XCELLENCE PROGRESS INVOLVEMENT LEADERSHIP TEAMWOR. SPIRATION DIRECTION COMMITMENT 2013 Annual LOYALTY PERFORMANC

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1 SPIRATION DIRECTION COMMITMENT LOYALTY PERFORMANC XCELLENCE PROGRESS INVOLVEMENT LEADERSHIP TEAMWOR SPIRATION DIRECTION COMMITMENT LOYALTY PERFORMANC XCELLENCE PROGRESS INVOLVEMENT LEADERSHIP TEAMWOR SPIRATION DIRECTION COMMITMENT 2013 Annual LOYALTY PERFORMANC Report XCELLENCE PROGRESS INVOLVEMENT LEADERSHIP TEAMWOR

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3 Dear Shareholder, The Community Financial Corporation completed a very successful year in 2013 and continued its twenty-ninth consecutive year of profitability and book value appreciation. There were many highlights during the year, including a very well received name change from Tri-County Financial Corporation and Community Bank of Tri-County to our current names: The Community Financial Corporation and Community Bank of the Chesapeake. Our sailboat logo visually conveys our brand throughout the geographical reach of the Bay. This market reach is supported by our retail operations in the Northern Neck of Virginia and soon-to-be opened Fredericksburg retail center. To that point, during 2013, the Bank opened a loan production office in the greater Fredericksburg area. We now produce a significant volume of loans there and are serving a growing commercial lending need in that market. We quickly recognized the opportunities in that region as bank consolidation has opened the field up for a bank of our size and style of community bank services. In 2014, we will continue to broaden our retail presence by opening a full-service branch in the Central Park area of Fredericksburg. I am excited that we are able to bring our brand of community-focused banking to the Fredericksburg region. With respect to our long trend of profitability, this past year saw continued improvement as net income available to shareholders increased by 35% over the previous year. These results reflect the Bank s commitment to improving its net interest margin by controlling both the cost of funds and yields on loans. In addition, the slowly improving economy, as well as our improved asset quality, allowed the Bank to limit loan write downs and improved its loan loss allowance. The credit quality of the Bank s loan portfolio improved with lower levels of net charge-offs and classified loans compared to the prior year. Another important development in 2013 was our successful capital raise. We approached the market to provide additional capital for the Bank to continue the growth of our franchise. The listing of the Company on NASDAQ at the end of the third quarter has created increased liquidity to our legacy shareholders. Improved trading efficiency is apparent after only a few months on the NASDAQ exchange. The capital raise increased our market capitalization to the point that we were added to the American Bankers Association NASDAQ Community Bank Index, an index of community banking related stocks, thereby further increasing our visibility in the investment community. The index is the nation s most broadly representative stock index for community banks and includes approximately 390 community banks with more than $183 billion in market capitalization. Early on in 2013, the regional marketplace was negatively impacted by the Federal sequestration and government shutdown. The economic contraction to the Washington area market was immediate and slow to recover. Our area s dependence on State and Federal governmental spending magnifies politically driven disruptions. Hopefully, our leaders in Washington realize the error of their judgments and retreat from such disruptive tactics. As noted in the financial highlights section of this report, our Company and its subsidiary, Community Bank of the Chesapeake, passed the one billion dollar asset mark. This is a significant milestone and is noteworthy for several reasons. The first is that it reached this level through organic growth rather than mergers. Second, the Bank has created a critical mass of earning assets, professional management and staff to navigate the new regulatory challenges resulting from the Great Recession. Lastly, it allows the Bank to quickly respond to market opportunities that would have been unavailable as a smaller community bank. Finally, as we enter 2014, our ongoing management succession plan moves to the next phase as I transition to the position of Executive Chairman. Reflecting on my role as your Chief Executive Officer, I can truly say that it has been an honor to serve The Community Financial Corporation and Community Bank of the Chesapeake for the last 40 years. In June of this year, I will assume the role as Executive Chairman of both organizations. In this position, I will continue to direct the overall strategy of the corporation, focus on business acquisition and seek out new opportunities for us to pursue. I am proud of our incoming Chief Executive Officer and President, William Pasenelli, as well as the extraordinarily professional team that he will lead. Sincerely, Michael L. Middleton Chairman and CEO Shareholder Letter

