|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC  20549
FORM 10-Q/A
(Amendment No. 1)


[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2006

or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-33355

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

Virginia
54-2032355
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

4235 Innslake Drive
Glen Allen, Virginia
23060
(Address of principal executive offices)
(Zip Code)

(804) 934-9999
(Registrants Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ] No [  ]
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 [  ]
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 [  ] No [ X ]
The number of shares outstanding of the registrants common stock at the close of business on May 12, 2006 was 4,581,741 shares of common stock, $.01 par value.







---





Explanatory Note



During the third quarter of 2006, TransCommunity Financial Corporation (the Company) determined that it had incorrectly accounted for loans subject to certain loan participation agreements entered into with third-party financial institutions.  Under the direction of the audit committee of its board of directors, the Company recently completed an evaluation of the manner in which it accounted for the participation agreements.



As a result, the Company is filing an amendment to its annual report on Form 10-KSB for the year ended December 31, 2005 and this amendment to its quarterly report on Form 10-Q for the period ended March 31, 2006 to amend and restate financial statements and other financial information filed with the Securities and Exchange Commission (SEC). These amendments are being filed to correct errors in the originally filed Form 10-KSB and Form 10-Q that, as described below, related to the Companys accounting for FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125 (Statement 140).

During the second quarter of 2004, the Company implemented an automated loan documentation system which contained the option to include certain language that provided for the termination of the participation agreement.  The right to repurchase the participated balance contained in the termination clause allowed the Company to retain a level of control over the loans sold to third parties.  This termination clause allowed the originating institution to repurchase the loans sold to third parties.  The repurchase provision fails certain tests to qualify for sale accounting treatment under Statement 140.  As a result, the Company had previously not reflected the participated balances of loans subject to these agreements on its balance sheet as required by Statement 140.



The following items have been amended as a result of the restatement:



·

Part I, Item 1, Financial Statements, has been revised to reflect the restatement

·

Part I, Item 2, Managements Discussion and Analysis or Plan of Operation, has been revised to reflect the restatement; and

·

Part I, Item 4, Controls and Procedures, has been revised to reflect the errors described above.



The Chief Executive Officer and Chief Financial Officer of the Company have also reissued their certifications required by Section 302 and 906 of the Sarbanes-Oxley Act of 2002.

As a result of the restatement, the Companys period end total loans and secured borrowings were increased by $10.4 million and $12.5 million at March 31, 2006 and December 31, 2005, respectively.  In addition, interest income on loans and interest expense on other borrowings were also increased by $201 thousand and $103 thousand for the quarters ended March 31, 2006 and 2005, respectively.  None of the adjustments resulting from the restatement has any impact on the Companys net worth at any date or on its net income, net interest income, noninterest income or noninterest expense for any period.

Except as otherwise specifically noted, all information contained herein is as of March 31, 2006, and does not reflect any events or changes that have occurred subsequent to that date.  The Company is not required to update, and the Company has not updated, any forward-looking statements previously included in the original filing.



---







|                                     |                                                              |         
|------------------------------------ | ------------------------------------------------------------ | --------
|TRANSCOMMUNITY FINANCIAL CORPORATION
|                                     |                                                              |         
|INDEX                               
|                                     |                                                              | Page No.
|PART I                               | FINANCIAL INFORMATION                                        |         
|                                     |                                                              |         
|Item 1.                              | Financial Statements                                         | 1       
|                                     |                                                              |         
|                                     | Consolidated Statements of Financial Condition              |         
|                                     | March 31, 2006 (Unaudited) and December 31, 2005             | 1       
|                                     |                                                              |         
|                                     | Consolidated Statements of Operations                       |         
|                                     | Three Months Ended March 31, 2006 and 2005 (Unaudited)       | 2       
|                                     |                                                              |         
|                                     | Consolidated Statements of Changes in Stockholders' Equity  |         
|                                     | Three Months Ended March 31, 2006 and 2005 (Unaudited)       | 3       
|                                     |                                                              |         
|                                     | Consolidated Statements of Cash Flows                       |         
|                                     | Three Months Ended March 31, 2006 and 2005 (Unaudited)       | 4       
|                                     |                                                              |         
|                                     | Notes to Consolidated Financial Statements (Unaudited)       | 5       
|                                     |                                                              |         
|Item 2.                              | Managements Discussion and Analysis of Financial            |         
|                                     | Condition and Results of Operations                          | 14      
|                                     |                                                              |         
|Item 3.                              | Quantitative and Qualitative Disclosures About Market risk   | 23      
|                                     |                                                              |         
|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                                                     | 27      
|                                     |                                                              |         
|                                     | SIGNATURES                                                   | 28      







---

Page 1



Part I   Financial Information



Item 1.

Financial Statements



|                                                                                                                                                         |   |                  |  |   |                  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------------- |  | - | -----------------
|TRANSCOMMUNITY FINANCIAL CORPORATION                                                                                                                    
|CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION                                                                                                          
|MARCH 31, 2006 AND DECEMBER 31, 2005                                                                                                                    
|(Unaudited)                                                                                                                                             
|                                                                                                                                                         |   | March 31, 2006   |  |   | December 31, 2005
|                                                                                                                                                         |   | As Restated ( 1) |  |   |                  
|Assets                                                                                                                                                   |   |                  |  |   |                  
|Cash and due from banks                                                                                                                                  | $ | 4,557,637        |  | $ | 4,131,988        
|Federal funds sold                                                                                                                                       |   | 8,965,608        |  |   | 12,683,935       
|                                                                                                                                                         |   |                  |  |   |                  
|Total cash and cash equivalents                                                                                                                          |   | 13,523,245       |  |   | 16,815,923       
|                                                                                                                                                         |   |                  |  |   |                  
|Securities available for sale, at fair value                                                                                                             |   | 7,354,073        |  |   | 5,354,856        
|Securities held to maturity, fair value of $25,206,294 and $25,722,042 at March 31, 2006 and December 31, 2005, respectively                             |   | 25,392,664       |  |   | 25,882,680       
|                                                                                                                                                         |   |                  |  |   |                  
|Loans                                                                                                                                                    |   | 132,114,399      |  |   | 135,088,602      
|Allowance for loan losses                                                                                                                                |   | (1,724,708)      |  |   | (1,692,153)      
|Total loans, net                                                                                                                                         |   | 130,389,691      |  |   | 133,396,449      
|                                                                                                                                                         |   |                  |  |   |                  
|Premises and equipment, net                                                                                                                              |   | 6,950,323        |  |   | 7,005,040        
|Federal Reserve bank stock (restricted)                                                                                                                  |   | 571,879          |  |   | 535,010          
|Other assets                                                                                                                                             |   | 1,506,764        |  |   | 1,657,542        
|                                                                                                                                                         |   |                  |  |   |                  
|Total assets                                                                                                                                             | $ | 185,688,639      |  | $ | 190,647,500      
|                                                                                                                                                         |   |                  |  |   |                  
|Liabilities                                                                                                                                              |   |                  |  |   |                  
|Deposits:                                                                                                                                                |   |                  |  |   |                  
|Demand:                                                                                                                                                  |   |                  |  |   |                  
|Noninterest bearing                                                                                                                                      | $ | 19,392,614       |  | $ | 17,253,634       
|Interest bearing                                                                                                                                         |   | 37,112,653       |  |   | 46,143,538       
|Savings                                                                                                                                                  |   | 10,753,158       |  |   | 9,470,537        
|Time                                                                                                                                                     |   | 75,926,102       |  |   | 73,735,109       
|                                                                                                                                                         |   |                  |  |   |                  
|Total deposits                                                                                                                                           |   | 143,184,527      |  |   | 146,602,818      
|                                                                                                                                                         |   |                  |  |   |                  
|Federal funds purchased                                                                                                                                  |   | 1,049,000        |  |   | 272,000          
|Secured borrowings                                                                                                                                       |   | 10,396,845       |  |   | 12,515,113       
|Accrued interest payable                                                                                                                                 |   | 323,030          |  |   | 301,699          
|Accrued expenses and other liabilities                                                                                                                   |   | 471,812          |  |   | 586,171          
|                                                                                                                                                         |   |                  |  |   |                  
|Total liabilities                                                                                                                                        |   | 155,425,214      |  |   | 160,277,801      
|                                                                                                                                                         |   |                  |  |   |                  
|Stockholders' Equity                                                                                                                                     |   |                  |  |   |                  
|Common stock (25,000,000 shares authorized $.01 par value) 4,581,741 shares issued and outstanding at March 31, 2006 and December 31, 2005, respectively |   | 45,817           |  |   | 45,817           
|Additional paid in capital                                                                                                                               |   | 39,795,522       |  |   | 39,777,578       
|Accumulated deficit                                                                                                                                      |   | (9,502,363)      |  |   | (9,378,963)      
|Accumulated other comprehensive income (loss)                                                                                                            |   | (75,551)         |  |   | (74,733)         
|                                                                                                                                                         |   |                  |  |   |                  
|Total stockholders' equity                                                                                                                               |   | 30,263,425       |  |   | 30,369,699       
|                                                                                                                                                         |   |                  |  |   |                  
|Total liabilities and stockholders' equity                                                                                                               | $ | 185,688,639      |  | $ | 190,647,500      

