**COMMUNITY FINANCIAL CORPORATION**

**CODE OF BUSINESS CONDUCT**

**AND ETHICS**

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**PART I**

**OVERVIEW**

**Purpose of the Code**

       This Code of Business Conduct and Ethics ("Code") is intended to deter wrongdoing and promote:

- Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professionalrelationships; Avoidance of conflicts of interest, or the appearance of conflicts, including appropriate disclosure to supervisors of any material transaction orrelationship that reasonably could be expected to give rise to a conflict;Full, fair, accurate, timely and understandable disclosure in documents the Corporation files with, or submits to, the SEC and in all publiccommunications made by the Corporation;
- Compliance with applicable governmental laws, rules and regulations; Prompt internal reporting to designated persons of violations of the Code; andAccountability for adherence to the Code.
**Application of the Code**
       The Code applies to all Community Financial Corporation (the "Corporation") directors and employees, includingsubsidiary and affiliate employees. The Code applies to all employee decisions and activities within the scope of employment, or when representing the Corporation in any capacity. A copy of the Codewill be included in the orientation package provided to new employees. Following review of the Code, all employees will be asked to sign a written confirmation that they have reviewed the Code. AllCorporation officers and directors should be familiar with the requirements of the Code, and should encourage employees to apply the Code to their daily activities and decisions, and to seek guidancefrom the appropriate individuals when additional information or explanation is needed.
       Copies of the Code may be obtained from several sources, including the Employee Handbook and the Corporation's Human Resources Department.
**Obtaining Guidance**
       If you need additional explanation regarding a particular provision of the Code, or if you need guidance in a specific situation, including whether a conflict or potential conflict of interest mayexist, please contact your immediate supervisor. If you are uncomfortable speaking to your immediate supervisor, or if you require additional guidance after having consulted with your supervisor, youare encouraged to contact the following individual:
Manager, Human ResourcesRamona Savidge(540) 886-0796 ext. 114rsavidge@cbnk.com
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**Reporting Violations of the Code**
       Any known or suspected violation of the Code, including actions or failures to act, must be promptly reported to your supervisor or the person listed above. This includes violations or possibleviolations involving you, another employee (including officers) or a director. Any violation of law, rule or regulation applicable to the Corporation and/or corporate policy is also a violation ofthis Code. Violations of the Code may result in disciplinary action including, in severe situations, immediate termination of employment.
       All concerns or complaints will be promptly investigated and appropriate action taken. The Manager, Human Resources will document the results of the investigation in a report to the Board ofDirectors in order to ensure a fair process is utilized in determining whether a violation of the Code has occurred. No person expressing concerns or complaints will be subject to any disciplinary orother adverse action by the Corporation absent a knowingly false report. All concerns or complaints may be made anonymously and will remain confidential. Please provide sufficient information toallow us to properly investigate your concerns. The Corporation will retain a record of all concerns and complaints, and the results of its investigations, for five years.
       Concerns regarding questionable accounting, internal accounting controls or auditing matters may be directed to the Audit Committee at P.O. Box 232, Staunton, VA 24402.
**PART IIPRINCIPLES AND STANDARDS OF CONDUCT**
       One of the most valued assets of the Corporation is its reputation for integrity as determined by the personal conduct of its directors, officers and staff, and how that conduct may be perceivedby the public. The ethical management of both personal and business affairs is most important to all directors and employees in order to avoid situations that might lead to a conflict, or evensuspicion of a conflict, between personal interest and responsibility to the Corporation. Your position should never be used directly or indirectly for private gain, for advancement of personalinterests or to obtain favors or benefits for oneself, customers, or suppliers.
       The following is a statement of policy regarding standards of conduct expected from directors and employees of the Corporation and its subsidiaries in their treatment of confidential information,personal investments, gifts and fees, and outside activities.
