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

FORM 10-Q

(Mark one)

|                                                        | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|------------------------------------------------------- | ----------------------------------------------------------------------------------------
|FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2006      
|OR                                                     
|                                                        | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the transition period from __________ to __________

Commission file number 0-18261

---

|VIRGINIA(State of other jurisdiction of incorporation or organization) | 54-1532044(I.R.S. EmployerIdentification No.)
|---------------------------------------------------------------------- | ---------------------------------------------

---

---

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated or a non-accelerated filer.  See definition of "accelerated filer" and "large accelerated filer" (as defined in Rule 12b-2 of the Exchange Act). (Check one)

Large accelerated filer             Accelerated filer             Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No

Number of shares of Common Stock, par value $.01 per share, outstanding at the close of business on November 8, 2006:   4,247,732.

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COMMUNITY FINANCIAL CORPORATION

INDEX

|PART I.        | FINANCIAL INFORMATION                                                                                          |   
|-------------- | -------------------------------------------------------------------------------------------------------------- | --
|Item 1.        | Consolidated Financial Statements                                                                              |   
|               | Consolidated Statements of FinancialCondition at September 30, 2006 (unaudited)and March 31, 2006              | 3 
|               | Consolidated Statements of Income for the Three and Six Months Ended September 30, 2006 and 2005(unaudited)    | 4 
|               | Consolidated Statements of Cash Flows for the Threeand Six Months Ended September 30, 2006 and 2005(Unaudited) | 5 
|               | Notes to Unaudited Interim ConsolidatedFinancial Statements                                                    | 6 
|Item 2.        | Management's Discussion and Analysis of Financial Conditionand Results of Operations                           | 10
|Item 3.        | Quantitative and Qualitative Disclosures About Market Risk                                                     | 17
|Item 4.        | Controls and Procedures                                                                                        | 17
|PART II.       | OTHER INFORMATION                                                                                              | 18
|Signature Page | 19                                                                                                            
|Exhibit Index  | 20                                                                                                            

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Part I. Financial Information

Item 1. Financial Statements

|COMMUNITY FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                
|-------------------------------------------------------------------------------------------------------------
|                                                                                                             
|                                                                                                             
|ASSETS                                                                                                       
|Cash (including interest-bearingdeposits of approximately$1,116,000 and $1,742,000)                          
|Securities                                                                                                   
|Held to maturity                                                                                             
|Available for sale, at fair value                                                                            
|Restricted investment in Federal  Home Loan Bank stock, at cost                                              
|Loans receivable, net of allowance  for loan losses of $2,982,925 and  $2,966,077                            
|Real estate owned                                                                                            
|Property and equipment, net                                                                                  
|Accrued interest receivable                                                                                  
|Loans                                                                                                        
|Investments                                                                                                  
|Prepaid expenses and other assets                                                                            
|Total Assets                                                                                                 
|                                                                                                             
|LIABILITIES AND STOCKHOLDERS' EQUITY                                                                         
|                                                                                                             
|Liabilities                                                                                                  
|Deposits                                                                                                     
|Advances from Federal Home Loan Bank                                                                         
|Securities sold under agreement to repurchase                                                                
|Advance payments by borrowers for taxes and insurance                                                        
|Other liabilities                                                                                            
|                                                                                                             
|Total Liabilities                                                                                            
|                                                                                                             
|Stockholders' Equity                                                                                         
|Preferred stock $.01 par value,    authorized 3,000,000 shares,    none outstanding                          
|Common stock, $0.01 par value,    authorized 20,000,000 shares,    4,247,732 and 2,121,056 shares outstanding
|Additional paid in capital                                                                                   
|Retained earnings                                                                                            
|Accumulated other comprehensive income                                                                       
|Total Stockholders' Equity                                                                                   
|                                                                                                             
|Total Liabilities and Stockholders' Equity                                                                   

See accompanying notes to unaudited interim consolidated financial statements.

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|COMMUNITY FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF INCOME
|----------------------------------------------------------------
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|INTEREST INCOME                                                 
|Loans                                                           
|Investment securities                                           
|Other                                                           
|Total Interest Income                                           
|                                                                
|INTEREST EXPENSE                                                
|Deposits                                                        
|Borrowed money                                                  
|Total interest expense                                          
|                                                                
|NET INTEREST INCOME                                             
|                                                                
|PROVISION(CREDIT)FOR LOAN LOSSES                                
|                                                                
|NET INTEREST INCOME AFTERPROVISION FOR LOAN LOSSES              
|                                                                
|NONINTEREST INCOME                                              
|Service charges, fees and commissions                           
|Other                                                           
|Total noninterest income                                        
|                                                                
|NONINTEREST EXPENSE                                             
|Compensation ∓ benefits                                      
|Occupancy                                                       
|Data processing                                                 
|Federal insurance premium                                       
|Advertising                                                     
|Other                                                           
|Total noninterest expense                                       
|                                                                
|INCOME BEFORE TAXES                                             
|                                                                
|INCOME TAXES                                                    
|                                                                
|NET INCOME                                                      
|                                                                
|BASIC EARNINGS PER SHARE                                        
|DILUTED EARNINGS PER SHARE                                      
|DIVIDENDS PER SHARE                                             

See accompanying notes to unaudited interim consolidated financial statements.