(1) See Note 8, Correction of an Error, of the Notes to Unaudited Consolidated Financial Statements.

See accompanying notes to unaudited consolidated financial statements.







---

Page 2







|                                                                  |                 |                            |                 |   |          
|----------------------------------------------------------------- | --------------- | -------------------------- | --------------- | - | ---------
|TRANSCOMMUNITY FINANCIAL CORPORATION                             
|CONSOLIDATED STATEMENTS OF OPERATIONS                            
|FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005               
|(Unaudited)                                                      
|                                                                  |                 | For the three months ended
|                                                                  | March 31, 2006  |                            | March 31, 2005 
|                                                                  | As Restated (1) |                            | As Restated (1)
|Interest and dividend income                                      |                 |                            |                 |   |          
|Interest on loans, including fees                                 | $               | 2,817,903                  |                 | $ | 2,078,976
|Interest on federal funds sold                                    |                 | 243,753                    |                 |   | 54,701   
|Interest on debt securities                                       |                 | 167,136                    |                 |   | 117,021  
|Dividends on equity securities                                    |                 | -                          |                 |   | 4,500    
|                                                                  |                 |                            |                 |   |          
|Total interest and dividend income                                |                 | 3,228,792                  |                 |   | 2,255,198
|                                                                  |                 |                            |                 |   |          
|Interest expense                                                  |                 |                            |                 |   |          
|Interest on deposits                                              |                 | 904,601                    |                 |   | 601,095  
|Interest on other borrowed funds                                  |                 | 204,472                    |                 |   | 124,003  
|                                                                  |                 |                            |                 |   |          
|Total interest expense                                            |                 | 1,109,073                  |                 |   | 725,098  
|                                                                  |                 |                            |                 |   |          
|Net interest income                                               |                 | 2,119,719                  |                 |   | 1,530,100
|                                                                  |                 |                            |                 |   |          
|Provision for loan losses                                         |                 | 51,756                     |                 |   | 64,561   
|                                                                  |                 |                            |                 |   |          
|Net interest income after provision for loan losses               |                 | 2,067,963                  |                 |   | 1,465,539
|                                                                  |                 |                            |                 |   |          
|Noninterest income                                                |                 |                            |                 |   |          
|Bank service charges and fees                                     |                 | 241,670                    |                 |   | 177,197  
|Commissions and fees from loan originations                       |                 | 876,425                    |                 |   | 986,295  
|                                                                  |                 |                            |                 |   |          
|Total noninterest income                                          |                 | 1,118,095                  |                 |   | 1,163,492
|                                                                  |                 |                            |                 |   |          
|Noninterest expense                                               |                 |                            |                 |   |          
|Salaries and employee benefits                                    |                 | 1,995,219                  |                 |   | 1,912,737
|Occupancy expenses                                                |                 | 225,561                    |                 |   | 204,911  
|Equipment expenses                                                |                 | 175,738                    |                 |   | 153,899  
|Other operating expenses                                          |                 | 912,940                    |                 |   | 750,299  
|                                                                  |                 |                            |                 |   |          
|Total noninterest expense                                         |                 | 3,309,458                  |                 |   | 3,021,846
|                                                                  |                 |                            |                 |   |          
|Net loss from continuing operations                               |                 | (123,400)                  |                 |   | (392,815)
|                                                                  |                 |                            |                 |   |          
|Net loss from discontinued operations                             |                 | -                          |                 |   | (80,450) 
|                                                                  |                 |                            |                 |   |          
|Net loss                                                          | $               | (123,400)                  |                 | $ | (473,265)
|                                                                  |                 |                            |                 |   |          
|Net loss per share from continuing operations (basic and diluted) | $               | (0.03)                     |                 | $ | (0.17)   
|                                                                  |                 |                            |                 |   |          
|Net loss per share (basic and diluted)                            | $               | (0.03)                     |                 | $ | (0.21)   
|                                                                  |                 |                            |                 |   |          
|Weighted average number of shares outstanding                     |                 | 4,581,741                  |                 |   | 2,278,155



(1) See Note 8, Correction of an Error, of the Notes to Unaudited Consolidated Financial Statements.

See accompanying notes to unaudited consolidated financial statements.









