UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC  20549

FORM 10-Q

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



For the quarterly period ended September 30, 2007



| |                                                    | 
| | -------------------------------------------------- | 
| | TRANSCOMMUNITY FINANCIAL CORPORATION               | 
| | (Exact name of registrant as specified in charter) | 





|                                               |  |                          |  |                                  
|---------------------------------------------- |  | ------------------------ |  | ---------------------------------
|Virginia                                       |  | 000-33355                |  | 54-2032355                       
|(State or other jurisdiction
of incorporation) |  | (Commission File Number) |  | (IRS Employer
Identification No.)





| |                                                 | 
| | ----------------------------------------------- | 
| | 4235 Innslake Drive Glen Allen, Virginia  23060 | 
| | (Address of principal executive offices)        | 





| |                                                      | 
| | ---------------------------------------------------- | 
| | (804) 934-9999                                       | 
| | (Registrants Telephone Number, including Area Code) | 



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.  Yesx 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. (Check one):

Large accelerated filer

Accelerated filer o

Non-accelerated filer x



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



The number of shares outstanding of the registrant’s common stock at the close of business on November 2, 2007 was 4,586,741 shares of common stock, $.01 par value.









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TRANSCOMMUNITY FINANCIAL CORPORATION



INDEX





PART I

FINANCIAL INFORMATION

Page No.



Item 1.

Financial Statements

3



Consolidated Statements of Financial Condition 

September 30, 2007 (Unaudited) and December 31, 2006

3



Consolidated Statements of Operations 

Three and Nine Months Ended September 30, 2007 and 2006 (Unaudited)

4



Consolidated Statement of Changes in Stockholders' Equity 

Nine Months Ended September 30, 2007 (Unaudited)

5



Consolidated Statements of Cash Flows 

Nine Months Ended September 30, 2007 and 2006 (Unaudited)

6



Notes to Consolidated Financial Statements (Unaudited)

7



Item 2.

Managements Discussion and Analysis of Financial

Condition and Results of Operations

16



Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24



Item 4.

Controls and Procedures

24



PART II

OTHER INFORMATION



Item 1.

Legal Proceedings

26



Item 1A.

Risk Factors

26



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26



Item 3.

Defaults Upon Senior Securities

26



Item 4.

Submission of Matters to a Vote of Security Holders

26



Item 5.

Other Information

26



Item 6.

Exhibits

26





SIGNATURES

27





2



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PART I  FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



TRANSCOMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 30, 2007 AND DECEMBER 31, 2006

(dollars in thousands)



|                                                                                                                                                                           |                    |          |                   |   |        
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | -------- | ----------------- | - | -------
|                                                                                                                                                                           | September 30, 2007 |          | December 31, 2006
|                                                                                                                                                                           | Unaudited          |          |                  
|Assets                                                                                                                                                                     |                    |          |                   |   |        
|Cash and due from banks                                                                                                                                                    | $                  | 6,051    |                   | $ | 3,669  
|Federal funds sold                                                                                                                                                         |                    | 4,061    |                   |   | 1,422  
|Total cash and cash equivalents                                                                                                                                            |                    | 10,112   |                   |   | 5,091  
|Securities available for sale, at fair value                                                                                                                               |                    | 10,314   |                   |   | 13,597 
|Securities held to maturity, fair value of $6,356 and $21,286 at September 30, 2007 and December 31, 2006, respectively                                                    |                    | 6,400    |                   |   | 21,420 
|Loans                                                                                                                                                                      |                    | 189,003  |                   |   | 151,399
|Allowance for loan losses                                                                                                                                                  |                    | (2,663)  |                   |   | (2,065)
|Total loans, net                                                                                                                                                           |                    | 186,340  |                   |   | 149,334
|Premises and equipment, net                                                                                                                                                |                    | 7,114    |                   |   | 6,689  
|Other investments                                                                                                                                                          |                    | 938      |                   |   | 896    
|Assets from discontinued operations, net                                                                                                                                   |                    | -        |                   |   | 88     
|Other assets                                                                                                                                                               |                    | 1,830    |                   |   | 1,330  
|Total assets                                                                                                                                                               | $                  | 223,048  |                   | $ | 198,445
|Liabilities                                                                                                                                                                |                    |          |                   |   |        
|Deposits:                                                                                                                                                                  |                    |          |                   |   |        
|Demand:                                                                                                                                                                    |                    |          |                   |   |        
|Noninterest bearing                                                                                                                                                        | $                  | 22,575   |                   | $ | 20,450 
|Interest bearing                                                                                                                                                           |                    | 33,802   |                   |   | 37,850 
|Savings                                                                                                                                                                    |                    | 10,357   |                   |   | 9,478  
|Time                                                                                                                                                                       |                    | 125,230  |                   |   | 97,195 
|Total deposits                                                                                                                                                             |                    | 191,964  |                   |   | 164,973
|Note payable                                                                                                                                                               |                    | -        |                   |   | 500    
|Federal funds purchased                                                                                                                                                    |                    | -        |                   |   | 1,517  
|Accrued interest payable                                                                                                                                                   |                    | 656      |                   |   | 540    
|Liabilities from discontinued operations, net                                                                                                                              |                    | -        |                   |   | 10     
|Accrued expenses and other liabilities                                                                                                                                     |                    | 496      |                   |   | 352    
|Total liabilities                                                                                                                                                          |                    | 193,116  |                   |   | 167,892
|Stockholders' Equity                                                                                                                                                       |                    |          |                   |   |        
|Common stock (25,000,000 shares authorized $.01 par value) 4,586,741 and 4,581,741 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively |                    | 46       |                   |   | 46     
|Additional paid in capital                                                                                                                                                 |                    | 39,904   |                   |   | 39,809 
|Accumulated deficit                                                                                                                                                        |                    | (10,027) |                   |   | (9,262)
|Accumulated other comprehensive income (loss)                                                                                                                              |                    | 9        |                   |   | (40)   
|Total stockholders' equity                                                                                                                                                 |                    | 29,932   |                   |   | 30,553 
|Total liabilities and stockholders' equity                                                                                                                                 | $                  | 223,048  |                   | $ | 198,445



See accompanying notes to unaudited consolidated financial statements.



3



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TRANSCOMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(unaudited)

(dollars and shares in thousands except for per share data)



|                                                                           |                            |        |                           |   |       |                    |   |                    |  |   |        | 
|-------------------------------------------------------------------------- | -------------------------- | ------ | ------------------------- | - | ----- | ------------------ | - | ------------------ |  | - | ------ | 
|                                                                           | For the three months ended |        | For the nine months ended
|                                                                           | September 30, 2007         |        | September 30, 2006        |   |       | September 30, 2007 |   | September 30, 2006
|Interest and dividend income                                               |                            |        |                           |   |       |                    |   |                    |  |   |       
|Interest on loans, including fees                                          | $                          | 4,208  |                           | $ | 3,299 |                    | $ | 11,616             |  | $ | 9,064 
|Interest on federal funds sold                                             |                            | 125    |                           |   | 279   |                    |   | 458                |  |   | 826   
|Interest on debt securities                                                |                            | 170    |                           |   | 196   |                    |   | 538                |  |   | 545   
|Dividends on equity securities                                             |                            | 12     |                           |   | 8     |                    |   | 37                 |  |   | 31    
|Total interest income                                                      |                            | 4,515  |                           |   | 3,782 |                    |   | 12,649             |  |   | 10,466
|Interest expense                                                           |                            |        |                           |   |       |                    |   |                    |  |   |       
|Interest on deposits                                                       |                            | 1,724  |                           |   | 1,194 |                    |   | 4,717              |  |   | 3,108 
|Interest on other borrowed funds                                           |                            | 26     |                           |   | 162   |                    |   | 48                 |  |   | 476   
|Total interest expense                                                     |                            | 1,750  |                           |   | 1,356 |                    |   | 4,765              |  |   | 3,584 
|Net interest income                                                        |                            | 2,765  |                           |   | 2,426 |                    |   | 7,884              |  |   | 6,882 
|Provision for loan losses                                                  |                            | 622    |                           |   | 167   |                    |   | 1,134              |  |   | 311   
|Net interest income after provision for loan losses                        |                            | 2,143  |                           |   | 2,259 |                    |   | 6,750              |  |   | 6,571 
|Noninterest income                                                         |                            |        |                           |   |       |                    |   |                    |  |   |       
|Bank service charges and fees                                              |                            | 269    |                           |   | 232   |                    |   | 832                |  |   | 768   
|Total noninterest income                                                   |                            | 269    |                           |   | 232   |                    |   | 832                |  |   | 768   
|Noninterest expense                                                        |                            |        |                           |   |       |                    |   |                    |  |   |       
|Salaries and employee benefits                                             |                            | 1,405  |                           |   | 1,171 |                    |   | 4,063              |  |   | 3,494 
|Occupancy expenses                                                         |                            | 172    |                           |   | 164   |                    |   | 533                |  |   | 494   
|Equipment expenses                                                         |                            | 167    |                           |   | 149   |                    |   | 527                |  |   | 438   
|Other operating expenses                                                   |                            | 829    |                           |   | 750   |                    |   | 3,149              |  |   | 2,258 
|Total noninterest expense                                                  |                            | 2,573  |                           |   | 2,234 |                    |   | 8,272              |  |   | 6,684 
|(Loss) income from continuing operations before income taxes               |                            | (161)  |                           |   | 257   |                    |   | (690)              |  |   | 655   
|Income tax expense                                                         |                            | -      |                           |   | -     |                    |   | -                  |  |   | -     
|Net (loss) income from continuing operations                               |                            | (161)  |                           |   | 257   |                    |   | (690)              |  |   | 655   
|Net loss from discontinued operations                                      |                            | -      |                           |   | (159) |                    |   | (77)               |  |   | (651) 
|Net (loss) income                                                          | $                          | (161)  |                           | $ | 98    |                    | $ | (767)              |  | $ | 4     
|Net (loss) income per share from continuing operations (basic and diluted) | $                          | (0.04) |                           | $ | 0.06  |                    | $ | (0.15)             |  | $ | 0.14  
|Net (loss) income per share (basic and    diluted)                         | $                          | (0.04) |                           | $ | 0.02  |                    | $ | (0.17)             |  | $ | 0.00  
|Weighted average number of shares outstanding                              |                            | 4,587  |                           |   | 4,582 |                    |   | 4,587              |  |   | 4,582 



See accompanying notes to unaudited consolidated financial statements.