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|COMMUNITY FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS                  
|--------------------------------------------------------------------------------------
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|OPERATING ACTIVITIES                                                                  
|Net income                                                                            
|Adjustments to reconcile net income to    net cash provided by operating    activities
|Provision for loan losses                                                             
|Depreciation                                                                          
|Amortization of premium and accretion        of discount on securities, net           
|Increase (decrease)in net deferred        loan fees                                   
|Increase (decrease) deferred income taxes                                             
|(Increase) decrease in other assets                                                   
|Increase in other liabilities                                                         
|Net cash provided by operating          activities                                    
|                                                                                      
|INVESTING ACTIVITIES                                                                  
|Proceeds from maturities of held to    maturity securities                            
|Net increase in loans                                                                 
|Purchases of property and equipment                                                   
|(Purchase)redemption of FHLB stock                                                    
|(Increase)decrease in repossessed assets                                              
|Net cash absorbed by investing      activities                                        
|                                                                                      
|FINANCING ACTIVITIES                                                                  
|Dividends paid                                                                        
|Net increase in deposits                                                              
|Proceeds from advances and other    borrowed money                                    
|Repayments of advances and other    borrowed money                                    
|Proceeds from issuance of common stock                                                
|                                                                                      
|Net cash provided by    financing activities                                          
|INCREASE IN CASH AND CASH EQUIVALENTS                                                 
|CASH AND CASH EQUIVALENTS-beginning of period                                         
|CASH AND CASH EQUIVALENTS-end of period                                               

See accompanying notes to unaudited interim consolidated financial statements

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COMMUNITY FINANCIAL CORPORATIONNOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTSSEPTEMBER 30, 2006

**NOTE 1. - BASIS OF PRESENTATION**

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions
to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements.

The accompanying consolidated financial statements include the accounts of Community Financial Corporation ("Community" or the "Company") and its wholly-owned subsidiary, Community Bank (the "Bank"). All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.  Operating results for the three and six months ended September 30, 2006, are not necessarily indicative of the results that may be expected for the year ending
March 31, 2007.

**Note 2. Stock Split**

On July 26, 2006, the Company declared a 2 for 1 stock split in the form of a 100% stock dividend payable on August 23, 2006. Basic and diluted earnings per
share have been retroactively adjusted for this split for all periods presented.

**Note 3. - Stock-Based Compensation Plan**

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, "Share-Based Payment"
(SFAS 123R). SFAS 123R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock based on the
fair value of those awards at the date of grant and eliminates the choice to account for employee stock options under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). The Company adopted SFAS 123R effective April 1, 2006 using the modified prospective method and as such, results for prior periods have not been restated. Prior to April 1,
2006 no compensation expense was recognized for stock option grants as all such grants had an exercise price not less than fair market value on the date of grant.

There were no stock options granted during the September 30, 2006 quarter and no stock-based compensation recognized. No proforma compensation expense is
disclosed for the six month period ended September 30, 2006 as no options were granted or vested.

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The following summarizes the stock option activity for the three months ended September 30, 2006:

|                                        | Shares  | WeightedAverageExercisePrice | WeightedAverageRemainingContractualTerm | IntrinsicValue ofUnexercisedIn-the-MoneyOptions
|--------------------------------------- | ------- | ---------------------------- | --------------------------------------- | -----------------------------------------------
|Options outstanding, June 30, 2006      | 353,200 | $ 8.02                       |                                         |                                                
|Granted                                 | ---     | ---                          |                                         |                                                
|Exercised                               | (300)   | $ 7.19                       |                                         |                                                
|Forfeited                               | (400)   | $ 9.40                       |                                         |                                                
|Options outstanding, September 30, 2006 | 534,500 | $ 8.02                       | 5.2                                     |                                                
|Options exercisable, September 30, 2006 | 534,500 | $ 8.02                       | 5.2                                     | $2,026,000                                     

Information in the above table has been restated to reflect the 2 for 1 split in the form of a 100% stock dividend described in Note 2.