---

Page 3





|                                                           |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |           |            | 
|---------------------------------------------------------- | ----------------------------- | ------------------ | --------- | ---------------------- | - | -------------------------- |  | ------------ | ------ | -------------------------- | ------- | ------------------- |  | --------------------------------------------- | ----------- | ----- | - | -------- |  | --------- | ---------- | 
|TRANSCOMMUNITY FINANCIAL CORPORATION                      
|CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2006        
|(Unaudited)                                               
|                                                           |                               |                    |          
|                                                           |                               |                    |           | Shares of Common Stock |   | Common Stock Subscriptions |  | Common Stock |        | Additional Paid in Capital |         | Accumulated Deficit |  | Accumulated Other Comprehensive Income (Loss) |             | Total
|Balance,                                                   |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |          
|                                                           | December 31, 2004             |                    | 2,250,508 |                        | $ | -                          |  | $            | 22,505 |                            | $       | 22,753,004          |  | $                                             | (7,607,270) |       | $ | (43,648) |  | $         | 15,124,591
|                                                           |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |           |            | 
|Net loss                                                   |                               | -                  |           |                        | - |                            |  | -            |        |                            | -       |                     |  | (473,265)                                     |             |       | - |          |  | (473,265)
|                                                           | Unrealized loss on securities |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |           |           
|                                                           |                               | available for sale | -         |                        |   | -                          |  |              | -      |                            |         | -                   |  |                                               | -           |       |   | (35,583) |  |           | (35,583)  
|                                                           | Total comprehensive loss      |                    | -         |                        |   | -                          |  |              | -      |                            |         | -                   |  |                                               | -           |       |   | -        |  |           | (508,848) 
|Common stock issued                                        |                               | 42,733             |           |                        | - |                            |  | 427          |        |                            | 453,051 |                     |  | -                                             |             |       | - |          |  | 453,478  
|Deferred compensation expense                              |                               | -                  |           |                        | - |                            |  | -            |        |                            | 23,733  |                     |  | -                                             |             |       | - |          |  | 23,733   
|Balance,                                                   |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |          
|                                                           | March 31, 2005                |                    | 2,293,241 |                        | $ | -                          |  | $            | 22,932 |                            | $       | 23,229,788          |  | $                                             | (8,080,535) |       | $ | (79,231) |  | $         | 15,092,954
|                                                           |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |           |            | 
|                                                           |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |           |            | 
|Balance,                                                   |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |          
|                                                           | December 31, 2005             |                    | 4,581,741 |                        | $ | -                          |  | $            | 45,817 |                            | $       | 39,777,578          |  | $                                             | (9,378,963) |       | $ | (74,733) |  | $         | 30,369,699
|                                                           |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |           |            | 
|Net loss                                                   |                               | -                  |           |                        | - |                            |  | -            |        |                            | -       |                     |  | (123,400)                                     |             |       | - |          |  | (123,400)
|                                                           | Unrealized loss on securities |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |           |           
|                                                           |                               | available for sale | -         |                        |   | -                          |  |              | -      |                            |         | -                   |  |                                               | -           |       |   | (818)    |  |           | (818)     
|                                                           | Total comprehensive loss      |                    | -         |                        |   | -                          |  |              | -      |                            |         | -                   |  |                                               | -           |       |   | -        |  |           | (124,218) 
|Stock-based compensation expense                           |                               | -                  |           |                        | - |                            |  | -            |        |                            | 17,944  |                     |  | -                                             |             |       | - |          |  | 17,944   
|Balance,                                                   |                               |                    |           |                        |   |                            |  |              |        |                            |         |                     |  |                                               |             |       |   |          |  |          
|                                                           | March 31, 2006                |                    | 4,581,741 |                        | $ | -                          |  | $            | 45,817 |                            | $       | 39,795,522          |  | $                                             | (9,502,363) |       | $ | (75,551) |  | $         | 30,263,425











See accompanying notes to unaudited consolidated financial statements.













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Page 4





|                                                                                          |                            |                 |  |                |                 | 
|----------------------------------------------------------------------------------------- | -------------------------- | --------------- |  | -------------- | --------------- | 
|TRANSCOMMUNITY FINANCIAL CORPORATION                                                     
|CONSOLIDATED STATEMENTS OF CASH FLOWS                                                    
|FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005                                       
|(Unaudited)                                                                              
|                                                                                          | For the three months ended
|                                                                                          |                            | March 31, 2006  |  | March 31, 2005 |                
|                                                                                          |                            | As Restated (1) |  |                | As Restated (1) | 
|Operating activities:                                                                     |                            |                 |  |                |                 | 
|Net loss from continuing operations                                                       | $                          | (123,400)       |  | $              | (392,815)       | 
|Net loss from discontinued operations                                                     |                            | -               |  |                | (80,450)        | 
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                            |                 |  |                |                 | 
|Provision for loan losses                                                                 |                            | 51,756          |  |                | 64,561          | 
|Amortization of security premiums and accretion of discounts, net                         |                            | (10,019)        |  |                | (17,812)        | 
|Depreciation                                                                              |                            | 139,933         |  |                | 111,562         | 
|Deferred compensation expense                                                             |                            | -               |  |                | 23,733          | 
|Stock-based compensation expense                                                          |                            | 17,944          |  |                | -               | 
|Decrease (increase) in other assets                                                       |                            | 150,778         |  |                | (213,946)       | 
|Increase (decrease) in interest payable                                                   |                            | 21,331          |  |                | 17,546          | 
|Decrease in accrued expenses and other liabilities                                        |                            | (114,359)       |  |                | (36,426)        | 
|                                                                                          |                            |                 |  |                |                 | 
|Net cash provided by (used in) operating activities                                       |                            | 133,964         |  |                | (524,047)       | 
|                                                                                          |                            |                 |  |                |                 | 
|Investing activities:                                                                     |                            |                 |  |                |                 | 
|Purchase of securities held to maturity                                                   |                            | (19,000,000)    |  |                | (16,996,293)    | 
|Purchase of securities available for sale                                                 |                            | (2,000,000)     |  |                | -               | 
|Proceeds from maturities of securities held to maturity                                   |                            | 19,500,000      |  |                | 5,000,000       | 
|Proceeds from maturities of securities available for sale                                 |                            | -               |  |                | 10,470,220      | 
|Purchase of Federal Reserve bank stock                                                    |                            | (36,869)        |  |                | -               | 
|Net decrease (increase) in loans                                                          |                            | 2,955,002       |  |                | (1,484,065)     | 
|Purchase of premises and equipment                                                        |                            | (85,216)        |  |                | (599,665)       | 
|                                                                                          |                            |                 |  |                |                 | 
|Net cash used in investing activities                                                     |                            | 1,332,917       |  |                | (3,609,803)     | 
|                                                                                          |                            |                 |  |                |                 | 
|Financing activities:                                                                     |                            |                 |  |                |                 | 
|Net change in federal funds purchased                                                     |                            | 777,000         |  |                | (251,000)       | 
|Proceeds from offering of common stock                                                    |                            | -               |  |                | 640,495         | 
|Costs of stock offering                                                                   |                            | -               |  |                | (934)           | 
|Net(decrease) increase in secured borrowings                                              |                            | (2,118,268)     |  |                | 1,344,934       | 
|Net (decrease) in noninterest bearing and interest bearing demand deposits                |                            | (6,891,905)     |  |                | (1,153,073)     | 
|Net increase in savings deposits                                                          |                            | 1,282,621       |  |                | 162,157         | 
|Net increase in time deposits                                                             |                            | 2,190,993       |  |                | 5,650,355       | 
|                                                                                          |                            |                 |  |                |                 | 
|Net cash (used in) provided by financing activities                                       |                            | (4,759,559)     |  |                | 6,392,934       | 
|                                                                                          |                            |                 |  |                |                 | 
|Net increase (decrease) in cash and cash equivalents                                      |                            | (3,292,678)     |  |                | 2,259,084       | 
|                                                                                          |                            |                 |  |                |                 | 
|Cash and cash equivalents:                                                                |                            |                 |  |                |                 | 
|Beginning of the period                                                                   |                            | 16,815,923      |  |                | 3,760,266       | 
|                                                                                          |                            |                 |  |                |                 | 
|End of the period                                                                         | $                          | 13,523,245      |  | $              | 6,019,350       | 
|                                                                                          |                            |                 |  |                |                 | 
|Supplemental disclosures of cash flow information:                                        |                            |                 |  |                |                 | 
|Interest paid                                                                             | $                          | 1,087,742       |  | $              | 707,822         | 

(1) See Note 8, Correction of an Error, of the Notes to Unaudited Consolidated Financial Statements.

See accompanying notes to unaudited consolidated financial statements.







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Page 5



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 subsidiaries, including Bank of Powhatan, N.A. (Bank of Powhatan), Bank of Goochland, N.A. (Bank of Goochland), Bank of Louisa, N.A. (Bank of Louisa) and Main Street Mortgage and Investment Corporation (Main Street Mortgage), a wholly-owned subsidiary of Bank of Powhatan.  All significant intercompany transactions and balances associated with consolidated subsidiaries have been eliminated.



