UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2006

OR

o 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 0-18279

Tri-County Financial Corporation

(Exact name of registrant as specified in its charter)

Maryland (State of other jurisdiction of incorporation or organization)	52-1652138 (I.R.S. Employer Identification No.)
3035 Leonardtown Road, Waldorf, Maryland	20601
(Address of principal executive offices)	(Zip Code)

(301) 843-0854
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. (See definition of “accelerated filer and large accelerated filer” in rule 12b-2 of the exchange act.)

Large accelerated filer o      Accelerated filer o       Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ

As of April 26, 2006, the registrant had 1,163,336 shares of common stock outstanding.

TRI-COUNTY FINANCIAL CORPORATION

FORM 10-Q

INDEX

	Page
PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements (Unaudited)
Consolidated Balance Sheets – March 31, 2006 and December 31, 2005		3
Consolidated Statements of Income and Comprehensive Income — Three Months Ended March 31, 2006 and 2005		4 — 5
Consolidated Statements of Cash Flows — Three Months Ended March 31, 2006 and 2005		6 — 7
Notes to Consolidated Financial Statements		8 — 10
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		11 — 18
Item 3 — Quantitative and Qualitative Disclosures about Market Risk		18
Item 4 — Controls and Procedures		18
PART II — OTHER INFORMATION
Item 1 — Legal Proceedings		19
Item 1.A — Risk Factors		19
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		19
Item 3 — Defaults Upon Senior Securities		19
Item 4 — Submission of Matters to a Vote of Security Holders		19
Item 5 — Other Information		19
Item 6 — Exhibits		19
SIGNATURES		20
EX-3 AMENDED AND RESTATED BYLAWS
EX-31 SECTION 302 CERTIFICATION OF CEO AND CFO
EX-32 SECTION 906 CERTIFICATION OF CEO AND CFO

PART I — FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

TRI-COUNTY FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS MARCH 31, 2006 AND DECEMBER 31, 2005

	March 31, 2006			December 31, 2005
	(Unaudited)
ASSETS
Cash and due from banks	$	6,242,760		$	7,262,547
Federal Funds sold		1,410,626			640,818
Interest-bearing deposits with banks		10,882,592			14,671,875
Securities available for sale — at fair value		6,771,806			7,178,894
Securities held to maturity — at amortized cost		114,124,302			116,486,685
Federal Home Loan Bank and Federal Reserve Bank stock — at cost		7,069,200			7,190,300
Loans receivable — net of allowance for loan losses of $3,463,183 and $3,383,334, respectively		379,700,806			369,592,253
Premises and equipment, net		6,477,396			6,460,545
Foreclosed real estate		475,561			475,561
Accrued interest receivable		2,466,563			2,406,542
Investment in bank-owned life insurance		8,504,947			6,434,175
Other assets		2,396,185			2,487,280
TOTAL ASSETS	$	546,522,744		$	541,287,475
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Noninterest-bearing deposits	$	42,935,031		$	44,325,083
Interest-bearing deposits		329,183,699			319,048,657
Total deposits		372,118,730			363,373,740
Short-term borrowings		15,505,588			20,074,975
Long-term debt		108,075,213			107,823,759
Guaranteed preferred beneficial interest in junior subordinated debentures		12,000,000			12,000,000
Accrued expenses and other liabilities		3,521,073			3,436,845
Total liabilities		511,220,604			506,709,319
STOCKHOLDERS’ EQUITY:
Common stock — par value $.01; authorized — 15,000,000 shares; issued 1,761,508 and 1,760,991 shares, respectively		17,615			17,610
Additional paid in capital		9,115,101			9,057,805
Retained earnings		26,409,104			25,580,634
Accumulated other comprehensive (loss) income		(112,425	)		49,362
Unearned ESOP shares		(127,255	)		(127,255	)
Total stockholders’ equity		35,302,140			34,578,156
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	546,522,744		$	541,287,475

See notes to consolidated financial statements

3

TRI-COUNTY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005

	2006		2005
INTEREST INCOME:
Interest and fees on loans	$	6,663,527	$	4,811,653
Taxable interest and dividends on investment securities		1,591,302		1,739,523
Interest on deposits with banks		45,130		13,692
Total interest income		8,299,959		6,564,868
INTEREST EXPENSE:
Interest on deposits		2,462,742		1,011,619
Interest on short-term borrowings		228,495		800,303
Interest on long-term debt		1,354,579		997,158
Total interest expense		4,045,816		2,809,080
NET INTEREST INCOME		4,254,143		3,755,788
PROVISION FOR LOAN LOSSES		86,485		63,027
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		4,167,658		3,692,761

4

TRI-COUNTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005

	2006			2005
NONINTEREST INCOME:
Loan appraisal, credit, and miscellaneous charges	$	98,617		$	62,907
Net gain on the sale of foreclosed property		—			36,000
Income from bank-owned life insurance		70,772			61,129
Loss on sale of investment securities		—			(14,581	)
Service charges		308,329			255,874
Total noninterest income		477,718			401,329
NONINTEREST EXPENSE:
Salary and employee benefits		1,661,371			1,463,962
Occupancy		279,307			231,873
Advertising		145,208			87,412
Data processing		220,234			160,824
Legal and professional fees		239,014			119,445
Depreciation of furniture, fixtures and equipment		112,496			87,100
Telephone communications		22,721			29,194
ATM expenses		57,322			69,794
Office supplies		35,711			30,364
Office equipment		12,793			9,702
Other		344,378			259,044
Total noninterest expenses		3,130,555			2,548,714
INCOME BEFORE INCOME TAXES		1,514,821			1,545,376
Income tax expense		541,684			521,015
NET INCOME		973,137			1,024,361
OTHER COMPREHENSIVE INCOME NET OF TAX
Net unrealized holding losses arising during period		(161,787	)		(299,666	)
COMPREHENSIVE INCOME	$	811,350		$	724,695
INCOME PER COMMON SHARE
Basic	$	0.55		$	0.59
Diluted		0.52			0.56

Share and per share data have been adjusted to reflect the three for two common stock split effected on December 12, 2005 as if it had occurred on January 1, 2005.