4



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TRANSCOMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007

(unaudited)

(dollars and shares in thousands)



|                                                 |                        |  |                            |   |              |   |                            |  |                     |        |                                               |   |          |  |   |      |  |   |       
|------------------------------------------------ | ---------------------- |  | -------------------------- | - | ------------ | - | -------------------------- |  | ------------------- | ------ | --------------------------------------------- | - | -------- |  | - | ---- |  | - | ------
|                                                 | Shares of Common Stock |  | Common Stock Subscriptions |   | Common Stock |   | Additional Paid in Capital |  | Accumulated Deficit |        | Accumulated Other Comprehensive Income (Loss) |   | Total   
|Balance,                                         |                        |  |                            |   |              |   |                            |  |                     |        |                                               |   |          |  |   |      |  |   |       
|December 31, 2006                                | 4,582                  |  | $                          | - |              | $ | 46                         |  | $                   | 39,809 |                                               | $ | (9,262)  |  | $ | (40) |  | $ | 30,553
|Net loss                                         | -                      |  |                            | - |              |   | -                          |  |                     | -      |                                               |   | (767)    |  |   | -    |  |   | (767) 
|Unrealized gain on securities available for sale | -                      |  |                            | - |              |   | -                          |  |                     | -      |                                               |   | -        |  |   | 49   |  |   | 49    
|Total comprehensive loss                         |                        |  |                            |   |              |   |                            |  |                     |        |                                               |   |          |  |   |      |  |   | (718) 
|Common Stock issued                              | 5                      |  |                            | - |              |   | -                          |  |                     | 38     |                                               |   |          |  |   |      |  |   | 38    
|Stock-based compensation expense                 | -                      |  |                            | - |              |   | -                          |  |                     | 57     |                                               |   | -        |  |   | -    |  |   | 57    
|Dissolution of subsidiary                        | -                      |  |                            | - |              |   | -                          |  |                     | -      |                                               |   | 2        |  |   | -    |  |   | 2     
|Balance,                                         |                        |  |                            |   |              |   |                            |  |                     |        |                                               |   |          |  |   |      |  |   |       
|September 30, 2007                               | 4,587                  |  | $                          | - |              | $ | 46                         |  | $                   | 39,904 |                                               | $ | (10,027) |  | $ | 9    |  | $ | 29,932



See accompanying notes to unaudited consolidated financial statements.







5



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TRANSCOMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER, 2007 AND 2006

(unaudited)

(dollars and shares in thousands)

|                                                                                           |                           |          |                    |   |         
|------------------------------------------------------------------------------------------ | ------------------------- | -------- | ------------------ | - | --------
|                                                                                           | For the nine months ended
|                                                                                           | September 30, 2007        |          | September 30, 2006
|Operating activities:                                                                      |                           |          |                    |   |         
|Net (loss) income                                                                          | $                         | (767)    |                    | $ | 4       
|Adjustments to reconcile net loss to net cash provided by 
(used in) operating activities: |                           |          |                    |   |         
|Provision for loan losses                                                                  |                           | 1,134    |                    |   | 346     
|Amortization of security premiums and 
accretion of discounts, net                         |                           | (14)     |                    |   | 18      
|Depreciation                                                                               |                           | 419      |                    |   | 414     
|Stock-based compensation expense                                                           |                           | 57       |                    |   | 27      
|Loss on disposition of property                                                            |                           | -        |                    |   | (7)     
|(Increase) Decrease in other assets                                                        |                           | (498)    |                    |   | 360     
|Increase in interest payable                                                               |                           | 116      |                    |   | 205     
|Increase (Decrease) accrued expenses and other liabilities                                 |                           | 134      |                    |   | (75)    
|Net cash provided by (used in) operating activities                                        |                           | 581      |                    |   | 1,292   
|                                                                                           |                           |          |                    |   |         
|Investing activities:                                                                      |                           |          |                    |   |         
|Purchase of securities held to maturity                                                    |                           | (6,000)  |                    |   | (43,000)
|Purchase of securities available for sale                                                  |                           | (18,522) |                    |   | (13,250)
|Proceeds from maturities of securities held to maturity                                    |                           | 21,025   |                    |   | 52,000  
|Proceeds from maturities of securities available for sale                                  |                           | 21,863   |                    |   | 3,000   
|Purchase of other investments                                                              |                           | (42)     |                    |   | (121)   
|Net increase in loans                                                                      |                           | (38,122) |                    |   | (16,585)
|Purchase of premises and equipment                                                         |                           | (774)    |                    |   | (196)   
|Net cash used in investing activities                                                      |                           | (20,572) |                    |   | (18,152)
|                                                                                           |                           |          |                    |   |         
|Financing activities:                                                                      |                           |          |                    |   |         
|Net (decrease) increase in federal funds purchased                                         |                           | (1,517)  |                    |   | 854     
|Proceeds from stock options exercised                                                      |                           | 38       |                    |   | -       
|Net (decrease) increase in note payable                                                    |                           | (500)    |                    |   | 475     
|Net decrease in secured borrowings                                                         |                           | -        |                    |   | (1,435) 
|Net decrease in noninterest bearing and interest 
bearing demand deposits                  |                           | (1,923)  |                    |   | (6,363) 
|Net increase (decrease) in savings deposits                                                |                           | 879      |                    |   | (282)   
|Net increase in time deposits                                                              |                           | 28,035   |                    |   | 20,378  
|Net cash (used in) provided by financing activities                                        |                           | 25,012   |                    |   | 13,627  
|                                                                                           |                           |          |                    |   |         
|Net increase (decrease) in cash and cash equivalents                                       |                           | 5,021    |                    |   | (3,233) 
|                                                                                           |                           |          |                    |   |         
|Cash and cash equivalents:                                                                 |                           |          |                    |   |         
|Beginning of the period                                                                    |                           | 5,091    |                    |   | 16,816  
|End of the period                                                                          | $                         | 10,112   |                    | $ | 13,583  
|Supplemental disclosures of cash flow information:                                         |                           |          |                    |   |         
|Interest paid                                                                              | $                         | 4,650    |                    | $ | 3,387   

See accompanying notes to unaudited consolidated financial statements.



6



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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 1

Principles of Consolidation and Basis of Presentation:



The accompanying unaudited consolidated financial statements include the accounts of TransCommunity Financial Corporation (TransCommunity or the Company) and its consolidated subsidiary TransCommunity Bank, N.A., which includes Main Street Mortgage and Investment Corporation (Main Street Mortgage), a former wholly-owned subsidiary that discontinued operations in December 2006.  All significant intercompany transactions and balances associated with consolidated subsidiaries have been eliminated.



The consolidated financial statements of TransCommunity conform to accounting principles generally accepted in the United States of America, to general industry practices, and the instructions for Form 10-Q and Regulation S-X.  In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at September 30, 2007, and the results of operations for the three-month and nine-month periods ended September 30, 2007 and 2006.  The Consolidated Statement of Financial Condition at December 31, 2006 was derived from audited financial data.  The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities in the financial statements, and the disclosure of revenue and expense during the reporting periods.  The assumptions are based on information available as of the date of the financial statements and could differ from actual results.  The results for the interim periods are not necessarily indicative of annual performance.  The notes included herein should be read in conjunction with the notes to consolidated financial statements included in the audited December 31, 2006 financial statements for TransCommunity, which statements were included in the Companys Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission (the Commission).



NOTE 2

Impacts of Certain Accounting Pronouncements:



In September 2006, the FASB released SFAS No. 157, Fair Value Measurement, which provides guidance for using fair value to measure assets and liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. The Statement also responds to investors requests for more information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value and the effect that fair value measurements have on earnings. SFAS No. 157 will apply whenever another standard requires (or permits) assets or liabilities to be measured at fair value. The standard does not expand the use of fair value to any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. SFAS No. 157 is effective for the Company for years beginning after January 1, 2008, and interim periods within that year.  The Company is in the process of evaluating the impact that the adoption of SFAS No. 157 will have on its consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities."  This Statement permits entities to choose to measure many financial instruments and certain other items at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  This Statement is effective as of the beginning of an entitys first fiscal year beginning after November 15, 2007.  The Company is currently in the process of evaluating the impact that the adoption will have on its consolidated financial position and results of operations.









7



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NOTE 3

Investment Securities:



The carrying values, unrealized gains, unrealized losses and approximate fair values of investment securities at September 30, 2007 and December 31, 2006 are shown in the table below. As of September 30, 2007, 18 U.S. Agency Securities with a carrying value of $13.7 million were pledged as collateral for borrowings and public funds.