The total intrinsic value of in-the-money options exercised during the three month ended September 30, 2006 was $1,079.

**NOTE 4. - EARNINGS PER SHARE**

Basic earnings per share is based on net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share
shows the dilutive effect of additional common shares issuable under stock option plans. Diluted earnings per share is computed by dividing net earnings by the weighted average number of common
shares and common share equivalents outstanding. Basic and diluted earnings per share are computed in the following table.

|                                         | For the Three Months Ended
|---------------------------------------- | --------------------------
|                                         | September 30, 2006        
|                                         | Income                    
|Basic EPS                                |                           
|Income available to  common stockholders | $1,082,792                
|Effect of Dilutive  Securities           |                           
|Options                                  | ---                       
|Diluted EPS                              |                           
|Income available to  common stockholders | $1,082,792                

During the quarter ended September 30, 2006, no stock options were excluded from the calculation of earnings per share because they would have been anti-dilutive.
During the quarter ended September 30, 2005, stock options representing 96,000 shares were not included in the calculation of earnings per share because they would have been anti-dilutive.

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Information in the above table has been restated to reflect the 2 for 1 stock split in the form of a 100% stock dividend described in Note 2.

|                                         | For the Six Months Ended
|---------------------------------------- | ------------------------
|                                         | September 30, 2006      
|                                         | Income                  
|Basic EPS                                |                         
|Income available to  common stockholders | $2,105,974              
|Effect of Dilutive  Securities           |                         
|Options                                  | ---                     
|Diluted EPS                              |                         
|Income available to  common stockholders | $2,105,974              

NOTE 5. - STOCKHOLDERS' EQUITY

The following table presents the Bank's regulatory capital levels at September 30, 2006:

|                   | AmountRequired | PercentRequired | ActualAmount | ActualPercent | ExcessAmount
|------------------ | -------------- | --------------- | ------------ | ------------- | ------------
|Tangible Capital   | $ 6,540,000    | 1.50%           | $33,955,000  | 7.60%         | $27,415,000 
|Core Capital       | 17,875,000     | 4.00            | 33,955,000   | 7.60          | 16,080,000  
|Risk-based Capital | 29,048,000     | 8.00            | 37,938,000   | 10.45         | 8,890,000   

The Company's primary source of funds for the payment of dividends to its stockholders are dividends from the Bank. Capital distributions by OTS-regulated
savings banks, such as the Bank, 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 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 the same period. Any distributions in excess of that amount requires prior OTS approval. The Capital Distribution Regulation requires that savings banks
in holding company structures provide the applicable OTS Regional Director with a 30-day advance written notice of all proposed capital distributions whether or not advance approval is required by
the regulation. The OTS may object to capital distributions if the bank is not meeting its regulatory capital requirements, the distribution raises safety and soundness concerns or is otherwise in
violation of law.

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**NOTE 6. - SUPPLEMENTAL INFORMATION - STATEMENT OF CASH FLOWS**

Total interest paid for the six months ended September 30, 2006 and 2005 was $5,180,785 and $4,409,226, respectively. Total income taxes paid for the six months
ended September 30, 2006 and 2005 was $1,428,117 and 1,170,382.

**NOTE 7. - COMPREHENSIVE INCOME**

Comprehensive income is defined as "the change in equity (net assets) of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners." Comprehensive income for the
Company includes net income and unrealized gains and losses on securities available for sale. The following tables set forth the components of comprehensive income for the three-month periods ended
September 30, 2006 and 2005:

|                                                                     | Six months Ended September 30
|-------------------------------------------------------------------- | -----------------------------
|                                                                     | 2006                         
|Net income                                                           | $2,105,974                   
|Other comprehensive income,  net of tax                              |                              
|Unrealized gains (losses)on securities:                              |                              
|Unrealized holding gains (losses)          arising during the period | 358,775                      
|                                                                     |                              
|Total comprehensive income                                           | $2,464,479                   
|                                                                     |                              

**Note 8. - Defined Benefit Pension Plan**

The Company has a non-contributory defined benefit pension plan for which the components of net periodic benefit cost are as follows:

|                               | Three months Ended September 30
|------------------------------ | -------------------------------
|                               | 2006                           
|Service cost                   | $72,011                        
|Interest cost                  | 36,048                         
|Expected return on plan assets | (35,876)                       
|Recognized net actuarial loss  | 6,849                          
|                               |                                
|                               | $79,032                        

|                               | Six months Ended September 30
|------------------------------ | -----------------------------
|                               | 2006                         
|Service cost                   | $144,022                     
|Interest cost                  | 72,096                       
|Expected return on plan assets | (71,752)                     
|Recognized net actuarial loss  | 13,698                       
|                               |                              
|                               | $158,064                     

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As disclosed in the Company's Form 10-K for the year ended March 31, 2006, a contribution of $373,000 to its pension plan is expected during the current fiscal
year. As of September 30, 2006, no contributions have been made. The Company anticipates making all required contributions prior to March 31, 2007.