The consolidated financial statements of TransCommunity Financial Corporation conform to accounting principles generally accepted in the United States of America and to general industry practices.  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 as of March 31, 2006, and the results of operations for the three-month periods ended March 31, 2006 and 2005.  The Consolidated Statement of Financial Condition at December 31, 2005 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 period.  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 financial statements included in the audited December 31, 2005 financial statements for TransCommunity, which statements were included in the Companys Annual Report on Form 10-KSB/A for the year ended December 31, 2005 filed with the Securities and Exchange Commission (the Commission).



NOTE 2

Impact of Certain Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payment, that addresses the accounting for share-based payment transactions in which an enterprise exchanges its equity instruments for goods and services. The Statement eliminates the ability to account for share-based compensation transactions using Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using a fair-value-based method. The Commission requires companies to implement SFAS No. 123R by the beginning of the first fiscal year that begins after June 15, 2005. On January 1, 2006, TransCommunity implemented SFAS No. 123R.  By implementing SFAS No. 123R, TransCommunity recorded $18 thousand of additional compensation expense during the three months ended March 31, 2006, resulting from the application of fair-value based accounting to its stock-based compensation programs. See Note 4 for more information about TransCommunitys stock-based compensation programs.







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Page 6



TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 2

Impact of Certain Accounting Pronouncements (Continued)



In February 2006, FASB issued Statement No. 155, Accounting for Certain Hybrid Financial Instruments an Amendment of FASB Statement No. 133 and 140 (SFAS 155).  SFAS 155 amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  SFAS 155 resolves issues addressed in Statement 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.  SFAS 155 provides a fair value measurement option for certain hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation.



Adoption of SFAS 155 is required as of the beginning of the first fiscal year subsequent to September 15, 2006.  The Company does not anticipate the adoption of SFAS 156 in January 2007 will have a material effect on its financial position or results of operations.



In March 2006, FASB issued Statement No. 156, Accounting for Servicing of Financial Assets an Amendment of FASB Statement No. 140 (SFAS 156).  SFAS 156 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities.  SFAS 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract to be initially measured at fair value, if practicable.SFAS 156 also permits entities to subsequently measure servicing assets and liabilities using an amortization method or fair value measurement method.  Under the amortization method, servicing assets and liabilities are amortized in proportion to and over the estimated period of servicing.  Under the fair value measurement method, servicing assets are measured at fair value at each reporting date and changes in fair value are reported in net income for the period the change occurs.



Adoption of SFAS 156 is required as of the beginning of the first fiscal year subsequent to September 15, 2006.  Earlier adoption is permitted as of the beginning of an entitys fiscal year, provided the entity has not yet issued financial statements, including interim financial statements, for any period of that fiscal year.  The Company does not anticipate the adoption of SFAS 156 in January 2007 will have a material effect on its financial position or results of operations.







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Page 7



TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 3

Investment Securities:



The carrying values, unrealized gains, unrealized losses and approximate fair values of investment securities at March 31, 2006 and 2005 are shown in the table below. As of March 31, 2006, 16 U.S. Agency Securities with a carrying value of $11.8 million were pledged as collateral for public deposits.



|                                    |                |            |                        |   |                         |  |            |           |  |   |           
|----------------------------------- | -------------- | ---------- | ---------------------- | - | ----------------------- |  | ---------- | --------- |  | - | ----------
|Securities Available for Sale       |                |            |                        |   |                         |  |            |           |  |   |           
|March 31, 2006                      |                |            |                        |   |                         |  |            |           |  |   |           
|                                    | Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|U.S. Agency discount notes          | $              | 1,000,000  |                        | $ | -                       |  | $          | (2,500)   |  | $ | 997,500   
|U.S. Agency notes                   |                | 6,429,624  |                        |   | -                       |  |            | (73,051)  |  |   | 6,356,573 
|                                    |                |            |                        |   |                         |  |            |           |  |   |           
|Total Securities Available for Sale | $              | 7,429,624  |                        | $ | -                       |  | $          | (75,551)  |  | $ | 7,354,073 
|                                    |                |            |                        |   |                         |  |            |           |  |   |           
|Securities Held to Maturity         |                |            |                        |   |                         |  |            |           |  |   |           
|March 31, 2006                      |                |            |                        |   |                         |  |            |           |  |   |           
|                                    | Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|U.S. Agency discount notes          | $              | 16,993,193 |                        | $ | -                       |  | $          | (10,523)  |  | $ | 16,982,670
|U.S. Agency notes                   |                | 8,399,471  |                        |   | -                       |  |            | (175,847) |  |   | 8,223,624 
|                                    |                |            |                        |   |                         |  |            |           |  |   |           
|Total Securities Held to Maturity   | $              | 25,392,664 |                        | $ | -                       |  | $          | (186,370) |  | $ | 25,206,294
|                                    |                |            |                        |   |                         |  |            |           |  |   |           
|Securities Available for Sale       |                |            |                        |   |                         |  |            |           |  |   |           
|December 31, 2005                   |                |            |                        |   |                         |  |            |           |  |   |           
|                                    | Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|U.S. Agency notes                   | $              | 5,429,589  |                        | $ | -                       |  | $          | (74,733)  |  | $ | 5,354,856 
|                                    |                |            |                        |   |                         |  |            |           |  |   |           
|Total Securities Available for Sale | $              | 5,429,589  |                        | $ | -                       |  | $          | (74,733)  |  | $ | 5,354,856 
|                                    |                |            |                        |   |                         |  |            |           |  |   |           
|Securities Held to Maturity         |                |            |                        |   |                         |  |            |           |  |   |           
|December 31, 2005                   |                |            |                        |   |                         |  |            |           |  |   |           
|                                    | Amortized Cost |            | Gross Unrealized Gains |   | Gross Unrealized Losses |  | Fair Value
|U.S. Agency discount notes          | $              | 19,482,772 |                        | $ | -                       |  | $          | (12,043)  |  | $ | 19,470,729
|U.S. Agency notes                   |                | 6,399,908  |                        |   | -                       |  |            | (148,595) |  |   | 6,251,313 
|                                    |                |            |                        |   |                         |  |            |           |  |   |           
|Total Securities Held to Maturity   | $              | 25,882,680 |                        | $ | -                       |  | $          | (160,638) |  | $ | 25,722,042











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Page 8



TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 3

Investment Securities (Continued):



Investments in an unrealized loss position that are considered temporarily impaired at March 31, 2006, are displayed in the following table:





|                           |            |                     |                 |   |                   |  |                 |           |            |   |                 |  |   |            |  |   |          
|-------------------------- | ---------- | ------------------- | --------------- | - | ----------------- |  | --------------- | --------- | ---------- | - | --------------- |  | - | ---------- |  | - | ---------
|                           |            | Less than 12 months |                 |   | 12 months or more |  |                 | Total    
|March 31, 2006             | Fair Value |                     | Unrealized Loss |   | Fair Value        |  | Unrealized Loss |           | Fair Value |   | Unrealized Loss
|Description of securities: |            |                     |                 |   |                   |  |                 |           |            |   |                 |  |   |            |  |   |          
|US Agency notes            | $          | 5,457,813           |                 | $ | (41,743)          |  | $               | 8,122,384 |            | $ | (207,156)       |  | $ | 13,580,197 |  | $ | (248,899)
|US Agency discount notes   |            | 17,980,170          |                 |   | (13,022)          |  |                 | -         |            |   | -               |  |   | 17,980,170 |  |   | (13,022) 
|                           |            |                     |                 |   |                   |  |                 |           |            |   |                 |  |   |            |  |   |          
|                           |            |                     |                 |   |                   |  |                 |           |            |   |                 |  |   |            |  |   |          
|Total                      | $          | 23,437,983          |                 | $ | (54,765)          |  | $               | 8,122,384 |            | $ | (207,156)       |  | $ | 31,560,367 |  | $ | (261,921)