|                                            |                |        |                        |   |                         |  |            |      |  |   |       
|------------------------------------------- | -------------- | ------ | ---------------------- | - | ----------------------- |  | ---------- | ---- |  | - | ------
|Securities Available for Sale               |                |        |                        |   |                         |  |            |      |  |   |       
|September 30, 2007                          |                |        |                        |   |                         |  |            |      |  |   |       
|(dollars in thousands)                      | Amortized Cost |        | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|Govt-sponsored enterprises-discount notes* | $              | 1,000  |                        | $ | -                       |  | $          | (1)  |  | $ | 999   
|Govt-sponsored enterprises-notes*          |                | 9,305  |                        |   | 23                      |  |            | (13) |  |   | 9,315 
|Total Securities Available for Sale         | $              | 10,305 |                        | $ | 23                      |  | $          | (14) |  | $ | 10,314



|                                            |                |       |                        |   |                         |  |            |      |  |   |      
|------------------------------------------- | -------------- | ----- | ---------------------- | - | ----------------------- |  | ---------- | ---- |  | - | -----
|Securities Held to Maturity                 |                |       |                        |   |                         |  |            |      |  |   |      
|September 30, 2007                          |                |       |                        |   |                         |  |            |      |  |   |      
|(dollars in thousands)                      | Amortized Cost |       | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|Gov't-sponsored enterprises-discount notes* | $              | -     |                        | $ | -                       |  | $          | -    |  | $ | -    
|Gov't-sponsored enterprises-notes*          |                | 6,400 |                        |   | -                       |  |            | (44) |  |   | 6,356
|Total Securities Held to Maturity           | $              | 6,400 |                        | $ | -                       |  | $          | (44) |  | $ | 6,356



|                                            |                |        |                        |   |                         |  |            |      |  |   |       
|------------------------------------------- | -------------- | ------ | ---------------------- | - | ----------------------- |  | ---------- | ---- |  | - | ------
|Securities Available for Sale               |                |        |                        |   |                         |  |            |      |  |   |       
|December 31, 2006                           |                |        |                        |   |                         |  |            |      |  |   |       
|(dollars in thousands)                      | Amortized Cost |        | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|Govt-sponsored enterprises-discount notes* | $              | 7,213  |                        | $ | -                       |  | $          | (7)  |  | $ | 7,206 
|Govt-sponsored enterprises-notes*          |                | 6,424  |                        |   | -                       |  |            | (33) |  |   | 6,391 
|Total Securities Available for Sale         | $              | 13,637 |                        | $ | -                       |  | $          | (40) |  | $ | 13,597



|                                            |                |        |                        |   |                         |  |            |       |  |   |       
|------------------------------------------- | -------------- | ------ | ---------------------- | - | ----------------------- |  | ---------- | ----- |  | - | ------
|Securities Held to Maturity                 |                |        |                        |   |                         |  |            |       |  |   |       
|December 31, 2006                           |                |        |                        |   |                         |  |            |       |  |   |       
|(dollars in thousands)                      | Amortized Cost |        | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|Gov't-sponsored enterprises-discount notes* | $              | 13,008 |                        | $ | -                       |  | $          | (12)  |  | $ | 12,996
|Gov't-sponsored enterprises-notes*          |                | 8,412  |                        |   | -                       |  |            | (122) |  |   | 8,290 
|Total Securities Held to Maturity           | $              | 21,420 |                        | $ | -                       |  | $          | (134) |  | $ | 21,286
|                                            |                |        |                        |   |                         |  |            |       |  |   |       
|*FHLB                                       |                |        |                        |   |                         |  |            |       |  |   |       







8



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Investments in an unrealized loss position that are considered temporarily impaired at September 30, 2007 and December 31, 2006, segregated between investments sustaining unrealized losses for periods less than twelve months and twelve months or greater, are displayed in the following tables:



|                                            |                     |       |                   |   |            |  |                 |   |            |   |                 |  |   |       |  |   |     
|------------------------------------------- | ------------------- | ----- | ----------------- | - | ---------- |  | --------------- | - | ---------- | - | --------------- |  | - | ----- |  | - | ----
|Securities Available for Sale               |                     |       |                   |   |            |  |                 |   |            |   |                 |  |   |       |  |   |     
|September 30, 2007                          | Less than 12 months |       | 12 months or more |   | Total     
|(dollars in thousands)                      | Fair Value          |       | Unrealized Loss   |   | Fair Value |  | Unrealized Loss |   | Fair Value |   | Unrealized Loss
|Description of securities:                  |                     |       |                   |   |            |  |                 |   |            |   |                 |  |   |       |  |   |     
|Gov't-sponsored enterprises-notes*          | $                   | 792   |                   | $ | (13)       |  | $               |   |            | $ |                 |  | $ | 792   |  | $ | (13)
|Gov't-sponsored enterprises-discount notes* |                     | 999   |                   |   | (1)        |  |                 | - |            |   | -               |  |   | 999   |  |   | (1) 
|Total                                       | $                   | 1,791 |                   | $ | (14)       |  | $               | - |            | $ | -               |  | $ | 1,791 |  | $ | (14)



|                                            |                     |       |                   |   |            |  |                 |   |            |   |                 |  |   |       |  |   |     
|------------------------------------------- | ------------------- | ----- | ----------------- | - | ---------- |  | --------------- | - | ---------- | - | --------------- |  | - | ----- |  | - | ----
|Securities Held to Maturity                 |                     |       |                   |   |            |  |                 |   |            |   |                 |  |   |       |  |   |     
|September 30, 2007                          | Less than 12 months |       | 12 months or more |   | Total     
|(dollars in thousands)                      | Fair Value          |       | Unrealized Loss   |   | Fair Value |  | Unrealized Loss |   | Fair Value |   | Unrealized Loss
|Description of securities:                  |                     |       |                   |   |            |  |                 |   |            |   |                 |  |   |       |  |   |     
|Govt-sponsored enterprises-notes*          | $                   | 6,356 |                   | $ | (44)       |  | $               |   |            | $ |                 |  | $ | 6,356 |  | $ | (44)
|Govt-sponsored enterprises-discount notes* |                     |       |                   |   |            |  |                 | - |            |   | -               |  |   | -     |  |   | -   
|Total                                       | $                   | 6,356 |                   | $ | (44)       |  | $               | - |            | $ | -               |  | $ | 6,356 |  | $ | (44)



|                                            |                     |        |                   |   |            |  |                 |       |            |   |                 |  |   |        |  |   |     
|------------------------------------------- | ------------------- | ------ | ----------------- | - | ---------- |  | --------------- | ----- | ---------- | - | --------------- |  | - | ------ |  | - | ----
|Securities Available for Sale               |                     |        |                   |   |            |  |                 |       |            |   |                 |  |   |        |  |   |     
|December 31, 2006                           | Less than 12 months |        | 12 months or more |   | Total     
|(dollars in thousands)                      | Fair Value          |        | Unrealized Loss   |   | Fair Value |  | Unrealized Loss |       | Fair Value |   | Unrealized Loss
|Description of securities:                  |                     |        |                   |   |            |  |                 |       |            |   |                 |  |   |        |  |   |     
|Govt-sponsored enterprises-notes*          | $                   | 4,990  |                   | $ | (4)        |  | $               | 1,401 |            | $ | (29)            |  | $ | 6,391  |  | $ | (33)
|Govt-sponsored enterprises-discount notes* |                     | 7,206  |                   |   | (7)        |  |                 | -     |            |   | -               |  |   | 7,206  |  |   | (7) 
|Total                                       | $                   | 12,196 |                   | $ | (11)       |  | $               | 1,401 |            | $ | (29)            |  | $ | 13,597 |  | $ | (40)



|                                            |                     |        |                   |   |            |  |                 |       |            |   |                 |  |   |        |  |   |      
|------------------------------------------- | ------------------- | ------ | ----------------- | - | ---------- |  | --------------- | ----- | ---------- | - | --------------- |  | - | ------ |  | - | -----
|Securities Held to Maturity                 |                     |        |                   |   |            |  |                 |       |            |   |                 |  |   |        |  |   |      
|December 31, 2006                           | Less than 12 months |        | 12 months or more |   | Total     
|(dollars in thousands)                      | Fair Value          |        | Unrealized Loss   |   | Fair Value |  | Unrealized Loss |       | Fair Value |   | Unrealized Loss
|Description of securities:                  |                     |        |                   |   |            |  |                 |       |            |   |                 |  |   |        |  |   |      
|Gov't-sponsored enterprises-notes*          | $                   | 1,999  |                   | $ | (1)        |  | $               | 6,291 |            | $ | (121)           |  | $ | 8,290  |  | $ | (122)
|Gov't-sponsored enterprises-discount notes* |                     | 12,996 |                   |   | (12)       |  |                 | -     |            |   | -               |  |   | 12,996 |  |   | (12) 
|Total                                       | $                   | 14,995 |                   | $ | (13)       |  | $               | 6,291 |            | $ | (121)           |  | $ | 21,286 |  | $ | (134)



*Issued by the Federal Home Loan Bank (FHLB)



The September 30, 2007 unrealized loss was the aggregate of 11 U.S. Agency notes, none of which had a continuous loss period of more than 12 months.  The December 31, 2006 unrealized loss was the aggregate of 20 U.S. Agency notes, of which 11 had a continuous loss period of more than 12 months. The unrealized loss positions in both years were primarily related to interest rate movements as there is minimal credit risk exposure in these investments. All securities are investment grade or better.  No impairment loss has been recognized on these securities because management has both the intent and the ability to hold these securities until maturity or call dates.







9



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Management evaluates securities for other-than-temporary impairment at least on a quarterly basis and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of TransCommunitys subsidiary bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.



NOTE 4

Stock Based Compensation:



2001 Stock Option Plan



A stock option plan was adopted by the Board of Directors of the Bank of Powhatan on May 8, 2001 (the 2001 Plan).  This 2001 Plan was adopted by TransCommunity effective August 15, 2001 in connection with the reorganization in which the Bank of Powhatan became a subsidiary of TransCommunity.  The purpose of the 2001 Plan was to reward employees and directors for services rendered and to foster the success of TransCommunity and its subsidiary by providing incentives to employees and directors that will promote the alignment of their personal financial interest with the long-term financial success of TransCommunity and its subsidiaries and with growth in shareholder value.  The 2001 Plan provided that options for up to 330,000 shares of TransCommunity common stock may be issued.  Under the 2001 Plan, annual grants of stock options were limited to 10,000 shares for each employee and 7,500 shares for each director.  The exercise price may not be less than 100% of the fair market value of the shares on the grant date.  Unless the Compensation Committee of TransCommunitys Board of Directors determines otherwise, one-third of a grant becomes vested and exercisable on each of the first three anniversaries of the initial grant date.  Each grant becomes fully vested and exercisable in the event of a change in control of TransCommunity.  All options are subject to exercise or forfeiture if TransCommunitys capital falls below its minimum requirements, as determined by its primary regulator, and TransCommunitys primary regulator so directs.  At September 2007, options to acquire 275,275 shares were outstanding, of which 233,275 were exercisable at that date.



Effective January 1, 2006, TransCommunity adopted SFAS No. 123R, Share-Based Payment, using the modified prospective transition method. SFAS No. 123R requires companies to calculate compensation expense arising from stock-based compensation based on the respective fair values of awards at grant date.



