**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

**FORM 10-QSB**

|    | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934         |
|----|------------------------------------------------------------------------------------------|
|    | For the quarterly period ended June 30, 2003                                             |
| OR |
|    | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|    | For the transition period from __________________ to ___________________                 |

****Commission File Number: 0-18261****
****COMMUNITY FINANCIAL CORPORATION****

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**(Exact name of small business issuer as specified in its charter)**
| VIRGINIA                                                      | 54-1532044                          |
|---------------------------------------------------------------|-------------------------------------|
| (State of other jurisdiction ofincorporation or organization) | (I.R.S. EmployerIdentification No.) |

**38 North Central Ave., Staunton, Va. 24401**

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**(Address of principal executive offices zip code)**
**(540) 886-0796**

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**(Issuer's telephone number, including area code)**

Number of shares of Common Stock, par value $.01 per share, outstanding at the close of business on August 7, 2003:  2,074,847.

Transitional Small Business Disclosure Format (Check one):         Yes                    No  

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**COMMUNITY FINANCIAL CORPORATION**
**INDEX**
| PART I.       | FINANCIAL INFORMATION                                                                              |    |
|---------------|----------------------------------------------------------------------------------------------------|----|
| Item 1.       | Consolidated Financial Statements                                                                  |    |
|               | Consolidated Statements of Financial Conditionat June 30, 2003 (unaudited) and March 31, 2003      | 1  |
|               | Consolidated Statements of Income for theThree Months Ended June 30, 2003 and 2002 (unaudited)     | 2  |
|               | Consolidated Statements of Cash Flows for theThree Months Ended June 30, 2003 and 2002 (unaudited) | 3  |
|               | Notes to Unaudited Interim ConsolidatedFinancial Statements                                        | 4  |
| Item 2.       | Management's Discussion and Analysis or Plan of Operation                                          | 7  |
| Item 3.       | Controls and Procedures                                                                            | 13 |
| PART II.      | OTHER INFORMATION                                                                                  | 14 |
| Exhibit Index | 16                                                                                                 |

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COMMUNITY FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

|                                                                                                                                                                                                                                   | June 302003  | March 312003 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------|--------------|
|                                                                                                                                                                                                                                   | (Unaudited)  |              |
| ASSETS                                                                                                                                                                                                                            |              |              |
| Cash (including interest-bearing   deposits of approximately   $2,133,000 at and $2,299,000)                                                                                                        | $ 3,558,954  | $ 4,836,129  |
| Securities                                                                                                                                                                                                                        |
| Held to maturity                                                                                                                                                                                                                  | 23,775,324   | 21,028,862   |
| Available for sale                                                                                                                                                                                                                | 12,533,842   | 10,522,566   |
| Restricted investment in Federal   Home Loan Bank stock, at cost                                                                                                                                                   | 1,400,000    | 1,700,000    |
|                                                                                                                                                                                                                                   |
| Loans receivable, net of allowance   for loan losses of $2,022,084 and   $1,940,615                                                                                                                 | 253,449,902  | 245,638,070  |
| Loans held for sale                                                                                                                                                                                                               | ---          | 3,669,914    |
| Real estate owned                                                                                                                                                                                                                 | 530,787      | 719,935      |
| Property and equipment, net                                                                                                                                                                                                       | 7,655,438    | 7,464,889    |
| Accrued interest receivable                                                                                                                                                                                                       |
|    Loans                                                                                                                                                                                                           | 1,034,978    | 1,064,781    |
|    Investments                                                                                                                                                                                                     | 259,130      | 294,850      |
| Prepaid expenses and other assets                                                                                                                                                                                                 | 2,483,610    | 1,051,313    |
|                                                                                                                                                                                                                                   |
|          Total Assets                                                                                                                                                                | $306,681,965 | $297,991,309 |
|                                                                                                                                                                                                                                   |
| LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                                                                                                                              |
|                                                                                                                                                                                                                                   |
| Liabilities                                                                                                                                                                                                                       |
|    Deposits                                                                                                                                                                                                        | $248,852,815 | $247,212,193 |
|    Advances from Federal Home Loan      Bank                                                                                                                                         | 28,000,000   | 22,000,000   |
|    Securities sold under agreement to      Repurchase                                                                                                                                | 459,310      | 773,725      |
|    Advance payments by borrowers for      taxes and insurance                                                                                                                        | 55,646       | 185,416      |
|    Other liabilities                                                                                                                                                                                               | 1,972,537    | 1,477,827    |
|                                                                                                                                                                                                                                   |
|          Total Liabilities                                                                                                                                                           | 279,340,308  | 271,649,161  |
|                                                                                                                                                                                                                                   |
| Stockholders' Equity                                                                                                                                                                                                              |
|    Preferred stock $.01 par value,      authorized 3,000,000 shares,      none outstanding                                                             | ---          | ---          |
|    Common stock, $.01 par value,      authorized 10,000,000 shares,      2,074,347 and 2,064,347 shares      outstanding | 20,743       | 20,643       |
|    Additional paid in capital                                                                                                                                                                                      | 4,181,844    | 4,065,694    |
|    Retained earnings                                                                                                                                                                                               | 21,155,002   | 20,343,660   |
|    Accumulated other comprehensive      income                                                                                                                                       | 1,984,068    | 1,912,151    |
|          Total Stockholders' Equity                                                                                                                                                  | 27,341,657   | 26,342,148   |
|                                                                                                                                                                                                                                   |
|          Total Liabilities and            Stockholders' Equity                                                           | $306,681,965 | $297,991,309 |
|                                                                                                                                                                                                                                   |