Investments in an unrealized loss position that are considered temporarily impaired at December 31, 2005, are displayed in the following table:



|                           |            |                     |                 |   |                   |  |                 |           |            |   |                 |  |   |            |  |   |        
|-------------------------- | ---------- | ------------------- | --------------- | - | ----------------- |  | --------------- | --------- | ---------- | - | --------------- |  | - | ---------- |  | - | -------
|                           |            | Less than 12 months |                 |   | 12 months or more |  |                 | Total    
|December 31, 2005          | Fair Value |                     | Unrealized Loss |   | Fair Value        |  | Unrealized Loss |           | Fair Value |   | Unrealized Loss
|Description of securities: |            |                     |                 |   |                   |  |                 |           |            |   |                 |  |   |            |  |   |        
|US Agency notes            | $          | 5,066,133           |                 | $ | 58,867            |  | $               | 6,540,036 |            | $ | 164,461         |  | $ | 11,606,169 |  | $ | 223,328
|US Agency discount notes   |            | 19,470,729          |                 |   | 12,043            |  |                 | -         |            |   | -               |  |   | 19,470,729 |  |   | 12,043 
|                           |            |                     |                 |   |                   |  |                 |           |            |   |                 |  |   |            |  |   |        
|                           |            |                     |                 |   |                   |  |                 |           |            |   |                 |  |   |            |  |   |        
|Total                      | $          | 24,536,862          |                 | $ | 70,910            |  | $               | 6,540,036 |            | $ | 164,461         |  | $ | 31,076,898 |  | $ | 235,371





The March 31, 2006 unrealized loss is the aggregate of 21 U.S. Agency notes, of which 12 have a continuous loss period of more than 12 months. The unrealized loss positions are 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.



The December 31, 2005 unrealized loss is the aggregate of 18 U.S. Agency notes, of which 11 have 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.



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 banks to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.







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Page 9





TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 4

Stock Based Compensation:



A stock option plan (the Plan) was adopted by the Board of Directors of the Bank of Powhatan on May 8, 2001.  This Plan was adopted by TransCommunity effective August 15, 2001 in connection with the reorganization whereby the Bank of Powhatan became a subsidiary of TransCommunity.  The purpose of the Plan is to reward employees and directors for services rendered and investment risks undertaken to date and to promote the success of TransCommunity and its subsidiaries 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, its subsidiaries and with growth in stockholder value. Under the Plan, annual grants of stock options are limited to 10,000 shares for each employee and 7,500 shares for each director.  The Plan provides that options for up to 330,000 shares of TransCommunity common stock may be issued.  The exercise price may not be less than 100% of the fair market value of the shares on the grant date.  Unless the Stock Option Committee 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 March 31, 2006, options to acquire 285,225 shares were outstanding, of which, 274,492 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. During the quarter ended March 31, 2006, TransCommunity recorded $18 thousand of compensation expense beyond what would have been recorded if it had not adopted SFAS No. 123R.  As of March 31, 2006, there was $17 thousand of unrecognized compensation cost related to unvested stock-based awards which will be recognized over the remaining vesting period of 1 year.



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



|                                                       |              |           |  |   |          
|------------------------------------------------------ | ------------ | --------- |  | - | ---------
|                                                       | At March 31,
|                                                       |              | 2006      |  |   | 2005     
|Outstanding at January 1                               | $            | 281,425   |  | $ | 317,375  
|Granted                                                |              | 5,000     |  |   | -        
|Exercised                                              |              | -         |  |   | (100)    
|Lapsed                                                 |              | (1,200)   |  |   | -        
|                                                       |              |           |  |   |          
|Options outstanding at the March 31                    |              | 285,225   |  |   | 317,275  
|Options exercisable at March 31                        |              | 274,492   |  |   | 161,175  
|Weighted average exercise price                        | $            | 9.96      |  | $ | 10.00    
|Weighted average remaining contracted life at March 31 |              | 85 months |  |   | 93 months





The weighted-average grant date fair value of options granted during the three months ended March 31, 2006 was $7.65 per share.









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Page 10





TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 4

Stock Based Compensation (Continued):



Options granted under TransCommunitys Plan generally expire ten years after the date of grant and are granted at or above the fair market value of the stock on the date of grant. Option terms are determined by the Executive Committee of TransCommunitys Board of Directors at the time of the grant. An option may vest immediately or over a period time. 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. Assumptions used for the periods covered herein are outlined in the table below:



|                      |  |                    |               
|--------------------- |  | ------------------ | --------------
|                      |  | Three months ended
|                      |  | March 31, 2006     | March 31, 2005
|                      |  |                    |               
|Expected volatility   |  | 4.54%              | 0.00%         
|Expected dividend     |  | 0                  | 0             
|Expected term (years) |  | 10                 | 10            
|Risk free rate        |  | 4.36%              | 4.00%         



Expected volatilities are based on historical volatility trends of TransCommunity common stock and other factors. 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.



The following table provides the pro-forma effect on net loss and loss per share for the period covered under this report, during which the fair value based method was not used to account for stock-based compensation:

|                                                                                                 |   |                   
|------------------------------------------------------------------------------------------------ | - | ------------------
|                                                                                                 |   | Three months ended
|                                                                                                 |   | March 31, 2005    
|                                                                                                 |   |                   
|Net loss, as reported                                                                            | $ | (473,265)         
|Deduct: total stock-based employee compensation expense determined under fair value based method |   | (36,066)          
|                                                                                                 |   |                   
|Pro forma net loss                                                                               | $ | (509,331)         
|                                                                                                 |   |                   
|Loss per share:                                                                                  |   |                   
|Basic and diluted - as reported                                                                  | $ | (0.21)            
|                                                                                                 |   |                   
|Basic and diluted - pro forma                                                                    | $ | (0.22)            



NOTE 5

Loss Per Share:



Since TransCommunity continues to incur losses, the effect on loss per share of TransCommunitys outstanding stock options would be antidilutive and a decrease in loss per share is not appropriate. Therefore, basic and dilutive losses per share are identical.











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Page 11



TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 6

Business Segments:



During 2005, TransCommunity conducted its business through four reportable business segments including:  TransCommunitys three commercial bank subsidiaries (Community Banking); Main Street Mortgage (Main Street), a mortgage banking company that TransCommunity owns through Bank of Powhatan; TransCommunity Investment Advisors, Inc. and TransCommunity Investment Services, Inc. (collectively, Financial Services); and financial statement information of the parent company (TransCommunity) is included as a reportable segment.  The parent company is principally involved with providing managerial support and the operation of the shared services platform for the other reportable segments.

