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<PAGE>

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

                                   FORM 10-QSB
    
          (Mark one)
              [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                      OF THE SECURITIES EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996  

                                        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           018261                 
      
                          COMMUNITY FINANCIAL CORPORATION                
         (Exact name of small business issuer as specified in its charter)

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

                      38 North Central Ave., Staunton, Va. 24401            
                   (Address of principal executive offices zip code)

                                   (540) 886-0796                            
                     (Issuer's telephone number, including area code)          
         

Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

              Yes    X               No          

Number of shares of Common Stock, par value per share, $.01, outstanding at
the close of business on December 31, 1996:  1,272,348.

Transitional Small Business Disclosure Format (Check one)

              Yes                    No    X     
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                          COMMUNITY FINANCIAL CORPORATION
                                         

                                       INDEX

                                                                  

PART I.  FINANCIAL INFORMATION                                        PAGE

Item 1.  Financial Statements


         Consolidated Statements of Financial Condition
         at December 31, 1996 (unaudited) and             
         March 31, 1996 ................................................1

         Consolidated Statements of Income for the
         Three Months Ended December 31, 1996 and 1995
         and for the Nine Months Ended December 31, 1996
         and 1995 (unaudited)...........................................2

         Consolidated Statements of Cash Flows for the
         Nine Months Ended December 31, 1996 and
         1995 (unaudited)...............................................3

         Notes to Unaudited Interim Consolidated 
         Financial Statements...........................................4

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations............................6


PART II. OTHER INFORMATION   -   II-1



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<PAGE>  

                          COMMUNITY FINANCIAL CORPORATION
                   CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION> 

                                     December 31,      March 31, 
                                          1996            1996     
                                     ------------    -------------
                                      (Unaudited)                

<S>                                  <C>              <C>
ASSETS
Cash (including interest bearing                       
  deposits of approximately 
  $1,910,000 and $1,147,000)         $  4,598,586     $  3,673,085
Securities 
  Held to maturity                      5,072,255        6,067,778
  Available for sale                    2,271,518        1,754,445
Investment in Federal Home Loan 
  Bank stock, at cost                   1,400,000        1,350,000
Loans receivable, net                 148,374,998      141,738,895
Real estate owned                          70,161          123,322
Property and equipment, net             3,554,057        3,692,043
Accrued interest receivable                                          
  Loans                                   852,726          853,275
  Investments                             113,208          167,142
Prepaid expenses and other assets         355,535          372,636             
  
                                                                       
                                     $166,663,044     $159,792,621

LIABILITIES AND STOCKHOLDERS' EQUITY 
                                   
Liabilities
Deposits                             $114,101,251     $109,501,461
Advances from Federal Home Loan                                        
  Bank                                 28,000,000       27,000,000
Advance payments by borrowers for
  taxes and insurance                      97,275          142,737       
Other liabilities                       1,508,339        1,248,443

        Total Liabilities             143,706,865      137,892,641

Stockholders' Equity
  Preferred stock $.01 par value,
    authorized 3,000,000 shares,
    none outstanding
  Common stock, $.01 par value, 
    authorized 10,000,000 shares,
    1,272,348 and 1,269,698 shares                                             
    outstanding                            12,724           12,697   
  Additional paid in capital            4,662,207        4,651,634 
  Retained earnings                    16,933,837       16,206,237
  Net unrealized gain on securities
    available for sale                  1,347,411        1,029,412
  Total Stockholders' Equity           22,956,179       21,899,980

                                     $166,663,044     $159,792,621
</TABLE>

   See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>                                                                         
                         COMMUNITY FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                            Three Months Ended     Nine Months Ended
                               December 31,           December 31,
                            ------------------     -----------------
                              1996       1995       1996       1995 
                            --------    ------     ------     ------ 
                               (Unaudited)             (Unaudited)