See accompanying notes to unaudited interim consolidated financial statements.

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COMMUNITY FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF INCOME

|                                                                                                                    | Three Months EndedJune 30, |
|--------------------------------------------------------------------------------------------------------------------|----------------------------|
|                                                                                                                    | 2003                       | 2002 |
|                                                                                                                    | (Unaudited)                |
| INTEREST INCOME                                                                                                    |                            |  |
|    Loans                                                                                            | $3,977,608                 | $4,029,786 |
|    Investment securities                                                                            | 287,529                    | 266,036 |
|    Other                                                                                            | 160,097                    | 139,721 |
|       Total interest income                                                          | 4,425,234                  | 4,435,543 |
| INTEREST EXPENSE                                                                                                   |
|    Deposits                                                                                         | 1,368,126                  | 1,680,441 |
|    Borrowed money                                                                                   | 89,856                     | 129,474 |
|       Total interest expense                                                         | 1,457,982                  | 1,809,915 |
|                                                                                                                    |
| NET INTEREST INCOME                                                                                                | 2,967,252                  | 2,625,628 |
|                                                                                                                    |
| PROVISION FOR LOAN LOSSES                                                                                          | 147,395                    | 102,248 |
|                                                                                                                    |
| NET INTEREST INCOME AFTER   PROVISION FOR LOAN LOSSES                                               | 2,819,857                  | 2,523,380 |
|                                                                                                                    |
| NONINTEREST INCOME                                                                                                 |
|    Service charges, fees      and commissions                         | 1,064,008                  | 732,683 |
|    Gain on sale of subsidiary                                                                       | 241,066                    | --- |
|    Miscellaneous                                                                                    | 101,743                    | 26,956 |
|       Total noninterest         income  | 1,406,817                  | 759,639 |
|                                                                                                                    |
| NONINTEREST EXPENSE                                                                                                |
|    Compensation & benefits                                                                          | 1,609,690                  | 1,364,415 |
|    Occupancy                                                                                        | 390,184                    | 314,753 |
|    Data processing                                                                                  | 313,329                    | 236,092 |
|    Federal insurance premium                                                                        | 9,352                      | 8,341 |
|    Miscellaneous                                                                                    | 431,954                    | 283,286 |
|       Total noninterest         expense | 2,754,509                  | 2,206,887 |
| INCOME BEFORE TAXES                                                                                                | 1,472,165                  | 1,076,132 |
|                                                                                                                    |
| INCOME TAXES                                                                                                       | 475,032                    | 331,532 |
|                                                                                                                    |
| NET INCOME                                                                                                         | $ 997,133                  | $ 744,600 |
|                                                                                                                    |
| BASIC EARNINGS PER SHARE                                                                                           | $ 0.48                     | $ 0.33 |
| DILUTED EARNINGS PER SHARE                                                                                         | $ 0.47                     | $ 0.33 |
| DIVIDENDS PER SHARE                                                                                                | $ 0.09                     | $ 0.08 |
|                                                                                                                    |

See accompanying notes to unaudited interim consolidated financial statements.