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|Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

**EXECUTIVE SUMMARY**

The following information is intended to provide investors a better understanding of the financial position and the operating results of Community Financial
Corporation and its subsidiary, Community Bank. The following is primarily from management's perspective and may not contain all information that is of importance to the reader. Accordingly, the
information should be considered in the context of the consolidated financial statements and other related information contained herein.

Net income was essentially unchanged at $1,083,000, for the quarter ended September 30, 2006 compared $1,084,000 for the September 30, 2005 quarter. The decrease
was due primarily to an increase in noninterest expenses and the provision in loan losses, offset by an increase in net interest. The increase in noninterest expense resulted primarily from higher
compensation and benefits associated with additional loan personnel and the additional personnel needed to staff the branch we opened in April, 2006. The increase in the loan loss provision is
attributable primarily to the growth in loans. Management is aware of the potential impact of rising interest rates on borrowers' ability to repay loans and will monitor the Bank's loan portfolio for
future changes.

Net interest income for the quarter ended September 30, 2006 increased $204,000, to $3.7 million compared to the comparable quarter in 2005. Net interest income,
which is the interest income we earn on our interest-earning assets, such as loans and investment securities, and the interest we pay on interest-bearing liabilities, which are primarily deposits and
borrowings was impacted by both the change in our volume of interest earning assets and the interest rate spread between interest-earning assets and interest-bearing liabilities. The primary factor
contributing to the increase in net interest income for the quarter ended September 30, 2006 was the growth in interest-earning assets, primarily loans, which was offset by a compressing interest
rate spread. The decrease in the interest rate spread is due primarily to the current market relationship between short-term and long-term interest rates. We also did not purchase any investment
securities during the quarter ended September 30, 2006 and anticipate limited security purchases during the remainder of the current fiscal year. Management will continue to monitor asset growth to
manage the level of regulatory capital and funds acquisition. We continue to monitor the impact rising interest rates may have on both the growth in interest-earning assets and our interest rate
spread. The Bank has approximately $170 million in adjustable rate loans or 63% of total loans which reprice in five years or less, many of which are subject to annual and lifetime interest rate
limits. The pace and extent of future interest rate changes will impact the Company's interest rate spread as well as limitations on interest rate adjustments on certain adjustable rate
loans.

Funding for the growth in interest-earning assets combined with a rising interest rate environment has impacted the composition of our interest-bearing
liabilities. The primary source of funding for increases in assets during the September 30, 2006 quarter was deposits due both to the seasonal nature of checking account balances and more competitive
time deposit rates. Management plans to remain competitive in our deposit pricing and anticipates that deposit growth will be the primary source of funding for asset growth during the remainder of
the current fiscal year. As interest rates have increased, deposit balances in savings and money market accounts have decreased as customers have transferred funds to time deposits or equities
markets. Management is cognizant of the potential for additional compression in the Bank's margin related to the need to acquire funds and the pace of interest rate changes. Management will continue
to monitor the level of deposits and borrowings in relation to the current interest rate environment.

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On July 26, 2006, we declared a 2 for 1 stock split in the form of a 100% stock dividend payable on August 23, 2006. The Board of Directors and management
anticipate the effects of the split will positively impact the liquidity of the Company's stock by increasing the number of shares outstanding and lowering the per share purchase price of our common
stock.

**CRITICAL ACCOUNTING POLICIES**

**General**

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

**Allowance for Loan Losses**

The allowance for loan losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two basic principles of
accounting: (i) Statement of Financial Accounting Standard ("SFAS") No.5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and
(ii) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows
or values that are observable in the secondary market and the loan balance.

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. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Additions to the allowance are charged to operations. Subsequent recoveries, if any, are credited to the allowance.  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 Company's regulators.

**FINANCIAL CONDITION**

The Company's total assets increased $23.3 million to $445.9 million at September 30, 2006 from $422.6 million at March 31, 2006 due to an increase in loans
receivable of $21.2 million. This increase was funded with increases in both borrowings and deposits which increased $14.0 million and $5.7 million, respectively at September 30, 2006, from March 31,
2006. Deposits increased

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due primarily to customers' preferences for high interest rate time deposits compared to savings and money market accounts. The increase in deposits was due to an increase in
time deposits of $11.8 million and checking accounts of $400,000 and partially offset by a decrease in money market accounts of $2.5 million and savings accounts of $3.9 million. Stockholders' equity
increased $1.9 million to $37.1 million at September 30, 2006, from $35.2 million at March 31, 2006, due to earnings for the six month period ended September 30, 2006 and an increase in the net
unrealized gain on securities available for sale offset by two cash dividend payments.

