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

FORM 10-Q

	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXHANGE ACT OF 1934
	For the quarterly period ended December 31, 2004
OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________________ to ___________________

Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Security Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), (2) and has been subject to such filing requirements for the past 90 days. Yes        

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).   Yes    No  

Number of shares of Common Stock, par value $.01 per share, outstanding at the close of business on February 9, 2005: 2,084,006.

COMMUNITY FINANCIAL CORPORATION

INDEX

Part I. Financial Information

Item 1. Financial Statements

COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See accompanying notes to unaudited interim consolidated financial statements.

COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to unaudited interim consolidated financial statements.

COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to unaudited interim consolidated financial statements.

COMMUNITY FINANCIAL CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004

NOTE 1. - BASIS OF PRESENTATION

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

The accompanying consolidated financial statements include the accounts of Community Financial Corporation ("Community" or the "Company"), its wholly-owned subsidiary, Community Bank (the "Bank") and Community First Mortgage Corporation, a wholly-owned subsidiary of the Bank. 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 and nine months ended December 31, 2004, are not necessarily indicative of the results that may be expected for the year ending March 31, 2005.

Note 2. - Stock-Based Compensation Plan

At December 31, 2004, the Company had a stock-based employee compensation plan. The Company 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 the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. In determining the pro forma amounts below, the value of each grant is estimated at the grant date using the Black-Scholes option-pricing model. The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. There was no proforma compensation expense for the quarter and nine months ended December 31, 2004 and no options were granted during those period s.

NOTE 3. - EARNINGS PER SHARE

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

NOTE 4. - STOCKHOLDERS' EQUITY

The following table presents the Bank's regulatory capital levels at December 31, 2004:

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 plus the previous two years net income, less capital distributions paid over the same period. Any distributions in excess of that amount requires prior OTS approval. The Capital Distribution Regulation requires that savings banks in holding company structures provide the applicable OTS Regional Director with a 30-day advance written notice of all proposed capital distributions whether or not advance approval is required by the regulation. The OTS may object to capital distributions if the bank is not meeting its regulatory capital requirements, the distribution raises safety and soundness concerns or is otherwise in violation of law.

NOTE 5. - SUPPLEMENTAL INFORMATION - STATEMENT OF CASH FLOWS

Total interest paid for the nine months ended December 31, 2004 and 2003 was $4,318,305 and $3,277,944, respectively. Total income taxes paid for the nine months ended December 31, 2004 and 2003 was $1,131,002 and $1,308,369.

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. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners." Comprehensive income for the Company includes net income and unrealized gains and losses on securities available for sale. The following tables set forth the components of comprehensive income for the nine-month periods ended December 31, 2004 and 2003:

Note 7. - Defined Benefit Pension Plan

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

          The Company made a contribution of $251,761 to its pension plan for the current fiscal year on December 28, 2004.

EXECUTIVE SUMMARY

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

Our operating results were impacted primarily by changes in net interest income, which is the interest income we earn on our interest-earning assets, loans and investment securities, and the interest we pay on interest-bearing liabilities, which are primarily deposits and borrowings. The change in net interest income is impacted by both the change in interest earning assets and the interest rate spread between interest-earning assets and interest-bearing liabilities. The primary factor contributing to the increase in net interest income for the three and nine month periods ended December 31, 2004 has been the growth in interest-earning assets, primarily loans, while maintaining a relatively stable interest rate spread. While the growth in loans has exceeded management's expectations, we continue to monitor the impact rising interest rates may have on both the growth in interest-earning assets and our interest rate spread. Although the Company has maintained a stable interest rate spread in a rising interest rate environment due in part to increased rate adjustments on loans, the pace and extent of future interest rate changes will impact the Company's interest rate spread as well as limitations on interest rate adjustments on certain adjustable rate loans and is being monitored by management.