4 Year in Review 2013 was a banner year for Community Bank, and one that brought with it many exciting changes and events. With a proud past and promising future, we look back at our 2013 highlights. Capital Raise Throughout 2013, the management and Board prepared the Company for a secondary stock offering in order to increase equity to support future growth. In October 2013, the Company successfully raised $27.4 million in net proceeds by issuing 1,591,300 shares of common stock. The additional capital attracted institutional investment, which will continue to increase the liquidity of our stock. Same Great Bank. Brand New Name. As a result of our growth into Virginia, on October 18, 2013, we changed our name to Community Bank of the Chesapeake (Bank) and The Community Financial Corporation (Holding Company). With our new name, Community Bank moves forward with the same community-focused, individualized approach for which we re known. As always, Community Bank continues to do everything we can to exceed the expectations of the people, families, businesses and communities we serve. New & Improved La Plata Branch We recently redesigned our La Plata branch to provide customers with a more interactive and streamlined experience. The new and improved branch features a welcoming atmosphere, modern design and innovative digital displays that deliver promotional messages as well as community event information. Customers are invited to enjoy cookies and coffee during their visit while exploring the branch s Community Connection area, which provides up-to-date community events and resources. Boosting Businesses in Fredericksburg In an effort to meet the commercial lending needs of the Fredericksburg business community, the Bank opened a Commercial Lending Office in the Central Park area of Fredericksburg, Virginia, in Fredericksburg s financial needs and the Bank s relevant size served as positive indicators that the Bank would be able to successfully fill a niche within the community. Already, we have produced a substantial amount of loans from the new office and we look forward to further supporting the businesses in Fredericksburg for many more years to come. Enhanced Cash Management Services It is our mission at Community Bank to continuously improve and promote the financial success of our business clients. In keeping with this mission, we enhanced our cash management product offerings in We can now better meet the needs of our business clients with a comprehensive suite of services, including ACH/wire services, payroll services, direct deposit, merchant services, remote deposit, special business accounts and more. Reed W. McDonagh Business of the Year This past year, we were honored to be selected by the Charles County Chamber of Commerce as the recipient of the Reed W. McDonagh Business of the Year Award. This prestigious award recognizes businesses in Charles County that have made significant contributions in the community. We re immensely proud to have succeeded in making a positive difference in the lives of our fellow community members.

5 Looking Ahead Full Service in Central Park In the coming year, we will be opening a full-service branch in the Central Park area of Fredericksburg, Virginia. Businesses in Fredericksburg have already started to experience the Bank s top-notch financial services through our Commercial Lending Office, and we re excited to soon begin offering our banking services to individuals in the area as well. The Central Park branch is expected to open in July 2014, and plans for a second full-service branch, scheduled to open in downtown Fredericksburg in summer 2015, are also underway. Lending in Anne Arundel County After recognizing a need for a bank of our size in Anne Arundel County, we recently increased our market presence in the area. We plan to continue to grow, enrich and enhance our lending within the county as the year progresses. We re confident that the financial needs demonstrated by both residents and businesses in Anne Arundel County will provide us with a great opportunity. Mattawoman Creek Art Center Partnership As the result of a new partnership between the Bank and the Mattawoman Creek Art Center, our La Plata branch is now featuring quarterly art displays. It is our goal, through this partnership, to provide greater visibility for the Mattawoman Creek Art Center while simultaneously giving community members the opportunity to view local artwork. Customers are encouraged to stop by and see what s on display! Enhancing Customer Relationships. Improving Shareholder Value. For over 65 years, relationships have been the cornerstone of our business model at Community Bank. We believe in treating customers with unmatched dedication, integrity and care and we take pride in the fact that our smaller size allows us to build genuine relationships with those we serve. Though the financial industry continues to change, our commitment to Bank customers and shareholders steadfastly remains the same. In 2014, we will continue to focus on building relationships with customers and exceeding their expectations. Year in Review & Looking Ahead

