adequate to absorb future loan losses currently inherent in the loan portfolio.
Management's assessment of the adequacy of the allowance is based upon type and volume of the loan portfolio, past
loan loss experience, existing and anticipated economic conditions, and other factors which deserve current recognition
in estimating future loan losses.  Additions to the allowance are charged to operations.  Loans are charged-off partially
or wholly at the time management determines collectibility is not probable.  Management's assessment of the adequacy
of the allowance is subject to evaluation and adjustment by the Corporation's regulators.

The allowance for loan losses related to loans identified
as impaired is primarily based on the excess of the loan's current outstanding principal balance over the estimated fair
market value of the related collateral.  A loan is considered to be impaired when it is probable that the Corporation will
be unable to collect all principal and interest amounts according to the contractual terms of the loan agreement.  A
performing loan may be considered impaired.  For a loan that is not collateral-dependent, the allowance is recorded at
the amount by which the outstanding principal balance exceeds the current best estimate of the future cash flows on the
loan discounted at the loan's original effective interest rate.

For impaired loans that are on nonaccrual status, cash
payments received are generally applied to reduce the out-standing principal balance.  However, all or a portion of a
cash payment received on a nonaccrual loan may be recognized as interest income to the extent allowed by the loan
contract, assuming management expects to fully collect the remaining principal balance on the loan.

Real Estate Owned

Real estate acquired through foreclosure is initially
recorded at the lower of fair value, less selling costs, or the balance of the loan on the property at date of foreclosure.
Costs relating to the development and improvement of property are capitalized, whereas those relating to holding the
property are charged to expense.

Valuations are periodically performed by management,
and an allowance for losses is established by a charge to operations if the carrying value of a property exceeds its
estimated fair value.

Sale of Loans and Participation in Loans

The Corporation is able to generate funds by selling loans
and participations in loans to the Federal Home Loan Mortgage Corporation and other investors. Under participation
service agreements, the Corporation continues to service the loans and the participant is paid its share of principal and
interest collections.

The Corporation allocates the cost of acquiring or
originating mortgage loans between the mortgage servicing rights and the loans, based on their relative fair values, if
the bank sells or securitizes the loans and retains the mortgage ser-vicing rights.

The cost of mortgage servicing rights is amortized in
proportion to, and over the period of, estimated net servicing revenues.  Impairment of mortgage servicing rights is
assessed based on the fair value of those servicing rights.  Fair values are estimated using discounted cash flows based
on a current market interest rate.  For purposes of measuring impairment, the rights are stratified based on the
predominant risk characteristics of the underlying loans.  The amount of impairment recognized is the amount by which
the capitalized mortgage servicing rights for a stratum exceed their fair value.

Property and Equipment

Property and equipment is stated at cost less accumulated
depreciation.  Provisions for depreciation are computed using the straight-line method over the estimated useful lives
of the individual assets.  Expenditures for betterments and major renewals are capitalized and ordinary maintenance and
repairs are charged to operations as incurred.  Estimated useful lives are three to ten years for furniture and equipment
and five to fifty years for buildings and improvements.

Income Taxes

Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying

19

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

amounts and the tax bases of existing assets and liabilities.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), which establishes accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133, which was
subsequently amended by SFAS 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and
measure those instruments at fair value.  If certain requirements are met, a derivative may be specifically designated
as a hedge and an entity that elects to apply hedge accounting is required to establish at the inception of the hedge the
method it will use for assessing the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge.  Those methods must be consistent with the entity's approach to
managing risk.  SFAS 133, as amended, was effective for all fiscal quarters of fiscal years beginning after June 15, 2000
and required application prospectively.  The adoption of SFAS 133, as amended, did not have a material impact on the
Corporation's consolidated financial statements.

In March 2000, the FASB issued interpretation No. 44
("FIN 44"), Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB Opinion No.
25. FIN 44 clarifies the application of APB No. 25 for (a) the definition of employee for purposes of applying APB 25,
(b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequences
of various modifications to the previously fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination.  FIN 44 was effective July 2, 2000 but certain conclusions cover
specific events that occur after either December 15, 1998 or January 12, 2000.  The adoption of FIN 44 did not have
a material effect on the Corporation's financial statements but may impact the accounting for grants or awards in future
periods.

Earnings Per Share

Basic earnings per share include no dilution and are
computed by dividing income available to common stockholders by the weighted average number of common shares
outstanding for the period.  Diluted earnings per share reflects the potential dilution of stock options that could share
in the earnings of the Corporation.  The computation of basic and diluted earnings per share is presented in Note 11.

Comprehensive Income

Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" established rules for the reporting of comprehensive income and its components.
Comprehensive income is defined to include all changes in equity except those resulting from investments by and
distribution to shareholders.  Comprehensive income consists of net income and unrealized gains on available for sale
securities and is presented in the Consolidated Statements of Stockholders' Equity.

Statement of Cash Flows

For purposes of this presentation, cash equivalents
include federal funds sold.

Other

Certain reclassifications have been made in the prior
years' consolidated financial statements to conform to the March 31, 2001 presentation.

| | Notes to Consolidated Financial Statements**community financial****2001**ANNUAL REPORT |  | 
| | -------------------------------------------------------------------------------------- |  | 

**Notes to Consolidated Financial Statements**

**1. Securities**

A summary of the amortized cost and estimated market values of securities is as follows:

|**March 31, 2001**                                      
|--------------------------------------------------------
|                                                        
|                                                        
|                                                        
|**Held to Maturity**                                    
|United States government
       and agency obligations  
|Corporate obligations                                   
|Other                                                   
|                                                        
|                                                        
|                                                        
|                                                        
|**Available for Sale**                                  
|Federal Home Loan Mortgage
       Corporation securities
|                                                        
|                                                        
|                                                        
|                                                        
|**March 31, 2000**                                      
|                                                        
|                                                        
|                                                        
|**Held to Maturity**                                    
|United States government
       and agency obligations  
|Corporate obligations                                   
|Other                                                   
|                                                        
|                                                        
|                                                        
|                                                        
|**Available for Sale**                                  
|Federal Home Loan Mortgage
       Corporation securities
|                                                        
|                                                        
|                                                        