See notes to consolidated financial statements

5

TRI-COUNTY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005

	Three Months Ended
	March 31,
	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	973,137		$	1,024,361
Adjustments to reconcile net income to net Cash (used) provided by operating activities:
Stock-based compensation		60,000			—
Provision for loan losses		86,485			63,027
Loss on sales of investment securities		—			14,581
Depreciation and amortization		213,856			170,100
Net amortization of premium/discount on investment securities		(10,502	)		58,139
Increase in cash surrender of bank-owned life insurance		(70,772	)		(61,129	)
Deferred income tax benefit		75,883			51,110
Increase in accrued interest receivable		(60,021	)		(216,065	)
Decrease in deferred loan fees		(29,261	)		(121,043	)
Decrease in accounts payable, accrued expenses, other liabilities		24,228			(152,534	)
Decrease in other assets		98,558			306,902
Net cash (used) provided by operating activities		(638,409	)		1,137,449
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities available for sale		(11,694	)		(3,653	)
Proceeds from sale, redemption or principal payments of investment securities available for sale		163,379			1,759,327
Purchase of investment securities held to maturity		(3,500,000	)		(25,049,248	)
Proceeds from maturities or principal payments of investment securities held to maturity		5,883,155			16,200,076
Net sale (purchase) of FHLB and Federal Reserve Bank stock		121,100			(1,317,200	)
Loans originated or acquired		(36,968,947	)		(69,587,499	)
Principal collected on loans		26,803,170			42,023,167
Purchase of bank owned life insurance		(2,000,000	)		—
Purchase of premises and equipment		(230,707	)		(693,305	)
Proceeds from foreclosed real estate		—			36,000
Net cash used in investing activities		(7,740,544	)		(36,632,335	)

6

TRI-COUNTY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2006 AND 2005

	Three Months Ended
	March 31,
	2006			2005
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	$	8,744,990		$	13,809,124
Proceeds from long-term borrowings		260,000			10,000,000
Payments of long-term borrowings		(8,546	)		(82,215	)
Net (decrease) increase in short-term borrowings		(4,569,387	)		9,760,702
Exercise of stock options		57,344			155,168
Net change in unearned ESOP shares		—			60,395
Redemption of common stock		(144,710	)		(41,780	)
Net cash provided by financing activities		4,339,691			33,661,394
DECREASE IN CASH AND CASH EQUIVALENTS		(4,039,262	)		(1,833,492	)
CASH AND CASH EQUIVALENTS — JANUARY 1		22,575,240			17,715,779
CASH AND CASH EQUIVALENTS — MARCH 31	$	18,535,978		$	15,882,287
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the three months for:
Interest	$	4,068,462		$	2,763,742
Income taxes	$	613,000		$	—

See notes to consolidated financial statements

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.	BASIS OF PRESENTATION
	General — The consolidated financial statements of Tri-County Financial Corporation (the “Company”) and its wholly owned subsidiary, Community Bank of Tri-County (the “Bank”) included herein are unaudited; however, they reflect all adjustments consisting only of normal recurring accruals that, in the opinion of management, are necessary to present fairly the Company’s financial condition, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the information presented not misleading. The balances as of December 31, 2005 have been derived from audited financial statements. There have been no significant changes to the Company’s accounting policies as disclosed in the 2005 Annual Report. The results of operations for the three months ended March 31, 2006 are not necessarily indicative of the results of operations to be expected for the remainder of the year or any other period. Certain previously reported amounts have been restated to conform to the 2006 presentation.
	It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report for the year ended December 31, 2005.
2.	NATURE OF BUSINESS
	The Company, through its bank subsidiary, provides domestic financial services primarily in southern Maryland. The primary financial services include real estate, commercial and consumer lending, as well as traditional demand deposits and savings products.
3.	INCOME TAXES
	The Company uses the liability method of accounting for income taxes as required by SFAS No. 109, “Accounting for Income Taxes.” Under the liability method, deferred-tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities (i.e., temporary differences) and are measured at the enacted rates that will be in effect when these differences reverse.
4.	EARNINGS PER SHARE
	Earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period, including any potential dilutive common shares outstanding, such as options and warrants. As of March 31, 2006, there were 59,526 shares excluded from the diluted net income per share computation because inclusion of these options would be anti-dilutive. Basic and diluted earnings per share, have been computed based on weighted-average common and common equivalent shares outstanding as follows:

	Three Months Ended
	March 31,
	2006		2005
Basic		1,759,975		1,727,898
Diluted		1,874,549		1,835,126

Share and per share data have been adjusted to reflect the three for two common stock split effected on December 12, 2005 as if it had occurred on January 1, 2005.