6 FINANCIALS FINANCIALS At or for the Years Ended December 31, (dollars in thousands, except per share amounts) FINANCIAL CONDITION DATA Total assets $ 1,023,824 $ 981,639 $ 983,480 $ 885,936 $ 815,043 Loans receivable, net 799, , , , ,593 Investment securities 134, , , , ,214 Deposits 821, , , , ,419 Borrowings 70,476 61,527 60,577 71,440 88,750 Junior subordinated debentures 12,000 12,000 12,000 12,000 12,000 Stockholders equity preferred 20,000 20,000 20,000 16,317 16,317 Stockholders equity common 90,730 59,047 55,454 54,788 51,873 OPERATING DATA Interest and dividend income $ 39,678 $ 40,293 $ 39,959 $ 39,537 $ 37,887 Interest expenses 7,646 10,604 13,121 13,580 16,166 Net interest income (NII) 32,032 29,689 26,838 25,957 21,721 Provision for loan losses 940 2,529 4,087 3,933 3,473 NII after provision for loan losses 31,092 27,160 22,751 22,024 18,248 Noninterest income 4,174 4,410 4,193 3,580 2,810 Noninterest expenses 24,844 23,804 22,249 18,195 16,580 Income before income taxes 10,422 7,766 4,695 7,409 4,478 Income taxes 3,771 2,776 1,534 2,643 1,611 Net income 6,651 4,990 3,161 4,766 2,867 Preferred stock dividends declared Income available to common shares $ 6,451 $ 4,790 $ 2,489 $ 3,919 $ 2,020 COMMON SHARE DATA (1) Basic earnings per common share $ 1.90 $ 1.57 $ 0.83 $ 1.31 $ 0.68 Diluted earnings per common share Dividends declared per common share Book value per common share (2) Common shares outstanding at end of period 4,647,407 3,052,416 3,026,557 3,002,616 2,976,046 SELECTED FINANCIAL RATIOS Return on average assets 0.69 % 0.52 % 0.35 % 0.57 % 0.38 % Return on average common equity Tier 1 capital to average assets Risk-based capital to risk-based assets Interest rate spread Net interest margin Efficiency ratio (3) Allowance for loan losses to total loans Net charge-offs to average outstanding loans (1) In October 2013, the Company issued 1,591,300 shares of common stock at a price of $18.75 per share resulting in net proceeds of $27.4 million after commissions and related offering expenses. The additional shares outstanding impacted year to year comparability of per share earnings and book value beginning with fourth quarter 2013 results. (2) The Company had no intangible assets as of the dates indicated. Thus, tangible book value per share is the same as book value per share for each of the periods indicated. (3) Efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income. The common stock of The Community Financial Corporation (symbol: TCFC) trades on the NASDAQ Stock Exchange. The Annual Report and the Company s annual report on Form 10-K are available on the Community Bank of the Chesapeake s website at cbtc.investorroom.com. The Company s Proxy Statement and Annual Report to Stockholders are available at cbtc.com/proxyandannualreport.