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COMMUNITY FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                                                                                                                                       | Three Months EndedJune 30 |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|
|                                                                                                                                                                                                                       | 2003                      | 2002 |
|                                                                                                                                                                                                                       | (Unaudited)               |
| OPERATING ACTIVITIES                                                                                                                                                                                                  |
|    Net income                                                                                                                                                                                          | $ 997,133                 | $ 744,600 |
|    Adjustments to reconcile net income to      net cash provided (absorbed) by operating      activities                                   |
|          Provision for loan losses                                                                                                                                       | 147,395                   | 102,248 |
|          Depreciation                                                                                                                                                    | 206,685                   | 175,067 |
|          Amortization of premium and accretion            of discount on securities, net                     | 3,538                     | 5,013 |
|       Decrease in net deferred loan fees                                                                                                                                                | (15,061)                  | (33,677) |
|       Increase in deferred income taxes                                                                                                                                                 | 14,001                    | 488 |
|       Increase in other assets                                                                                                                                                          | (1,366,774)               | (206,189) |
|       Increase (decrease) in other liabilities                                                                                                                                          | 350,939                   | (661,598) |
|       Gain on sale of subsidiary                                                                                                                                                        | (241,066)                 | --- |
|       Gain on sale of loans                                                                                                                                                             | (86,633)                  | (87,415) |
|       Proceeds from sale of loans                                                                                                                                                       | 22,675,246                | 15,008,326 |
|       Loans originated for resale                                                                                                                                                       | (24,745,863)              | (14,983,592) |
|             Net cash provided (absorbed) by               operating activities | (2,060,460)               | 63,271 |
|                                                                                                                                                                                                                       |
| INVESTING ACTIVITIES                                                                                                                                                                                                  |
|                                                                                                                                                                                                                       |
|    Proceeds from maturities of held to      maturity securities                                                                                                          | 4,500,000                 | 1,250,000 |
|    Purchases of investment securities                                                                                                                                                                  | (9,145,625)               | (5,731,355) |
|    Net increase in loans                                                                                                                                                                               | (3,816,129)               | (5,628,318) |
|    Purchases of property and equipment                                                                                                                                                                 | (397,234)                 | (343,859) |
|    Redemption of FHLB stock                                                                                                                                                                            | 300,000                   | --- |
|    Proceeds from sale of subsidiary                                                                                                                                                                    | 1,749,144                 | --- |
|    Decrease (increase) in Real Estate Owned                                                                                                                                                            | 189,148                   | (9,694) |
|       Net cash absorbed by investing         activities                                                                                    | (6,620,696)               | (10,463,226) |
| FINANCING ACTIVITIES                                                                                                                                                                                                  |
|    Dividends paid                                                                                                                                                                                      | (185,791)                 | (180,252) |
|    Net increase in deposits                                                                                                                                                                            | 1,640,622                 | 13,259,302 |
|    Proceeds from advances and other      borrowed money                                                                                                                  | 64,088,281                | 87,886,924 |
|    Repayments of advances and other      borrowed money                                                                                                                  | (58,255,381)              | (88,632,603) |
|    Proceeds from issuance of common stock                                                                                                                                                              | 116,250                   | 58,390 |
|    Repurchase of common stock                                                                                                                                                                          | ---                       | (66,000) |
|    Net cash provided (absorbed) by      financing activities                                                                                                             | 7,403,981                 | 12,325,761 |
|                                                                                                                                                                                                                       |
| INCREASE (DECREASE) IN CASH AND CASH   EQUIVALENTS                                                                                                                                                     | (1,277,175)               | 1,925,806 |
|                                                                                                                                                                                                                       |
| CASH AND CASH EQUIVALENTS-beginning of period                                                                                                                                                                         | 4,836,129                 | 3,206,926 |
|                                                                                                                                                                                                                       |
| CASH AND CASH EQUIVALENTS-end of period                                                                                                                                                                               | $3,558,954                | $5,132,732 |
|                                                                                                                                                                                                                       |

See accompanying notes to unaudited interim consolidated financial statements.

**4**
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COMMUNITY FINANCIAL CORPORATIONNOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTSJUNE 30, 2003

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 interimfinancial information and with the instructions to Form 10-QSB and Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accountingprinciples for complete financial statements.