8

5.	STOCK-BASED COMPENSATION
	The Company has stock option and incentive plans to attract and retain key personnel to promote the success of the business. These plans are described in note 12 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2005. Prior to 2006, the Company applied the intrinsic value method as outlined in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) and related interpretations in accounting for stock options granted. Under the intrinsic value method, no compensation expense was recognized if the exercise price of the Company’s employee stock options equaled the market price of the underlying stock on the date of the grant. Accordingly, no compensation cost was recognized in the accompanying consolidated statements of earnings prior to 2006 on stock options granted to employees or directors, since all options granted under the Company’s incentive programs had an exercise price equal to the market value of the underlying common stock on the date of grant.
	Effective January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”). This statement replaced SFAS No. 123, “Accounting for Stock-based Compensation” and superseded APB No. 25. SFAS No. 123(R) requires that all stock based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award. This statement was adopted using the modified prospective method of application, which requires the Company to recognize compensation expense on a prospective basis. Therefore, prior period financial statements have not been restated. Under this method, in addition to reflecting compensation expense for new share based awards, expense is also recognized to reflect the remaining service period of outstanding awards that had been included in pro forma disclosures in prior periods. As of December 31, 2005, all outstanding options were fully vested, so no expense will be recognized for options outstanding as of this date; however, the Company has accrued for outstanding options relating to the current year. SFAS No. 123(R) also requires that excess tax benefits related to stock option exercises be reflected as financing cash inflows instead of operating cash inflows. The adoption of this pronouncement resulted in compensation expense of $60,000 for the three months ended March 31, 2006.
	The following table illustrates the effect on the net earnings per common share as if the fair value method had been applied to all outstanding awards for the three months ended March 31, 2005:

	Three Months Ended
	March 31, 2005
Net Income as reported	$	1,024,361
Less pro-forma stock-based compensation expense determined under the fair value method, net of tax effects		—
Pro-forma net income	$	1,024,361
Net income per share
Basic — as reported	$	0.59
Basic — pro-forma	$	0.59
Diluted — as reported	$	0.56
Diluted — pro-forma	$	0.56

9

A summary of the Company’s stock option plans as of March 31, 2006 and changes during the three-month period then ended is presented below:

				Weighted				Weighted-Average
				Average		Aggregate		Contractual Life
				Exercise		Intrinsic		Remaining In
	Shares			Price		Value		Years
Outstanding at December 31, 2005		296,502		$	20.38
Granted		—			—
Exercised		(4,850	)		11.82
Expired		—			—
Forfeited		—			—
Outstanding at March 31, 2006		291,652		$	20.53	$	3,928.552		6.0
Exercisable at March 31, 2006		291,652		$	20.53	$	3,928,552		6.0

Share and per share data have been adjusted to reflect the three for two common stock split effected on December 12, 2005 as if it had occurred on January 1, 2005.

6. GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES

On June 15, 2005, Tri County Capital Trust II (“Capital Trust II”), a Delaware business trust formed, funded and wholly owned by the Company, issued $5,000,000 of variable-rate capital securities with an interest rate of 5.07% in a private pooled transaction. The variable rate is based on the 90-day LIBOR rate plus 1.70%. The Trust used the proceeds from this issuance to purchase $5.2 million of the Company’s junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. The Company has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital Trust II’s obligations with respect to the capital securities. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures.” Both the capital securities of Capital Trust II and the junior subordinated debentures are scheduled to mature on June 15, 2035, unless called by the Company not earlier than June 15, 2010.

On July 22, 2004, Tri County Capital Trust I (“Capital Trust I”), a Delaware business trust formed, funded and wholly owned by the Company, issued $7,000,000 of variable-rate capital securities with an interest rate of 4.22% in a private pooled transaction. The variable rate is based on the 90-day LIBOR rate plus 2.60%. The Trust used the proceeds from this issuance to purchase $7.2 million of the Company’s junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. The Company has, through various contractual arrangements, fully and unconditionally guaranteed all of Capital Trust I’s obligations with respect to the capital securities. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures.” Both the capital securities of Capital Trust I and the junior subordinated debentures are scheduled to mature on July 22, 2034, unless called by the Company not earlier than July 22, 2009.

Costs associated with the issuance of the trust-preferred securities were less than $10,000 and were expensed as period costs.

10

7.	NEW ACCOUNTING STANDARDS
	In December 2004, the Financial Accounting Standards Board (“FASB”) issued SAFS No. 153, “Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions.” This statement amends the principal that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged and more broadly provides for exceptions regarding exchanges of non-monetary assets that do not have commercial substance. This Statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this standard has not had a material impact on the Company’s financial condition, results of operations, or liquidity.
	In March 2004, FASB Emerging Issues Task Force (EITF) released Issue 03-01, “Meaning of Other Than Temporary Impairment and Its Application to Certain Investments.” EITF 03-1 provides guidance for determining whether impairment for certain debt and equity investments is other-than-temporary and the measurement of the impaired loss. Certain disclosure requirements of EITF 03-1 were adopted in 2003 and the Company complied with the new disclosure requirements in its consolidated financial statements. The recognition and measurement requirements of EITF 03-01 were initially effective for periods beginning after June 15, 2004. In September 2004, however, the FASB staff issued FASB Staff Position (“FSP”) EITF 03-1-1, which delayed the effective date for certain measurement and recognition guidance contained in Issue 03-1. The FSP requires the application of pre-existing other-than-temporary guidance during the period of delay until a final consensus is reached. Management does not anticipate the issuance of the final consensus will have a material impact on the Company’s financial condition, results of operations, or liquidity.
	In December 2003, 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”. SOP 03-3 requires acquired loans, including debt from the seller for those-individually-evaluated loans that have evidence of deterioration in credit quality since origination, and it is probable all contractual cash flows on the loan will be unable to be collected. SOP 03-3 also requires the excess of all undiscounted cash flows expected to be collected at acquisition over the purchase’s initial investment to be recognized as interest income on a level-yield basis over the life of the loan. Subsequent increases in cash flows expected to be collected are recognized as impairment. Loans carried at fair value, loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of SOP 03-3. The guidance is effective for loans acquired in fiscal years beginning after December 15, 2004 and did not have a material impact on the Company’s financial condition, results of operations, or liquidity.