At September 30, 2006, non-performing assets totaled approximately $1,857,000 or .42% of assets compared to $589,000 or .14% of assets at March 31,
2006.Non-performing assets at September 30, 2006 were comprised primarily of loans 90 days or more delinquent which totaled $1.6 million. At September 30, 2006, our allowance for loan losses to
non-performing loans was 160.6% and to total loans was .78%. Based on current market values of the properties securing these loans, management anticipates no significant losses in excess of the
allowance for losses previously recorded.

As of September 30, 2006, there were also $2.0 million in loans with respect to which known information about the possible credit problems of the borrowers or
the cash flows of the security properties have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future
inclusion of such items in the non-performing loan categories. These loans are comprised primarily of residential real estate loans. No individual loan in this category has a balance that exceeds
$293,000.

**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 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. Management believes that the Bank will continue to have adequate liquidity
for the foreseeable future. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is provided. As of September 30, 2006, the Bank's liquidity ratio (liquid assets
as a percentage of net withdrawable savings and current borrowings) was 9.6%.

At September 30, 2006, we had commitments to purchase or originate $14.7million of loans. Certificates of deposit scheduled to mature in one year or less at
September 30, 2006, totaled $158.2 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 to meet our foreseeable short-term and long-term liquidity needs. At September 30, 2006, we did not have brokered or internet time
deposits.

**RESULTS OF OPERATIONS**

Three Months Ended September 30, 2006 and 2005.

**General.** Net income for both the three months ended September 30, 2006 and 2005 was $1.1 million. Net interest income increased $204,000, and non-interest income
increased $110,000 during the three months ended September 30, 2006 compared to the same period in 2005. Return on equity for the three months ended September 30, 2006 was 11.93% compared to 13.48%
for the three month period ended September 30, 2005. Return on assets was 0.98% for quarter ended September 30, 2006 compared to 1.07% for the same period in the previous fiscal year.

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**Interest Income.** Total interest income increased by $1.4 million to $7.3 million for the three months ended September 30, 2006, from $5.9 million for the three
months ended September 30, 2005, due to both higher average loan balances, and higher yields for the three months ended September 30, 2006 as compared to the period ended September 30, 2005. The
increase in yields was due to higher market interest rates generally. The average yield earned on interest-earning assets was 6.93% for the three months ended September 30, 2006 compared to 6.12% for
the three months ended September 30, 2005.

**Interest Expense.** Total interest expense increased by $1.2 million to $3.6 million for the quarter ended September 30, 2006, from $2.5 million for the quarter
ended September 30, 2005. Interest on deposits increased by $715,000 to $2.4 million for the quarter ended September 30, 2006 from $1.7 million for the quarter ended September 30, 2005 due to an
increase in the average rate paid and higher average deposit balances. Interest expense on borrowed money increased by $460,000 to $1.2 million for the quarter ended September 30, 2006, from $780,000
for the quarter ended September 30, 2005, due to an increase in the average rate paid and average balance of borrowings. The average balance for borrowings increased from $83.8 million for the
September 30, 2005 quarter to $93.2 million for the September 30, 2006 period while the rate paid on borrowings increased from 3.69% to 5.27% for the same periods. The average rate paid on
interest-bearing liabilities was 3.60% during the three months ended September 30, 2006 compared to 2.64% for the three months ended September 30, 2005.

**Provision for Loan Losses.** The provision for loan losses increased by $82,000 to $81,000 for the three months ended September 30, 2006, from $(1,400) for the
three months ended September 30, 2005. The increase in the provision for loan losses for the September 30, 2006 period was due to increased loan growth. We provide valuation allowances for
anticipated losses on loans and real estate when management determines that a significant decline in the value of the collateral or cash flows has occurred, as a result of which the value of the
collateral or cash flows is less than the amount of the unpaid principal of the related loan plus estimated costs of acquisition and sale. In addition, we also provide allowances based on the dollar
amount and type of collateral securing our loans in order to protect against unanticipated losses. At September 30, 2006, management believes its allowance for loan losses is adequate to absorb any
probable losses inherent in the Company's loan portfolio. Although management believes that it uses the best information available to make such determinations, future adjustments to allowances may be
necessary, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations.