The accompanying consolidated financial statements include the accounts of Community Financial Corporation ("Community" or the "Company"), its wholly-owned subsidiary, Community Bank (the "Bank") and Community First Mortgage Corporation, a wholly-owned subsidiary of theBank ("First Mortgage"). Community First Mortgage Corporation was sold effective June 30, 2003. 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 months endedJune 30, 2003, are not necessarily indicative of the results that may be expected for the year ending March 31, 2004.

NOTE 2. - 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 ofadditional 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 shareequivalents outstanding. Basic and diluted earnings per share are computed in the following table.

|                                                          | For the Three Months Ended |
|----------------------------------------------------------|----------------------------|
|                                                          | June 30, 2003              | June 30, 2002 |
|                                                          | Income                     | WeightedAverageShares | Per-ShareAmount | Income | WeightedAverageShares | Per-ShareAmount |
| Basic EPS                                                |
| Income available to   common stockholders | $997,133                   | 2,067,973 | $0.48 | $744,600 | 2,253,477 | $0.33 |
| Effect of Dilutive   Securities           |
| Options                                                  | ---                        | 44,316 |  | --- | 14,937 |  |
| Diluted EPS                                              |
| Income available to   common stockholders | $997,133                   | 2,112,289 | $0.47 | $744,600 | 2,268,414 | $0.33 |

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Note 3. - Stock-Based Compensation Plan

At June 30, 2003, the Corporation had a stock-based employee compensation plan. The Corporation accounts for the plan under the recognition and measurement principles of APB Opinion No. 25, *Accounting for Stock Issued to Employees*, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had anexercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Corporation hadapplied the fair value recognition provisions of SFAS No. 123, *Accounting for Stock-Based Compensation*, to stock-based employee compensation. In determining the pro forma amounts below, thevalue of each grant is estimated at the grant date using the Black-Scholes option-pricing model, with the following weighted-average assumptions for grants in the quarter ended June 30, 2002;dividend rate of 2.78%, risk-free interest rate of 4.25%, expected lives of 10 years; and expected price volatility of 18.46%.

| Year Ended March 31,                                                                                                                              | 2003     | 2002     |
|---------------------------------------------------------------------------------------------------------------------------------------------------|----------|----------|
|                                                                                                                                                   |
| Net income, as reported                                                                                                                           | $997,133 | $744,600 |
| Deduct: Total stock-based employee   compensation expense determined under   fair value based method for all awards | ---      | 3,106    |
|                                                                                                                                                   |          |          |
| Pro forma net income                                                                                                                              | $997,133 | $741,494 |
| Earnings per share:                                                                                                                               |          |          |
|    Basic - as reported                                                                                                             | $ 0.48   | $ 0.33   |
|    Basic - pro forma                                                                                                               | 0.48     | 0.33     |
|    Diluted - as reported                                                                                                           | 0.47     | 0.33     |
|    Diluted - pro forma                                                                                                             | 0.47     | 0.33     |

No options were granted in the first quarter of fiscal year 2004.

NOTE 4. - STOCKHOLDERS' EQUITY

The following table presents the Bank's regulatory capital levels at June 30, 2003:
AmountRequiredPercentRequiredActualAmountActualPercentExcessAmountTangible Capital$ 4,614,0001.50%$23,313,0007.58%$18,699,000Core Capital12,305,0004.00   23,313,0007.58   11,008,000Risk-based Capital17,774,0008.00   27,808,00012.03   10,034,000
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 savings bank to make capital distributions during a calendar year equal to net income for the current year plusthe 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 Regulationrequires 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 notadvance 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 andsoundness concerns or is otherwise in violation of law.
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NOTE 5. - SUPPLEMENTAL INFORMATION - STATEMENT OF CASH FLOWS

Total interest paid for the three months ended June 30, 2003 and 2002 was $1,501,445 and $2,994,586, respectively. Total income taxes paid for the three months ended June 30, 2003 and 2002 was$19,810 and $59,493.