ITEM 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including discussions of Tri-County Financial Corporation’s (the “Company”) goals, strategies and expected outcomes; estimates of risks and future costs; and reports of the Company’s ability to achieve its financial and other goals. Forward-looking statements are generally preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions. These forward-looking statements are subject to significant known and unknown risks and uncertainties because they are based upon future economic conditions, particularly interest rates, competition within and without the banking industry, changes in laws and regulations applicable to the Company and various other matters. Additional factors that may affect our results are discussed in the Company’s Annual Report on Form 10-K (the “Form 10-K”) and this Quarterly Report on Form 10-Q under “Item 1.A. Risk Factors.” Because of these uncertainties, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. The Company does not undertake – and specifically disclaims any obligation – to publicly release the result of any revisions that may be made to any forward-looking statement to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

GENERAL

The Company is a bank holding company organized in 1989 under the laws of the State of Maryland. It owns all the outstanding shares of capital stock of the Community Bank of Tri-County (the “Bank”), a Maryland-chartered commercial bank. The Company engages in no significant activity other than holding the stock of the Bank, the

11

payment of its subordinated debt, and operating the business of the Bank. Accordingly, the information set forth in this report, including financial statements and related data, relates primarily to the Bank and its subsidiaries.

The Bank serves the Southern Maryland area through its main office and eight branches located in Waldorf, Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick and California, Maryland. The Bank is engaged in the commercial and retail banking business as authorized by the banking statutes of the State of Maryland and applicable Federal regulations. The Bank accepts demand and time deposits and uses these funds along with borrowings from the Federal Home Loan Bank (“FHLB”), to fund loan originations to individuals, associations, partnerships and corporations. The Bank makes real estate loans including residential first and second mortgage loans, home equity lines of credit and commercial mortgage loans. The Bank also makes commercial loans including secured and unsecured loans. The Bank is a member of the Federal Reserve and FHLB Systems. The Federal Deposit Insurance Corporation (“FDIC”) provides deposit insurance coverage up to applicable limits.

Since its conversion to a state chartered commercial bank in 1997, the Bank has sought to increase its commercial, commercial real estate, construction, second mortgage, home equity, and consumer lending business as well as the level of transactional deposits to levels consistent with similarly sized commercial banks. As a result of this emphasis, the Bank’s percentage of assets invested in residential first mortgage lending has declined since 1997. Conversely, targeted loan types have increased. The Bank has also seen an increase in transactional deposit accounts while the percentage of total liabilities represented by certificates of deposits has declined. Management believes that these changes will enhance the Bank’s overall long-term financial performance.

Management recognizes that the shift in composition of the Bank’s loan portfolio will tend to increase its exposure to credit losses. The Bank continues to evaluate its allowance for loan losses and the associated provision to compensate for the increased risk. Any evaluation of the allowance for loan losses is inherently inexact and reflects management’s expectations as to future economic conditions in the Southern Maryland area as well as individual borrower’s circumstances. Management believes that its allowance for loan losses is adequate. For further information on the Bank’s allowance for loan losses see the discussion in the sections captioned “Financial Condition” and “Critical Accounting Policies” as well as the relevant discussions in the Form 10-K and Annual Report for the year ended December 31, 2005.

For the last several quarters, the Federal Reserve has signaled a resolve to control inflation through successive increases in the targeted Federal Funds rate. These increases have pushed the Federal Funds rate from 1.0% in June 2004 to 4.75% currently. These increases have had the effect of “flattening” the yield curve as long term rates have generally not increased the same amount as short term rates. While we believe that we are positioned to perform well in a moderate rate increase environment, substantially higher or substantially lower interest rates could affect our future financial performance. This would be true if key interest rates increased funding costs faster than they increased yields on earning assets. Our ability to increase asset yields in a rising interest rate environment is limited by periodic and lifetime caps on interest rates embedded in many of our loans and investments. In addition, certain of our loans and investments are for fixed rates. Moreover, substantially higher interest rates would tend to increase borrowing costs for our customers and might lead to an increase in loan delinquency caused by borrowers’ inability to pay these higher costs. Substantially lower interest rates might lead to accelerated prepayment of our interest earning assets while many of our liabilities would remain at today’s higher rates.

SELECTED FINANCIAL DATA

	Three Months Ended
	March 31,
	2006		2005
Condensed Income Statement
Interest Income	$	8,299,959	$	6,564,868
Interest Expense		4,045,816		2,809,080
Net Interest Income		4,254,143		3,755,788
Provision for Loan Loss		86,485		63,027
Noninterest Income		477,718		401,329
Noninterest Expense		3,130,555		2,548,714
Income Before Income Taxes		1,514,821		1,545,376
Income Taxes		541,684		521,015
Net Income	$	973,137	$	1,024,361

12

	Three Months Ended
	March 31,
	2006		2005
Per Common Share
Basic Earnings	$	0.55	$	0.59
Diluted Earnings	$	0.52	$	0.56

Share and per share data have been adjusted to reflect the three for two common stock split effected on December 12, 2005 as if it had occurred on January 1, 2005.