**Noninterest Income.** Noninterest income increased by $110,000 to $856,000 for the three months ended September 30, 2006, from $746,000 for the three months ended
September 30, 2005 due to an increase in service charges and fees on transaction accounts. The Bank has established relationships with other institutions where the Bank receives fees in return for
completed customer mortgage loan applications for the institution's approval and funding. Although we anticipate this relationship will continue to be a source of fee and service charge income for
the Bank, fee income from this source has declined due to the increase in mortgage interest rates and the related decrease in mortgage loan activity.

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**Noninterest Expense.** Noninterest expense increased by $178,000 to $2.8 million for the three months ended September 30, 2006 compared to the same period last
year. The increase is attributable to compensation and benefits, which increased by $145,000 to $1.7 million compared to the same period last year. The increase
in compensation and benefits resulted from the hiring of additional loan personnel and an additional branch location.

**Taxes.** Taxes increased by $55,000 to $539,000 for the three months ended September 30, 2006, from $484,000 for the three months ended September 30, 2005. The
effective tax rate increased from 30.8% for the September 30, 2005 quarter to 33.3% for the September 30, 2006 quarter due to a tax credit for the fiscal year September 30, 2005.

Six Months Ended September 30, 2006 and 2005

**General.** Net income for the six months ended September 30, 2006 decreased to $2,106,000 compared to $2,204,000 for the six months ended September 30, 2005 due
primarily to an increase in noninterest expenses offset by an increase in net interest income. Income before income taxes decreased to $3.1 million for the six months ended September 30, 2006 from
$3.2 million for the same period in the prior year. Return on equity for the six months ended September 30, 2006 was 11.78% compared to 13.70% for the six
month period ended September 30, 2005. Return on assets was .97% for six months ended September 30, 2006 compared to 1.09% for the same period in the previous fiscal year.

**Interest Income.** Total interest income increased to $14.2 million for the six months ended September 30, 2006, from $11.7 million for the six months ended September
30, 2005, due to both an increase in the average loan balances and an increase in the yield on loans during the period. The yield on loans and securities increased from 6.07% to 6.82% for the same
periods.

**Interest Expense.** Total interest expense increased by $2.2 million to $6.9 million for the six months ended September 30, 2006, from the six months ended September
30, 2005. Interest on deposits increased to $4.6 million for the six months ended September 30, 2006, from $3.2 million for the same period last year due to both an increase in the average deposit
balances and the average rate on deposit balances. The rate paid on deposits increased from 2.23% for the six months ended September 30, 2005 to 2.98% for the same period in the current fiscal year.
Interest expense on borrowed money increased to $2.4 million for the six months ended September 30, 2006 from $1.5 million for the six months ended September 30, 2005, due to both an increase in the
average outstanding balance on borrowings and an increase in the average rate on borrowing balances. The average balance on borrowings increased from $87.4 million for the six months ended September
30, 2005 to $91.5 million for the current six month period. The average rate paid on borrowings increased from 3.46% for the six months ended September 30, 2005 to 5.15% for the six month period
ended September 30, 2006.

**Provision for Loan Losses.** The provision for loan losses decreased slightly to $122,000 for the six months ended September 30, 2006 from $124,000 for the same period
last year.

**Noninterest Income.** Noninterest income increased to $1.6 million for the six months ended September 30, 2006, from $1.5 million for the six months ended September
30, 2005, due primarily to an increase in fee income related to transaction accounts. Noninterest income during the 2005 period included a $55,000 gain on
the sale of a real estate lot.

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**Noninterest Expenses.** Noninterest expenses increased $389,000 for the six months ended September 30, 2006, compared to the same period last year. The increase is attributable to compensation and benefits, which increased by $283,000 to $3.4 million compared to the same period last year. The increase in compensation and benefits resulted primarily from the hiring of additionalloan officers and loan support personnel.

**Taxes.** Taxes decreased to $1,037,000 for the six months ended September 30,

2006, from $1,043,000 for the six months ended September 30, 2005. The effective tax rate increased from 32.1% for the September 30, 2005 period to 33.0% for the
same period ended September 30, 2006.