The amortized cost and estimated market value of securities at March 31, 2001, by contractual maturity, are shown
below:

|**March 31, 2001**                                       |                   |                     
|-------------------------------------------------------- | ----------------- | --------------------
|                                                        
|                                                         | AmortizedCost     | EstimatedMarketValue
|                                                        
|**Helt to Maturity**                                    
|Due in one year or less                                  | **$     924,837** | **$     927,461**   
|Due in one through five years                            | **28,980,343**    | **29,242,119**      
|                                                        
|                                                         | **29,905,180**    | **30,169,580**      
|                                                        
|                                                         |                   |                     
|**Available for Sale**                                   |                   |                     
|Federal Home Loan Mortgage
       Corporation securities | **4,975,952**     | **8,421,433**       
|                                                        

21

|Community Financial Corporation &Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|--------------------------------------------------------------------------------------- |  | 

| | **$34,881,132** | **$38,591,013**
| | --------------- | ---------------
|

**2.   Loans Receivable**

Loans receivable are summarized as follows:

|**March 31,**             | **2001**         | **2000**     
|------------------------- | ---------------- | -------------
|                         
|Residential real estate   | **$124,287,411** | $ 117,600,980
|Commercial real estate    | **37,640,675**   | 22,126,570   
|Construction and land     | **13,886,116**   | 20,686,821   
|Commercial business       | **14,167,204**   | 9,391,517    
|Consumer                  | **33,061,141**   | 30,752,825   
|                         
|                          | **223,042,547**  | 200,558,713  
|                         
|Less                      |                  |              
|Loans in process          | **6,819,563**    | 9,452,080    
|Deferred loan fees, net   | **187,537**      | 187,606      
|Allowance for loan losses | **1,477,649**    | 1,218,168    
|                         
|                          | **8,484,749**    | 10,857,854   
|                         
|                          | **$214,557,798** | $189,700,859 
|                         

Loans serviced for others amounted to approximately $4,662,000 and $5,584,000 at March 31, 2001 and 2000,
respectively.  The loans were not included in the accompanying consolidated balance sheets.

The weighted average interest rate on loans receivable was approximately 8.43% and 8.36% at March 31, 2001 and
2000, respectively.

A summary of the allowance for loan losses is as follows:

|**Year Ended March 31,**                              | **2001**       | 2000       | 1999      
|----------------------------------------------------- | -------------- | ---------- | ----------
|                                                     
|Balance at beginning of year                          | **$1,218,168** | $1,315,888 | $1,117,131
|Provision charged to expense                          | **320,635**    | 282,854    | 360,000   
|Losses charged to the allowance,
   net of recoveries | **(61,154)**   | (380,574)  | (161,243) 
|                                                     
|Balance at end of year                                | **$1,477,649** | $1,218,168 | $1,315,888
|                                                     

Of the total allowance for loan losses at March 31, 2001, approximately $1,460,000 is not specifically allocated to
identified problem loans.

**3.  Property and Equipment**

Property and equipment are summarized as follows:

|**March 31,**                                  | **2001**       | 2000      
|---------------------------------------------- | -------------- | ----------
|                                              
|Buildings                                      | **$4,190,880** | $4,149,949
|Land and improvements                          | **1,985,733**  | 2,158,849 
|Furniture and equipment                        | **2,749,740**  | 2,672,606 
|Construction in progress ****                  | **-**          | ****6,956 
|                                              
|                                               | **8,926,353**  | 8,988,360 
|Less accumulated depreciation and amortization | **3,099,333**  | 2,360,491 
|                                              
|Net office properties and equipment            | **$5,827,020** | $6,627,869
|                                              

| | Notes to Consolidated Financial Statements**community financial****2001**ANNUAL REPORT |  | 
| | -------------------------------------------------------------------------------------- |  | 

**4. Deposits**

|**March 31,**                 | **2001**           | 2000          
|----------------------------- | ------------------ | --------------
|                             
|**Demand deposits**           |                    |               
|Savings accounts              | **$   14,413,730** | $   14,574,084
|NOW accounts                  | **26,341,852**     | 26,762,722    
|Money market deposit accounts | **9,008,946**      | 11,257,373    
|                             
|Total demand deposits         | **49,764,528**     | 52,594,179    
|**Time deposits**             | **124,542,944**    | 105,974,096   
|                             
|                              | **$174,307,472**   | $158,568,275  
|                             

The aggregate amount of time deposit accounts with a minimum denomination of $100,000 was approximately $23,463,000 and $21,360,000 at March 31, 2001 and 2000, respectively.

Time deposits mature as follows:

|**March 31,**       | **2001**         | 2000        
|------------------- | ---------------- | ------------
|                   
|Within one year     | **$106,730,989** | $ 63,034,279
|One to two years    | **15,585,843**   | 34,437,972  
|More than two years | **2,226,112**    | 8,501,845   
|                   
|                    | **$124,542,944** | $105,974,096
|                   

Interest expense on deposits is summarized as follows:

|**Year Ended March 31,**              | **2001**       | 2000       | 1999      
|------------------------------------- | -------------- | ---------- | ----------
|                                     
|Time deposits                         | **$6,594,537** | $5,143,629 | $5,202,693
|Money market deposit and NOW accounts | **685,805**    | 795,965    | 782,097   
|Savings                               | **429,272**    | 440,495    | 402,543   
|                                     
|                                      | **$7,709,614** | $6,380,089 | $6,387,333
|                                     