RESULTS OF OPERATIONS

Net income for the three-month period ended March 31, 2006 totaled $973,137 ($0.55 basic and $0.52 diluted earnings per share) compared to $1,024,361 ($0.59 basic and $0.56 diluted earnings per share) for the same period in the prior year. This decrease of $51,224, or 5.00%, was caused by increases in noninterest expense and provision for loan losses offset by increases in net interest income and noninterest income.

For the three-month period ended March 31, 2006, interest income increased by $1,735,091, or 26.43%, to $8,299,959. The increase was due to higher average balances of earning assets and higher rates earned on these assets. In addition, the Bank continued to increase balances of loans which tend to have higher yields and decrease balances of cash and investment securities which tend to have lower yields. Interest expense increased to $4,045,816 in the three-month period ending March 31, 2006 as compared to $2,809,080 in the same period in the prior year, an increase of $1,236,736 or 44.03%. The increase was the result of higher average balances and higher rates. Although overall rates paid on interest earning liabilities increased, the Bank’s continued shifting from wholesale liabilities to retail deposits helped to control the overall amount of interest expense.

Provision for loan losses increased to $86,485 for the three months ended March 31, 2006 from $63,027 for the three- month period ended March 31, 2005. The increase in the provision was caused by the increases in the Bank’s loan portfolio, especially in commercial loans, which tend to have a higher risk of default than one- to four- family residential real estate loans. Management will continue to periodically review its allowance for loan losses and the related provision and adjust as deemed necessary. This review will include a review of economic conditions nationally and locally, as well as a review of the performance of significant major loans and the overall portfolio.

	Three Months Ended March 31,
	2006		2005			$ Change			% Change
NONINTEREST INCOME:
Loan appraisal, credit, and miscellaneous charges	$	98,617	$	62,907		$	35,710			56.77	%
Net gain on the sale of foreclosed property		—		36,000			(36,000	)		(100.00	%)
Income from bank-owned life insurance		70,772		61,129			9,643			15.77	%
Loss on sale of investment securities		—		(14,581	)		14,581
Service charges		308,329		255,874			52,455			20.50	%
Total noninterest income	$	477,718	$	401,329		$	76,389			19.03	%

Loan appraisal, credit, and miscellaneous charges increased due to higher loan volumes. The decrease in gain on the sale of foreclosed property reflects that no foreclosed property was sold in the current year. Income from bank-owned life insurance reflects $2,000,000 in additional policy purchases in the current year. The absence of a loss on the sale of investment securities reflects that there were no investment sales in 2006. The increase in service charges reflects higher transaction account balances as well as increased fees.

	Three Months Ended March 31,
	2006		2005		$ Change			% Change
NONINTEREST EXPENSE:
Salary and employee benefits	$	1,661,371	$	1,463,962	$	197,409			13.48	%
Occupancy		279,307		231,873		47,434			20.46	%
Advertising		145,208		87,412		57,796			66.12	%
Data processing		220,234		160,824		59,410			36.94	%
Legal and professional fees		239,014		119,445		119,569			100.10	%
Depreciation of furniture, fixtures, and equipment		112,496		87,100		25,396			29.16	%
Telephone communications		22,721		29,194		(6,473	)		(22.17	%)

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	Three Months Ended March 31,
	2006		2005		$ Change			% Change
ATM expenses		57,322		69,794		(12,472	)		(17.87	%)
Office supplies		35,711		30,364		5,347			17.61	%
Office equipment		12,793		9,702		3,091			31.86	%
Other		344,378		259,044		85,334			32.94	%
Total noninterest expenses	$	3,130,555	$	2,548,714	$	581,841			22.83	%

Salary and employee benefits costs increased because of increases in the number of personnel employed by the Bank, increased benefits costs, and the expense of options awards. Employees were added to staff an additional branch and to staff some administrative and accounting positions. In addition, the Bank’s average cost per employee has increased in the last year due to tight labor markets and the need to add highly skilled employees as the Bank grows in size and complexity. Occupancy expense increased as the Bank opened an additional branch. Advertising expenses increased as the Bank has continued to focus on increasing market presence in southern Maryland. Data processing reflects increases in the size of the Bank and the number of accounts. It also reflects the addition of several new systems to support customer growth. Legal and professional fees reflect the additional costs of preparing the Company for Sarbanes-Oxley compliance. Depreciation expense includes increases due to a remodeled home office and additional branch equipment. Other expenses reflect increases due to the added size of the Bank.

Income tax expense increased to $541,684, or 35.76%, of pretax income, in the current year, from $521,015, or 33.71%, of pretax income, in the prior year. The prior year’s lower income tax rate was attributable to a higher proportion of interest income receiving preferential state or federal income tax treatment.