A summary of the options granted is shown in the following table:



|                                                           |                                 |           |  |   |          
|---------------------------------------------------------- | ------------------------------- | --------- |  | - | ---------
|                                                           | Nine months ended September 30,
|                                                           |                                 | 2007      |  |   | 2006     
|Outstanding at January 1                                   | $                               | 246,625   |  | $ | 281,425  
|Granted                                                    |                                 | 56,000    |  |   | 5,000    
|Exercised                                                  |                                 | (5,000)   |  |   | -        
|Lapsed                                                     |                                 | (22,350)  |  |   | (1,200)  
|Options outstanding at September 30                        |                                 | 275,275   |  |   | 285,225  
|Options exercisable at September 30                        |                                 | 233,275   |  |   | 274,492  
|Weighted average exercise price                            | $                               | 9.97      |  | $ | 9.95     
|Weighted average remaining contracted life at September 30 |                                 | 55 months |  |   | 79 months



The weighted-average grant date fair value of 56,000 options granted under the 2001 Plan during the nine months ended September 30, 2007, was $2.43 per share, which equaled $136,080.  The weighted average exercise price of options granted during the nine months ended September 30, 2007, was $8.53 per share.



Options granted under the Plan generally expire ten years after the date of grant and are granted at market value of the stock on the date of grant. Option terms are determined by the Compensation Committee of TransCommunitys Board of Directors at the time of the grant. TransCommunity utilizes the Black Scholes model to calculate fair values of options awarded. This model requires assumptions as to expected volatility, dividends, terms and risk free rates.





10



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Assumptions used for the periods covered herein are outlined in the following table:



|                      |                    |  |                   
|--------------------- | ------------------ |  | ------------------
|                      | Nine months ended 
|                      | September 30, 2007 |  | September 30, 2006
|Expected volatility   | 20%                |  | 5%                
|Expected dividend     | 0                  |  | 0                 
|Expected term (years) | 5                  |  | 10                
|Risk free rate        | 4.6%               |  | 4.6%              



Expected volatilities are based on volatility trends of similar entities in the region, as defined by the SNL Mid-Atlantic Bank Index.  Expected dividends reflect the experience of TransCommunitys common stock.  Expected terms represent the period of time that options granted are expected to be outstanding. The risk free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the appropriate life of each option.



On May 29, 2007, shareholders approved the TransCommunity Financial Corporation 2007 Equity Compensation Plan.  As a result, the Company will not make any more stock option grants under the 2001 Plan.



2007 Equity Compensation Plan



On May 29, 2007, the shareholders of TransCommunity approved the TransCommunity Financial Corporation 2007 Equity Compensation Plan (the 2007 Plan).  The complete text of the 2007 Plan was filed as an exhibit to the Form 10-Q dated June 30, 2007.The following general description of the principal features of the 2007 Plan is qualified in its entirety by reference to such exhibit.  Additional information with respect to the 2007 Plan is included in the Companys proxy statement for its 2007 annual meeting of shareholders, as filed with the Commission on April 23, 2007.



The 2007 Plan authorizes the Compensation Committee of the Companys Board of Directors to grant one or more of the following awards to directors, officers, key employees, consultants and advisors to TransCommunity and its subsidiary who are designated by the Compensation Committee: options; stock appreciation rights; stock awards; performance share awards; incentive awards; and stock units.  The Compensation Committee will administer the 2007 Plan.



TransCommunity is authorized to issue under the 2007 Plan up to 250,000 shares of its common stock.  Generally, if an award is forfeited, expires or terminates, the shares allocated to that award under the 2007 Plan may be reallocated to new awards under the 2007 Plan. Shares surrendered pursuant to the exercise of a stock option or other award or in satisfaction of tax withholding requirements under the 2007 Plan may also be reallocated to other awards.  The 2007 Plan provides that if there is a stock split, stock dividend or other event that affects TransCommunitys capitalization, appropriate adjustments will be made in the number of shares that may be issued under the 2007 Plan and in the number of shares and price of all outstanding grants and awards made before such event.



The 2007 Plan also provides that no award may be granted more than 10 years after the earlier of the date that it is approved by TransCommunitys shareholders or the date it is adopted by TransCommunitys Board of Directors, which was February 28, 2007.



The Board of Directors may amend or terminate the 2007 Plan at any time, provided that no such amendment will be made without shareholder approval if (i) the amendment would increase the aggregate number of shares of Common Stock that may be issued under the 2007 Plan (other than as permitted under the 2007 Plan), (ii) the amendment changes the class of individuals eligible to become participants or (iii) such approval is required under any applicable law, rule or regulation.





11



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On July 25, 2007, agreements with market presidents and corporate senior officers were executed for restricted stock awards totaling 22,375 shares under the 2007 Plan.  The agreements grant fifty percent of the restricted stock on a three year vesting schedule as follows:



|              |           
|------------- | ----------
|Date          | Percentage
|March 1, 2008 | 20%       
|March 1, 2009 | 20%       
|March 1, 2010 | 60%       



The remaining one-half of the restricted stock will be issued March 1, 2010 if corporate pretax income for 2009 equals or exceeds $3.0 million.



During the 3rd quarter of 2007, the Company recorded expenses of $23 thousand related to stock based compensation, and $57 thousand for the nine months ended September 30, 2007.



NOTE 5

Earnings (Losses) Per Share:



Basic earnings (losses) per share (EPS) are computed by dividing net income or loss by the weighted average number of shares outstanding during the period. Diluted EPS is computed using the weighted average number of common shares outstanding during the period, including the effect of dilutive potential common shares outstanding attributable to stock awards.  Reported basic and dilutive earnings per share are the same as the effect on EPS of TransCommunitys outstanding stock options would be antidilutive.



NOTE 6

Business Segments:



Currently, the holding company operates as a shell company with all operations performed by its subsidiary bank and recorded in its records.  All operations are reported under the Community Banking segment.



Previously, TransCommunity had two reportable business segments: Community Banking and TransCommunity as reported June 30, 2007.  The Community Banking segment consisted of the Companys four subsidiary banks which were consolidated in June 2007, each of which provided loan, deposit, mortgage and investment services to retail and commercial customers in their respective market areas.  TransCommunity consisted of the parent company, which wholly owned, the consolidated bank.  All operations are now performed within the bank.



During 2006, the Company had two additional business segments, Main Street Mortgage, which provided a variety of mortgage loan products across the country under the exemption granted as a subsidiary of a nationally-chartered bank, and Financial Services, which offered trust, asset management and securities and insurance brokerage services.  The activities of both of these business segments were discontinued during 2006.  The services previously provided by both of these business segments have been transferred to the Community Banking segment.  Segment information previously reported is as follows:



12



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|                                             |                                           |         |             |   |                 |  |              |        |              |   |          |  |   |        
|-------------------------------------------- | ----------------------------------------- | ------- | ----------- | - | --------------- |  | ------------ | ------ | ------------ | - | -------- |  | - | -------
|                                             | For three months ended September 30, 2006
|                                             | (dollars in thousands)                   
|                                             | Community Banking                         |         | Main Street |   | Trans-Community |  | Eliminations |        | Consolidated
|Net interest income (expense)                | $                                         | 2,308   |             | $ | (11)            |  | $            | 117    |              | $ | -        |  | $ | 2,414  
|Provision for loan losses                    |                                           | (166)   |             |   | (36)            |  |              | -      |              |   | -        |  |   | (202)  
|Noninterest income                           |                                           | 230     |             |   | 208             |  |              | 103    |              |   | (102)    |  |   | 439    
|Noninterest expense                          |                                           | (1,534) |             |   | (321)           |  |              | (817)  |              |   | 119      |  |   | (2,553)
|Income (loss) from subsidiaries              |                                           | -       |             |   | -               |  |              | 678    |              |   | (678)    |  |   | -      
|Net income (loss) from continuing operations |                                           | 838     |             |   | (160)           |  |              | 81     |              |   | (661)    |  |   | 98     
|Net loss from discontinued operations        |                                           | -       |             |   | -               |  |              | -      |              |   | -        |  |   | -      
|Net income (loss)                            | $                                         | 838     |             | $ | (160)           |  |              | 81     |              | $ | (661)    |  | $ | 98     
|Total Assets                                 | $                                         | 184,484 |             | $ | 211             |  | $            | 30,692 |              | $ | (22,005) |  | $ | 193,382



|                                             |                                          |         |             |   |                 |  |              |         |              |   |          |  |   |        
|-------------------------------------------- | ---------------------------------------- | ------- | ----------- | - | --------------- |  | ------------ | ------- | ------------ | - | -------- |  | - | -------
|                                             | For nine months ended September 30, 2006
|                                             | (dollars in thousands)                  
|                                             | Community Banking                        |         | Main Street |   | Trans-Community |  | Eliminations |         | Consolidated
|Net interest income (expense)                | $                                        | 6,539   |             | $ | (30)            |  | $            | 343     |              | $ | -        |  | $ | 6,852  
|Provision for loan losses                    |                                          | (310)   |             |   | (36)            |  |              | -       |              |   | -        |  |   | (346)  
|Noninterest income                           |                                          | 734     |             |   | 1,773           |  |              | 339     |              |   | (305)    |  |   | 2,541  
|Noninterest expense                          |                                          | (4,610) |             |   | (2,359)         |  |              | (2,425) |              |   | 351      |  |   | (9,043)
|Income (loss) from subsidiaries              |                                          | -       |             |   | -               |  |              | 1,701   |              |   | (1,701)  |  |   | -      
|Net income (loss) from continuing operations |                                          | 2,353   |             |   | (652)           |  |              | (42)    |              |   | (1,655)  |  |   | 4      
|Net loss from discontinued operations        |                                          | -       |             |   | -               |  |              | -       |              |   | -        |  |   | -      
|Net income (loss)                            | $                                        | 2,353   |             | $ | (652)           |  |              | (42)    |              | $ | (1,655)  |  | $ | 4      
|Total Assets                                 | $                                        | 184,484 |             | $ | 211             |  | $            | 30,692  |              | $ | (22,005) |  | $ | 193,382



NOTE 7  Secured Borrowings:



As of the reported dates, there were no secured borrowings.