NOTE 6. - 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. Itincludes 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 unrealizedgains and losses on securities available for sale. The following tables set forth the components of comprehensive income for the three-month periods ended June 30, 2003 and 2002:
Three Months Ended June 3020032002(Amounts in thousands)Net income$ 997,133$ 744,600Other comprehensive income,   net of tax      Unrealized gains (losses) on securities:         Unrealized holding gains (losses)            arising during the period71,917(67,289)$1,069,050$ 677,3117NEXT PAGE
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

FINANCIAL CONDITION

The Company's total assets increased $8.7 million to $306.7 million at June 30, 2003 from $298.0 million at March 31, 2003 due primarily to increases in securities of $4.8 million and loansreceivable of $7.8 million. The increase resulted from the Company's investment in securities to gain net interest income using Federal Home Loan Bank advances. Deposits increased $1.6 million to$248.9 million at June 30, 2003, from $247.2 million at March 31, 2003. The increase in deposits was due primarily to an increase in checking accounts of $3.9 million which was offset by a decreasein savings accounts of $1.8 million and money market accounts of $1.1 million. The increase in checking accounts was related to continuing marketing efforts.Stockholders' equity increased $1.0million to $27.3 million at June 30, 2003, from $26.3 million at March 31, 2003, due primarily to earnings for the three month period ended June 30, 2003, a stock option exercise and an increase inthe net unrealized gain on securities available for sale, which was partially offset by a payment of $0.09 per share in cash dividends.

At June 30, 2003, non-performing assets totaled approximately $1.8 million or .59% of assets compared to $1.8 million or .62% of assets at March 31, 2003.Non-performing assets at June 30, 2003 were comprised primarily of real estate 90 days or more past due. At June 30, 2003, our allowance for loan losses to non-performing loans was111.6% and to total loans was .71%. Based on current market values of the properties securing these loans, management anticipates no significant losses in excess of the allowances for losses previously recorded.

As of June 30, 2003, there were also $2.9 million in loans with respect to which known information about the possible credit problems of the borrowers or the cash flows of the security propertieshave 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 thenon-performing asset categories. These loans are comprised primarily of commercial real estate loans. Included in the commercial real estate loans of concern was a loan to one borrower in the amount of $1.2 million which we are monitoring due to a prior bankruptcy.  The loan is current as to principal and interest at June 30, 2003.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General

The Company's financial statements are prepared in accordance with accounting principals generally accepted in the United States (GAAP). The financial information contained within our statementsis, 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 theultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining theinherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that we use. In addition, GAAP itself may change from one previouslyacceptable 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.
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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 FinancialAccounting Standard ("SFAS") No.5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) SFAS 114, Accounting by Creditors forImpairment 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 secondarymarket and the loan balance.

We maintain an allowance for loan losses to provide for estimated probable losses in our loan portfolio. Management determines the level of reserves based on loan performance, the value of thecollateral, economic and market conditions, and previous experience. Management reviews the adequacy of the allowance at least quarterly, utilizing its internal loan classification system. Managementbelieves that the loan loss allowance is adequate at June 30, 2003. Although management believes it uses the best information available, future adjustments to the allowance may be necessary.

LIQUIDITY AND CAPITAL RESOURCES

Historically, the Bank has maintained its liquid assets at a level believed adequate to meet requirements of normal daily activities, repayment of maturing debt and potential deposit outflows.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 isprovided. As of June 30, 2003, the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable savings and current borrowings) was 12.6**%.**

At June 30, 2003, we had commitments to purchase or originate $1.4 million of loans. Certificates of deposit scheduled to mature in one year or less at June 30, 2003, totaled $52.9 million. Basedon 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 beadequate to meet our foreseeable short-term and long-term liquidity needs.

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 providedfrom 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 liquidassets, (iv) the liquidity of our loan portfolio and (v) the objectives of our asset/liability management program.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2003 and 2002.

General. Net income for the three months ended June 30, 2003 was $997,000 compared to $745,000 for the three months ended June 30, 2002, an increase of $252,000. Net income increased primarily asa result of a decrease in interest expense of $352,000, or 19.5% and an increase in non-interest income of $647,000, or 85.2% during the three months ended June 30, 2003 compared to the same periodin 2002. The Company sold its mortgage-banking subsidiary, Community First Mortgage Corporation, during the June 30, 2003 quarter which accounted for $241,000 of the increase in non-interest income.The disposition of Community First is not expected to have a significant impact on the financial condition and net earnings of the Company. Return on equity for the three months ended June 30, 2003was 14.77% compared to 11.06% for the three month period ended June 30, 2002. Return on assets was 1.40% for quarter ended June 30, 2003 compared to 1.10% for the same period in the previous fiscalyear. The Company paid dividends to stockholders of $186,000 for the quarter ended June 30, 2003 compared to $180,000 for the June 30, 2002 quarter a dividend payout ratio of 18.6% and 24.2%respectively.
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Interest Income. Total interest income decreased by $10,000 to $4.4 million for the three months ended June 30, 2003 compared to the three months ended June 30, 2002. Lower yields for bothinvestment securities and loans for the three months ended June 30, 2003 as compared to the period ended June 30, 2002 were due to the decline in market interest rates generally. The average yieldearned on interest-earning assets was 6.04% for the three months ended June 30, 2003 compared to 6.86% for the three months ended June 30, 2002.Average loans receivable increased $26.8 million or an11.8% increase and average securities increased $7.6 million or a 24.2% increase compared to the June 30, 2002 quarter. Our interest spread increased by seven basis points to 3.90% for the firstquarter ended June 30, 2003 compared to 3.83% for the same period in 2002.