Funding for the growth in interest-earning assets combined with a rising interest rate environment has impacted the composition of the Company's interest-bearing liabilities. While both borrowings from the Federal Home Bank of Atlanta and deposits increased during the nine-month period ended December 31, 2004, the primary source of funding was borrowings. Borrowings were also the primary source of funding during the December 31, 2004 quarter as deposits decreased slightly. Competitors in the Company's market areas have competed with time deposit rates above what is generally considered by management to be prudent. The utilization of borrowings permitted the Company to acquire funds at a market rate of interest rather than time deposits at interest rates temporarily above the market. Also, as interest rates have increased deposit balances in savings and money market accounts have decreased as customers have transferred funds to time deposits or equities markets. As the level of borrowings increases, management recognizes the need to increase deposits and has instituted strategies to attract time deposits and non-interest bearing transactions accounts. Management is also cognizant of the potential for compression in the Bank's margin related to the need to acquire funds and the pace of interest rate changes. Management will continue to monitor the level of deposits and borrowings in relation to the current interest rate environment.

CRITICAL ACCOUNTING POLICIES

General

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

Allowance for Loan Losses

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

We maintain an allowance for loan losses to provide for estimated probable losses in our loan portfolio. Management determines the level of allowances based on loan performance, the value of the collateral, economic and market conditions, and previous experience. Management reviews the adequacy of the allowance at least quarterly, utilizing its internal loan classification system. Management believes that the loan loss allowance is adequate at December 31, 2004. Although management believes it uses the best information available, future adjustments to the allowance may be necessary.

FINANCIAL CONDITION

The Company's total assets increased $41.8 million to $378.8 million at December 31, 2004 from $336.9 million at March 31, 2004 due to increases in securities of $6.3 million and loans receivable of $35.2 million. These increases were funded with deposits which increased $4.9 million and borrowings which increased $35.0 million at December 31, 2004, from March 31, 2004. The increase in deposits was due to an increase in checking accounts of $800,000 and time deposits of $15.6 million which was offset by a decrease in savings accounts of $7.4 million and money market accounts of $4.2 million. Stockholders' equity increased $1.9 million to $31.2 million at December 31, 2004, from $29.3 million at March 31, 2004, due to an increase in earnings and options exercises offset by a decrease in net unrealized gain on securities available for sale and three cash dividends payments.

At December 31, 2004, non-performing assets totaled approximately $700,000 or .19% of assets compared to $1.7 million or .51% of assets at March 31, 2004. Non-performing assets at December 31, 2004 were comprised primarily of real estate owned and repossessed vehicles which totaled $492,000. Real estate owned at December 31, 2004 included one commercial real estate loan of $223,000. At December 31, 2004, our allowance for loan losses to non-performing loans was 385.4% and to total loans was .85%. Based on current market values of the properties securing these loans, management anticipates no significant losses in excess of the allowance for losses previously recorded.

As of December 31, 2004, there were also $2.0 million in loans with respect to which known information about the possible credit problems of the borrowers or the cash flows of the security properties have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing loan categories. These loans are comprised primarily of residential real estate loans. No individual loan in this category has a balance that exceeds $213,000.

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 is provided. As of December 31, 2004, the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable savings and current borrowings) was 10.5%.

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 provided from operations. Management maintains investments in liquid assets based upon its assessment of (i) our need for funds, (ii) expected deposit flows, (iii) the yields available on short-term liquid assets, (iv) the liquidity of our loan portfolio and (v) the objectives of our asset/liability management program.

At December 31, 2004, we had commitments to purchase or originate $18.0million of loans. Certificates of deposit scheduled to mature in one year or less at December 31, 2004, totaled $57.0 million. Based on our historical experience, management believes that a significant portion of such deposits will remain with us. Management further believes that loan repayments and other sources of funds will be adequate to meet our foreseeable short-term and long-term liquidity needs.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2004 and 2003.