7 Dear Shareholder, Even in an exceptionally turbulent era, 2013 stood out as an eventful year in the history of your Company. Perhaps the most transformative event to happen in 2013 was our recent capital raise, which provided the Company and the Bank with sufficient resources to continue to grow our franchise. It also provided our legacy shareholders with a better, more liquid, market for our shares and gave new shareholders an opportunity to invest in our management and franchise. Since the capital raise, the average daily volume of trading in TCFC stock has increased from 309 shares per day in the year prior to the offering to 4,695 shares per day, reflecting a depth of ownership that provides existing shareholders with enhanced liquidity. This is also reflected in a stock price that is less volatile and which we hope will more accurately reflect the Company s strengths. In addition to this new source of capital, the Company continued its long string of profitable quarters and continued to build capital internally. These profits have been either returned to the shareholders as dividends or reinvested in the Company. In either case, they represent the Board and management s commitment to our shareholders. The reinvested profits continued to drive the Company s increased book value per share as seen in the chart. In fact, since the start of the financial crisis, book value per share of the Company has increased by $2.29 per share, or 13%, from $17.23 in 2008 to $19.52 in While the Company was working on attracting additional capital to support the growth of the Company and Bank, we were also rebranding both organizations to reflect the increased reach and breadth of our market. While we continue to proudly serve our Southern Maryland legacy market, the recent and planned future expansion into both Fredericksburg and King George, Virginia, made a name change necessary. The Company and Bank will continue to seek opportunities throughout our target area of the Chesapeake region in order to enhance shareholder value. Despite an unprecedented low interest rate environment, the Bank expanded its deposit franchise and total asset size from 2008 to During this period, the Bank s deposit base grew from $525 million to $821 million, an increase of 56%. Our net loan portfolio also grew from $543 million at the end of 2008 to $799 million at the end of 2013, an increase of 47%. In 2013, the Bank substantially improved its net interest margin by both controlling funding costs and restraining the negative impacts of the interest rate environment on asset yields throughout the year. We are excited by our progress in this critical area. Finally, I would be remiss to not mention one more key development in the history of the Company and Bank. After 40 years of service, our current Chief Executive Officer and Chairman, Michael L. Middleton, will transition to a new role as Executive Chairman. In this role he will provide strategic guidance to the Board and management and will be responsible for maintaining the corporate governance of both organizations. He will transition to this role on July 1, At that time, I will take on the role of Chief Executive Officer of the Company as well as the Bank in addition to remaining President of both. As I look forward to this challenge, I would like to join the shareholders, Board and management in thanking Michael for his long and successful service. Sincerely, Book Value Per Share $20.00 $19.50 $19.00 $18.50 $18.00 $19.52 $19.34 $17.50 $18.25 $18.32 $17.00 $17.43 $16.50 $ Earnings Per Share Diluted $1.88 $1.57 $1.30 $0.82 $ Net Interest Margin and Interest Spread Last Eight Quarters Interest Rate Spread Net Interest Margin 3.67% 3.60% 3.54% 3.52% 3.47% 3.54% 3.48% 3.42% 3.40% 3.28% 3.28% 3.35% 3.15% 3.14% 3.15% 3.00% Q Q Q Q Q Q Q Q Financials William J. Pasenelli President and Chief Financial Officer

8 Committed to the Community Community Bank has a long history of supporting the communities it serves. Not only does the Bank, as a whole, embrace a philanthropic spirit, but each and every employee harbors a personal belief in nourishing and fostering the surrounding communities. This past year, we supported more than 200 organizations through charitable giving and our employees volunteered for more than 60 community organizations. By enhancing our service areas businesses and communities, we can do our part to help create a diverse and prosperous region that benefits us all. At our bank, community is truly at the heart of all we do. We are deeply committed to promoting and supporting the well-being of the people in our markets and we view it as a special honor and unique privilege that we are able to make such positive contributions in our communities. We re proud to show our community involvement in the following ways: Casual for a Cause Thanks to the generosity of Bank employees, we were able to raise $6,000 this past year through our Casual for a Cause program. The Casual for a Cause program invites employees to make donations so that they can dress casually during the three-month period from Memorial Day through Labor Day. Funds were donated to the following community organizations: The Arc of Southern Maryland promotes community involvement, independence and personal success for children and adults with intellectual and developmental disabilities. Cedar Lane Senior Living Community serves the elderly and disabled by providing senior living with or without supportive services, assisted living and congregate housing. Spring Dell Center assists individuals with disabilities in achieving their highest level of independence by providing support and opportunities for the quality of life they desire within their community. King George Food Bank provides canned and boxed donated goods to residents of King George who are without food. Community Corps Supporting the community is always a top priority for the Bank. Our staff members frequently volunteer their time and resources to organizations that are making a difference for our fellow community members. Recent volunteer efforts include: Blood Drive Through the dedication of our employees, we donated 23 pints of blood to the Chesapeake Region Chapter of the American Red Cross. River Cleanup Employees assisted in the Potomac Watershed River Cleanup by removing trash along the shoreline. Day of Caring Events Every year, employees participate in Day of Caring events sponsored by United Way. These events are held in Calvert, Charles, St. Mary s and King George counties. It is our pleasure to actively give back to the communities where we live and work. Wherever you see the red triangle with a heart inside, you will know Community Bank employees are there working hard to benefit our neighbors.