<S>                       <C>        <C>        <C>        <C>        
                                                       
INTEREST INCOME
  Loans                    $3,091,911 $3,007,517 $9,082,320 $8,802,833
  Investment securities       113,482    115,332    363,173    324,510
  Other                        27,087     35,930     81,605     99,723
    Total interest income   3,232,480  3,158,779  9,527,098  9,227,066

INTEREST EXPENSE
  Deposits                  1,278,307  1,300,133  3,773,232  3,723,119
  Borrowed money              375,014    378,274  1,113,329  1,144,476
    Total interest expense  1,653,321  1,678,407  4,886,561  4,867,595

NET INTEREST INCOME         1,579,159  1,480,372  4,640,537  4,359,471

PROVISION FOR LOAN LOSSES      53,296     31,720    155,933     99,220

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES  1,525,863  1,448,652  4,484,604  4,260,251

NONINTEREST INCOME
  Service charges, fees
    and commissions           131,351    109,155    370,462    320,038
  Miscellaneous                 4,835      5,108     18,752     18,127
    Total noninterest
      income                  136,186    114,263    389,214    338,165         
                                                     
NONINTEREST EXPENSE
  Compensation & benefits     311,808    295,456    896,424    860,376
  Occupancy                    89,787     96,191    288,030    280,778
  Data processing              79,691     72,222    254,466    227,387
  Federal insurance premium    48,161     60,608    842,261    180,401
  Miscellaneous               204,145    180,237    636,412    538,125
    Total noninterest
      expense                 733,592    704,714  2,917,593  2,087,067

INCOME BEFORE TAXES           928,457    858,201  1,956,225  2,511,349

INCOME TAXES                  349,117    321,818    732,599    942,440

NET INCOME                 $  579,340 $  536,383 $1,223,626 $1,568,909
                             
EARNINGS PER SHARE         $     0.46 $     0.42 $     0.96 $     1.25 
DIVIDENDS PER SHARE        $     0.13 $     0.11 $     0.39 $     0.31

</TABLE>
       See accompanying notes to consolidated financial statements.

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                  COMMUNITY FINANCIAL CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION> 

                                                 Nine Months Ended  
                                                    December 31      
                                              ------------------------
                                                  1996        1995     
                                              -----------  -----------
                                                     (Unaudited)       
                                                       
<S>                                          <C>>         <C>
OPERATING ACTIVITIES                                 
  Net income                                  $1,223,626   $1,568,909
  Adjustments to reconcile net income to  
   net cash provided by operating activities
     Provision for loan losses                   155,933       99,220
     Depreciation                                163,725      159,047
     Amortization of premium and accretion  
      of discount on securities, net              (4,320)      (7,210)
     Decrease in net deferred loan fees          (14,335)     (77,517) 
     Increase (Decrease) in deferred income
      taxes                                       47,434       98,480 
     Decrease (Increase) in other assets         124,745      (99,978) 
     (Decrease) in other liabilities             (32,074)     (58,098)
     Gain on sale of loans                       (11,227)        (818)
     Proceeds from sale of loans                 876,600    1,136,000
     Loans originated for resale              (1,048,350)  (1,136,000)
  Net cash provided by operating activities    1,481,757    1,682,035 

INVESTING ACTIVITIES
  Proceeds from maturities of
    investment securities                      2,000,000    2,500,000
  Purchases of investment securities          (1,000,234)  (4,042,397)
  Net increase in loans                       (6,645,492)  (5,203,178)
  Purchases of property and equipment            (24,893)     (47,720)
  Net cash provided (absorbed) by 
    investing activities                      (5,670,619)  (6,793,295)
     
FINANCING ACTIVITIES
  Dividends paid                                (496,027)    (389,433)
  Net increase in deposits                     4,599,790    4,808,519
  Proceeds from advances and other 
   borrowed money                             33,000,000   73,000,000
  Repayments of advances and other
   borrowed money                            (32,000,000) (73,000,000)
  Proceeds from issuance of common stock          10,600      111,280      
  Net cash provided (absorbed) by  
    financing activities                       5,114,363    4,530,366 
INCREASE (DECREASE) IN CASH AND CASH                    
  EQUIVALENTS                                    925,501     (580,894)

CASH AND CASH EQUIVALENTS-beginning of period  3,673,085    4,582,983 

CASH AND CASH EQUIVALENTS-end of period       $4,598,586   $4,002,089 
  
</TABLE>
   See accompanying notes to consolidated financial statements. 