General. Net income for the three months ended December 31, 2004 was $940,000 compared to $828,000 for the three months ended December 31, 2003, an increase of $112,000. Net interest income increased $492,000, while non-interest income increased $51,000 during the three months ended December 31, 2004 compared to the same period in 2003. Return on equity for the three months ended December 31, 2004 was 12.35% compared to 11.93% for the three month period ended December 31, 2003. Return on assets was 1.01% for quarter ended December 31, 2004 compared to 1.05% for the same period in the previous fiscal year.

Interest Income. Total interest income increased by $760,000 to $5.1 million for the three months ended December 31, 2004, from $4.4 million for the three months ended December 31, 2003, due primarily to higher average loan and security balances, offset by lower yields for investment securities for the three months ended December 31, 2004 as compared to the period ended December 31, 2003. The decline in investment yields was due to the decline in market interest rates generally. The average yield earned on interest-earning assets was 5.79% for the three months ended December 31, 2004 compared to 5.81% for the three months ended December 31, 2003.

Interest Expense. Total interest expense increased by $269,000 to $1.6 million for the quarter ended December 31, 2004, from $1.4 million for the quarter ended December 31, 2003. Interest on deposits decreased by $55,000 to $1.2 million for the quarter ended December 31, 2004 from $1.3 million for the quarter ended December 31, 2003 due to a 17 basis point decline in the average rate paid on deposits to 1.80% offset by higher average deposit balances. Interest expense on borrowed money increased by $324,000 to $410,000 for the quarter ended December 31, 2004, from $ 87,000 for the quarter ended December 31, 2003, due to both an increase in average borrowings, and an increase in the rate paid on borrowings. The average rate paid on interest-bearing liabilities was 2.29% during the three months ended December 31, 2004 compared to 1.21% for the three months ended December 31, 2003.

Provision for Loan Losses. The provision for loan losses increased by $56,000 to $208,000 for the three months ended December 31, 2004, from $152,000 for

the three months ended December 31, 2003.  We provide valuation allowances for anticipated losses on loans and real estate when management determines that a significant decline in the value of the collateral has occurred, as a result of which the value of the collateral is less than the amount of the unpaid principal of the related loan plus estimated costs of acquisition and sale. In addition, we also provide allowances based on the dollar amount and type of collateral securing our loans in order to protect against unanticipated losses. Although management believes that it uses the best information available to make such determinations, future adjustments to allowances may be necessary, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations.

Noninterest Income. Noninterest income increased by $51,000 to $658,000 for the three months ended December 31, 2004, from $608,000 for the three months ended December 31, 2003 due to an increase in the cash surrender value of life insurance.

Noninterest Expense. Noninterest expense increased by $284,000 to $2.6 million for the three months ended December 31, 2004 compared to the same period last year. The increase is attributable to compensation and benefits, which increased by $286,000 to $1.5 million compared to the same period last year. The increase in compensation is attributable primarily to additional commercial and consumer loan officers and loan support personnel.

Taxes. Taxes increased by $91,000 to $444,000 for the three months ended December 31, 2004, from $353,000 for the three months ended December 31, 2003. The effective tax rate increased from 29.9% for the December 31, 2003 quarter to 32.1% for the December 31, 2004 quarter due to tax credits received in the prior year's quarter.

Nine Months Ended December 31, 2004 and 2003

General. Net income for the nine months ended December 31, 2004 increased to $2,862,235 compared to $2,661,168 for the nine months ended December 31, 2003, due primarily to an increase in net interest income. Income before income taxes increased to $4.2 million for the nine months ended December 31, 2004 from $3.8 million for the same period in the prior year. Net income for the nine month period ended December 31, 2003 included the gain on the sale the Company's mortgage-banking subsidiary, Community First Mortgage Corporation, during the June 30, 2003 quarter.

Interest Income. Total interest income increased to $14.6 million for the nine months ended December 31, 2004, from $13.1 million for the nine months ended December 31, 2003, due to an increase in the average loan and security balances, offset by a decrease in yield on loans and securities during the period. The yield on loans and securities decreased from 5.88% to 5.68% for the same periods.