During the fourth quarter of 2005, the Company decided to discontinue the operations of TransCommunity Investment Advisors, Inc.  Additionally, during the first quarter of 2006, the Company completed a restructuring of TransCommunity Investment Services, Inc. (TCIS), its insurance and securities subsidiary, which is now included in the Community Banking segment.  For 2005, the Financial Services segment results have been reclassified to conform to current presentation for comparability.

|                                             |                                       |                   |  |   |              |  |   |                |  |   |              |  |   |             
|-------------------------------------------- | ------------------------------------- | ----------------- |  | - | ------------ |  | - | -------------- |  | - | ------------ |  | - | ------------
|                                             | For three months ended March 31, 2006
|                                             | (dollars in thousands)               
|                                             |                                       | Community Banking |  |   | Main  Street |  |   | TransCommunity |  |   | Eliminations |  |   | Consolidated
|Net interest income (expense)                | $                                     | 2,018             |  | $ | (9)          |  | $ | 111            |  | $ | -            |  | $ | 2,120       
|Provision for loan losses                    |                                       | (52)              |  |   | -            |  |   | -              |  |   | -            |  |   | (52)        
|Noninterest income                           |                                       | 239               |  |   | 880          |  |   | 102            |  |   | (103)        |  |   | 1,118       
|Noninterest expense                          |                                       | (1,579)           |  |   | (1,029)      |  |   | (818)          |  |   | 117          |  |   | (3,309)     
|Income (loss) from subsidiaries              |                                       | (158)             |  |   | -            |  |   | 310            |  |   | (152)        |  |   | -           
|Net income (loss) from continuing operations |                                       | 468               |  |   | (158)        |  |   | (295)          |  |   | (138)        |  |   | (123)       
|                                             |                                       |                   |  |   |              |  |   |                |  |   |              |  |   |             
|Net loss from discontinued operations        |                                       | -                 |  |   | -            |  |   | -              |  |   | -            |  |   | -           
|                                             |                                       |                   |  |   |              |  |   |                |  |   |              |  |   |             
|Net income (loss)                            | $                                     | 468               |  | $ | (158)        |  |   | (295)          |  | $ | (138)        |  | $ | (123)       
|                                             |                                       |                   |  |   |              |  |   |                |  |   |              |  |   |             
|Total Assets                                 | $                                     | 175,676           |  | $ | 780          |  | $ | 30,552         |  | $ | (21,319)     |  | $ | 185,689     





|                                             |                                       |                   |  |   |             |  |   |                |  |   |              |  |   |             
|-------------------------------------------- | ------------------------------------- | ----------------- |  | - | ----------- |  | - | -------------- |  | - | ------------ |  | - | ------------
|                                             | For three months ended March 31, 2005
|                                             | (dollars in thousands)               
|                                             |                                       | Community Banking |  |   | Main Street |  |   | TransCommunity |  |   | Eliminations |  |   | Consolidated
|Net interest income (expense)                | $                                     | 1,557             |  | $ | (14)        |  | $ | (13)           |  | $ | -            |  | $ | 1,530       
|Provision for loan losses                    |                                       | (50)              |  |   | (15)        |  |   | -              |  |   | -            |  |   | (65)        
|Noninterest income                           |                                       | 219               |  |   | 985         |  |   | 86             |  |   | (126)        |  |   | 1,164       
|Noninterest expense                          |                                       | (1,437)           |  |   | (941)       |  |   | (784)          |  |   | 140          |  |   | (3,022)     
|Income (loss) from subsidiaries              |                                       | 15                |  |   | -           |  |   | 239            |  |   | (254)        |  |   | -           
|Net income (loss) from continuing operations |                                       | 304               |  |   | 15          |  |   | (472)          |  |   | (240)        |  |   | (393)       
|                                             |                                       |                   |  |   |             |  |   |                |  |   |              |  |   |             
|Net loss from discontinued operations        |                                       | (80)              |  |   | -           |  |   | -              |  |   | -            |  |   | (80)        
|                                             |                                       |                   |  |   |             |  |   |                |  |   |              |  |   |             
|Net income (loss)                            | $                                     | 224               |  | $ | 15          |  |   | (472)          |  | $ | (240)        |  | $ | (473)       
|                                             |                                       |                   |  |   |             |  |   |                |  |   |              |  |   |             
|Total Assets                                 | $                                     | 155,568           |  | $ | 1,398       |  | $ | 16,723         |  | $ | (17,534)     |  | $ | 156,155     











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Page 12



TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 7

Capital:



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



|                                 |                |                |   |                  
|-------------------------------- | -------------- | -------------- | - | -----------------
|                                 |                | March 31, 2006 |   | December 31, 2005
|                                 | (in thousands)
|Tier 1 Leverage Capital Ratio    |                |                |   |                  
|Amount                           | $              | 29,929         | $ | 30,028           
|Actual Ratio                     |                | 16.15%         |   | 17.69%           
|Minimum Capital Requirement      |                | 4.00%          |   | 4.00%            
|                                 |                |                |   |                  
|Tier 1 Risk-Based Capital Ratio  |                |                |   |                  
|Amount                           | $              | 29,929         | $ | 30,028           
|Actual Ratio                     |                | 19.28%         |   | 18.96%           
|Minimum Capital Requirement      |                | 4.00%          |   | 4.00%            
|                                 |                |                |   |                  
|Total Risk-Based Capital Ratio   |                |                |   |                  
|Amount                           | $              | 31,654         | $ | 31,720           
|Actual Ratio                     |                | 20.39%         |   | 20.03%           
|Minimum Capital Requirement      |                | 8.00%          |   | 8.00%            
|                                 |                |                |   |                  
|                                 |                |                |   |                  
|Capital ratios:                  |                |                |   |                  
|Average equity to average assets |                | 16.33%         |   | 13.28%           
|Leverage ratio                   |                | 16.15%         |   | 17.69%           
|Tier 1 risk-based capital ratio  |                | 19.28%         |   | 18.96%           
|Total risk-based capital ratio   |                | 20.39%         |   | 20.03%           





NOTE 8

Correction of an error:



On August 11, 2006, the Company concluded that the previously issued financial statements contained in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2005 should not be relied upon because of errors in those statements.  The Company discovered that it had incorrectly accounted for loans subject to certain loan participation agreements entered into with third-party financial institutions since the second quarter of 2004. During the second quarter of 2004, the Company implemented an automated loan documentation system which contained the option to include certain language that provided for termination of the participation agreement.  This right to repurchase the participated balance allows the Company to retain a level of control over the loans sold to third parties.  This termination clause allowed the originating institution to repurchase the loans sold to third parties and thus the loan transfers did not qualify for sale accounting treatment under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125.  The Company had previously not reflected the participated balances of loans subject to these agreements on its balance sheet as required by FASB Statement No. 140.







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Page 13





TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)





NOTE 8

Correction of an Error (Continued):



A summary of the restatements of the accompanying financial statements is as follows:



|                                                 |                        |                        |   |            |   |            
|------------------------------------------------ | ---------------------- | ---------------------- | - | ---------- | - | -----------
|                                                 |                       
|                                                 |                        | As previously reported |   | Correction |   | As amended 
|                                                 |                        |                        |   |            |   |            
|                                                 | (Dollars in thousands)
|For the three-month period ended March 31, 2006: |                        |                        |   |            |   |            
|Loans                                            | $                      | 121,717,554            | $ | 10,396,845 | $ | 132,114,399
|Secured borrowings                               |                        | -                      |   | 10,396,845 |   | 10,396,845 
|                                                 |                        |                        |   |            |   |            
|Interest on loans, including fees                | $                      | 2,617,374              | $ | 200,529    | $ | 2,817,903  
|Interest on secured borrowings                   |                        | -                      |   | 200,529    |   | 200,529    
|                                                 |                        |                        |   |            |   |            
|For the year ended December 31, 2005:            |                        |                        |   |            |   |            
|Loans                                            | $                      | 122,573,489            | $ | 12,515,113 | $ | 135,088,602
|Secured borrowings                               |                        | -                      |   | 12,515,113 |   | 12,515,113 
|                                                 |                        |                        |   |            |   |            
|For the three-month period ended March 31, 2005: |                        |                        |   |            |   |            
|Interest on loans, including fees                | $                      | 1,976,467              | $ | 102,509    | $ | 2,078,976  
|Interest on secured borrowings                   |                        | -                      |   | 102,509    |   | 102,509    







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Page 14



Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations



Forward-Looking Statements



The following discussion and analysis and the related financial data present a review of TransCommunitys consolidated operating results for the three-month periods ended March 31, 2006 and 2005 and consolidated financial condition as of March 31, 2006 and December 31, 2005. 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-KSB/A for the year ended December 31, 2005.