13



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NOTE 8  Capital:



TransCommunitys consolidated regulatory capital levels are displayed in the following table:



|                                 |                        |        |                   |   |       
|-------------------------------- | ---------------------- | ------ | ----------------- | - | ------
|                                 | September 30, 2007     |        | December 31, 2006
|                                 | (dollars in thousands)
|Tier 1 Leverage Capital Ratio    |                        |        |                   |   |       
|Amount                           | $                      | 29,923 |                   | $ | 30,457
|Actual Ratio                     |                        | 13.62% |                   |   | 15.86%
|Minimum Capital Requirement      |                        | 4.00%  |                   |   | 4.00% 
|Tier 1 Risk-Based Capital Ratio  |                        |        |                   |   |       
|Amount                           | $                      | 29,923 |                   | $ | 30,457
|Actual Ratio                     |                        | 13.85% |                   |   | 17.16%
|Minimum Capital Requirement      |                        | 4.00%  |                   |   | 4.00% 
|Total Risk-Based Capital Ratio   |                        |        |                   |   |       
|Amount                           | $                      | 32,586 |                   | $ | 32,522
|Actual Ratio                     |                        | 15.09% |                   |   | 18.32%
|Minimum Capital Requirement      |                        | 8.00%  |                   |   | 8.00% 
|                                 |                        |        |                   |   |       
|Capital ratios:                  |                        |        |                   |   |       
|                                 |                        |        |                   |   |       
|Average equity to average assets |                        | 14.41% |                   |   | 15.79%
|Leverage ratio                   |                        | 13.62% |                   |   | 15.86%
|Tier 1 risk-based capital ratio  |                        | 13.85% |                   |   | 17.16%
|Total risk-based capital ratio   |                        | 15.09% |                   |   | 18.32%



NOTE 9

Litigation:



In the ordinary course of operations, TransCommunity and its subsidiaries may be parties to various legal proceedings.  The following matters involve pending or potential claims:



Minter Lawsuit.On November 2, 2006, James L. Minter filed a lawsuit against the Company and William C. Wiley, the former Chief Executive Officer and Chairman of the Board of Directors of the Company, in the Circuit Court of the County of Powhatan in Virginia.  The suit arises out of the Banks purchase of Main Street Mortgage and Investment Corporation in early 2001.  Minter alleges that in late 2000 Wiley withheld information concerning the value of Main Street Mortgage from the Banks board of directors and that the Bank would not have acquired Main Street Mortgage if the valuation had been provided to the Banks board.  Minters suit claims that the Company aided and abetted and conspired with Wiley in his misrepresentation of Main Street Mortgages value.  Minters suit also alleges that the December 2005 separation agreement between the Company and Wiley improperly released claims the Company had against Wiley arising out of Wileys alleged concealment of the Main Street Mortgage valuation from the Banks board in late 2000.  Minter seeks unspecified rescissionary and compensatory damages, unspecified treble damages and punitive damages of $350,000 against each defendant, jointly and severally and with interest.  Minter also seeks to recover his attorneys fees.



The Company moved for a dismissal of the lawsuit, brought claims against Minter for breach of fiduciary duty related to his use of confidential Company information for personal gain and removed him from the board of the Bank of Powhatan.  In response to the Companys motion to dismiss the lawsuit, on August 8, 2007, the court dismissed the two counts that Minter had asserted against the Company.  The court, however, permitted Minter to replead the count in which Minter alleged that the Company aided and abetted Wiley in his allegedly fraudulent conduct.





14



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Minter amended his complaint, and the only claim against the Company is based on the Company's alleged derivative liability for Wiley's conduct.  The underlying factual allegations are the same; however, Minter now alleges that the Company is liable for Wiley's conduct because he was acting as an agent of the Company.  The Company has again moved for a dismissal of Minter's claim.  A hearing on the Companys motion is set for December 7, 2007.



The Company believes that, insofar as it concerns the Company, Minters suit is without merit.



Based on the facts presently known, the Company believes it has limited liability exposure arising from this lawsuit.  However, since the case is in the early stages, the Company is unable to evaluate the likelihood of an unfavorable outcome or to estimate the amount or range of potential loss, if any, in this matter.



NOTE 10

Pending Merger:



On September 5, 2007, the Company entered into an Agreement and Plan of Merger with Community Bankers Acquisition Corp. (CBAC).  The Merger Agreement sets forth the terms and conditions of CBACs acquisition of the Company through the merger of the Company with and into CBAC.  TransCommunity Bank, N.A., a wholly-owned subsidiary of the Company, will become a wholly-owned subsidiary of CBAC in the Merger.

Under the terms of the Merger Agreement, CBAC will issue to the shareholders of the Company, for each share of the Companys common stock that they own, 

1.4200

 shares of CBACs common stock (the Exchange Ratio), subject to adjustment as described below.  If the daily average closing price for CBACs common stock for the 20 consecutive days of trading in such stock ending five days before the closing date is less than $7.42, CBAC will increase the Exchange Ratio to the quotient obtained by dividing $10.5364 by such daily average closing price

..  There will be no adjustment if such daily average closing price is $7.42 or greater

..

In addition, at the effective time of the Merger, each outstanding option to purchase shares of the Companys common stock under any of the Companys stock plans shall vest pursuant to its terms and shall be converted into an option to acquire the number of shares of CBACs common stock equal to the number of shares of the Companys common stock underlying the option multiplied by the Exchange Ratio.  The exercise price of each option will be adjusted accordingly.

The Merger Agreement also provides for the headquarters of the resulting company to be located at the headquarters of the Company.  Following the consummation of the Merger, the Board of Directors of CBAC will consist of 10 directors, four of whom will be nominated by CBAC and six of whom will be nominated by the Company.  In addition, the chief executive officer and chief financial officer of the Company will take those positions with CBAC, and the chief executive officer of CBAC will become its chief strategic officer.

Consummation of the Merger is subject to a number of customary conditions including the approval of the Merger by the shareholders of each of the Company and CBAC and the receipt of all required regulatory approvals.  The Merger is expected to be completed in the fourth quarter of 2007.

A copy of the Merger Agreement and related documents can be found in the Form 8-K filed September 6, 2007.

Note 11 Subsequent Events:

None





15



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ITEM 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





The following discussion and analysis and the related financial data present a review of TransCommunitys consolidated operating results for the three-month and nine-month period ended September 30, 2007 and 2006, and consolidated financial condition at September 30, 2007 and December 31, 2006. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto contained in TransCommunitys Annual Report on Form 10-K for the year ended December 31, 2006 filed with the Commission on April 16, 2007, and the consolidated financial statements and notes in this Form 10-Q.



Forward-Looking Statements



This Quarterly Report on Form 10-Q contains forward-looking statements.  Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).  Words and phrases such as: will likely result, expect, will continue, anticipate, estimate, project, believe, intend, will, should, would, could, may, can, plan, target and similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements may include, but are not limited to, discussions concerning:



·

Projections of revenues, expenses, losses, losses per share, net interest margins, asset growth, loan production, deposit growth, and other performance measures;

·

Expansion of operations, including de novo banks and branch openings, entrance into new markets, and development of products and services; and

·

Discussions on the outlook of the economy, competition, regulation, taxation, company strategies, subsidiaries, investment risk and policies.



Actual results or performance could differ from those implied or contemplated by forward-looking statements.  Forward-looking statements are subject to certain risks and uncertainties, including, among others: general business, regulatory action or inaction, economic and market conditions, fiscal and monetary policies, war and terrorism, natural disasters, changes in interest rates, deposit flows, loan demand and real estate values; a deterioration in credit quality and/or a reduced demand for credit, competition with other providers of financial products and services; the issuance or redemption of additional Company equity or debt; volatility in the market price of the Companys common stock; changes in accounting principles, policies or guidelines, changes in laws or regulation; reliance on other companies for products and services; operational or systems risks; and other economic, competitive, servicing capacity, governmental, technological factors affecting the Companys operations, pricing, products and delivery of services.  Information in this Quarterly Report on Form 10-Q is as of the dates, and for the periods, indicated.  TransCommunity does not undertake, and specifically disclaims any obligation, to publicly update or revise any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, whether as the result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in or incorporated by reference into this report might not occur.



Significant Accounting Policies



TransCommunitys financial position and results of operations are impacted by managements application of accounting policies involving judgments made to arrive at the carrying value of certain assets.  In implementing its policies, management must make estimates and assumptions about the effect of matters that are inherently less than certain. Actual results could differ significantly from these estimates which could materially affect the amounts of TransCommunitys assets, liabilities, income and expenses.  Critical accounting policies applied by TransCommunity include those that relate to the allowance for loan losses.  For a more detailed discussion on these critical accounting policies, see Significant Accounting Policies on page F-8 of TransCommunitys Annual Report on Form 10-K for the year ended December 31, 2006.





16



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Overview



TransCommunitys results of operations are dependent primarily on its net interest income, which is the difference between the interest earned on its assets, primarily its loan and securities portfolios, and its cost of funds, which consists of the interest paid on its deposits and borrowings.  TransCommunitys results of operations are also affected by its provision for loan losses as well as non-interest income and non-interest expenses. Non-interest expenses consist of employee compensation and benefits, occupancy and equipment, insurance, professional fees, telecommunications and data processing and other operating expenses.



In addition to the foregoing, results of TransCommunitys operations, like those of other financial services companies, are affected by its asset and liability composition, as well as factors beyond its control, such as general economic conditions and the monetary and fiscal policies of the federal government.  Lending activities are affected by the demand for commercial and retail financing and are thus influenced by interest rates and other factors affecting the availability of funds. Deposit flows and costs of funds are influenced by yields available on competing investments and by general market rates of interest.



In January 2007, the Companys Board of Directors voted to consolidate the charters of its four subsidiary banks.  This charter consolidation process was completed on June 29, 2007.  In addition, a system conversion with our core processor was successfully completed in August 2007.  Costs associated with the charter consolidation process negatively impacted the Companys performance during the first three quarters of 2007.  As we operate under a consolidated charter with a converted system, we expect overhead costs to decline.