**RECENT ACCOUNTING PRONOUNCEMENTS**

In September 2006, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 expresses the SEC staff's views
regarding the process of quantifying financial statement misstatements. These interpretations were issued to address diversity in practice and the potential under current practice for the build up of
improper amounts on the balance sheet. SAB 108 expresses the SEC staff's view that a registrant's materiality evaluation of an identified unadjusted error should quantify the effects of the error on
each financial statement and related financial statement disclosures and that prior year misstatements should be considered in quantifying misstatements in current year financial statements. SAB 108
also states that correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant
files the prior year financial statements. Registrants electing not to restate prior periods should reflect the effects of initially applying the guidance in SAB 108 in their annual financial
statements covering the first fiscal year ending after November 15, 2006. The cumulative effect of the initial application should be reported in the carrying amounts of assets and liabilities as of
the beginning of that fiscal year and the offsetting adjustment should be made to the opening balance of retained earnings for that year. Registrants should disclose the nature and amount of each
individual error being corrected in the cumulative adjustment. The disclosure should also include when and how each error arose and the fact that the errors had previously been considered immaterial.
The SEC staff encourages early application of the guidance in SAB 108 for interim periods of the first fiscal year ending after November 15, 2006. The Company does not expect the implementation of
SFAS 155 to have a material impact on its financial statements.

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 155, "Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and 140" (SFAS 155). SFAS 155 permits fair value measurement of any hybrid financial instrument that contains an embedded derivative
that otherwise would require bifurcation. The Statement also clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133. It establishes a
requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative
requiring bifurcation. SFAS 155 also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. Finally, SFAS 155 amends Statement 140 to eliminate the
prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155
is effective for all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006. The Company does not expect the implementation
of SFAS 155 to have a material impact on its financial statements.

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In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, "Accounting for Servicing of Financial Assets - an amendment of FASB
Statement No. 140" (SFAS 156). SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into
certain servicing contracts. The Statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. SFAS 156 permits
an entity to choose between the amortization and fair value methods for subsequent measurements. At initial adoption, the Statement permits a one-time reclassification of available for sale
securities to trading securities by entities with recognized servicing rights. SFAS 156 also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair
value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This Statement is effective as of the beginning of an
entity's first fiscal year that begins after September 15, 2006. The Company does not expect the implementation of SFAS 155 to have a material impact on its financial statements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value,
establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value
measurements but may change current practice for some entities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those years. The Company does not expect the implementation of SFAS 157 to have a material impact on its financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)" (SFAS 158). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income.
The funded status of a benefit plan will be measured as the difference between plan assets at fair value and the benefit obligation. For a pension plan, the benefit obligation is the projected
benefit obligation. For any other postretirement plan, the benefit obligation is the accumulated postretirement benefit obligation. SFAS 158 also requires an employer to measure the funded status of
a plan as of the date of its year-end statement of financial position. The Statement also requires additional disclosure in the notes to financial statements about certain effects on net periodic
benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The Company is required to
initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement
to measure plan assets and benefit obligations as of the date of the employers' fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The
Company does not expect the implementation of SFAS 157 to have a material impact on its financial statements.

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In June 2006, the FASB issued Interpretation No. 48, *"Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement
No. 109"* (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with SFAS 109. The Interpretation prescribes
a recognition threshold and measurement principles for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return. FIN 48 is effective for
fiscal years beginning after December 15, 2006.

The Company does not expect the implementation of SFAS 157 to have a material impact on its financial statements.

**Disclosure Regarding Forward-Looking Statements**

This document, including information incorporated by reference, contains, and future filings by Community Financial Corporation on Form 10-K, Form 10-Q and Form
8-K and future oral and written statements by Community Financial Corporation and its management may contain, forward-looking statements about Community Financial Corporation which we believe are
within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and
financial performance, including revenue creation, lending origination, operating efficiencies, loan sales, charge-offs and loan loss provisions, growth opportunities, interest rates, acquisition and
divestiture opportunities, and synergies, efficiencies, cost savings and funding advantages. These forward-looking statements are based on currently available competitive, financial and economic data
and management's views and assumptions regarding future events. These forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those
expressed or implied in the forward-looking statements. Accordingly, Community Financial Corporation cautions readers not to place undue reliance on any forward-looking statements.

Many of these forward-looking statements appear in this document in Management's Discussion and Analysis. Words such as may, could, should, would, believe,
anticipate, estimate, expect, intend, plan and similar expressions are intended to identify these forward-looking statements. The important factors discussed below, as well as other factors discussed
elsewhere in this document and factors identified in our filings with the Securities and Exchange Commission and those presented elsewhere by our management from time to time, could cause actual
results to differ materially from those indicated by the forward-looking statements made in this document. Among the factors that could cause our actual results to differ from these forward-looking
statements are:

> the strength of the United States economy in general and the strength of the local economies in which we conduct
> our operations; general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in the credit quality of our loans
> and other assets;the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of
> the Federal Reserve Board;financial market, monetary and interest rate fluctuations, particularly the relative relationship of short-term
> interest rates to long-term interest rates;the timely development of and acceptance of new products and services of Community Financial Corporation and
> Community Bank, and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services;

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> the impact of changes in financial services laws and regulations (including laws concerning taxes, accounting
> standards, banking, securities and insurance); legislative or regulatory changes may adversely affect the business in which we are engaged;the impact of technological changes;changes in consumer spending and saving habits; andour success at managing the risks involved in the foregoing.