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                          COMMUNITY FINANCIAL CORPORATION
           NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                 December 31, 1996


NOTE 1. - BASIS OF PRESENTATION

     The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Rule 10-01 of 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 and its wholly-owned subsidiary, Community
Federal Savings 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 nine months ended December 31,
1996, are not necessarily indicative of the results that may be expected for
the year ending March 31, 1997.

NOTE 2. - EARNINGS PER SHARE
  
     Earnings per share is computed based on the weighted average number of
shares of common stock outstanding during each period including the assumed
exercise of dilutive stock options, and is retroactively adjusted for stock
dividends and stock splits. Earnings per share for the three months ended
December 31, 1996 and 1995 have been determined by dividing net income by the
weighted number of shares of common stock outstanding during these periods
(1,272,348 and 1,269,698). Earnings per share for the nine months ended
December 31, 1996 and 1995 have been determined by dividing net income by the
weighted number of shares of common stock outstanding during these periods
(1,271,690 and 1,254,220).


NOTE 3. - STOCKHOLDERS' EQUITY

     The following table presents the Savings Bank's capital levels at
December 31, 1996, relative to the federal regulatory requirements at that
date: 

<TABLE>               
<CAPTION>
                      Amount    Percent      Actual     Actual      Excess
                     Required   Required     Amount     Percent     Amount
                     --------   --------   ---------    -------   ---------

<S>                <C>           <C>      <C>           <C>       <C>          
        
Tangible Capital    $2,488,000    1.50%    $19,266,000   11.62%    $16,778,000
Core Capital         4,976,000    3.00      19,266,000   11.62      14,290,000
Risk-based Capital   9,020,000    8.00      20,110,000   17.84      11,090,000

</TABLE>
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NOTE 3. - STOCKHOLDERS' EQUITY (cont.)

     Capital distributions by the Savings Bank are limited by federal
regulations ("Capital Distribution Regulation").  Capital distributions are
defined to include, in part, dividends, stock repurchases and cash-out
mergers.  The Capital Distribution Regulation permits a "Tier 1" association
to make capital distributions during a calendar year up to 100% of its net
income to date plus the amount that would reduce by one-half its surplus
capital ratio at the beginning of the calendar year.  Any distributions in
excess of that amount require prior notice to the Office of Thrift Supervision
("OTS") with the opportunity for the OTS to object to the distribution. A Tier
1 association is defined as an association that has, on a pro forma basis
after the proposed distribution, capital equal to or greater than the OTS
capital requirement and has not been deemed by the OTS to be "in need of more
than normal supervision".  The Savings Bank is currently classified as a Tier
1 institution for these purposes.  The Capital Distribution Regulation
requires that associations provide the applicable OTS District Director with a
30-day advance written notice of all proposed capital distributions whether or
not advance approval is required by the regulation. 


NOTE 4. - SUPPLEMENTAL INFORMATION - STATEMENT OF CASH FLOWS

     Total interest paid for the three months ended December 31, 1996 and
1995 was $1,630,547 and $1,667,381.  Total interest paid for the nine months
ended December 31, 1996 and 1995 was $4,899,937 and $4,845,725. Total income
taxes paid for the three months ended December 31, 1996 and 1995 was $156,077
and $341,526.  Total income taxes paid for the nine months ended December 31,
1996 and 1995 was $704,737 and $960,746.  