FINANCIAL CONDITION
Assets

	March 31, 2006		December 31, 2005		$ Change			% Change
Cash and due from banks	$	6,242,760	$	7,262,547	$	(1,019,787	)		(14.04	%)
Federal Funds sold		1,410,626		640,818		769,808			120.13	%
Interest-bearing deposits with banks		10,882,592		14,671,875		(3,789,283	)		(25.83	%)
Securities available for sale		6,771,806		7,178,894		(407,088	)		(5.67	%)
Securities held to maturity — at amortized cost		114,124,302		116,486,685		(2,362,383	)		(2.03	%)
Federal Home Loan Bank and Federal Reserve Bank stock		7,069,200		7,190,300		(121,100	)		(1.68	%)
Loans receivable — net of allowance for loan losses of $3,463,183 and $3,383,334, respectively		379,700,806		369,592,253		10,108,553			2.74	%
Premises and equipment, net		6,477,396		6,460,545		16,851			0.26	%
Foreclosed real estate		475,561		475,561		—			0.00	%
Accrued interest receivable		2,466,563		2,406,542		60,021			2.49	%
Investment in bank-owned life insurance		8,504,947		6,434,175		2,070,772			32.18	%
Other assets		2,396,185		2,487,280		(91,095	)		(3.66	%)
	$	546,522,744	$	541,287,475	$	5,235,269			0.97	%

Cash and due from banks, Federal Funds sold and interest-bearing deposits with banks decreased as the funds were used to fund growth in loans. Investment securities, including both the available for sale and held to maturity portfolios, decreased because the Bank has continued to use investment repayments as a source of funds to build its loan portfolio. The loan portfolio increased as a result of increases in the Bank’s portfolio of commercial real estate loans and commercial lines of credit due to continued marketing emphasis on these loan types. Investment in bank-owned life insurance increased due to purchases of additional policies.

Details of the Bank’s loan portfolio are presented below:

	March 31, 2006					December 31, 2005
	Amount		%			Amount		%
Real Estate Loans
Commercial	$	170,889,154		44.53	%	$	166,850,838		44.66	%
Residential first mortgages		75,601,277		19.70	%		73,627,717		19.71	%
Residential construction		32,664,381		8.51	%		32,608,002		8.73	%

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	March 31, 2006					December 31, 2005
	Amount		%			Amount		%
Second mortgage loans		26,357,271		6.87	%		25,884,406		6.93	%
Commercial lines of credit		57,355,352		14.95	%		54,737,693		14.65	%
Consumer loans		3,062,181		0.80	%		3,128,425		0.84	%
Commercial equipment		17,808,825		4.64	%		16,742,220		4.48	%
		383,738,441		100.00	%		373,579,301		100.00	%
Less:
Deferred loan fees		574,452		0.15	%		603,714		0.16	%
Allowance for loan losses		3,463,183		0.90	%		3,383,334		0.91	%
	$	379,700,806				$	369,592,253

At March 31, 2006, the Bank’s allowance for loan losses totaled $3,463,183 or 0.90% of loan balances as compared to $3,383,334 or 0.91% of loan balances at December 31, 2005. Management’s determination of the adequacy of the allowance is based on a periodic evaluation of the portfolio with consideration given to the overall loss experience; current economic conditions; volume, growth and composition of the loan portfolio; financial condition of the borrowers; and other relevant factors that, in management’s judgment, warrant recognition in providing an adequate allowance. Management believes that the allowance is adequate. Additional loan information for prior years is presented in the Company’s Form 10-K.

The following table summarizes changes in the allowance for loan losses for the periods indicated.

	3 Months Ended		3 Months Ended
	March 31, 2006		March 31, 2005
Beginning Balance	$	3,383,334	$	3,057,558
Charge Offs		6,636		—
Recoveries		—		—
Net Charge Offs		6,636		—
Provision for Loan Losses		86,485		63,027
Balance at the end of the Period	$	3,463,183	$	3,120,585

The following table provides information with respect to our non-performing assets at the dates indicated.

	Balances as of			Balances as of
	March 31, 2006			December 31, 2005
Restructured loans	$	—		$	—
Accruing loans which are contractually past due 90 days or more:	$	—		$	—
Loans accounted for on a non-accrual basis	$	581,398		$	590,498
Total non performing loans	$	581,398		$	590,498
Non performing loans to total loans		0.15	%		0.15	%
Allowance for loan losses to non- performing loans		596.66	%		572.96	%

Liabilities

	March 31, 2006		December 31, 2005		$ Change			% Change
Noninterest-bearing deposits	$	42,935,031	$	44,325,083	$	(1,390,052	)		(3.14	%)
Interest-bearing deposits		329,183,699		319,048,657		10,135,042			3.18	%

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	March 31, 2006		December 31, 2005		$ Change			% Change
Total deposits		372,118,730		363,373,740		8,744,990			2.41	%
Short-term borrowings		15,505,588		20,074,975		(4,569,387	)		(22.76	%)
Long-term debt		108,075,213		107,823,759		251,454			0.23	%
Guaranteed preferred beneficial interest in junior subordinated debentures		12,000,000		12,000,000		—			0.00	%
Accrued expenses and other liabilities		3,521,073		3,436,845		84,228			2.45	%
	$	511,220,604	$	506,709,319	$	4,511,285			0.89	%

Interest bearing deposit balances increased due to the Bank’s continuing efforts to increase our market share through advertising, branch improvements, and other marketing efforts. Noninterest-bearing deposits are harder to market in a rising rate environment, and they have declined in the current period. We will continue to make marketing efforts on all deposit types in the future. A decline in noninterest bearing deposits was offset by a large increase in interest bearing deposits. Short-term borrowings declined as the Bank continued to replace borrowings with deposits.