**5. Fair Value of Financial Instruments**

The estimated fair values of the Corporation's financial instruments are as follows:

|**March 31,**                                         | **2001**           | 2000             
|----------------------------------------------------- | ------------------ | -----------------
|                                                     
|                                                      | **CarryingAmount** | **FairValue**    
|                                                     
|**Financial assets**                                  |                    |                  
|Cash and short-term investments                       | **$   5,168,499**  | **$   5,168,000**
|Securities                                            | **38,326,613**     | **38,591,000**   
|Loans, net of allowance for
       loan losses        | **214,557,798**    | **213,760,000**  
|**Financial liabilities**                             |                    |                  
|Deposits                                              | **174,307,472**    | **174,441,000**  
|Advances from Federal Home
       Loan Bank           | **63,000,000**     | **63,000,000**   
|Securities sold under agreements
       to repurchase | **4,422,389**      | **4,422,000**    

23

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

**5.  Fair Value of Financial Instruments (continued)**

|                                       | **NotionalAmount** | **FairValue**    | NotionalAmount | FairValue   
|-------------------------------------- | ------------------ | ---------------- | -------------- | ------------
|                                      
|**Unrecognized financial instruments** |                    |                  |                |             
|Commitments to extend credit           | **$ 15,766,000**   | **$ 15,766,000** | $ 16,197,000   | $ 16,197,000
|                                      

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value.

Cash and short-term investments

For those short-term investments, the carrying amount is a reasonable estimate of fair value.

Securities

Fair values are based on quoted market prices or dealer quotes. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.

Loan receivables

The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar remaining maturities.  This calculation ignores loan fees and certain factors
affecting the interest rates charged on various loans such as the borrower's creditworthiness and compensating balances
and dissimilar types of real estate held as collateral.

Deposit liabilities

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on
demand at the balance sheet date.  The fair value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.

Advances from Federal Home Loan Bank

For advances that mature within one year of the balance sheet date, carrying value is considered a reasonable estimate
of fair value.  The fair values of all other advances are estimated using discounted cash flow analysis based on the
Corporation's current incremental borrowing rate for similar types of advances.

Securities sold under agreements to repurchase

Securities sold under agreements to repurchase are treated as short-term borrowings and the carrying value approximates
fair value.

Commitments to extend credit

The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present creditworthiness of the borrowers.  For fixed-rate loan
commitments, fair value also considers the difference between current levels of interest rates and the committed rates.
Because of the competitive nature of the marketplace, loan fees vary greatly with no fees charged in many cases.

| | Notes to Consolidated Financial Statements**community financial****2001**ANNUAL REPORT |  | 
| | -------------------------------------------------------------------------------------- |  | 

**6.  Advances From Federal Home Loan Bank**

Advances from the Federal Home Loan Bank are summarized as follows:

|Due in year ending March 31,
|----------------------------
|                            
|2002                        
|                            
|TOTAL                       
|                            

The weighted average interest rate on advances was 5.19% and 6.59% at March 31, 2001 and 2001, respectively.  These
advances are collateralized by the investment in FHLB stock and the Corporation's portfolio of first mortgage  loans
under a Blanket Floating Lien Agreement.

Information related to borrowing activity from the Federal Home Loan Bank is as follows:

|**Year Ended March 31,**                   | **2001**        | 2000        | 1999       
|------------------------------------------ | --------------- | ----------- | -----------
|                                          
|Maximum amount outstanding during the year | **$63,000,000** | $42,000,000 | $20,000,000
|                                          
|Average amount outstanding during the year | **$48,339,373** | $32,583,333 | $14,166,667
|                                          
|Average interest rate during the year      | **6.37%**       | 5.68%       | 5.72%      
|                                          

**7.  Securities Sold Under Agreements to Repurchase**

The following is a summary of certain information regarding the Bank's repurchase agreements:

|**Year Ended March 31,**                                       | **2001**        | 2000        | 1999        
|-------------------------------------------------------------- | --------------- | ----------- | ------------
|                                                              
|Balance at end of year                                         | **$4,422,389**  | $20,000,000 | $          -
|                                                              
|Weighted average interest rate during the year                 | **6.58%**       | 5.74%       | -%          
|                                                              
|Average amount outstanding during the year                     | **$16,695,213** | $10,000,000 | $          -
|                                                              
|Maximum amount outstanding at any month end
   during the year | **$20,000,000** | $20,000,000 | $          -
|                                                              

**8. Income Taxes**

Deferred tax assets (liabilities), included in "Other liabilities" in the consolidated balance sheets are as follows:

|**March 31,**           | **2001**      | 2000     
|----------------------- | ------------- | ---------
|                       
|**Deferred tax assets** |               |          
|Allowance for losses    | **$ 320,782** | $ 141,951
|Other                   | **60,142**    | 4,954    
|                       
|                        | **380,924**   | 146,905  
|                       

25

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

**8.  Income Taxes (continued)**

|**Year Ended March 31,**     | **2001**         | ****2000      
|---------------------------- | ---------------- | --------------
|                            
|**Deferred tax liabilities** |                  |               
|**Depreciable assets**       | **$   (78,818)** | ****$(139,142)
|FHLMC stock                  | **(1,309,283)**  | ****(726,849) 
|FHLB stock                   | **(95,578)**     | ****(36,320)  
|                            
|                             | **(1,483,679)**  | ****(902,311) 
|                            
|Net deferred tax liability   | **$(1,102,755)** | ****$(755,406)
|                            

Differences between the statutory and effective tax rates are summarized as follows:

|**Year Ended March 31,**                                                                         | **2001**  | 2000  | 1999 
|------------------------------------------------------------------------------------------------ | --------- | ----- | -----
|                                                                                                
|Tax at statutory rate                                                                            | **34.0%** | 34.0% | 34.0%
|Increases (decreases) in taxes resulting from
        State income taxes, net of federal benefit | **1.3**   | 2.1   | 3.6  
|Non-taxable interest and dividend
       received deduction                                      | **(6.1)** | (3.3) | (1.9)
|Other                                                                                            | **0.2**   | 4.0   | 6.1  
|                                                                                                
|                                                                                                 | **29.4%** | 36.8% | 41.8%
|                                                                                                