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk since March 31, 2006 year end. Market risk is discussed as part of management's discussion and analysis under
asset/liability management in the Company's annual report for March 31, 2006.

Item 4.    Controls and Procedures

An evaluation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Act")) as of September 30,
2006, was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management.
The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures currently in effect are effective in ensuring that the information
required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and
Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, there have been no
changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended September 30, 2006, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A
control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent
limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be
circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control
procedure, misstatements due to error or fraud may occur and not be detected.

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Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and annually report on their systems of internal control over financial reporting.
In addition, our independent accountants must report on management's evaluation. We are in the process of evaluating, documenting and testing our system of internal control over financial reporting
to provide the basis for our report that will, for the first time, be a required part of our annual report on Form 10-K for the fiscal year ending March 31, 2008. Due to the ongoing evaluation and
testing of our internal controls, there can be no assurance that if any control deficiencies are identified they will be remediated before the end of the 2008 fiscal year, or that there will not be
significant deficiencies or material weaknesses that would be required to be reported.

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|Item 1.  | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         | Not Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                              
|Item 1A. | Risk Factors                                                                                                                                                                                                                                                                                                                                                                                                                                 
|         | No material changes from risk factors as previously disclosed in Form 10-K.                                                                                                                                                                                                                                                                                                                                                                  
|Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                  
|         | Not Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                              
|Item 3.  | Defaults Upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                              
|         | Not Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                              
|Item 4.  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                          
|         | The Company held an annual meeting of stockholders on July 26, 2006. The following directors were elected for a three year term at the meeting: P. Douglas Richard,
Morgan N. Trimyer, Jr. and James R. Cooke, Jr. The following directors' term of office continued after the meeting: Jane C. Hickok, Dale C. Smith, Charles F. Andersen and Charles W.
Fairchilds.

The matter voted on at the Meeting was
The election of three directors

| |                        | For       | Withheld
| | ---------------------- | --------- | --------
| | P. Douglas Richard     | 1,787,583 | 71,500  
| | Morgan N. Trimyer, Jr. | 1,787,583 | 71,500  
| | James R. Cooke, Jr.    | 1,787,583 | 71,500  

|Item 5. | Other Information
|------- | -----------------
|        | Not Applicable.  
|Item 6. | Exhibits         
|        | See Exhibit Index

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SIGNATURES

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

|                        | COMMUNITY FINANCIAL CORPORATION
|----------------------- | -------------------------------
|Date: November 13, 2006 | By:                            

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|EXHIBIT INDEX 
|--------------
|Exhibit Number
|3.1           
|3.2           
|4             
|10.1          
|10.2          
|10.3          
|10.4          
|10.5          
|10.6          
|10.7          

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|10.8  | Salary Continuance Agreements by and between Community Bank and Officers Richard, Kyriakides, Giles, Smiley and Werner filed on June 29, 2004 as an exhibit to the Registrant's Annual Report on
Form 10-KSB (SEC File No. 000-18265) for the fiscal year ended March 31, 2004, and incorporated here by reference.                  
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  | Form of Director Deferred Fee Agreement, as amended, filed on June 29, 2005 as an exhibit to the Registrant's Annual Report on Form 10-K (SEC File No. 000-18265) for the fiscal year ended March
31, 2005, is incorporated here by reference.                                                                                       
|10.10 | Registrant's 2003 Stock Option and Incentive Plan, filed on September 27, 2003 as an exhibit to the Registrant's Definitive Proxy Statement on Schedule 14A (SEC File No. 000-18265), is incorporated
herein by reference.                                                                                                           
|10.11 | Form of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement for Registrant's 2003 Stock Option and Incentive Plan, filed on August 12, 2005 as an exhibit to the Registrant's
Quarterly Report on Form 10-Q (SEC File No. 000-18265) for the quarter ended June 30, 2005, are incorporated herein by reference.
|11    | Statement re computation of per share earnings (see Note 12 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K).                                                                                                                                                                
|31.1  | Rule 13(a)-14(a) Certification (Chief Executive Officer)                                                                                                                                                                                                                                                                             
|31.2  | Rule 13(a)-14(a) Certification (Chief Financial Officer)                                                                                                                                                                                                                                                                             
|32    | Section 1350 Certifications                                                                                                                                                                                                                                                                                                          

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