Stockholders’ Equity

	March 31, 2006			December 31, 2005			$ Change			% Change
Common stock	$	17,615		$	17,610		$	5			0.03	%
Additional paid in capital		9,115,101			9,057,805			57,296			0.63	%
Retained earnings		26,409,104			25,580,634			828,470			3.24	%
Accumulated other comprehensive income (loss)		(112,425	)		49,362			(161,787	)		(327.76	%)
Unearned ESOP shares		(127,255	)		(127,255	)		—			0.00	%
	$	35,302,140		$	34,578,156		$	723,984			2.09	%

Common stock and additional paid in capital increased due to exercise of options. Retained earnings increased because of earnings, offset by the repurchase of 5,858 shares at a cost of $196,000. Book value per share increased from $19.64 per share to $20.04 reflecting the total change in equity.

LIQUIDITY AND CAPITAL RESOURCES

The Company currently has no business other than holding the stock of the Bank and payment on its subordinated debentures. Its primary uses of funds are for the payment of dividends, the payment of interest and principal on debentures, and the repurchase of common shares. The Company’s principal sources of liquidity are cash on hand and dividends received from the Bank. The Bank is subject to various regulatory restrictions on the payment of dividends.

The Bank’s principal sources of funds for investments and operations are net income, deposits from its primary market area, principal and interest payments on loans, interest received on investment securities and proceeds from sale and maturity of investment securities. Its principal funding commitments are for the origination or purchase of loans, the purchase of investment securities and the payment of maturing deposits. Deposits are considered a primary source of funds supporting the Bank’s lending and investment activities. The Bank also uses various wholesale funding instruments including FHLB advances and reverse repurchase agreements. The Bank may borrow up to 40% of consolidated Bank assets on a line of credit available from the FHLB. As of March 31, 2006, the maximum available under this line would be $218 million, while outstanding advances totaled $123 million. In order to draw on this line the Bank must have sufficient collateral. Qualifying collateral includes residential 1-4 family first mortgage loans, certain second mortgage loans, certain commercial real estate loans, and various investment securities. At March 31, 2006, the Bank had pledged collateral sufficient to draw $157 million under the line. In addition, the Bank has identified additional collateral, sufficient to borrow an additional $57 million.

The Bank’s most liquid assets are cash and cash equivalents, which are cash on hand, amounts due from financial institutions, Federal Funds sold, and money market mutual funds. The levels of such assets are dependent on the Bank’s operating financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.

Cash, cash equivalents, and interest-bearing deposits with banks as of March 31, 2006 totaled $18,535,978, a decrease of $4,039,262, or 17.89%, from the December 31, 2005 total of $22,575,240. This decrease was due to the use of such funds to support the increase in loans and pay down short term borrowings.

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The Bank’s principal sources of cash flows are its financing activities including deposits and borrowings. During the first quarter in 2006, all financing activities provided $4,339,691 in cash compared to $33,661,394 for the first quarter of 2005. The decrease in cash flows from financing activities during the most recent period was principally due to decreases in borrowing activities. Proceeds from long term borrowings declined to $260,000 in the first quarter of 2006 from $10,000,000 for the same period in 2005. In addition, there was a net decrease in short term borrowings in the current period of $4,569,387 compared to a $9,760,702 increase in the same period in 2005. During the first quarter of 2006, net deposit growth was $8,744,990 compared to $13,809,124 in 2005. Operating activities used cash of $638,409 in the first quarter of 2006 compared to providing cash of $1,137,449 in the first quarter of 2005. The change was caused primarily by the purchase of bank-owned life insurance in 2006.

The Bank’s principal use of cash has been in investments in loans, investment securities and other assets. During the quarter ended March 31, 2006, the Bank invested a total of $7,740,544 compared to $36,632,335 in 2005. The principal reasons for the decrease in cash used in investing activities were a decline in the purchases of investment securities and a decline in loan originations.

REGULATORY MATTERS

The Bank is subject to Federal Reserve Board capital requirements as well as statutory capital requirements imposed under Maryland law. At March 31, 2006, the Bank’s tangible, leverage and risk-based capital ratios were 8.22%, 10.46% and 11.30%, respectively. These levels are in excess of the required 4.0%, 4.0% and 8.0% ratios required by the Federal Reserve Board as well as the 5.0%, 5.0%, and 10% ratios required to be considered well capitalized. At March 31, 2006, the Company’s tangible, leverage and risk-based capital ratios were 8.69%, 11.05% and 11.88%, respectively. These levels are also in excess of the 4.0%, 4.0% and 8.0% ratios required by the Federal Reserve Board as well as the 5.0%, 5.0%, and 10% ratios required to be considered well capitalized.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America and the general practices of the United States banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. The Company considers its determination of the allowance for loan losses and the valuation allowance on its foreclosed real estate to be critical accounting policies. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When these sources are not available, management makes estimates based upon what it considers to be the best available information.

The allowance for loan losses is an estimate of the losses that may be sustained in the loan portfolio. The allowance is based on two principles of accounting: (a) Statement on Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies”, which requires that losses be accrued when they are probable of occurring and are estimable and (b) SFAS No. 114, “Accounting by Creditors for Impairment of a Loan”, which requires that losses be accrued when it is probable that the Company will not collect all principal and interest payments according to the contractual terms of the loan. The loss, if any, is determined by the difference between the loan balance and the value of collateral, the present value of expected future cash flows, or values observable in the secondary markets.