**9.  Comprehensive Income**

The components of the other comprehensive income (loss) are summarized as follows:

|**Year Ended March 31,**                                                       | **2001**       | 2000        | 1999      
|------------------------------------------------------------------------------ | -------------- | ----------- | ----------
|                                                                              
|Unrealized gains (losses) on securities:                                       |                |             |           
|Unrealized holding gain arising during
       the period                       | **$1,532,721** | $ (889,052) | $ 706,301 
|Less: reclassification adjustments for gains
       included in net income     | **-**          | 601,421     | 1,224,721 
|                                                                              
|Other comprehensive income (loss), before tax                                  | **1,532,721**  | (1,490,473) | (518,420) 
|                                                                              
|Income tax (expense) benefit related to
   items of other comprehensive income | **(582,434)**  | 611,094     | 212,552   
|                                                                              
|Other comprehensive income (loss), net of tax                                  | **$ 950,287**  | $ (879,379) | $(305,868)
|                                                                              

**10.  Stockholders' Equity and Regulatory Capital Requirements**

Savings institutions must maintain specific capital standards that are no less stringent than the capital standards
applicable to national banks. The OTS regulations currently have three capital standards including (i) a tangible capital
requirement, (ii) a core capital requirement, and (iii) a risk-based capital requirement. The tangible capital standard
requires savings institutions to maintain tangible capital of not less than 1.5% of adjusted total assets. The core capital
standard requires a savings institution to maintain core capital of not less than 4.0% of adjusted total assets. The risk-based capital standard requires risk-based capital of not less than 8.0% of risk-weighted assets.

| | Notes to Consolidated Financial Statements**community financial****2001**ANNUAL REPORT |  | 
| | -------------------------------------------------------------------------------------- |  | 

**10.  Stockholders' Equity and Regulatory Capital Requirements (continued)**

The following table presents the Bank's regulatory capital levels, relative to the OTS requirements applicable at that
date:

|**March 31, 2001** | AmountRequired | PercentRequired | ActualAmount    | ActualPercnet | ExcessAmount   
|------------------ | -------------- | --------------- | --------------- | ------------- | ---------------
|                  
|Tangible Capital   | **$4,048,000** | **1.50%**       | **$22,168,000** | **8.21%**     | **$18,120,000**
|Core Capital       | **10,795,000** | **4.00**        | **22,168,000**  | **8.21**      | **11,373,000** 
|Risk-based Capital | **16,033,000** | **8.00**        | **25,179,000**  | **12.56**     | **9,146,000**  
|                   |                |                 |                 |               |                
|March 31, 2000     | AmountRequired | PercentRequired | ActualAmount    | ActualPercnet | ExcessAmount   
|                  
|Tangible Capital   | $3,672,000     | 1.50%           | $23,867,000     | 9.75%         | $20,195,000    
|Core Capital       | 9,793,000      | 4.00            | 23,867,000      | 9.75          | 14,074,000     
|Risk-based Capital | 13,406,000     | 8.00            | 25,923,000      | 15.85         | 12,517,000     

The Bank may not declare or pay a cash dividend, or repurchase any of its capital stock if the effect thereof would cause
the net worth of the Bank to be reduced below certain requirements imposed by federal regulations.

Capital distributions by OTS-regulated savings banks are limited by regulation ("Capital Distribution Regulation").
Capital distributions are defined to include, in part, dividends, stock repurchases and cash-out mergers. The Capital
Distribution Regulation permits a "Tier 1" savings bank to make capital distributions during a calendar year equal to
net income for the current year plus the previous two years net income, less capital distributions paid over that same
period. Any distributions in excess of that amount require prior OTS notice, with the opportunity for OTS to object to
the distribution. A Tier 1 savings bank is defined as a savings bank that has, on a pro forma basis after the proposed
distribution, capital equal to or greater than the OTS fully phased-in capital requirement and has not been deemed by
the OTS to be "in need of more than normal supervision". The Bank is currently classified as a Tier 1 institution for
these purposes. The Capital Distribution Regulation requires that savings banks provide the applicable OTS District
Director with a 30-day advance written notice of all proposed capital distributions whether or not advance approval is
required by the regulation.

**11.  Earnings Per Share**

During the year ended March 31, 2000, the Board of Directors authorized a stock repurchase program under which up
to 5%, or 128,607 shares, of the then outstanding share of the Corporation's stock may be repurchased.  During the year
ended March 31, 2001, the Board of Directors increased the number of shares of the Corporation's stock which may
be repurchased to 372,607. During the years ended March 31, 2001 and 2000, 168,774 and 60,620 shares, respectively,
were repurchased for an aggregate amount of approximately $1,542,000 and $615,000, respectively.

Earnings per share is calculated as follows:

|**Year Ended March 31,**                | **2001**            | 2000            | 1999           
|--------------------------------------- | ------------------- | --------------- | ---------------
|                                       
|**Basic Earnings**                      |                     |                 |                
|Income available to common stockholders | **$1,743,391**      | $1,323,880      | $1,847,546     
|                                       
|Weighted average shares outstanding     | **2,435,180**       | 2,561,343       | 2,569,543      
|                                       
|Basic earnings per share                | **$           .72** | $           .52 | $           .72
|                                       

27

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

**11.  Earnings Per Share (continued)**

|**Year Ended March 31,**                  | **2001**            | 2000            | 1999      
|----------------------------------------- | ------------------- | --------------- | ----------
|                                         
|**Diluted Earnings per Share**            |                     |                 |           
|Income available to common stockholders   | **$1,743,391**      | $1,323,880      | $1,847,546
|                                         
|Weighted average shares outstanding       | **2,435,180**       | 2,561,343       | 2,569,543 
|Diluted effect of stock options           | **-**               | -               | 19,960    
|                                         
|Total weighted average shares outstanding | **2,435,180**       | 2,561,343       | 2,589,503 
|                                         
|Diluted earnings per share                | **$           .72** | $           .52 | .71       
|                                         

