<PAGE>
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                                   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 SEPTEMBER 30, 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 September 30, 1996:  1,272,048.

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 September 30, 1996 (unaudited) and             
         March 31, 1996 ................................................1

         Consolidated Statements of Income for the
         Three Months Ended September 30, 1996 and 1995
         and for the Six Months Ended September 30, 1996
         and 1995 (unaudited)...........................................2

         Consolidated Statements of Cash Flows for the
         Six Months Ended September 30, 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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                          COMMUNITY FINANCIAL CORPORATION
                   CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


<TABLE>
<CAPTION> 
                         
                                         September 30,      March 31, 
                                              1996            1996     
                                         ------------    -------------
                                         (Unaudited)                

<S>                                      <C>              <C>
ASSETS
Cash (including interest bearing                       
  deposits of approximately 
  $1,221,000 and $1,147,000)             $  3,440,039     $  3,673,085
Securities 
  Held to maturity                          5,819,636        6,067,778
  Available for sale                        2,009,123        1,754,445
Investment in Federal Home Loan 
  Bank stock, at cost                       1,350,000        1,350,000
Loans receivable, net                     142,962,373      141,738,895
Real estate owned                              60,431          123,322
Property and equipment, net                 3,600,707        3,692,043
Accrued interest receivable                                          
  Loans                                       874,883          853,275
  Investments                                 160,104          167,142
Prepaid expenses and other assets             514,054          372,636         
      
                                                                       
                                         $160,791,350     $159,792,621

LIABILITIES AND STOCKHOLDERS' EQUITY 
                                   
Liabilities
Deposits                                 $110,375,397     $109,501,461
Advances from Federal Home Loan                                        
    Bank                                   26,000,000       27,000,000
Advance payments by borrowers for
    taxes and insurance                       107,876          142,737       
Other liabilities                           1,928,405        1,248,443

        Total Liabilities                 138,411,678      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,
    1,272,048 and 1,269,698 shares           
    outstanding                                12,720           12,697   
  Additional paid in capital                4,661,011        4,651,634 
  Retained earnings                        16,519,902       16,206,237
  Net unrealized gain on securities
    available for sale                      1,186,039        1,029,412
  Total Stockholders' Equity               22,379,672       21,899,980

                                         $160,791,350     $159,792,621
</TABLE>
   See accompanying notes to consolidated financial statements.

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                         COMMUNITY FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                  Three Months Ended       Six Months Ended
                                     September 30,           September 30,
                                ----------------------  ----------------------
                                   1996        1995        1996        1995 
                                ----------  ----------  ----------  ---------- 
                                      (Unaudited)             (Unaudited)

<S>                             <C>         <C>         <C>         <C>        
                                                       
INTEREST INCOME
  Loans                         $3,005,534  $2,955,785  $5,990,408  $5,795,316
  Investment securities            119,681     111,995     246,519     209,178
  Other                             25,474      27,500      57,690      63,793
    Total interest income        3,150,689   3,095,280   6,294,617   6,068,287

INTEREST EXPENSE
  Deposits                       1,251,220   1,259,144   2,494,925   2,422,986
  Borrowed money                   349,117     378,212     738,314     766,202
    Total interest expense       1,600,337   1,637,356   3,233,239   3,189,188

NET INTEREST INCOME              1,550,352   1,457,924   3,061,378   2,879,099

PROVISION FOR LOAN LOSSES           69,647      42,500     102,638      67,500

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES       1,480,705   1,415,424   2,958,740   2,811,599

NONINTEREST INCOME
  Service charges, fees
    and commissions                128,668     107,870     244,571     210,883
  Miscellaneous                      1,126       7,246       2,732      13,019
    Total noninterest
      income                       129,794     115,116     247,303     223,902 
                                                             
NONINTEREST EXPENSE
  Compensation & benefits          298,884     288,143     584,615     564,920
  Occupancy                         98,921      94,494     198,243     184,587
  Data processing                   80,719      77,527     174,775     155,165
  Federal insurance premium        732,469      58,986     794,100     119,793
  Miscellaneous                    251,459     167,051     426,542     357,888
    Total noninterest
      expense                    1,462,452     686,201   2,178,275   1,382,353

INCOME BEFORE TAXES                148,047     844,339   1,027,768   1,653,148

INCOME TAXES                        53,548     316,596     383,482     620,622

NET INCOME                      $   94,499  $  527,743  $  644,286  $1,032,526
                             
EARNINGS PER SHARE              $     0.08  $     0.42  $     0.51  $     0.83 
DIVIDENDS PER SHARE             $     0.13  $     0.10  $     0.26  $     0.20

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



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                  COMMUNITY FINANCIAL CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> 

                                                 Six Months Ended  
                                                    September 30,     
                                              ------------------------
                                                  1996        1995     
                                              -----------  -----------
                                                     (Unaudited)       
                                                       