The loan loss allowance balance is an estimate based upon management’s evaluation of the loan portfolio. Generally the allowance is comprised of a specific and a general component. The specific component consists of management’s evaluation of certain loans and their underlying collateral. Loans are examined to determine the specific allowance based upon the borrower’s payment history, economic conditions specific to the loan or borrower, or other factors that would impact the borrower’s ability to repay the loan on its contractual basis. Management assesses the ability of the borrower to repay the loan based upon any information available. Depending on the assessment of the borrower’s ability

17

to pay the loan as well as the type, condition, and amount of collateral, management will establish an allowance amount specific to the loan.

In establishing the general component of the allowance, management analyzes non-classified and non-impaired loans in the portfolio including changes in the amount and type of loans. Management also examines the Bank’s history of write-offs and recoveries within each loan category. The state of the local and national economy is also considered. Based upon these factors the Bank’s loan portfolio is categorized and a loss factor is applied to each category. These loss factors may be higher or lower than the Bank’s actual recent average losses in any particular loan category, particularly in loan categories where the Bank is rapidly increasing the size of its portfolio. Based upon these factors, the Bank will adjust the loan loss allowance by increasing or decreasing the provision for loan losses.

Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for loan losses, including in connection with the valuation of collateral, a borrower’s prospects of repayment, and in establishing allowance factors on the general component of the allowance. Changes in allowance factors will have a direct impact on the amount of the provision, and a corresponding effect on net income. Errors in management’s perception and assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio, and may result in additional provisions or charge-offs. For additional information regarding the allowance for loan losses, refer to Notes 1 and 4 to the Consolidated Financial Statements as presented in the Company’s annual report on Form 10-K.

In addition to the loan loss allowance, the Company also maintains a valuation allowance on its foreclosed real estate. As with the allowance for loan losses the valuation allowance on foreclosed real estate is based on SFAS No. 5, “Accounting for Contingencies,” as well as SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” These statements require that the Company establish a valuation allowance when it has determined that the carrying amount of a foreclosed asset exceeds its fair value. Fair value of a foreclosed asset is measured by the cash flows expected to be realized from its subsequent disposition. These cash flows should be reduced for the costs of selling or otherwise disposing of the asset.

In estimating the cash flow from the sale of foreclosed real estate, management must make significant assumptions regarding the timing and amount of cash flows. In cases where the real estate acquired is undeveloped land, management must gather the best available evidence regarding the market value of the property, including appraisals, cost estimates of development, and broker opinions. Due to the highly subjective nature of this evidence, as well as the limited market, long time periods involved, and substantial risks, cash flow estimates are highly subjective and subject to change. Errors regarding any aspect of the costs or proceeds of developing, selling, or otherwise disposing of foreclosed real estate could result in the allowance being inadequate to reduce carrying costs to fair value and may require an additional provision for valuation allowances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable as the registrant has not been subject to the requirements of Item 305 of Regulation S-K at a fiscal year end.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, management of the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, (1) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal and executive and financial officers as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of the Company’s disclosure controls and procedures is based in part upon certain reasonable assumptions about the likelihood of future events, and there can be no reasonable assurance that any design of disclosure controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote, but the Company’s principal executive and financial officers have concluded that the Company’s disclosure controls and procedures are, in fact, effective at a reasonable assurance level.

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In addition, there have been no changes in the Company’s internal control over financial reporting (to the extent that elements of internal control over financial reporting are subsumed within disclosure controls and procedures) identified in connection with the evaluation described in the above paragraph that occurred during the Company’s last fiscal quarter, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1 — Legal Proceedings – The Company is not involved in any pending legal proceedings. The Bank is not involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the financial condition and results of operations of the company.

Item 1A. — Risk Factors – There have been no material changes with respect to the Risk Factors disclosed in the Company’s Form 10-K.

Item 2 – Unregistered sales of equity securities and use of proceeds

(a)	Not applicable
(b)	Not applicable
(c)	The following table sets forth information regarding the Company’s repurchases of its Common Stock during the quarter ended March 31, 2006.

					(c)
					Total Number
					of Shares		(d)
					Purchased		Maximum
	(a)				as Part of		Number of Shares
	Total		(b)		Publicly		that May Yet Be
	Number of		Average		Announced Plans		Purchased Under
	Shares		Price Paid		or		the Plans or
Period	Purchased		per Share		Programs		Programs
January 2006		600	$	33.00		600		61,487
February 2006		3,282		33.50		3,282		58,205
March 2006		450		33.25		450		57,755
Total		4,332		33.40		4,332		57,755

On October 25, 2004, Tri-County Financial Corporation announced a repurchase program under which it would repurchase 85,000 shares of its common stock (as adjusted for the three for two stock split declared in October 2004 and December 2005). The program will continue until it is completed or terminated by the Board of Directors.

Item 3 — Default Upon Senior Securities — None

Item 4 Submission of Matters to a Vote of Security Holders —None

Item 5 — Other Information — None

Item 6 — Exhibits

Exhibit 3 Amended and Restated Bylaws

Exhibit 31 Rule 13a-14(a) Certifications

Exhibit 32 Section 1350 Certifications

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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.

		TRI-COUNTY FINANCIAL CORPORATION:
Date:	May 12, 2006	By:	/s/ Michael L. Middleton
			Michael L. Middleton, President, Chief
			Executive Officer and Chairman of the
			Board
Date:	May 12, 2006	By:	/s/ William J. Pasenelli
			William J. Pasenelli, Executive Vice
			President and Chief Financial Officer

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