Interest Expense. Total interest expense increased by $232,000 to $4.4 million for the nine months ended December 31, 2004, from the nine months ended December 31, 2003. Interest on deposits decreased to $3.6 million for the nine months ended December 31, 2004, from $3.9 million for the same period last year due to a decrease in the average rate on deposit balances. The rate paid on deposits decreased from 2.09% for the nine months ended December 31, 2003 to 1.80% for the same period in the current fiscal year. Interest expense on borrowed money increased to $844,000 for the nine months ended December 31, 2004 from $243,000 for the nine months ended December 31, 2003, due to both an increase in the average outstanding balance on borrowings and an increase in

the average rate on borrowing balances. The average balance on borrowings increased from $25.0 million for the nine months ended December 31, 2003 to $62.3 million for the current nine month period. The average rate paid on borrowings increased from 1.29% for the nine months ended December 31, 2003 to 1.81% for the nine month period ended December 31, 2004.

Provision for Loan Losses. The provision for loan losses increased to $498,000 for the nine months ended December 31, 2004 from $397,000 for the same period last year. The change in the provision for loan losses is the same as described above.

Noninterest Income. Noninterest income decreased to $2.0 million for the nine months ended December 31, 2004, from $2.6 million for the nine months ended December 31, 2003, due primarily to the gain on the sale of the Company's mortgage-banking subsidiary during the quarter ended June 30, 2003. The decrease was also due to a decrease in service charges, fees and commissions on the sale of mortgage loans in the secondary market related to the sale of the mortgage banking subsidiary. The decrease was partially offset by an increase in service charges and fees on transactions accounts in the Company's subsidiary, Community Bank. The increase in service charges on transactions accounts is related primarily to increased utilization of the Bank's services by existing customers.

Noninterest Expenses. Noninterest expenses increased $193,000 for the nine months ended December 31, 2004, compared to the same period last year. The increase is attributable primarily to compensation and benefits, which increased by $275,000 to $4.3 million compared to the same period last year. The increase in compensation and benefits resulted from the hiring of additional commercial and consumer loan officers and loan support personneloffset by the absence of commissions paid to loan originators at our mortgage loan subsidiary which was sold during the first quarter of 2004. Occupancy expense decreased $155,000 due to both reduced expenses related to the sale of the mortgage subsidiary and assets becoming fully depreciated.

Taxes. Taxes increased to $1,362,000 for the nine months ended December 31, 2004, from $1,184,000 for the nine months ended December 31, 2003. The effective tax rate increased from 30.8% for the December 31, 2003 period to 32.2% for the same period ended December 31, 2004 due to tax credits received in the prior year.

RECENT ACCOUNTING PRONOUNCEMENTS

          In January 2003, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). This Interpretation provides guidance with respect to the identification of variable interest entities when the assets, liabilities, non-controlling interests, and results of operations of a variable interest entity need to be included in a Company's consolidated financial statements. An entity is deemed a variable interest entity, subject to the interpretation, if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or in cases in which the equity investors lack one or more of the essential characteristics of a controlling financial interest, which include the ability to make decisions about the entity's activities through voting rights, the obligations to absorb the expected losses of the entity if they occur, or the right to receive the expected residual returns of the entity if they occur. Due to significant implementation issues, the FASB

modified the wording of FIN 46 and issued FIN 46R in December of 2003. FIN46R deferred the effective date for the provisions of FIN 46 to entities other than Special Purpose Entities ("SPEs") until financial statements issued for periods ending after March 15, 2004. SPEs were subject to the provisions of either FIN 46 or FIN 46R as of December 15, 2003. Management has evaluated the Company's investments in variable interest entities and potential variable interest entities or transactions, particularly in limited liability partnerships involved in low-income housing development and trust preferred securities structures because these entities or transactions constitute the Company's primary FIN 46 and FIN 46R exposure. The adoption of FIN 46 and FIN 46R did not have a material effect on the Company's consolidated financial position or consolidated results of operations.