<S>                                           <C>           <C>
OPERATING ACTIVITIES                                 
  Net income                                  $  644,286    $1,032,526
  Adjustments to reconcile net income to  
   net cash provided by operating activities
     Provision for loan losses                   102,638        67,500
     Depreciation                                110,838       106,703
     Amortization of premium and accretion  
      of discount on securities, net              (3,624)       (6,783)
     Decrease in net deferred loan fees          (33,542)      (49,897) 
     Increase (Decrease) in deferred income
      taxes                                       28,596       (67,521)
     Increase in other assets                   (155,988)     (159,682) 
     Increase in other liabilities               616,505        70,909 
     Gain on sale of assets                       (6,391)       (1,245)
     Proceeds from sale of loans                 338,000       415,000
     Loans originated for resale                (371,000)     (415,000)
  Net cash provided by operating activities    1,270,318       992,510 

INVESTING ACTIVITIES
  Proceeds from maturities of
    investment securities                        750,000     1,750,000
  Purchases of investment securities            (498,281)   (2,249,570)
  Net increase in loans                       (1,288,295)   (5,340,466)
  Purchases of property and equipment            (19,502)      (22,149)
    Net cash provided (absorbed) by 
      investing activities                    (1,056,078)   (5,862,185)
     
FINANCING ACTIVITIES
  Dividends paid                                (330,622)     (249,766)
  Net increase in deposits                       873,936     4,496,303
  Proceeds from advances and other 
   borrowed money                             31,000,000    73,000,000
  Repayments of advances and other
   borrowed money                            (32,000,000)  (73,000,000)
  Proceeds from issuance of common stock           9,400       111,280      
Net cash provided (absorbed) by  
  financing activities                          (447,286)    4,357,817 
INCREASE (DECREASE) IN CASH AND CASH                    
  EQUIVALENTS                                   (233,046)     (511,858)

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

CASH AND CASH EQUIVALENTS-
  end of period                               $3,440,039    $4,071,125 
  
</TABLE>

   See accompanying notes to consolidated financial statements. 


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                          COMMUNITY FINANCIAL CORPORATION
           NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                 September 30, 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 six months ended September 30,
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
September 30, 1996 and 1995 have been determined by dividing net income by the
weighted number of shares of common stock outstanding during these periods
(1,272,048 and 1,250,950). Earnings per share for the six months ended
September 30, l996 and 1995 have been determined by dividing net income by the
weighted number of shares of common stock outstanding during these periods
(1,271,404 and 1,246,439).


NOTE 3. - STOCKHOLDERS' EQUITY

     The following table presents the Savings Bank's capital levels at
September 30, 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   $2,402,000   1.50%     $18,678,000   11.67%  $16,276,000
Core Capital        4,803,000   3.00       18,678,000   11.67    13,875,000
Risk-based Capital  8,771,000   8.00       19,495,000   17.78    10,724,000

</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 September 30, 1996 and
1995 was $1,564,454 and $1,585,662.  Total interest paid for the six months
ended September 30, 1996 and 1995 was $3,097,528 and $3,178,344. Total income
taxes paid for the three months ended September 30, 1996 and 1995 was $548,660
and $549,220.  Total income taxes paid for the six months ended September 30,
1996 and 1995 was $548,660 and $619,220.  
                             
                                  
Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS.


FINANCIAL CONDITION

     The Company's total assets increased $1.0 million to $160.8 million at
September 30, 1996, due primarily to an increase in loans receivable of $1.2
million.  The increase in loans receivable was due  primarily to the
origination of variable rate mortgage loans. Deposits increased $900,000    
to $110.4 million at September 30, 1996, from $109.5 million at March 3l,
l996.  The increase in deposits was used to fund the increase in loans.
Stockholders' equity increased to $22.4 million at September 30, 1996, from
$21.9 million at March 31, 1996, due primarily to earnings for the six month
period ended September 30, 1996 and an adjustment in the market value of
Federal Home Loan Mortgage Corporation stock, which was partially offset by
two payments of $0.13 per share each in cash dividends. At September 30, 1996,
the Bank's non-performing assets totalled $329,000 or 0.21% 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 two single family
residential properties, one of which was a construction loan, which were more
than ninety days past due. Also included in non-performing assets is one
single family residential property acquired through foreclosure and various
consumer loans.  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.

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     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 September 30, 1996, the Bank's liquidity ratio (liquid assets as a
percentage of net withdrawable savings and current borrowings) was 7.07%,
which exceeds the regulatory requirement.   

RESULTS OF OPERATIONS

Three Months Ended September 30, 1996 and 1995.
----------------------------------------------
     
     General.  Net income for the three months ended September 30, 1996 was
$94,499 compared to $527,743 for the three months ended September 30, 1995,
due primarily to a one-time special assessment based on the SAIF insured
deposits held by the bank on March 31, 1995 and partially offset by an
increase in net interest income. Income before taxes decreased to $148,047 for
the three months ended September 30, 1996 from $844,339 for the three months
ended September 30, 1995.