This Quarterly Report on Form 10-Q/A 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, development of products and services

·

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, 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, regulatory and technological factors affecting the Companys operations, pricing, products and delivery of services.  Information in this Quarterly Report on Form 10-Q/A 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.









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Page 15



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 Critical Accounting Policies on page F-8 of TransCommunitys Annual Report on Form 10-KSB/A for the year ended December 31, 2005.





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



·

Increasing loan originations

·

Increasing total and core deposit balances

·

Maintaining TransCommunitys history of strong net interest margins

·

Maintaining 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 performance for the three-month period ended March 31, 2006 as compared to the same period in 2005 include:



·

Net loss of $123 thousand or an improvement of 73.9%

·

Yield on loans, including fees, up 99 basis points to 8.46%

·

Net interest income increased by $590 thousand, or 38.5%









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Page 16



Results of Operations



Net losses for the quarter ended March 31, 2006 were $123 thousand, an improvement of 73.9% from net losses of $473 thousand for the same period in 2005. Net losses per share from continuing operations, both basic and diluted, improved 82.4%, from $0.17 to $0.03 over the same period. Annualized loss on average equity from continuing operations for the quarter ended March 31, 2006 was 1.65%.  Annualized loss from continuing operations on average assets for the quarter ended March 31, 2006 was 0.27%.  These ratios compare favorably to 10.53% and 1.05%, respectively, for the quarter ended March 31, 2005.



Net Interest Income



For the quarter ended March 31, 2006, net interest income totaled $2.1 million, a $590 thousand or 38.5% increase over TransCommunitys performance for the same period during 2005.  Average earning assets for the quarter grew to $174.8 million compared to $138.7 million during the same period in 2005.  The growth in the earning asset base was complemented by a growth in the average yield on earning assets of 89 basis points.  The net interest margin for the quarter increased 44 basis points from the same period in 2005 to 4.92% from 4.48%.  The increase in net interest margin is attributable to benefits derived from an increase on yields of earning assets, while the cost of interest bearing deposits only increased 71 basis points from 2.26% to 2.97%.  The average loans outstanding increased 19.8% to $135.1 million coupled with a 13.3% increase in yield on average loans to 8.46% for the three months ended March 31, 2006, compared to a yield of 7.47% for the same period during 2005.



These favorable results continue to demonstrate managements ability to reprice earning assets faster than liabilities, benefiting TransCommunitys net interest margin in a rising interest rate environment. TransCommunitys consolidated net interest margin compares favorably with the experience of many other commercial banks in its market area.  TransCommunity anticipates this momentum will continue throughout 2006.



Provision for Loan Losses



For the quarter ended March 31, 2006, the provision for loan losses was $52 thousand, down from $65 thousand for the same period in 2005.  At March 31, 2006, nonperforming assets totaled $315 thousand and represented 0.23% of total loans.  Net charge-offs for the quarter amounted to $62 thousand.  Management believes the overall credit quality of the portfolio is sound based on the risk inherent in the loan portfolio.



The allowance for loan losses is evaluated on a regular basis by management and is based upon managements periodic review of the probability of collection, industry historical experience, the nature and volume of the loan portfolio, adverse situations that may affect a borrowers ability to repay, estimated value of any underlying collateral and prevailing economic conditions. An adequate allowance 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 risk percentage based on the classification to which they are assigned.  Unclassified commercial loans secured by real estate and secured consumer loans are assigned a risk factor of 1%. Unclassified other commercial loans and unsecured consumer loans are assigned a risk factor of 2%. As TransCommunitys subsidiary banks mature, the factors will be adjusted to reflect actual experience.  In addition, an allowance would be established for problem loans individually or by grouping. The allowance for loan loss evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.









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Page 17



Noninterest Income



Noninterest income for the three months ended March 31, 2006 totaled $1.1 million, a decrease of 6.9% from $1.2 million for the same period in 2005.   Fees from loan originations represent 78.4% of noninterest income earned during the quarter, with deposit-related service fees accounting for the balance.  The overall decrease in noninterest income is attributable principally to lower volumes of loan originations at Main Street Mortgage.  During the quarter ended March 31, 2006, bank service charges and fees increased $64 thousand, or 36.4%, when compared to the same period in 2005.



Noninterest Expense



For the quarter ended March 31, 2006, noninterest expense from continuing operations increased $288 thousand, or 9.5%, from the same period in the prior year.  Personnel costs represent 60.3% of the total noninterest expenses.  Salaries and benefits totaled $2.0 million for the quarter ended March 31, 2006, or a 4.3% increase when compared to $1.9 million for the same period in 2005. The Company continues to review staffing levels to achieve maximum efficiency and expects to begin realizing the benefits of the restructuring during the second quarter of 2006.



For the quarter ended March 31, 2006, occupancy expense increased $21 thousand from the same quarter a year ago due to annual lease increases and the opening of the main office for the Bank of Louisa.



For the quarter ended March 31, 2006, other operating expense increased $163 thousand, or 21.7%, from last years first quarter. The increases in this expense category were largely the result of expenses associated with an evaluation of TransCommunitys mortgage operation.



Segment Information



For the three months ended March 31, 2006, net income from continuing operations for the Community Banking segment was $468 thousand, an increase of $164 thousand, or 54.0%, from $304 thousand during the first quarter of 2005.  Net interest income for the Community Banking segment increased by $461 thousand, or 29.6%, to $2.0 million in the first quarter of 2006 as compared to the first quarter of 2005.



First quarter net losses for the mortgage banking segment totaled $158 thousand, a decrease of $173 thousand from net income of $15 thousand for the same period in 2005.  Commissions and fees from loan originations in the mortgage banking segment decreased by $110 thousand, or 11.1%, when compared to the same period in 2005.



During the first quarter of 2006, the Board of Directors engaged consultants to identify opportunities to improve the performance of the mortgage banking segment.  The results of this study will be used by management to implement a plan of operation for the mortgage banking segment during the remainder of 2006.









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Page 18



Financial Condition



At March 31, 2006, TransCommunity had total assets of $185.7 million, down from $190.6 million at December 31, 2005.  At March 31, 2006, loans totaled $132.1 million, a decrease of $3.0 million since December 31, 2005.  Total deposits at March 31, 2006, were $143.2 million, as compared with $146.6 million at December 31, 2005.



Loans totaled $132.1 million and $112.1 million for the first quarters ended 2006 and 2005, respectively. This represents growth of $20.0 million, or a 17.8% increase, year over year.  Despite increased competition, the Companys banks continue to experience strong loan demand. However, TransCommunity remains focused on maintaining its pricing discipline and strong asset quality, and adhering to its conservative underwriting standards.



During the first quarter of 2006, the Companys cost of deposits increased from 2.26% to 2.97%. Average interest-bearing deposits increased $15.8 million, from $107.7 million, during the first quarter of 2005 to $123.4 million during the first quarter of 2006.  Total deposits declined $3.4 million, or 2.3%, to $143.2 million at March 31, 2006 from $146.6 million at December 31, 2005.  Although total deposits declined, noninterest-bearing deposits increased $2.1 million, or 12.4%.