In evaluating TransCommunitys financial condition and operating performance, management focuses on the following:



·

Increasing loan originations

·

Increasing core deposit balances

·

Preserving TransCommunitys history of strong net interest margins

·

Retaining high credit standards and low levels of non-performing assets

·

Maintaining an adequate loan loss reserve

·

Managing interest rate risk

·

Controlling expenses

·

Ensuring adequate funding for ongoing growth



Highlights of TransCommunitys three-month statement of operations ended September 30, 2007, as compared to the similar statement in 2006, and the statement of financial condition dated September 30, 2007, as compared to December 31, 2006 include the following:



·

Net loss of $161 thousand was reported versus net income of $98 thousand during the 3rd quarter of 2006

·

Interest income grew $733 thousand, or 19.4%

·

Net interest income increased by $339 thousand, or 14.0%

·

Assets grew $8.3 million, or 3.9% during the quarter, and $24.6 million, or 12.4%, since December 31, 2006

·

Noninterest expenses increased $339 thousand, or 15%

·

Provisions for loan losses increased $455 thousand, or 272%



Highlights of TransCommunitys nine-month statement of operations ended September 30, 2007 as compared to the same period in 2006 include the following:



·

Yield on earnings assets improved 76 basis points to 8.53%

·

Net interest margin grew 22 basis points to 5.32%

·

Provisions for loan losses increased $823 thousand, or 265%

·

Noninterest expenses increased $1.6 million, or 24%





17



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Results of Operations



For the quarter ended September 30, 2007, the Company reported a loss of $161 thousand, resulting from larger-than-anticipated provisions to the loan loss reserve in the amount of $622 thousand.  During the third quarter, two commercial loans went into default, each requiring a significant addition to the loss reserve, and the Company made further additions to the reserve following completion of its annual independent loan review.  In addition, the loan portfolio grew more rapidly than forecast during the third quarter, requiring further additions to the loan loss reserve.



During 2006, net income for the same period was $98 thousand, including a net loss from discontinued operations in the amount of $159 thousand.



Net loss per share for the quarter ended September 30, 2007, both basic and diluted, was $0.04, compared with net income per share, basic and diluted, of $0.02 for the same period during 2006.



For the nine-month period ended September 30, 2007, net losses were $767 thousand, including losses from discontinued operations of $77 thousand, compared with net income of $4 thousand during the same period in 2006.  The year-to-date loss for 2007 can be attributed to the costs associated with the consolidation of the Companys banking charters, extraordinary fees charged by the Companys former external auditors, and larger-than-anticipated additions to the reserve for loan losses.



Net Interest Income



For the three months ended September 30, 2007, net interest income totaled $2.8 million, a $339 thousand, or 14.0%, increase over TransCommunitys performance for the same period during 2006.  When compared with the previous three-month period ended June 30, 2007, net interest income increased $108 thousand, or 4.1%.



For the nine months ended September 30, 2007, net interest income totaled $7.9 million, a $1 million, or 14.6%, increase over TransCommunitys performance for the same period during 2006.  Average earning assets for the nine-month period ended September 30, 2007 grew 10.3%, to $198.2 million compared to $179.6 million during the same period in 2006.



The net interest margin is the net interest income expressed as a percentage of average earnings assets.  For the nine-month period ended September 30, 2007, the net interest margin increased 22 basis points from the same period in 2006, to 5.32% from 5.10%.  The increase in net interest margin is attributable to benefits derived from an increase on yields of earning assets of 76 basis points to 8.53%, while the cost of interest-bearing liabilities increased 62 basis points, from 3.47% to 4.09%.



Average loans outstanding increased $30.9 million, or 22.3%, to $169.7 million coupled with a 5.1% increase in yield on average loans to 9.15% for the nine-month period ended September 30, 2007, compared to a yield of 8.71% for the same period during 2006.



For the nine-month period ended September 30, 2007, loan income of $11.6 million increased approximately 28.2% from $9.1 million during the same period in 2006.



Management believes that the overall outlook for its net interest income is positive, although the Company expects to experience higher deposit costs in future periods. Management expects commercial loans to continue to grow because of the focus placed on loan growth throughout the Company.  Loan-related earning assets tend to have a higher spread than those earned in the Companys investment portfolio.  TransCommunitys consolidated net interest margin compares favorably with other commercial banks in its market area.



The following table details the net interest income calculations for the nine-month periods ended September 30, 2007 and 2006.



18



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TRANSCOMMUNITY FINANCIAL CORPORATION

NET INTEREST MARGIN ANALYSIS

AVERAGE BALANCE SHEETS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(dollars in thousands)





|                                           |                       |         |                          |   |                             |  |                       |  |                          |         |                             |   |        |  |        |  |  |  |  |  |  |  | 
|------------------------------------------ | --------------------- | ------- | ------------------------ | - | --------------------------- |  | --------------------- |  | ------------------------ | ------- | --------------------------- | - | ------ |  | ------ |  |  |  |  |  |  |  | 
|                                           | 2007                  |         | 2006                    
|                                           | Average Balance Sheet |         | Interest  Income/Expense |   | Average  Rates  Earned/Paid |  | Average Balance Sheet |  | Interest  Income/Expense |         | Average  Rates  Earned/Paid
|ASSETS:                                    |                       |         |                          |   |                             |  |                       |  |                          |         |                             |   |        |  |       
|Loans, including fees (1)                  | $                     | 169,718 |                          | $ | 11,616                      |  | 9.15%                 |  | $                        | 138,791 |                             | $ | 9,042  |  | 8.71% 
|Federal funds sold                         |                       | 11,946  |                          |   | 458                         |  | 5.13                  |  |                          | 22,845  |                             |   | 826    |  | 4.83  
|Investments                                |                       | 16,502  |                          |   | 575                         |  | 4.66                  |  |                          | 17,970  |                             |   | 576    |  | 4.29  
|Total Earning Assets                       |                       | 198,166 |                          |   | 12,649                      |  | 8.53                  |  |                          | 179,606 |                             |   | 10,444 |  | 7.77  
|Allowance for loan losses                  |                       | (2,033) |                          |   |                             |  |                       |  |                          | (1,740) |                             |   |        |  |       
|Non-earning assets                         |                       | 12,785  |                          |   |                             |  |                       |  |                          | 12,684  |                             |   |        |  |       
|Total Assets                               | $                     | 208,918 |                          |   |                             |  |                       |  | $                        | 190,550 |                             |   |        |  |       
|                                           |                       |         |                          |   |                             |  |                       |  |                          |         |                             |   |        |  |       
|LIABILITIES AND STOCKHOLDERS' EQUITY       |                       |         |                          |   |                             |  |                       |  |                          |         |                             |   |        |  |       
|Deposits:                                  |                       |         |                          |   |                             |  |                       |  |                          |         |                             |   |        |  |       
|Demand -                                   |                       |         |                          |   |                             |  |                       |  |                          |         |                             |   |        |  |       
|Interest bearing                           | $                     | 36,014  |                          | $ | 507                         |  | 1.88%                 |  | $                        | 37,050  |                             | $ | 444    |  | 1.60% 
|Savings                                    |                       | 10,036  |                          |   | 116                         |  | 1.55                  |  |                          | 9,897   |                             |   | 115    |  | 1.55  
|Time deposits                              |                       | 108,750 |                          |   | 4,094                       |  | 5.03                  |  |                          | 81,382  |                             |   | 2,549  |  | 4.19  
|Total deposits                             |                       | 154,800 |                          |   | 4,717                       |  | 4.07                  |  |                          | 128,329 |                             |   | 3,108  |  | 3.24  
|Other borrowed Funds                       |                       | 1,006   |                          |   | 48                          |  | 6.43                  |  |                          | 10,190  |                             |   | 484    |  | 6.36  
|Total interest-bearing Liabilities         |                       | 155,806 |                          |   | 4,765                       |  | 4.09                  |  |                          | 138,519 |                             |   | 3,592  |  | 3.47  
|Non-interest bearing Deposits              |                       | 22,073  |                          |   |                             |  |                       |  |                          | 20,843  |                             |   |        |  |       
|Other liabilities                          |                       | 938     |                          |   |                             |  |                       |  |                          | 964     |                             |   |        |  |       
|Total liabilities                          |                       | 178,817 |                          |   |                             |  |                       |  |                          | 160,326 |                             |   |        |  |       
|Stockholders' equity                       |                       | 30,101  |                          |   |                             |  |                       |  |                          | 30,224  |                             |   |        |  |       
|Total liabilities and stockholders' equity | $                     | 208,918 |                          |   |                             |  |                       |  | $                        | 190,550 |                             |   |        |  |       
|Net interest earnings                      |                       |         |                          | $ | 7,884                       |  |                       |  |                          |         |                             | $ | 6,852  |  |       
|Interest spread                            |                       |         |                          |   |                             |  | 4.44%                 |  |                          |         |                             |   |        |  | 4.30 %
|Net interest margin                        |                       |         |                          |   |                             |  | 5.32%                 |  |                          |         |                             |   |        |  | 5.10 %



Provision for Loan Losses



For the three-month period ended September 30, 2007, the provision for loan losses was $622 thousand, an increase of $455 thousand over the same period in 2006.  Large provisions during the third quarter are attributable to strong loan growth coupled with downgraded credits.  There were seven commercial loans with deteriorated credit quality that comprised approximately $500 thousand, or 80% of the 3rd quarter provisions.  For the nine-month period ended September 30, 2007, the provision for loan losses was approximately $1,134 thousand, an increase of $823 thousand over the same period in 2006.  At September 30, 2007, nonperforming assets totaled $1,041 thousand, versus $267 thousand at September 30, 2006.



19



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Asset quality declined slightly since December 31, 2006, when nonperforming assets equaled $961 thousand.  There is no other real estate owned.  Net charge-offs for the nine months ended September 30, 2007 amounted to $628 thousand, versus $126 thousand for the same period in 2006.  The charge-offs are due primarily to loans related to the discontinued operations of Main Street Mortgage.  For the three-month period ended September 30, 2007, net charge-offs equaled $92 thousand, versus $101 thousand during the same period in 2006.