**Confidential and Insider Information**
        Confidentiality is a fundamental principle of the financial services business. In the course of performing your duties, you may acquire confidential information. Confidential information includesall non-public information that might be of use to competitors or harmful to the Corporation or its customers, if disclosed. Confidential information, in any form, obtained through business orpersonal contacts with customers, prospective customers, suppliers, or other employees shall be used solely for the Corporation's purposes. Information reflecting favorably or adversely upon thecurrent or future value of any business enterprise should not be used in any manner for personal gain or for advantage to a third party. This information must not be revealed to unauthorized personsor discussed with others within the Corporation unless their duties require this information. The use of confidential information submitted to us through any source about one customer to further theprivate interests of another customer is unethical and may be illegal.
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       Some specific examples of confidential information include:
Personal, business and financial information of our customers and potential customers;
- Non-public business and financial information of the Corporation; personal information regarding any employee of the Corporation; Information related to, including the identity of, potential candidates for mergers and acquisitions;Information regarding the Corporation's sales strategies, plans or proposals;
- Information related to computer software programs, whether proprietary or standard; Information related to documentation systems, information databases, customized hardware or other information systems and technologicaldevelopments;Manuals, processes, policies, procedures, compositions, opinion letters, ideas, innovations, inventions, formulas and other proprietary informationbelonging to the Corporation or related to the Corporation's activities;
- Security information, including without limitation, policies and procedures, passwords, personal identification numbers (PINs) and electronic accesskeys; Communications by, to and from regulatory agencies; andCertain communications with or from attorneys for the Corporation, whether internal or external.
       This caution on confidential information does not preclude releasing certain customer information when authorized by the customer or to the government when appropriate. The guidance of theManager, Human Resources should be sought in all such cases. Disclosure of confidential information to attorneys, accountants and other professionals working on behalf of the Corporation, as well asregulatory examiners, may also be appropriate.
**Personal Investments and Financial Affairs**
       Directors and employees of the Corporation, like any other individuals, may make personal investments in corporate stock, real estate, etc. Such investments, however, shall not be made as a resultof confidential information that is also material inside information obtained through your position with the Corporation. Particular care should be taken with original or new stock issues.Confidential information about the Corporation and its customers and suppliers acquired by directors and employees in the course of their duties is to be used solely for the Corporation's purposes,and not as a basis for personal investment by directors and employees or their immediate families. In making personal investments, all directors and employees should be guided by a keen awareness ofpotential conflict. In addition, personal investments should not influence a director's or employee's judgment or action in the conduct of the Corporation's business.
       It is expected that all directors and employees will conduct their personal financial affairs in a manner that will not reflect adversely upon the Corporation or on their personal standing in thecommunity.
**Material Inside Information**
       Generally, material inside information is defined as any information that is confidential in nature, and that a reasonable investor would likely consider important in deciding whether to buy,sell, or hold the Corporation's stock. The following types of information, if not generally known or publicly disclosed, should be considered material insideinformation and treated according to the provisions of this Code and the Corporation's Insider Trading Policy:
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Proposals or plans for mergers and acquisitions;
- Earnings estimates or results, whether for the month, quarter or year; Changes in dividends;New product innovation, development or implementation;
- Major litigation, adverse regulatory proceeding or material threat of either event; Significant operational issues, including changes in non-performing assets;Significant expansion of operations, whether geographic or otherwise, or the curtailment of current or future planned operations; and
- Any other information which, if known, would likely influence the decisions of investors.   **Gifts and Fees**         It is illegal for anyone to offer or promise anything of value to an employee, officer, director or agent of a financial institution with the intent to influence or reward the person in connectionwith any business or transaction of the financial institution. It is also illegal for an employee, officer, director or agent of a financial institution to solicit or accept anything of value fromany person intending to be influenced or rewarded in connection with any business or transaction of the financial institution.         No employee or director of the Corporation shall accept anything of value from a customer of the Corporation or a vendor to the Corporation other than the following:    - Gifts based on a family relationship or gifts of a reasonable value based on a personal relationship where that relationship is the obvious motivating factor for the gift;  Advertising or promotional material with a value of less than $100;Gifts with a value of less than $200 related to commonly recognized events such as a promotion, religious holiday, wedding or retirement;