**12. Employee Benefit Plans**

**Pension Plan**

The Corporation has a noncontributory defined benefit pension plan covering substantially all of its employees. The
benefits are based on years of service and final average compensation. The Corporation's funding policy is to contribute
amounts to the pension trust at least equal to the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 (ERISA), but not in excess of the maximum tax deductible amount.  Contributions are intended
to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. The
following is a summary of information with respect to the plan:

|**Year Ended March 31,**                            | **2001**     | 2000         | 1999    
|--------------------------------------------------- | ------------ | ------------ | --------
|                                                   
|                                                   
|**Net periodic pension cost**                       |              |              |         
|Service cost - benefits earned during the period    | **$ 87,355** | $ 74,653     | $75,192 
|Interest cost on projected benefit obligations **** | **58,100**   | 48,874       | 42,780  
|Actual return on plan assets ****                   | **(45,515)** | (39,563)     | (38,281)
|Net amortization and deferral ****                  | **(11,942)** | (10,954)     | (11,604)
|                                                   
|                                                    | $ 87,998     | $ 73,010     | $68,087 
|                                                   
|**Accumulated benefit obligation**                  |              |              |         
|Vested benefits                                     | **$608,830** | ****$511,450 | $471,078
|Non-vested benefits                                 | **14,370**   | 23,503       | 13,755  
|                                                   
|                                                   
|                                                    | $623,200     | $534,953     | $484,833
|                                                   

| | Notes to Consolidated Financial Statements**community financial****2001**ANNUAL REPORT |  | 
| | -------------------------------------------------------------------------------------- |  | 

**12.   Employee Benefit Plans (continued)**

|**Year Ended March 31,**                                        | **2001**            | 2000         
|--------------------------------------------------------------- | ------------------- | -------------
|                                                               
|**Accrued pension cost**                                        |                     |              
|Projected benefit obligation                                    | **$885,325**        | ****$700,531 
|Fair value of plan assets, primarily
   IPG insurance contracts | **836,978**         | ****719,060  
|                                                               
|Assets in excess (deficit) of projected
   benefit obligation   | **(48,347)**        | 18,529       
|Unrecognized prior service cost                                 | **6,204**           | 9,304        
|Unrecognized net (gain) loss                                    | **58,756**          | (27,740)     
|Unrecognized net asset                                          | **(24,796)**        | ****(33,063) 
|                                                               
|                                                                | ******$   (8,183)** | ****$(32,970)
|                                                               

The following assumed rates were used in determining the projected benefit obligations:

|**Year Ended March 31,**                            | **2001**  | 2000 
|--------------------------------------------------- | --------- | -----
|                                                   
|                                                    |           |      
|Weighted average discount rate                      | **7.75%** | 8.00%
|                                                   
|                                                   
|Expected long-term rate of return on
   plan assets | **7.50%** | 7.50%
|                                                   
|                                                   
|Increase in future compensation levels              | **5.00%** | 5.00%
|                                                   

The measurement dates used to value the plan assets were December 31, 2001, and 2000.

**Employee Stock Ownership Plan**

The Employee Stock Ownership and 401(k) Profit Sharing Plan (the "Plan") is a combination of a profit sharing plan
with 401(k) and a stock bonus plan. The Plan provides for retirement, death, and disability benefits for all eligible
employees.

An employee becomes eligible for participation after completion of one year of service. After meeting the eligibility
requirements, an employee becomes a member of the Plan on the earliest January 1, April 1, July 1, or October 1
occurring on or after his qualification.

The contributions to the Plan are discretionary and are determined by the Board of Directors. The contributions are
limited annually to the maximum amount permitted as a tax deduction under the applicable Internal Revenue Code
provisions.

Profit-sharing, pension plan, and retirement expenses were $156,200, $154,400, and $92,000 for the years ended March
31, 2001, 2000, and 1999, respectively.

29

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

**13.  Stock Option Plan**

The Corporation has a noncompensatory stock option plan designed to provide long-term incentives to employees. All
options are exercisable upon grant date.

The following table summarizes options outstanding:

|**Year Ending March 31,**            | **2001**     | 2000                              | 1999    
|------------------------------------ | ------------ | --------------------------------- | --------
|                                    
|                                     | **Shares**   | **Weighted-averageexerciseprice** | Shares  
|                                    
|Outstanding at   beginning of year   | **242,950**  | **$11.65**                        | 228,300 
|Granted                              | **30,000**   | **9.63**                          | 27,500  
|Forfeited                            | **(76,000)** | **10.86**                         | (12,850)
|Exercised                            | **(6,000)**  | **6.50**                          | -       
|                                    
|Options outstanding at   end of year | **190,950**  | **$11.60**                        | 242,950 
|                                    

The weighted average fair value of options granted during the year ended March 31, 2001, 2000 and 1999 were $2.84,
$2.38, and $3.43, respectively.

The Corporation applies Accounting Principals Board Opinion 25 in accounting for stock options granted to employees.
Had compensation expense been determined based upon the fair value of the awards at the grant date and consistent with
the method under Statement of Financial Accounting Standards 123, the Corporation's net earnings and net earnings
per share would have been decreased to the pro forma amounts as indicated in the following table:

|**Net income:**           | **2001**       | 2000        | 1999      
|------------------------- | -------------- | ----------- | ----------
|                         
|As reported               | **$1,743,391** | $1,323,880  | $1,847,546
|Pro forma                 | **1,692,271**  | 1,283,921   | 1,661,854 
|                         
|**Net income per share:** | **Basic**      | **Diluted** | Basic     
|                         
|As reported ****          | **$0.72**      | **$0.72**   | $0.52     
|Pro forma                 | **0.69**       | **0.69**    | 0.50      

| | Notes to Consolidated Financial Statements**community financial****2001**ANNUAL REPORT |  | 
| | -------------------------------------------------------------------------------------- |  | 

**13.  Stock Option Plan (continued)**

The fair value of each option granted is estimated on the date of grant using the Black-Sholes option pricing model with
the following assumptions used for grants for the year ended March 31, 2001: a risk-free interest rate of 6.00%, dividend
yield of 2.00%, expected weighted average term of 10 years, and a volatility of 25.00%.