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

FINANCIAL CONDITION

     The Company's total assets increased $6.9 million to $166.7 million at
December 31, 1996, due primarily to an increase in loans receivable of $6.6
million.  The increase in loans receivable was due  primarily to the
origination of variable rate mortgage loans. Deposits increased $4.6 million
to $114.1 million at December 31, 1996, from $109.5 million at March 31, l996. 
The increase in deposits was used to fund the increase in loans. Stockholders'
equity increased to $23.0 million at December 31, 1996, from $21.9 million at
March 31, 1996, due primarily to earnings for the nine month period ended
December 31, 1996 and an adjustment in the market value of Federal Home Loan
Mortgage Corporation stock, which was partially offset by three payments of
$0.13 per share each in cash dividends.

     At December 31, 1996, the Bank's non-performing assets totalled $508,000
or 0.31% of assets. This compares to non-performing assets of $824,000 or
0.54% of total assets as of March 31, 1996. The non-performing assets
consisted of one single family residential property, which was more than
ninety days past due. Also included in non-performing assets are two single
family residential properties acquired through foreclosure and various
consumer loans which includes one loan relationship of approximately $390,000
secured by classic automobiles and a second mortgage on real estate for which
there is an allowance of $145,000. Based on current market values of the
collateral securing these loans, management anticipates no significant losses
in excess of the reserves for losses previously recorded.

<PAGE>
<PAGE>

     Historically, the Bank has maintained its liquid assets above the
minimum requirements imposed by federal regulations and at a level believed
adequate to meet requirements of normal daily activities, repayment of
maturing debt and potential deposit outflows.  Cash flow projections are
regularly reviewed and updated to assure that adequate liquidity is provided. 
As of December 31, 1996, the Bank's liquidity ratio (liquid assets as a
percentage of net withdrawable savings and current borrowings) was 6.93%,
which exceeds the regulatory requirement of 5%.   

RESULTS OF OPERATIONS

Three Months Ended December 31, 1996 and 1995.
----------------------------------------------

     General.  Net income for the three months ended December 31, 1996 was
$579,340 compared to $536,383 for the three months ended December 31, 1995,
due primarily to an increase in net interest income which was offset in part
by  increases in the provision for loan losses and noninterest expense. Income
before taxes increased to $928,457 for the three months ended December 31,
1996 from $858,201 for the three months ended December 31, 1995.

     Interest Income.   Total interest income increased to $3,232,480 for the
three months ended December 31, 1996, from $3,158,779 for the three months
ended December 31, 1995, due primarily to an increase in the balances of
loans.
                                                                    
     Interest Expense.  Total interest expense decreased to $1,653,321 for
the quarter ended December 31, 1996, from $1,678,407 for the quarter ended
December 31, 1995.  Interest on deposits decreased to $1,278,307 for the
quarter ended December 31, 1996 from $1,300,133 for the quarter ended December
31, 1995 due primarily to a decrease in the average cost of deposits from
4.72% at December 31, 1995 compared to 4.56% at December 31, 1996. Interest
expense on borrowed money decreased to $375,014 for the quarter ended December
31, 1996, from $378,274 for the quarter ended December 31, 1995, due to a
decrease in the cost of borrowed money which was offset by an increase in
borrowings.
 
     Provision for Loan Losses.  The provision for loan losses increased to
$53,296 for the three months ended December 31, 1996 from $31,720 for the
three months ended December 31, 1995. The increase in the provision for loan
losses is attributable primarily to an increase in the number of delinquent
consumer loans. Due to the growth in the loan portfolio and the economic
uncertainty presently existing, management feels it is prudent to monitor the
unallocated reserves and make additions as appropriate to provide for possible
unforeseen losses.  

     Noninterest Income.  Noninterest income increased to $136,186 for the
three months ended December 31, 1996, from $114,263 for the three months ended
December 31, 1995. NOW account charges increased as a result of increased
account volume. 

     Noninterest Expense.  Noninterest expense increased to $733,592 for the
three months ended December 31, 1996, from $704,714 for the three months ended
December 31, 1995. Miscellaneous expenses increased primarily due to
advertising expenses related to a checking account promotion.
  
