Dear Shareholder:

I am pleased to report to you the results of operations of Tri-County Financial
Corporation and its banking subsidiary, Community Bank of Tri-County, for the
six months ended June 30, 2006. Net income declined by $71,378 compared to the
six months ended June 30, 2005 and diluted earnings per share were $1.08
compared to $1.14 for the six months ended June 30, 2005. Total assets increased
to $564,580,236, up $23,292,761, or 4.3%, from December 31, 2005.

The decline in net income for the first six months of 2006 was attributable to a
continuing increase in non-interest expense, particularly for professional fees
of $548,147 compared to $249,168 for the six months ended June 30, 2005 and
salary and employee benefits expenses of $3,414,897 compared to $2,822,453 for
the six months ended June 30, 2005. The increase in professional fees reflected
our efforts to comply with the certification process required under the
Sarbanes-Oxley Act as well as increased budgeting for internal audit and
regulatory compliance. The increase in employee benefits expense was due to the
extremely competitive labor market in Southern Maryland coupled with the cost of
recruiting and retaining seasoned banking officers. The improvement in net
interest income and non-interest income helped offset those expenses. Net
interest income increased by $937,759, or 12.2%, over the previous six month
period reflecting the rapid increases in short-term interest rates by the
Federal Reserve Bank and the continued restructuring of the assets from
wholesale investments to retail lending. Non-interest income increased 17.8% to
$983,330 for the six months ended June 30, 2006 due to increases in loan and
service charges attributable to the continued development of our retail
franchise and an increase in income from bank owned life insurance due to the
purchase of $2,000,000 in additional purchases in 2006.

Loan growth continued during the current period with an increase of $34,914,675
or 9.5%. This strong growth was achieved in a market that is experiencing an
overall slowing of activity as the impact of higher short-term interest rates
works its way through the business and housing sector. Funding for this growth
was achieved through organic growth of the deposit base. While the overall
growth of the Company has slowed considerably from the previous year, the loan
loss provision has declined due to the continued strong performance of the loan
portfolio. As the size of the loan portfolio has increased, the Company has
decreased its reliance on securities to produce interest income. In the six
months ended June 30, 2006, our securities portfolios declined $7,921,649 or
6.41%. The decline in the investment portfolio has tended to moderate the
overall asset growth of the Company in the first six months of 2006.

As an update to the initiatives previously reported in the first quarter
shareholder report, the de novo branch site in Lusby, Maryland has been selected
and a long-term lease should be executed in the third quarter. Pad site delivery
could occur in the fourth quarter of 2006 with construction to commence
immediately thereafter. The replacement of the Leonardtown retail center is in
the permitting process and is expected to occur in the fourth quarter of 2006.

In closing, I wish to express my appreciation of your continued support to your
Company and its effort to become the premier banking institution in Southern
Maryland. On behalf of your board and management, I look forward to our success
as we seek out the opportunities that the future will provide.

Yours truly,

/s/ Michael L. Middleton

Michael L. Middleton
President
Chairman of the Board