Interest Expense. Total interest expense decreased by $352,000 to $1.5 million for the quarter ended June 30, 2003, from $1.8 million for the quarter ended June 30, 2002. Interest on depositsdecreased by $312,000 to $1.4 million for the quarter ended June 30, 2003 from $1.7 million for the quarter ended June 30, 2002 due primarily to a 94 basis point decline in the average rate paid ondeposits to 2.22%. Interest expense on borrowed money decreased by $40,000 to $90,000 for the quarter ended June 30, 2003, from $129,000 for the quarter ended June 30, 2002, primarily as a result ofa decline in the rate paid on borrowings. The average rate paid on interest-bearing liabilities was 2.14% during the three months ended June 30, 2003 compared to 3.03% for the three months ended June30, 2002.

Provision for Loan Losses. The provision for loan losses increased by $45,000 to $147,000 for the three months ended June 30, 2003, from $102,000 for the three months ended June 30, 2002. Theincrease in the provision for loan losses was attributable to both an increase in charge-offs on consumer loans and managements evaluation based on its internal loan classification system.

Noninterest Income. Noninterest income increased by $647,000 to $1.4 million for the three months ended June 30, 2003, from $760,000 for the three months ended June 30, 2002. The increase innon-interest income was due primarily to an increase in service charges, fees and commissions on the sale of mortgage loans in the secondary market by our mortgage-banking subsidiary as refinancingactivity in our area remained strong as a result of the continuing low interest rate environment. The sale of the Company's mortgage-banking subsidiary, during the June 30, 2003 quarter alsocontributed to the increase in non-interest income.

Noninterest Expense. Noninterest expense increased by $548,000 to $2.8 million for the three months ended June 30, 2003 compared to the same period last year. Compensation and benefits increasedby $326,000 to $1.6 million compared to the same period last year due primarily to the staffing of our new branch in Verona, Virginia. Miscellaneous expense increased by $149,000 to $432,000 duringthe June 30, 2003 quarter compared to the June 30, 2002 quarter due to the new branch in Verona and expenses related to increased loan volume.

Taxes. Taxes increased by $144,000 to $475,000 for the three months ended June 30, 2003, from $332,000 for the three months ended June 30, 2002. The effective tax rate increased from 30.8% for theJune 30, 2002 quarter to 32.3% for the June 30, 2003 quarter.
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RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, the Financial Accounting Standards Board issued Statement No. 149, *Amendment of Statement 133 on Derivative Instruments and Hedging Activities*. This Statement amends andclarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts(collectively referred to as derivatives) and for hedgingactivities under FASB Statement No. 133, *Accounting for Derivative Instruments and Hedging Activities*. This Statement is effective for contracts entered into or modified after June 30, 2003and is not expected to have an impact on the Corporation's consolidated financial statements.

In May 2003, the Financial Accounting Standards Board issued Statement No. 150, *Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity*. ThisStatement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify afinancial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective forfinancial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatoryredeemable financial instruments of nonpublic entities. Adoption of the Statement did not result in an impact on the Corporation's consolidated financial statements.
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Disclosure Regarding Forward-Looking Statements

This document, including information incorporated by reference, contains, and future filings by Community Financial Corporation on Form 10-KSB, Form 10-QSB and Form 8-K and future oral and writtenstatements 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 PrivateSecurities Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, includingrevenue creation, lending origination, operating efficiencies, loan sales, charge-offs and loan loss provisions, growth opportunities, interest rates, acquisition and divestiture opportunities, andsynergies, efficiencies, cost savings and funding advantages. These forward-looking statements are based on currently available competitive, financial and economic data and management's views andassumptions 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 theforward-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 andfactors 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 fromthose 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, maybe 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 byusers, including the features, pricing and quality compared to competitors' products and services;  the impact of changes in financial services laws and regulations (including laws concerning taxes, accounting standards, banking, securities and insurance); legislative or regulatory changes mayadversely affect the business in which we are engaged;the impact of technological changes;
- changes in consumer spending and saving habits; and  our success at managing the risks involved in the foregoing.12NEXT PAGE
Community Financial Corporation disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, orotherwise.