In March, 2007, the Company employed its first chief credit officer.  In June 2007, all credit administration functions were centralized as part of the consolidation of the Companys four bank subsidiaries.  As part of the establishment of a centralized credit administration function, management has engaged in an in-depth analysis of the total loan portfolio and has made adjustments to individual loan risk ratings as necessary.  In addition, during the third quarter, the entire loan portfolio was reviewed as part of the annual independent loan review by an outside consulting firm.  As a result of this ongoing loan review process, management is of the opinion the overall credit quality of the loan portfolio is sound, and that the allowance for loan losses is adequate.



The allowance for loan losses is evaluated continually by management and is based on managements review of the probability of collection, industry historical experience, the nature and volume of the loan portfolio, credit concentrations, adverse conditions that may effect a borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions.  An adequate allowance relative to the quality of the loan portfolio sufficient to meet anticipated future loan losses is calculated using appropriate risk factors depending on the type of borrower and whether the loan is secured or unsecured.  Loans that are classified adversely are assigned a loss reserve based on their risk rating and liquidation analysis based on present value of estimated cash flow and/or collateral.  Unclassified loans are assigned a collective pool loan loss percentage based on historical peer group data in the absence of internal company loss history.  As the Companys loan portfolio seasons, the factors will be adjusted to reflect actual loss experience.  The allowance for loan loss is subjective in the absence of actual, material loss data and, as such, requires estimates that are susceptible to periodic revision as conditions change.



Noninterest Income



During the three months ended September 30, 2007, bank service charges and other fees of $269 thousand increased 16% from $232 thousand reported for the same period in 2006.  On a year-to-date basis, noninterest income totaled $832 thousand for the nine months ended September 30, 2007, an increase of 8.3% from $768 thousand for the same period in 2006.   The overall increase in noninterest income is attributable principally to higher customer service fees, including those associated with broker fees and commissions.



Noninterest Expense



Noninterest expenses for the quarter ended September 30, 2007 increased $339 thousand, or 15%, as compared with the same period in 2006.  For the nine-month period ended September 30, 2007, noninterest expenses were up by $1.6 million, or 23.7% compared with the same period in 2006.



The growth in noninterest expense for both the third quarter and the year-to-date is attributable to the opening of the Bank of Rockbridge in December 2006, and the costs associated with the consolidation of our banking charters in June of 2007.



During 2007, noninterest expenses have declined each quarter, from $2,918 thousand in the first quarter, to $2,780 thousand in the second quarter, to $2,573 thousand for the quarter ended September 30, 2007.  This favorable trend reflects the impact of the recently completed charter consolidation.  The Company expects further decreases in noninterest expenses during the fourth quarter of 2007.



Segment Information



The Company had two additional segments in 2006, which were discontinued by December 31, 2006. Currently, the organization consists solely of a bank operating under its holding company, which is essentially a shell corporation.  Therefore, current segment information is not provided.





20



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Financial Condition



On September 30, 2007, TransCommunity had total assets of $223 million, up 12.4% from $198.4 million at December 31, 2006.  On September 30, 2007, loans totaled $189 million, an increase of $37.6 million since December 31, 2006.



Loans totaled $189 million and $140.5 million at September 30, 2007 and 2006, respectively. This represents growth of $48.5 million, or an increase of 34.6%.  Despite increased competition, the Companys banks continued to experience strong loan demand, particularly with construction-related loans.  However, TransCommunity remains focused on maintaining its pricing discipline and asset quality, and adhering to its conservative underwriting standards.





During the first nine months of 2007, the Companys average cost of interest-bearing liabilities increased to 4.09%, up from 3.47% during the first nine months of 2006.  Average interest-bearing liabilities grew $17.3 million, from $138.5 million during the first nine months of 2006 to $155.8 million during the same period in 2007.  Total deposits increased $27 million, or 16.4%, to $192 million at September 30, 2007, up from $165 million at December 31, 2006.  Noninterest-bearing deposits increased $2.1 million, or 10.4% since December 31, 2006.  Management views these deposits as a key source for funding the loan growth.  As traditional deposits become more difficult to obtain, alternative funding sources will likely result in relatively higher costs.



At September 30, 2007, the Companys capital position remained strong with an average equity-to-average assets ratio of 14.41%.  TransCommunity had a leverage ratio of 13.62%, a Tier 1 risk-based capital ratio of 13.85% and a total risk-based capital ratio of 15.09%.  At September 30, 2007, the book value of the Companys common stock was $6.53 per share.



Income Taxes



No income tax provision has been recorded since, at this time, there is insufficient evidence to conclude that TransCommunity will produce taxable income in the future which cannot be offset by loss carryforwards from the current and prior periods.  However, the Company may owe income taxes in the future, including those as determined by the alternate minimum tax (AMT) system.  Income taxes for the year ended December 31, 2006, equaled $15 thousand using AMT calculations, which is available as a credit to reduce the regular tax liability in future years.



Loans



Total loans increased $37.6 million during the nine months of 2007 to $189 million.



Loans by type are shown in the following schedule:



|                                        |                    |         |                   |   |        
|--------------------------------------- | ------------------ | ------- | ----------------- | - | -------
|                                        | September 30, 2007 |         | December 31, 2006
|(dollars in thousands)                  |                    |         |                   |   |        
|Real estate:                            |                    |         |                   |   |        
|Construction                            | $                  | 36,702  |                   | $ | 21,348 
|Residential                             |                    | 36,589  |                   |   | 29,007 
|Commercial                              |                    | 63759   |                   |   | 60,571 
|Commercial, industrial and agricultural |                    | 41,760  |                   |   | 31,284 
|Consumer and installment                |                    | 10,133  |                   |   | 8,725  
|All other                               |                    | 60      |                   |   | 464    
|Total Loans                             | $                  | 189,003 |                   | $ | 151,399





21



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Allocation of the Allowance for Loan Losses



The allowance for loan losses consists of an allocated component and an unallocated component.  The allocated component of the allowance for loan losses reflects expected losses resulting from analyses developed through specific credit allocations for individual loans.  The unallocated portion of the allowance for loan losses reflects management's estimate of probable inherent but not specifically identified losses within the portfolio.   The Companys allocations for the allowance for loan losses were as follows:



|                                        |                    |       |                   |      |           |   |         |  |     
|--------------------------------------- | ------------------ | ----- | ----------------- | ---- | --------- | - | ------- |  | ----
|                                        | September 30, 2007 |       | December 31, 2006
|(dollars in thousands)                  | Allowance          |       | Percent           |      | Allowance |   | Percent
|Real estate:                            |                    |       |                   |      |           |   |        
|Construction                            | $                  | 517   |                   | 19%  |           | $ | 291     |  | 14% 
|Residential                             |                    | 516   |                   | 19%  |           |   | 396     |  | 19% 
|Commercial                              |                    | 898   |                   | 34%  |           |   | 826     |  | 40% 
|Commercial, industrial and agricultural |                    | 581   |                   | 22%  |           |   | 427     |  | 21% 
|Consumer and installment                |                    | 143   |                   | 5%   |           |   | 119     |  | 6%  
|All other                               |                    | 8     |                   | 1%   |           |   | 6       |  | 0%  
|Total Loans                             |                    | 2,663 |                   | 100% |           |   | 2,065   |  | 100%



Nonaccrual, Past Due and Restructured Loans



At September 30, 2007, TransCommunity had $1,041 thousand in loans classified as non-accrual or past due more than 90 days.  At December 31, 2006, TransCommunity had $961 thousand in loans classified as non-accrual or past due more than 90 days.  Loans are placed in a non-accrual status when, in the opinion of management, the accrued interest income will not be collected.



Secured Borrowings



TransCommunity had recorded secured borrowings in past financial statements due to the prior accounting treatment on certain loan participation agreements entered into with third-party financial institutions since the second quarter of 2004.  The Company discovered that it had incorrectly accounted for loans subject to these agreements in August 2006.  Due to amendments to these agreements so that they could be properly reported under applicable accounting standards, the Company has eliminated the reporting of secured borrowings.



Liquidity and Interest Sensitivity



At September 30, 2007, TransCommunity had liquid assets of $20.4 million in the form of cash, federal funds sold and available-for-sale investments.  Management believes that liquid assets were adequate at September 30, 2007 to meet its customers deposit and credit needs.  Management anticipates that additional liquidity will be provided by the growth in deposit accounts and loan repayments at TransCommunity Bank.  TransCommunity Bank also has the ability to purchase overnight federal funds from a correspondent bank and borrow from the Federal Reserve Bank, if necessary.



Management is not aware of any trends, events or uncertainties that are reasonably likely to have a material impact on TransCommunity's short-term or long-term liquidity.



At September 30, 2007, TransCommunity had a positive cumulative Gap Rate Sensitivity Ratio of 0.46% for the one-year repricing period.  A positive one-year Gap Rate Sensitivity Ratio reflects managements ability to generate loans and investment securities that will mature or reprice faster than interest-bearing deposits in a rising rate environment.  Management constantly monitors the interest rate risk and believes that the current position is an acceptable risk for a growing financial services company.