     Taxes.  Taxes increased to $349,117 for the three months ended December
31, l996, from $321,818 for the three months ended December 31, 1995, due to
the increase in income before taxes.   
<PAGE>
<PAGE>

Nine Months Ended December 31, 1996 and 1995
--------------------------------------------

     General.  Net income for the nine months ended December 31, 1996 was
$1,223,626 compared to $1,568,909 for the nine months ended December 31, 1995. 
The decrease was primarily attributable to the one-time SAIF assessment of
$416,000 paid by the Bank during the nine months ended December 31, 1996.

     Interest Income.  Total interest income increased to $9,527,098 for the
nine months ended December 31, 1996, from $9,227,066 for the nine months ended
September 30, 1995, due primarily to an increase in the balance of loans.    

     Interest Expense.  Total interest expense increased to $4,886,561 for
the nine months ended December 31, 1996, from $4,867,595 for the nine months
ended December 31, 1995.  Interest on deposits increased to $3,773,232 for
the nine months ended December 31, 1996, from $3,723,119 for the same period
last year due primarily to an increase in deposit balances which was offset by
a decrease in the cost of deposits. Interest expense on borrowed money
decreased to $1,113,329 for the nine months ended December 31, 1996, from
$1,144,476 for the nine months ended December 31, 1995, due primarily to lower
rates on borrowings which was offset by increased borrowings from the Federal
Home Loan Bank of Atlanta.

     Provision for Loan Losses.  The provision for loan losses increased  to
$155,933 for the nine months ended December 31, 1996, from $99,220 for the
same period last year due primarily to an increase in charge-offs on consumer
loans. Due to the growth in the loan portfolio and the economic uncertainty
presently existing, management feels it is prudent to monitor unallocated
reserves and make additions as  appropriate to provide for possible unforeseen
losses.      
              
     Noninterest Income.  Noninterest income increased to $389,214 for the
nine months ended December 31, 1996, from $338,165 for the nine months ended
December 31, 1995, due primarily to an increase in the fees and service
charges on checking accounts as the volume of accounts increased.

     Noninterest Expense.  Noninterest expense increased to $2,917,593 for
the nine months ended December 31, 1996, from $2,087,067 for the nine months
ended December 31, 1995. The deposits of savings associations, such as
Community Federal, are presently insured by the SAIF, which together with the
BIF, are the two insurance funds administered by the FDIC. Financial
institutions which are members of the BIF were experiencing substantially
lower deposit insurance premiums because the BIF had achieved its required
reserves. In order to help eliminate this disparity and any competitive
disadvantage due to disparate deposit insurance premium schedules, legislation
to recapitalize the SAIF was enacted in September 1996.

     The legislation required a special one-time assessment of approximately 
65.7 cents per $100 of SAIF insured deposits held by the Bank at March 31,
1995. The premium resulted in an increase to the federal insurance premium of
$670,765 and a tax affected charge to earnings of approximately $416,000
during the quarter ended September 30, 1996. The legislation is intended to
fully recapitalize the SAIF fund so that commercial bank and thrift deposits
will be charged the same FDIC premiums beginning October 1, 1996. As of such
date deposit insurance premiums for highly rated institutions, such as the
Bank, have been eliminated.

     Taxes.  Taxes decreased to $732,599 for the nine months ended December
31, 1996, from $942,440 for the nine months ended December 31, 1995,
due to a decrease in income before taxes for the nine months ended December
31, 1996. 
<PAGE>
<PAGE>

                            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-K

         Exhibits:

            Exhibit 27 -  Financial Data Schedule
            Exhibit 29 -  Press release dated January 23, 1997

         Form 8-K:

          On January 23, 1997, the Company's subsidiary issued a press
          release announcing plans to form a banking division in the Hampton
          Roads region of Virginia.  The press release is attached hereto as
          Exhibit 99 and is incorporated by this reference.

<PAGE>
<PAGE>

                                    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:  January 29, 1997
                              
                                   By: (s)                                  
                                       -------------------------------
                                        R. Jerry Giles
                                        Chief Financial Officer
                                        (Duly Authorized Officer)