          In December 2003, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 03-3, "Accounting for Certain Loans or Debt Securities Acquired in a Transfer." The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The scope of the SOP applies to unhealthy "problem" loans that have been acquired, either individually in a portfolio, or in a business acquisition. The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. The SOP does not apply to loans originated by the Company. The Company intends to adopt the provisions of SOP 03-3 effective January 1, 2005, and does not expect the initial implementation to have a significant effect on the Company's consolidated financial position or consolidated results of operations.

          On March 9, 2004, the SEC Staff issued Staff Accounting Bulletin No. 105, "Application of Accounting Principles to Loan Commitments" ("SAB 105"). SAB 105 clarifies existing accounting practices relating to the valuation of issued loan commitments, including interest rate lock commitments ("IRLC"), subject to SFAS No. 149 and Derivative Implementation Group Issue C13, "Scope Exceptions: When a Loan Commitment is included in the Scope of Statement 133." Furthermore, SAB 105 disallows the inclusion of the values of a servicing component and other internally developed intangible assets in the initial and subsequent IRLC valuation. The provisions of SAB 105 were effective for loan commitments entered into after March 31, 2004. The Company has adopted the provisions of SAB 105. Since the provisions of SAB 105 affect only the timing of the recognition of mortgage banking income, management does not anticipate that this guidance will have a material adverse effect on either the Company's consolidated financial position or consolidated results of operations.

          Emerging Issues Task Force Issue No. (EITF) 03-1 "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" was issued and is effective March 31, 2004. The EITF 03-1 provides guidance for determining the meaning of "other -than-temporarily impaired" and its application to certain debt and equity securities within the scope of Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115") and investments accounted for under the cost method. The guidance requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its intention to hold the security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. This issue also requires disclosures assessing the ability and intent to hold investments in instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired. On September 30, 2004, the Financial Accounting Standards Board decided to delay the effective date for the measurement and recognition guidance contained in Issue 03-1. This delay does not suspend the requirement to recognize other-than-temporary

impairments as required by existing authoritative literature. The disclosure guidance in Issue 03-1 was not delayed.

          EITF No. 03-16, "Accounting for Investments in Limited Liability Companies was ratified by the Board and is effective for reporting periods beginning after June 15, 2004." APB Opinion No. 18, "The Equity Method of Accounting Investments in Common Stock," prescribes the accounting for investments in common stock of corporations that are not consolidated. AICPA Accounting Interpretation 2, "Investments in Partnerships Ventures," of Opinion 18, indicates that "many of the provisions of the Opinion would be appropriate in accounting" for partnerships. In EITF Abstracts, Topic No. D-46, "Accounting for Limited Partnership Investments," the SEC staff clarified its view that investments of more than 3 to 5 percent are considered to be more than minor and, therefore, should be accounted for using the equity method. Limited liability companies (LLCs) have characteristics of both corporations and partnerships, but are dissimilar from both in certain respects. Due to those similarities and differences, diversity in practice exists with respect to accounting for non-controlling investments in LLCs. The consensus reached was that an LLC should be viewed as similar to a corporation or similar to a partnership for purposes of determining whether a non-controlling investment should be accounted for using the cost method or the equity method of accounting.

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment." This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. The Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. The Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award - the requisite service period (usually the vesting period). The entity will initially measure the cost of employee services received in exchange for an award of liability instruments based on its current fair value; the fair value of that award will be remeasured subsequently at each reporting date through the settlement date.    Changes in fair value during the requisite service period will be recognized as compensation cost over that period. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.   This Statement is effective for public entities that do not file as small business issuers--as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. For public companies that file as small business issuers - as of the beginning of the first interim or annual reporting period that begins after December 15, 2005. Under the transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under Statement 123 for either recognition or pro forma disclosures.   For periods before the required effective date, entities may elect to apply a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by Statement 123.