22



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TRANSCOMMUNITY FINANCIAL CORPORATION

INTEREST SENSITIVITY ANALYSIS

SEPTEMBER 30, 2007

(dollars in thousands)



TransCommunity's interest sensitivity analysis is shown on the following schedule:



|                                                        |            |         |              |   |              |  |       |       |  |   |        
|------------------------------------------------------- | ---------- | ------- | ------------ | - | ------------ |  | ----- | ----- |  | - | -------
|Uses of Funds:                                          | 1-365 Days |         | 1 to 5 Years |   | Over 5 Years |  | Total
|                                                        |            |         |              |   |              |  |       |       |  |   |        
|Loans:                                                  |            |         |              |   |              |  |       |       |  |   |        
|Real estate:                                            |            |         |              |   |              |  |       |       |  |   |        
|Construction                                            | $          | 34,265  |              | $ | 2,274        |  | $     | 163   |  | $ | 36,702 
|Residential                                             |            | 23,864  |              |   | 10,484       |  |       | 2,241 |  |   | 36,589 
|Commercial                                              |            | 28,745  |              |   | 33,865       |  |       | 1,149 |  |   | 63,759 
|Commerical, industrial and agricultural                 |            | 19,785  |              |   | 20,659       |  |       | 1,316 |  |   | 41,760 
|Consumer installment                                    |            | 5,686   |              |   | 4,276        |  |       | 171   |  |   | 10,133 
|All other                                               |            | 14      |              |   | 46           |  |       | --    |  |   | 60     
|Total Loans                                             |            | 112,359 |              |   | 71,604       |  |       | 5,040 |  |   | 189,003
|Federal funds sold                                      |            | 4,061   |              |   | --           |  |       | --    |  |   | 4,061  
|Investment securities held to maturity, at cost         |            | 1,200   |              |   | 4,200        |  |       | 1,000 |  |   | 6,400  
|Investment securities available for sale, at fair value |            | 7,505   |              |   | 1,806        |  |       | 1,003 |  |   | 10,314 
|Total                                                   | $          | 125,125 |              | $ | 77,610       |  | $     | 7,043 |  | $ | 209,778



|                                                |   |         |  |   |        |  |   |        |  |   |        
|----------------------------------------------- | - | ------- |  | - | ------ |  | - | ------ |  | - | -------
|Sources of Funds:                               |   |         |  |   |        |  |   |        |  |   |        
|                                                |   |         |  |   |        |  |   |        |  |   |        
|Demand Deposits-                                |   |         |  |   |        |  |   |        |  |   |        
|Interest bearing                                |   | 33,802  |  |   | --     |  |   | --     |  |   | 33,802 
|Savings accounts                                |   | 10,357  |  |   | --     |  |   | --     |  |   | 10,357 
|Time Deposits > $100,000                        |   | 35,045  |  |   | 19,613 |  |   | --     |  |   | 54,658 
|Time Deposits < $100,000                        |   | 44,949  |  |   | 25,589 |  |   | 34     |  |   | 70,572 
|Total interest-bearing deposits                 |   | 124,153 |  |   | 45,202 |  |   | 34     |  |   | 169,389
|Federal funds purchased                         |   | --      |  |   | --     |  |   | --     |  |   | --     
|Borrowings                                      |   | --      |  |   | --     |  |   | --     |  |   | --     
|Total                                           | $ | 124,153 |  | $ | 45,202 |  | $ | 34     |  | $ | 169,389
|Discrete Gap                                    | $ | 972     |  | $ | 32,408 |  | $ | 7,009  |  | $ | 40,388 
|Cumulative Gap                                  | $ | 972     |  | $ | 33,380 |  | $ | 40,388 |  | $ |        
|Ratio of Cumulative Gap to Total Earning Assets |   | 0.46%   |  |   | 15.91% |  |   | 19.25% |  |   |        



Contractual Obligations



TransCommunity has entered into certain contractual obligations to make future payments under contracts.  The following table summarizes TransCommunitys contractual obligations as of September 30, 2007:



|                            |                        |           |                    |   |           |  |           |           |                   |   |           |  |   |        
|--------------------------- | ---------------------- | --------- | ------------------ | - | --------- |  | --------- | --------- | ----------------- | - | --------- |  | - | -------
|                            | Payments due by Period
|                            | Total                  |           | Less than One Year |   | 1-3 Years |  | 3-5 Years |           | More than 5 Years
|Contractual obligations:    |                        |           |                    |   |           |  |           |           |                   |   |           |  |   |        
|Operating lease obligations | $                      | 2,525,093 |                    | $ | 422,012   |  | $         | 852,022   |                   | $ | 586,667   |  | $ | 664,392
|Data processing services    |                        | 2,535,000 |                    |   | 518,333   |  |           | 1,036,667 |                   |   | 980,000   |  |   | --     
|Total                       | $                      | 5,060,093 |                    | $ | 940,345   |  | $         | 1,888,689 |                   | $ | 1,566,667 |  | $ | 664,392



23



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| |  |  |  |  |  |  |  |  |  |  |  |  |  | 
| |  |  |  |  |  |  |  |  |  |  |  |  |  | 

On August 9, 2007, the Company executed an agreement for the construction of a new branch office located at 1949 Sandy Hook Road, Goochland, Virginia, 23063.  This branch will replace the existing leased facility at Goochland Courthouse.  The agreement, which is in the amount of approximately $1.4 million, is a fixed price contract that will not be financed.  Monthly payments will be made following a percentage completion method.    Completion is expected in the first quarter of 2008, and branch personnel will relocate from the nearby rented space.



Future Prospects



The Companys loss for the third quarter resulted primarily from seven deteriorated loans that required additional provisions to absorb any potential future loss.  Profitability was achieved for a period of time during the 3rd quarter of 2007, and earnings would have been reported if the higher-than-expected provisions had not been reserved.  We successfully consolidated our four bank charters during the 2nd quarter of 2007, and we completed our system conversion in August 2007.  In addition, during the third quarter, a new contract was negotiated with our data processor.  Based on the current levels of activity and fee structure, we expect to significantly reduce these costs by at least $400,000 annually.



Our new consolidated bank and each of its operating divisions is performing well and producing net interest margins that compare favorably with the experience of our peers.  Loan demand in each of our markets remains brisk, and our regulators, our outside loan review firm, and our own internal loan review process all confirm that the quality of our loan portfolio remains strong.



The Company conducts business in some of the best markets in the country.  Each of those markets is led by an experienced banker with significant knowledge of their local market.  With operating costs expected to decline, the Company is poised for strong growth in the months ahead.  Management continues to seek successful commercial lending officers in its market area to enhance loan growth and resulting interest and fee income.



The planned merger with Community Bankers Acquisition Corporation will provide additional capital which will permit management to consider external expansion on an accelerated basis.  The new capital will also support more rapid rates of internal growth.  In addition, the recent charter consolidation and system conversion prepares the Company to realize benefits of a streamlined structure.  More information related to the proposed merger can be found in Note 10 to the financial statement within Part I, Item 1, and in our Form 8-K filed September 6, 2007.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Not Applicable.



ITEM 4. CONTROLS AND PROCEDURES



Disclosure Controls and Procedures



The Company is required to maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the Exchange Act), such as this periodic report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to its management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the Company recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.





24



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We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2007. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer determined that, as a result of the material weakness described below, our disclosure controls and procedures were not effective.



In light of the material weakness described below, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements are prepared in accordance with generally accepted accounting principles.



Internal Control over Financial Reporting



Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Exchange Act) for the Company. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.



As we have previously reported, we have identified both a material weakness and a significant deficiency in our internal control over financial reporting.  The material weakness relates to our accounting and documentation for loans participated to third parties, and the significant deficiency relates to our accounting and record generation and maintenance for loan origination costs and for amortizing fees.  Additional information with respect to these matters was included in our Quarterly Report on Form 10-Q for the period ended March 31, 2007.



We have adopted and implemented measures in connection with our ongoing efforts to improve our internal control processes, some of which have been enhanced further or implemented in connection with the restatement process. These measures include the following:



·

We have reviewed and modified certain loan operating policies to provide guidance on daily operations.



·

We have provided additional training to loan personnel.



·

We hired a new chief credit officer and centralized the credit administration function.



Additionally, on June 29, 2007, the Company consolidated its four bank charters and centralized certain operational areas to provide a clearer segregation of responsibilities in connection with origination and monitoring activities.  Centralizing many of the operational functions will help ensure a stronger environment over internal controls.  In August 2007, we completed our system conversion as planned.



As a part of the Companys preparation for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, the Company will continue to evaluate the effectiveness of its internal controls and procedures on an ongoing basis and will take further action as appropriate. Section 404 will require the Companys management to report on the effectiveness of the Companys internal control structure and procedures for financial reporting as of December 31, 2007. Future remedial measures that we are considering include organizational changes to improve supervision and increased training for operations and accounting personnel. We will continue to develop new policies and procedures and educate and train our employees on our existing policies and procedures in our effort to constantly improve our internal controls and control environment.



We are taking all of these steps in connection with the consolidation of our banks and expect to eliminate the material weakness and significant deficiency when the process is complete.



Other than as described above, there were no changes in the Companys internal control over financial reporting in the quarter ended September 30, 2007 that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.





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PART II OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



In the ordinary course of operations, TransCommunity and its subsidiary bank expect to be parties to various legal proceedings.  At present, there are no pending or threatened proceedings against TransCommunity or its subsidiary which, if determined adversely, would have a material effect on the business, results of operations, or financial position of TransCommunity or its subsidiary.



The Companys Annual Report on Form 10-K for the year ended December 31, 2006 included disclosure on pending litigation.  (See also Note 9 above for information on this pending litigation.)  There have been no developments that would change that disclosure.



ITEM 1A.

RISK FACTORS



There have been no material changes in the risk factors disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2006.



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



None.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



None.



ITEM 5. OTHER INFORMATION

On September 5, 2007, the Company entered into an Agreement and Plan of Merger with Community Bankers Acquisition Corp. (CBAC).  See Note 10 to the financial statements in Part I, Item 1 for a description of the proposed business combination.



ITEM 6. EXHIBITS



The following exhibits are filed or incorporated by reference as part of this Form 10-Q:



|            |  |                                                                                                                                                                                                
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibits                                                                                                                                                                        
|31.1        |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith)                                                                                                           
|31.2        |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith)                                                                                                           
|32          |  | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)





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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.



|                       |                                              | 
|---------------------- | -------------------------------------------- | 
|                       | TRANSCOMMUNITY FINANCIAL CORPORATION        
|                       | (Registrant)                                 | 
|                       |                                              | 
|Date: November 2, 2007 | /s/ Bruce B. Nolte                           | 
|                       | Bruce B. Nolte                               | 
|                       | Chief Executive Officer                      | 
|                       | (principal executive officer)                | 
|                       |                                              | 
|Date: November 2, 2007 | /s/ Patrick J. Tewell                        | 
|                       | Patrick J. Tewell                            | 
|                       | Chief Financial Officer                      | 
|                       | (principal financial and accounting officer)





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