9 Third Annual Holiday Food and Toy Drive To help make the holidays a little brighter for those in need, the Bank hosted its Third Annual Holiday Food and Toy Drive November through December. Customers and employees were invited to drop off non-perishable food items and new, unwrapped toys at any branch location. Donated items were given to the Southern Maryland Food Bank, King George Food Pantry, Marine Corps Reserve Toys for Tots program and the Children s Aid Society. We are proud to be part of such a giving community and support the many organizations and their efforts to bring joy to families this time of year. Committed to the Community Partnership with the Southern Maryland Blue Crabs In April 2013, Community Bank of the Chesapeake was named as the Official Bank of the Southern Maryland Blue Crabs! The Blue Crabs, who play at the Regency Furniture Stadium in Waldorf, Maryland, are members of the Atlantic League of Professional Baseball Association. The Bank is thrilled to enhance our community relationships through partnerships such as these, and we look forward to being part of the team s growth and success. Good luck to the Southern Maryland Blue Crabs as they begin their seventh season this spring! Friday Focus Blog Feature We realize at Community Bank that it can be extremely difficult for non-profit organizations to effectively share their mission with the public especially with limited public relations or social media resources. Therefore, in 2013, we developed a Friday Focus blog feature at blog.cbtc.com to give local nonprofit organizations a voice. Utilizing an engaging, in-depth Q&A format, organizations are able to reach their audiences, share their success stories, explain their purpose and more. The result is greater community engagement and more awareness for local non-profits.

10 Board of Directors Executive Management James R Shepherd Michael L Middleton, Chairman of the Board William J Pasenelli Philip T Goldstein Mary Todd Peterson H. Beaman Smith Louis P Jenkins, Jr. Joseph V Stone Jr., Lead Director Austin J Slater, Jr. M. Arshed Javaid* Kathryn M Zabriskie* Michael L Middleton, Chief Executive Officer and Chairman of the Board William J Pasenelli, President Christy M Lombardi, Executive Vice President, Director of Human Resources and Administration Rebecca J Henderson, Executive Vice President, Director of Sales Todd L Capitani, Executive Vice President, Chief Financial Officer James F Di Misa, Executive Vice President, Chief Operating Officer James M Burke, Executive Vice President, Chief Risk Officer Gregory C Cockerham, Executive Vice President, Chief Lending Officer *Bank Board only. Director Emeritus C. Marie Brown W. Edelen Gough, Jr. Herbert N Redmond, Jr.