Item 3. Controls and Procedures

An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Act") as of June 30, 2003, was carried out under thesupervision 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 ExecutiveOfficer 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 theCompany 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 atimely 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 controlover financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended June 30, 2003, that has materially affected, or is reasonably likely to materially affect,our internal control over financial reporting.

The Company intends to continually review and evaluate the design and effectiveness of its disclosure and control procedures and to improve its controls and procedures over time and to correct anydeficiencies that it may discover in the future. The goal is to ensure that senior management has timely access to all material financial and non-financial information concerning the Company'sbusiness. While the Company believes the present design of its disclosure controls and procedures is effective to achieve its goal, future events affecting its business may cause the Company tomodify its disclosure controls and procedures.
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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

            Not Applicable.

Item 2. Changes in Securities

            Not Applicable.

Item 3. Defaults Upon Senior Securities

            Not Applicable.

Item 4. Submission of Matters to a Vote of Security Holders

            Not Applicable.

Item 5. Other Information

            Not Applicable.
Item 6.Exhibits and Reports on Form 8-Ka.Exhibits: See Exhibit Indexb.Reports on Form 8-K: On May 15, 2003, the Company filed a Current Report of Form 8-K containing a press release announcing earnings for the fourth quarter and fiscal year ended March 31, 2003and the date of the Registrant's annual meeting of shareholders.14NEXT PAGE
SIGNATURES

       Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
COMMUNITY FINANCIAL CORPORATIONDate: August 14, 2003By:/s/ R. Jerry GilesR. Jerry GilesChief Financial Officer(Duly Authorized Officer)15NEXT PAGE
EXHIBIT INDEX
Exhibit NumberDocumentReference toPrior Filing orExhibit NumberAttachedHereto2Plan of acquisition, reorganization, arrangement, liquid, or successionNone3.1Amended and Restated Articles of Incorporation and Bylaws*3.2Bylaws, as amended an currently in effect**4Instruments defining the rights of security holders, including indentures: Common Stock Certificates***10.1Stock Option and Incentive Plan****10.2Employment Agreement for P. Douglas Richard**10.3Amendment No. One and Two to the Employment Agreement****10.41996 Incentive Plan*10.5Supplemental Executive Retirement Plan***10.6Employment Agreement for Chris P. Kyriakides, as amended*****10.7Severance agreement for R. Jerry Giles******10.8Severance agreement for Norman C. Smiley******10.9Severance agreement for Benny N. Werner******11Statement re computation of per share earnings (See Note 2 of the Notes to Unaudited Interim Consolidated Financial Statements contained in this ReportNone31.1Rule 13a-14(a) Certification of Chief Executive Officer31.131.2Rule 13a-14(a) Certification of Chief Financial Officer31.232Rule 1350 Certification32
*Filed on July 5, 1996 as an exhibit to the Registrant's Definitive Proxy Statement (File Number 000-18265) on Schedule 14A. Such previously filed document is hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B.

**Filed on November 14, 2000 as Exhibits to the Registrant's Quarterly Report on Form 10-QSB (file no, 000-18205), for the quarter ended September 30, 2000. Such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B.

***Filed on June 29, 2000, as Exhibit 10 to the Annual Report on Form 10-KSB for the fiscal year ended March 31, 2000. Such previously filed document is hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B.

****Filed on May 19, 1989 as exhibits to the Registrant's Registration Statement No. 33-28817 on Form S-4. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B.

*****Filed on August 14, 2002 as an exhibit to the Registrant's Quarterly Report on Form 10-QSB (file no. 000-18265), for the quarter ended June 30, 2002.  Such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B.
******Filed on June 30, 2003 as an exhibit to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended March 31, 2003.  Such previously filed document is hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B.
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