- Acceptance of customary hospitality (business luncheons, dinners, golf outings, ball games, etc.) where it is directly related to Corporation activities and provided that the expense would bepaid for by the Corporation if not paid for by another party. Any entertainment beyond that scope or of a frequent nature must be pre-authorized by the Manager, Human Resources;  Discounts or rebates on merchandise or services that do not exceed those available to other customers of the merchant; orAwards for recognition of service or accomplishment from civic, charitable, educational or religious organizations.
       If an employee or director receives or anticipates receiving a benefit from a Corporation customer or vendor and is unsure whether acceptance of the gift is in compliance with this policy, awritten disclosure should be made to the Manager, Human Resources, who may approve the acceptance of the benefit if the acceptance is otherwise consistent with this policy.
       Directors, employees and their immediate families should never borrow personally from customers or suppliers unless these entities are engaged directly in the lending business, and then only undernormal conditions with respect to interest rates, terms, security, and repayment programs that are available to any borrower.
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**Outside Activities**
       Outside activities that might constitute a conflict of interest or interfere with performance, or compromise a director's or employee's position, are tobe avoided. Employee activities such as full-time outside employment; the rendering of investment, legal or accounting services; membership on corporate boards of directors; seeking of an electivepolitical position; or appointment to government bodies should be reviewed and approved by Manager, Human Resources prior to such undertakings. As in the past, we continue to encourage activeparticipation on the part of directors, officers and employees in service clubs and organizations fostering the betterment of the community, and the active use of various social memberships inmaintaining a proper image of our organization within the community.
**Compliance with Laws, Rules and Regulations**
       All directors and employees of the Corporation are required to comply with the requirements of this Code, all policies of the Corporation and applicable laws, rules and regulations. Directors andemployees must also comply with the procedures implementing and effectuating the Corporation's policies. Failure to comply with the Corporation's policies and procedures may result in disciplinary action including, in severe situations, immediate termination of employment.
**Accounting Practices**
       All employees are expected to observe and comply with generally accepted accounting principles, the system of internal controls and disclosure controls and procedures established by theCorporation requiring that corporate books and records accurately and fairly reflect in reasonable detail the financial condition and results of operations of the Corporation. Corporation policiesare intended to promote full, fair, accurate, timely and understandable disclosure in reports and documents filed with or submitted to the SEC and in the Corporation's public statements. In furtherance of these requirements, employees must practice the following:
No false, misleading or artificial entries shall be made on corporate books, records and reports for any reason.
- No undisclosed or unrecorded corporate funds or assets shall be established for any purpose.  No payments from corporate funds or other assets shall be approved or be made with the intention or understanding that any part of such payment will be used for any purpose other than thatdescribed by the documents supporting the payment. All payments must be supported with appropriately approved purchase orders, invoices or receipts, expense reports or other customary documents, allin accordance with established policy.5NEXT PAGE
**PART III**

**ADMINISTRATION AND WAIVERS**

**Administration**

       This Code will be administered and monitored by the Corporation's Human Resources Department. General questions and requests for additional information onthis Code should be directed to this department at the telephone number and e-mail address in Part I.

**Waivers**

Any requests for waivers of the Code for employees who are not executive officers should be directed through your supervisor to the Human Resources Department. Requests for waivers for directorsand executive officers should be directed to the Board of Directors through the Corporate Secretary. Only a majority of the Board of Directors may waive the applicability of the Code for a directoror executive officer. Any waiver granted to directors or executive officers, including the principal accounting officer, and the reasons for granting the waiver, and any change in the Code applicableto directors and executive officers, including the principal accounting officer, must be promptly disclosed to the public as required by law or the Nasdaq Stock Market.