11 Management Team Michael L Middleton, Chief Executive Officer & Chairman of the Board William J Pasenelli, President James M Burke, Executive Vice President, Chief Risk Officer Todd L Capitani, Executive Vice President, Chief Financial Officer Gregory C Cockerham, Executive Vice President, Chief Lending Officer James F Di Misa, Executive Vice President, Chief Operating Officer Rebecca J Henderson, Executive Vice President, Director of Sales Christy M Lombardi, Executive Vice President, Director of Human Resources and Administration Thomas C Erickson, Senior Vice President, Credit Officer Anthony W Farland, Senior Vice President, Senior Lender - Fredericksburg Nancy C Hayden, Senior Vice President, Director of Operations Samuel C Hornbaker, Senior Vice President, Director of Information Technology Daryl L Motley, Senior Vice President, Controller Donald M Parsons, Jr., Senior Vice President, Senior Lender - Calvert Patrick D Pierce, Senior Vice President, Senior Lender - Charles Hillary P Theriault, Senior Vice President, Director of Marketing David D Vaira, Senior Vice President, Treasurer Paige L Watkins, Senior Vice President, Compliance and Internal Audit Ernest C Williams, Jr., Senior Vice President, Senior Lender - St. Mary s Karrie M Wood, Senior Vice President, Manager of Branch Sales Donna M Bowling-Goldey, Vice President, Lending Administration Lacey A Cochran, Vice President, Commercial Loan Officer Anna M Fagan, Vice President, Director of Community Wealth Advisors Benjamin T Hall, Vice President, Commercial Loan Officer Julie A Redmond, Vice President, Credit Administration Susan R Rollins, Vice President, Commercial Loan Officer Commercial Lenders Lacey A Cochran, Vice President, Commercial Loan Officer Anthony W Farland, Senior Vice President, Senior Lender - Fredericksburg Benjamin T Hall, Vice President, Commercial Loan Officer Hayden T Hammett, Commercial Loan Officer Laura R McKinnon, Commercial Loan Officer Donald M Parsons, Jr., Senior Vice President, Senior Lender - Calvert Patrick D Pierce, Senior Vice President, Senior Lender - Charles Susan R Rollins, Vice President, Commercial Loan Officer Christopher J Simpson, Commercial Loan Officer Ernest C Williams, Jr., Senior Vice President, Senior Lender - St. Mary s Branch Sales Managers Bonnie M Barrett, Branch Officer, Branch Sales Manager - Lusby Susan D Becker, Assistant Vice President, Branch Sales Manager - Home Office Georgia L Bennett, Assistant Vice President, Branch Sales Manager - La Plata Sandra M Galan, Assistant Vice President, Branch Market Manager - St. Mary s Jean A Gelatka, Assistant Vice President, Branch Market Manager - Calvert Patricia A Graves, Assistant Vice President, Branch Sales Manager - Leonardtown Christine A Lowe, Branch Sales Manager - Charlotte Hall Gale L Marshall, Branch Sales Manager - King George John T Morgan, Branch Sales Manager - Bryans Road Teresa Roach, Branch Market Manager - Charles Catherine M Thompson, Assistant Vice President, Branch Sales Manager - Prince Frederick Wealth Management Georgeanne G Aist, Investment Consultant, Infinex Investments, Inc. Anna M Fagan, Investment Consultant, Infinex Investments, Inc. and Vice President, Director of Community Wealth Advisors Rick H Hoy, Investment Consultant, Infinex Investments, Inc. and Assistant Vice President, Manager of Community Wealth Advisors Nanette B Rediker, Investment Consultant, Infinex Investments, Inc. and Assistant Vice President Management Team

12 Branch and Lending Office Locations Charles County, Maryland Bryans Road La Plata La Plata Commercial Lending Office Waldorf (St. Patrick s Drive and Leonardtown Road) Calvert County, Maryland Dunkirk Lusby Prince Frederick Prince Frederick Commercial Lending Office St. Mary s County, Maryland Charlotte Hall Leonardtown Lexington Park King George County, Virginia King George City of Fredericksburg, Virginia Central Park Commercial Lending Office Shareholder and Investor Relations Marlene Smith Shareholder Relations Community Bank of the Chesapeake P. O. Box 38 Waldorf, Maryland (240) (301) Fax (888) Toll Free shareholderrelations@cbtc.com Member FDIC facebook.com/cbtcconnects twitter.com/cbtcconnect blog.cbtc.com