     Interest Income.   Total interest income increased to $3,150,689 for the
three months ended September 30, 1996, from $3,095,280 for the three months
ended September 30, 1995, due primarily to an increase in the balances of
loans and investments.                                                         
        
     Interest Expense.  Total interest expense decreased to $1,600,337 for
the quarter ended September 30, 1996, from $1,637,356 for the quarter ended
September 30, 1995.  Interest on deposits decreased to $1,251,220 for the
quarter ended September 30, 1996 from $1,259,144 for the quarter ended
September 30, 1995 due primarily to an decrease in the average cost of
deposits from 4.62% at September 30, 1995 compared to 4.58% at September 30,
1996. Interest expense on borrowed money decreased to $349,117 for the quarter
ended September 30, 1996, from $378,212 for the quarter ended September 30,
1995, due to a decrease in the cost of borrowed money.
 
     Provision for Loan Losses.  The provision for loan losses increased to
$69,647 for the three months ended September 30, 1995 from $42,500 for the
three months ended September 30, 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 $129,794 for the
three months ended September 30, 1996, from $115,116 for the three months
ended September 30, 1995. NOW account charges increased as a result of
increased account volume. 

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<PAGE>    9
                              

     Noninterest Expense.  Noninterest expense increased to $1,462,452 for
the three months ended September 30, 1996, from $686,201 for the three months
ended September 30, 1995. The deposits of savings associations, such as
Community Federal, are presently insured by the Savings Association Insurance
Fund ("SAIF"), which together with the Bank Insurance Fund ("BIF"), are the
two insurance funds administered by the Federal Deposit Insurance Corporation.
Financial institutions which are members of the BIF are experiencing
substantially lower deposit insurance premiums because the BIF has 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 requires 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.

     The Bank, however, will continue to be subject to an assessment to fund
repayment of the Financial Corporation ("FICO") obligations. It is anticipated
that the FICO assessment for SAIF insured institutions will be 6.5 cents per
$100 of deposits while BIF insured institutions will pay 1.3 cents per $100 of
deposits until the year 2000 when the assessment will be imposed at the same
rate on all FDIC insured institutions. Accordingly, as a result of the
reduction of the SAIF assessment and the resulting FICO assessment, the annual
after tax decrease in assessment costs is expected to be approximately
$110,000 based upon a September 30, 1996 assessment base.

     Miscellaneous expenses increased primarily due to advertising expenses
related to checking accounts and professional expenses in regard to loan
policy and procedures.
  
     Taxes.  Taxes decreased to $53,548 for the three months ended September
30, l996, from $316,596 for the three months ended September 30, 1995, due to
the decrease in income before taxes.   

Six Months Ended September 30, 1996 and 1995
--------------------------------------------

     General.  Net income for the six months ended September 30, 1996 was
$644,286 compared to $1,032,526 for the six months ended September 30, l995.

     Interest Income.  Total interest income increased to $6,294,617 for the
six months ended September 30, 1996, from $6,068,287 for the six months ended
September 30, 1995, due primarily to an increase in the balances of loans and
investments.    

     Interest Expense.  Total interest expense increased to $3,233,239 for
the six months ended September 30, 1996, from $3,189,188 for the six months
ended September 30, 1995.  Interest on deposits increased to $2,494,925 for
the six months ended September 30, 1996, from $2,422,986 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 $738,314 for the six months ended September 30, 1996, from
$766,202 for the six months ended September 30, 1995, due primarily to lower
rates on borrowings from the Federal Home Loan Bank of Atlanta.

     Provision for Loan Losses.  The provision for loan losses increased  to
$102,638 for the six months ended September 30, 1996, from $67,500 for the
same period last year due primarily to an increase in chargeoffs on consumer
loans. Due to the growth in the loan portfolio and the economic uncertainty

<PAGE>
<PAGE>    10

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 $247,303 for the
six months ended September 30, 1996, from $223,902 for the six months ended
September 30, 1995, due to an increase in the fees and service charges on
checking accounts as the volume of accounts increased.

     Noninterest Expenses.  Noninterest expenses increased to $2,178,275 for
the six months ended September 30, 1996, from $1,382,353 for the same period
last year.  The increase is related primarily to the one-time SAIF premium
discussed above.                          

     Taxes.  Taxes decreased to $383,482 for the six months ended
September 30, 1996, from $620,622 for the six months ended September 30, 1995,
due to a decrease in income before taxes for the six months ended
September 30, 1996. 

<PAGE>
<PAGE>    11

                            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

         Not Applicable.

        Exhibit 3 - Amended and Restated Articles of Incorporation
                    and Bylaws

        Exhibit 10 -     1996 Incentive Plan

        Exhibit 27 -     Financial Data Schedule  

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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:  October 31, 1996                              
                                   By: (s) R. Jerry Giles
                                       -------------------------------
                                        R. Jerry Giles
                                        Chief Financial Officer
                                        (Duly Authorized Officer)