The following table summarizes information about stock options outstanding and exercisable at March 31, 2001.

|                   | **Options Outstanding and Exercisable**
|------------------ | ---------------------------------------
|                  
|                   | **Number ofShares**                    
|                  
|**$ 6.50 - 9.75**  | **56,000**                             
|**$10.00 - 15.00** | **134,950**                            
|                  
|****               | **190,950**                            
|                  

**14. Commitments and Contingencies**

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The Corporation evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on
management's credit evaluation of the counterparty. Collateral held varies but may include single family residences,
other residential property, commercial property and land. At March 31, 2001, the Corporation had outstanding
commitments to originate loans with variable interest rates of approximately $5,578,000 and loans with fixed rates of
approximately $4,525,000. In addition, unused lines of credit amounted to approximately $5,663,000 at March 31, 2001.

**Leases**

The Corporation is obligated under several noncancellable operating leases. Future minimum annual rental commitments
under the leases are as follows:

|Year EndingMarch 31 | Amount          
|------------------- | ----------------
|                   
|2002                | **$    223,658**
|2003                | **231,112**     
|2004                | **197,960**     
|2005                | **185,360**     
|2006                | **66,390**      
|Thereafter          | **556,205**     
|                   
|                    | **$1,460,685**  
|                   

Total lease expense was approximately $215,000, $219,000, and $157,000 for the years ended March 31, 2001, 2000,
and 1999, respectively.

In the normal course of business, the Corporation has entered into employment agreements with certain officers of the
Bank.

31

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

**15. Selected Quarterly Financial Data (Unaudited)**

Condensed quarterly financial data is shown as follows: (Dollars in thousands except per share data)

|**Year Ended March 31, 2001**                         
|------------------------------------------------------
|                                                      
|                                                      
|Total interest income ****                            
|Total interest expense                                
|                                                      
|****Net interest income                               
|Provision for loan losses ****                        
|                                                      
|Net interest income after provision
   for loan losses
|Other income****                                      
|Other expenses                                        
|                                                      
|Income before income taxes                            
|Income tax expense (benefit)                          
|                                                      
|Net income                                            
|                                                      
|Earnings per share                                    
|Basic                                                 
|Diluted                                               
|                                                      
|                                                      
|Year Ended March 31, 2000                             
|                                                      
|                                                      
|Total interest income                                 
|Total interest expense                                
|                                                      
|Net interest income                                   
|Provision for loan losses                             
|                                                      
|Net interest income after provision
   for loan losses
|Other income                                          
|Other expenses                                        
|                                                      
|Income (loss) before income taxes                     
|Income tax expense (benefit)                          
|                                                      
|Net income                                            
|                                                      
|Earnings per share                                    
|Basic                                                 
|Diluted                                               
|                                                      

| | Notes to Consolidated Financial Statements**community financial****2001**ANNUAL REPORT |  | 
| | -------------------------------------------------------------------------------------- |  | 

**16. Condensed Financial Information of the Corporation (Parent Company Only)**

**Condensed Statements of Financial Condition**

|**March 31,**                            | **2001**              | 2000             
|---------------------------------------- | --------------------- | -----------------
|                                        
|**Assets**                               |                       |                  
|Investment in the Bank, at equity        | **$22,248,217**       | $23,957,601      
|Cash                                     | **1,088,027**         | 161,712          
|Prepaid expenses and other assets        | **332,246**           | 88,850           
|                                        
|                                        
|                                         | **$23,668,490**       | $24,208,163      
|                                        
|                                        
|**Liabilities and Stockholders' Equity**
|                                        
|Liabilities                              | **$               -** | $               -
|                                        
|**Stockholders' Equity**                 |                       |                  
|Common stock ****                        | **23,488**            | 25,115           
|Additional paid-in capital ****          | **4,500,450**         | 4,782,029        
|Retained earnings ****                   | **19,144,552**        | 19,401,019       
|                                        
|Total stockholders' equity               | **23,668,490**        | 24,208,163       
|                                        
|                                        
|                                         | **$23,668,490**       | $24,208,163      
|                                        

**Condensed Statements of Income**

|**Year Ended March 31,**                                                   | **2001**        | 2000         | 1999            
|-------------------------------------------------------------------------- | --------------- | ------------ | ----------------
|                                                                          
|**Income**                                                                 |                 |              |                 
|Dividend from Bank                                                         | **$3,500,000**  | $1,000,000   | $              -
|Interest income                                                            | **12,596**      | 14,089       | 9,333           
|                                                                          
|Total income ****                                                          | **3,512,596**   | 1,014,089    | 9,333           
|                                                                          
|**Noninterest expenses**                                                   | **(88,715)**    | (46,399)     | (42,535)        
|                                                                          
|**Income (loss) before equity in undistributed
   net income of the Bank** | **3,423,881**   | 967,690      | (33,202)        
|Equity in earnings of Bank, net of distributions                           | **(1,709,385)** | ****343,924  | 1,868,145       
|                                                                          
|**Income before income taxes**                                             | **1,714,496**   | 1,311,614    | 1,834,943       
|Income tax expense (benefit) ****                                          | **(28,895)**    | ****(12,266) | (12,603)        
|                                                                          
|**Net income**                                                             | **$1,743,391**  | $1,323,880   | $1,847,546      
|                                                                          