Disclosure Regarding Forward-Looking Statements

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

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

• the strength of the United States economy in general and the strength of the local economies in which we conduct our operations; general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in the credit quality of our loans and other assets;

• the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;

• financial market, monetary and interest rate fluctuations, particularly the relative relationship of short-term interest rates to long-term interest rates;

• the timely development of and acceptance of new products and services of Community Financial Corporation and Community Bank, and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services;

• the impact of changes in financial services laws and regulations (including laws concerning taxes, accounting standards, banking, securities and insurance); legislative or regulatory changes may adversely affect the business in which we are engaged;

• the impact of technological changes;

• changes in consumer spending and saving habits; and

• our success at managing the risks involved in the foregoing.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the Company's overall market risk since its year ended March 31, 2004. Market risk is discussed as part of management's discussion and analysis under the asset/liability management section in the Company's Annual Report to Shareholders, which is filed as Exhibit B to the Company's Annual Report or Form 10-KSB for the year ended March 31, 2004.

Item 4.   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 December 31, 2004, was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended December 31, 2004, 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 any deficiencies 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's business. 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 to modify its disclosure controls and procedures.

PART II. OTHER INFORMATION

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.

Exhibit Number	Document
3.1	Amended and Restated Articles of Incorporation, filed on July 5, 1996 as an exhibit to the Registrant's Definitive Proxy Statement on Schedule 14A (SEC File No. 000-18265), are incorporated herein by reference.
3.2	Bylaws, as amended and currently in effect, filed on December 31, 2004 as an exhibit to the Registrant's Annual Report on form 10-KSB (SEC File No. 000-18265) for the fiscal year ended March 31, 2004, are incorporated herein by reference.
4	Registrant's Specimen Common Stock Certificate, filed on June 29, 1999, as Exhibit 10 to the Annual Report on Form 10-KSB (SEC File No. 000-18265) for the fiscal year ended March 31, 1999, is incorporated herein by reference.
10.1	Registrant's Stock Option and Incentive Plan, filed on May 19, 1989 as an exhibit to the Registrant's Registration Statement on Form S-4 (SEC File No. 33-28817), is incorporated herein by reference.
10.2	Employment Agreement by and between Community Bank and P. Douglas Richard, filed on August 14, 2002 as an exhibit to the Registrant's Quarterly Report on Form 10-QSB (SEC File No. 000-18265) for the quarter ended December 31, 2000, is incorporated herein by reference.
10.3	Amendments No. One and Two to the Employment Agreement between the Bank and P. Douglas Richard, filed on August 14, 2002 as exhibits to the Registrant's Quarterly Report on Form 10-QSB (SEC File No. 000-18265) for the quarter ended December 31, 2002, are incorporated herein by reference.
10.4	Registrant's 1996 Incentive Plan, filed on July 5, 1996 as an exhibit to the Registrant's Definitive Proxy Statement on Schedule 14A (SEC File No. 000-18265), is incorporated herein by reference.
10.5	Employment Agreement by and between Community Bank and Chris P. Kyriakides, as amended, filed on August 14, 2002 as an exhibit to the Registrant's Quarterly Report on Form 10-QSB (SEC File No. 000-18265) for the quarter ended December 31, 2002, is incorporated herein by reference.
10.6	Severance Agreements by and between Community Bank and each of R. Jerry Giles, Norman C. Smiley, Benny N. Werner, filed on December 31, 2003 as exhibits to the Registrant's Annual Report on Form 10-KSB (SEC File No. 000-18265) for the fiscal year ended March 31, 2003, are incorporated herein by reference.
10.7	Amendments to the Severance Agreements by and between the Bank and each of R. Jerry Giles, Norman C. Smiley, III and Benny N. Werner, filed on December 31, 2004 as an exhibit to the Registrant's Annual Report on form 10-KSB (SEC File No. 000-18265) for the fiscal year ended March 31, 2004, are incorporated herein by reference.