33

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

**16. Condensed Financial Information of the Corporation (Parent Company Only) (continued)**

**Condensed Statements of Cash Flows**

|**Year Ended March 31**                              | **2001**        | 2000              | 1999         
|---------------------------------------------------- | --------------- | ----------------- | -------------
|                                                    
|**Operating activities**                             |                 |                   |              
|Net income                                           | **$1,743,391**  | $1,323,880        | $1,847,546   
|Adjustments                                          |                 |                   |              
|Equity in undistributed income of the Bank           | **1,709,385**   | ****(343,924)     | (1,868,145)  
|(Increase) decrease in prepaid and other assets      | **(243,396)**   | (35,600)          | (12,603)     
|                                                    
|                                                    
|Net cash provided (absorbed) by operating activities | **3,209,380**   | 944,356           | (33,202)     
|                                                    
|                                                     |                 |                   |              
|**Investing activities**                             |                 |                   |              
|Net cash provided by investing activities            | -               | -                 | **-**        
|                                                    
|                                                     |                 |                   |              
|**Financing activities**                            
|Cash dividends paid on common stock                  | **(780,102)**   | (819,493)         | (796,410)    
|Repurchase common stock                              | **(1,541,963)** | (614,661)         | -            
|Stock options exercised                              | **39,000**      | -                 | 123,700      
|                                                    
|                                                     |                 |                   |              
|Net cash absorbed by financing activities            | **(2,283,065)** | (1,434,154)       | (672,710)    
|                                                    
|                                                    
|**Increase (decrease) in cash**                      | **926,315**     | (489,798)         | (705,912)    
|**Cash,**beginning of year                           | **161,712**     | 651,510           | 1,357,422    
|                                                    
|                                                    
|**Cash,**end of year                                 | **$1,088,027**  | ****$     161,712 | $     651,510
|                                                    

| | Stockholder Information**community financial****2001**ANNUAL REPORT |  | 
| | ------------------------------------------------------------------- |  | 

Form 10-KSB Report

A copy of our Annual Report on Form 10-KSB for the
fiscal year ended March 31, 2001 including financial statements, as filed with the SEC, will be furnished without charge
to our stockholders of record upon written request to the Secretary, Community Financial Corporation, 38 North Central
Avenue, Staunton, Virginia 24401.

|**Current Independent Auditors**
*Yount, Hyde & Barbour, P.C.*
50 South Cameron Street
Winchester, Virginia 22601
**Former Independent Auditors**
*BDO Seidman, LLP*
300 Arboretum Place
Suite 520
Richmond, Virginia 23236
**Market Makers***Scott & Stringfellow, Inc**Knight Securities L.P.**Anderson & Strudwick, Inc.**Sandler O'Neill & Partners*
**Transfer Agent**
Community Bank acts as Transfer Agent for
Community Financial Corporation | **Legal Counsel***Nelson, McPherson, Summers & Santos*
12 North New Street
Staunton, Virginia 24401
*Silver, Freedman & Taff, L.L.P.*
1100 New York Avenue, N.W.
7th Floor-East
Washington, D.C. 20015
*Williams, Mullen, Christian & Dobbins*
Two James Center
1021 East Cary Street
Richmond, Virginia 23210
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

35

|Community Financial Corporation & Subsidiary**community financial****2001**ANNUAL REPORT |  | 
|---------------------------------------------------------------------------------------- |  | 

**Common Stock**

As of May 31, 2001, there were approximately 526
holders of record of Community Financial common stock.   Community Financial common stock is traded on the
Nasdaq Small Cap Market under the symbol "CFFC."  The shareholders of record number does not reflect persons or
entities who hold their stock in nominee or "street" name.

The following tables present the Community Financial's
high, low, and closing sales prices as reported by the Nasdaq Stock Market during the last two fiscal years and the
dividends declared by us for the stated periods.

|Fiscal 2001    | High   | Low    | Close  | Dividends Declared
|-------------- | ------ | ------ | ------ | ------------------
|              
|June 2000      | $10.25 | $8.75  | $8.75  | $ .08             
|September 2000 | 9.13   | 8.13   | 8.44   | .08               
|December 2000  | 9.50   | 8.00   | 9.50   | .08               
|March 2001     | 10.00  | 9.50   | 9.63   | .08               
|              
|              
|Fiscal 2000    | High   | Low    | Close  | Dividends Declared
|              
|June 1999      | $11.50 | $10.75 | $11.50 | $ .08             
|September 1999 | 12.00  | 10.25  | 10.63  | .08               
|December 1999  | 12.00  | 9.00   | 10.13  | .08               
|March 2000     | 11.50  | 9.63   | 9.63   | .08               

Dividend payment decisions are made by the Board of
Directors of Community Financial with consideration of a variety of factors, including earnings, financial condition,
market considerations and regulatory restrictions.  Our ability to pay dividends is limited by restrictions imposed by the
Virginia Stock Corporation Act, and indirectly, by the Office of Thrift Supervision. Restrictions on dividend payments
from Community Bank to Community Financial (Community Financial's primary source of funds for the payment of
dividends to its stockholders) are described in Note 10 of the Notes to Consolidated Financial Statements contained in
this Annual Report.

|                                                      |  | Mortgage Corporation
**community financial****2001**ANNUAL REPORT              
|----------------------------------------------------- |  | -------------------------------------------------------------------------------
|[PICTURE]**Community First**
**Mortgage Corporation** |  | **Community First MortgageCorporation Employees**Tony BottomsPresident**Staff**
|                                                      |  | June Bethea                                                                    
|                                                      |  | Kerri Bliss                                                                    
|                                                      |  | Lorey Bowles                                                                   
|                                                      |  | Debbie Clendenin                                                               
|                                                      |  | Lisa Collins                                                                   
|                                                      |  | Mary Jean Davis                                                                
|                                                      |  | Steve Davis                                                                    
|                                                      |  | Tom Gill                                                                       
|                                                      |  | David Jones                                                                    
|                                                      |  | Lisa Kurtz                                                                     
|                                                      |  | Debra Lynch                                                                    

During the fiscal year ending March 31, 2001, Community First Mortgage Corporation enjoyed its first
profitable year since the inception of the Company. The retail division of the Company closed over $59.3
million in permanent residential mortgage loans, representing an increase of $15 million over the
previous fiscal year. The increase in production was especially gratifying considering that interest rates
were higher for most of fiscal 2001 than they were during fiscal 2000. Federal Reserve Board action to
lower rates in order to prevent a potential economic recession did not begin until the fourth quarter of
fiscal year 2001.

The construction lending division, which was established during the previous fiscal year, contributed in a
great way to the Company's profitability during fiscal year 2001. Rick Perkins, the division manager,
continued to attract many excellent builder customers to the Company, thereby increasing production
over the previous year by nearly 18%. In addition, Rick and his staff provided service and support to the
retail division of the Company's construction to permanent loan program. At fiscal year end, the
construction lending division had originated $11.8 million in new loans, with $9.84 million in outstanding
commitments and $6.96 million disbursed.

37

|Employees and Branch Offices
**community financial****2001**ANNUAL REPORT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**Executive and Administrative Offices:**38 North Central Avenue
Staunton, Virginia 24401
(540) 886-0796
Fax: (540) 885-0643
E-Mail: cbnk@cbnk.com
Web Address: www.cbnk.com**Retail Banking Offices:**
Downtown Office
38 North Central Avenue
Staunton, Virginia 24401
(540) 886-0796

Richmond Road Branch
101 Community Way
Staunton, Virginia 24401
(540) 213-3888

Waynesboro Branch
2934 West Main Street
Waynesboro, Virginia 22980
(540) 943-5000

Stuarts Draft Branch
2658 Stuarts Draft Highway
Stuarts Draft, Virginia 24477
(540) 337-1514**Hampton Roads Region:**
Regional Headquarters
621 Nevan Road
Virginia Beach, Virginia 23451
(757) 491-8810

Kemps River Branch
5300 Kemps River Drive, Suite 100
Virginia Beach, Virginia 23464
(757) 424-5600**Community First Mortgage Corporation:**
Main Office
9201 Arboretum Parkway, Suite 210
Richmond, Virginia 23236
(804) 330-9800

Staunton Office
101 Community Way
Staunton, Virginia 24401
(540) 213-3770
|***Community Bank Employees***                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Pam Addington                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Gretchen Abshire                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Kim Aldhizer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Becky Ballew                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Dianne Booth                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Jennifer Boxler                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Janet Braithwaite                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Deborah Burnett                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Dianne Campbell                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Martha Chandler                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Patsy Clem                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Stacy Clemmer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Michelle Coffey                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Kelly Couch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Gary Davenport                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Charlott Dean                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Kay Dean                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Diana Decker                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Grace Dick                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Maria Dimapelis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Pinar Donmez                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Renee Fangman                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Danny Fields                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Ariel Fix                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Jim Fordham                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Kristie Frieberg                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Melissa Galvin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Wanda Garrison                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Jerry Giles                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Jessica Green                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Brenda Haley                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Darlene Hall                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Alisha Hammer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Robert Hoffman                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Carol Houff                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Carolyn Howell                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Teresa Knapton                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Ellen Kutchak                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Chris Kyriakides                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Teresa Layne                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Tonna Lotts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Marcie Mader                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Virginia McCormack                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Pam McGovern                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|Hugh McMenamin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Emilie Mehrtens                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                                             | Community Bank Offices
**community financial********2001**ANNUAL REPORT
|------------------------------------------------------------ | -----------------------------------------------------------------------
|                                                             |                                                                        
|                                                             |                                                                        
|[PICTURE]

Downtown Office &Corporate Headquarters, Staunton | [PICTURE]

Stuarts Draft                                               
|                                                             |                                                                        
|[PICTURE]Waynesboro                                          | [PICTURE]Richmond Road                                                 
|                                                             |                                                                        
|[PICTURE]Regional Headquarters, Hilltop, Virginia Beach      | [PICTURE]Kemps River, Virginia Beach                                   
|                                                             |                                                                        

39

|Stockholder Information
**community financial********2001**ANNUAL REPORT |  | 
|------------------------------------------------------------------------ |  | 

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**Corporate Profile**Community Bank was organized in 1928 as a
Virginia-chartered building and loan association,
converted to a federally-chartered savings and
loan association in 1955 and to a federally-chartered savings bank in 1983. In 1988,
Community Bank converted to the stock form of
organization through the sale and issuance of
656,134 shares of its common stock. Community
Financial was organized in 1989 for the purpose
of becoming a thrift institution holding company.
Effective January 31, 1990, Community Bank
completed the holding company reorganization of
the bank and Community Financial acquired all of
the issued and outstanding shares of common
stock of Community Bank. In 1996, the
Community Financial changed its place of
incorporation from the State of Delaware to the
Commonwealth of Virginia.

       The principal asset of Community Financial is the
outstanding stock of Community Bank, its wholly
owned subsidiary. Community Financial presently
has no separate operations and its business
consists only of the business of Community
Bank. |  | Community Bank's primary business is the
promotion of savings through the solicitation of
savings accounts from the general public and the
promotion of home ownership through the
granting of mortgage loans, primarily to finance
the purchase, construction and improvement of
real estate.

       Both Community Financial and Community Bank
conduct business through a main office located
at 38 North Central Avenue, Staunton, Virginia
24401, a second Staunton office at 101
Community Way, Staunton, Virginia 24401, a
Waynesboro office at 2934 West Main Street,
Waynesboro, Virginia 22980, a Stuarts Draft
office at Routes 340 and 608, Stuarts Draft,
Virginia 24477 and two Virginia Beach offices at
5300 Kemps River Drive, Suite 100, Virginia
Beach, Virginia 23467 and 621 Nevan Road,
Virginia Beach, Virginia. The Bank's subsidiary,
Community First Mortgage Corporation, conducts
business at 9201 Arboretum Parkway, Suite 210,
Richmond, Virginia 23236.
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