Secured borrowings totaled $10.4 million at March 31, 2006, down $2.1 million from $12.5 million at December 31, 2005.



At March 31, 2006, the Companys capital position remains strong with an average equity-to-average assets ratio of 16.33%.  At March 31, 2006, TransCommunity had a leverage ratio of 16.15%, a Tier 1 risk-based capital ratio of 19.28% and a total risk-based capital ratio of 20.39%.  At March 31, 2006, the book value of the Companys common stock was $6.61 per share.









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Page 19





|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|-------------------------------------------------- | ------------------------- | ---------------------- | ----------------- | -------------------- | ----------- | ----------- | --------- | ---- | --------- | - | ----------- | ----------- | ----------- | ----------- | ----------- | --------- | -------- | ------- | ----------- | ---- | 
|TRANSCOMMUNITY FINANCIAL CORPORATION              
|NET INTEREST MARGIN ANALYSIS                      
|AVERAGE BALANCE SHEETS                            
|FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND 2005
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           |                        |                   |                      |             |             |           |      | 2006      |   |             |             |             |             |             |           |          | 2005    |             |      | 
|                                                   |                           |                        |                   |                      |             | Average     |           |      | Interest  |   | Average     |             |             | Average     |             |           | Interest |         | Average    
|                                                   |                           |                        |                   |                      |             | Balance     |           |      | Income/   |   | Rates       |             |             | Balance     |             |           | Income/  |         | Rates      
|                                                   |                           |                        |                   |                      |             | Sheet       |           |      | Expense   |   | Earned/Paid |             |             | Sheet       |             |           | Expense  |         | Earned/Paid
|ASSETS:                                            |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |         
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   | Loans, including fees (1) | $                      | 135,084,189       |                      | $           | 2,817,903   |           | 8.46 | %         | $ | 112,817,298 |             | $           | 2,078,976   |             | 7.47      | %       
|                                                   | Federal funds sold        |                        | 22,404,247        |                      |             | 243,753     |           | 4.41 |           |   |             | 9,180,333   |             |             | 54,701      |           | 2.42     |        
|                                                   | Investments               |                        | 17,307,322        |                      |             | 167,136     |           | 3.92 |           |   |             | 16,666,271  |             |             | 121,521     |           | 2.96     |        
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   | Total Earning Assets      |                        | 174,795,758       |                      |             | 3,228,792   |           | 7.49 |           |   |             | 138,663,902 |             |             | 2,255,198   |           | 6.60     |        
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   | Allowance for loan losses |                        | (1,702,041)       |                      |             |             |           |      |           |   |             | (1,447,089) |             |             |             |           |          |        
|                                                   | Non-earning assets        |                        | 12,756,326        |                      |             |             |           |      |           |   |             | 14,708,659  |             |             |             |           |          |        
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   | Total Assets              | $                      | 185,850,043       |                      |             |             |           |      |           |   | $           | 151,925,472 |             |             |             |           |          |        
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|LIABILITIES AND STOCKHOLDERS' EQUITY               |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |            
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|Deposits:                                          |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |         
|                                                   |                           | Demand -               |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |            
|                                                   |                           |                        |                   | Interest bearing     | $           | 37,597,680  |           | $    | 135,829   |   | 1.47        | %           | $           | 34,399,204  |             | $         | 87,175   |         | 1.03        | %   
|                                                   |                           | Savings                |                   | 10,009,888           |             |             | 38,219    |      | 1.55      |   |             |             | 8,612,098   |             |             | 23,016    |          | 1.08    |            
|                                                   |                           | Time deposits          |                   | 75,820,260           |             |             | 730,553   |      | 3.91      |   |             |             | 64,646,220  |             |             | 490,904   |          | 3.08    |            
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Total deposits         |                   | 123,427,828          |             |             | 904,601   |      | 2.97      |   |             |             | 107,657,522 |             |             | 601,095   |          | 2.26    |            
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Other borrowed         |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |            
|                                                   |                           |                        |                   | Funds (1)            |             | 11,576,336  |           |      | 204,472   |   | 7.16        |             |             |             | 10,873,537  |           |          | 124,003 |             | 4.62 | 
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Total interest-bearing |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |            
|                                                   |                           |                        |                   | Liabilities          |             | 135,004,164 |           |      | 1,109,073 |   | 3.33        |             |             |             | 118,531,059 |           |          | 725,098 |             | 2.48 | 
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Non-interest bearing   |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |            
|                                                   |                           |                        |                   | Deposits             |             | 19,540,314  |           |      |           |   |             |             |             |             | 17,484,403  |           |          |         |             |      | 
|                                                   |                           | Other liabilities      |                   | 948,302              |             |             |           |      |           |   |             |             | 776,418     |             |             |           |          |         |            
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           |                        | Total liabilities |                      | 155,492,780 |             |           |      |           |   |             |             |             | 136,791,880 |             |           |          |         |             |     
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Stockholders' equity   |                   | 30,357,263           |             |             |           |      |           |   |             |             | 15,133,592  |             |             |           |          |         |            
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Total liabilities and  |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |            
|                                                   |                           |                        |                   | stockholders' equity | $           | 185,850,043 |           |      |           |   |             |             |             | $           | 151,925,472 |           |          |         |             |      | 
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Net interest earnings  |                   |                      |             | $           | 2,119,719 |      |           |   |             |             |             |             | $           | 1,530,100 |          |         |            
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Interest spread        |                   |                      |             |             |           |      | 4.16      | % |             |             |             |             |             |           |          | 4.12    | %          
|                                                   |                           |                        |                   |                      |             |             |           |      |           |   |             |             |             |             |             |           |          |         |             |      | 
|                                                   |                           | Net interest margin    |                   |                      |             |             |           |      | 4.92      | % |             |             |             |             |             |           |          | 4.48    | %          



(1) Average balances for certain loans and secured borrowings totaling approximately $11.4 million and $8.2 million for the quarters ended March 31, 2006 and 2005, respectively, were calculated using month-end balances.  All other reported average balances were calculated using daily balances.







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Page 20





Income Taxes



No income tax benefit has been recorded since, at this time, there is insufficient evidence to conclude that TransCommunity will produce taxable income in the future which can be offset by loss carryforwards from the current and prior periods.



Loans



Total loans decreased $3.0 million during the first three months of 2006 to $132.1 million as a result of contractual payoffs outpacing originations.



Loans by type are shown in the following schedule:



|                                        |              |            |           |             |            |           |                |            |  |                  
|--------------------------------------- | ------------ | ---------- | --------- | ----------- | ---------- | --------- | -------------- | ---------- |  | -----------------
|Loans:                                  |              |            |           |             |            |           |                |            | 
|                                        |              |            |           |             |            |           | March 31, 2006 |            |  | December 31, 2005
|Real estate:                            |              |            |           |             |            |           |               
|                                        | Construction |            |           | $           | 16,393,354 |           | $              | 16,040,907
|                                        | Residential  |            |           |             | 25,398,438 |           |                | 25,146,542
|                                        | Commercial   |            |           |             | 58,852,887 |           |                | 65,469,590
|Commercial, industrial and agricultural |              | 23,396,536 |           |             | 20,205,294
|Consumer and installment                |              |            | 7,612,192 |             |            | 7,595,098
|All other                               |              |            |           |             | 460,992    |           |                | 631,171   
|                                        |              |            |           |             |            |           |                |            |  |                  
|Total Loans                             |              |            | $         | 132,114,399 |            | $         | 135,088,602   





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 undetected losses within the portfolio.



|                                        |              |  |        |           |         |         |                |         |           |                   |      |           |  |        
|--------------------------------------- | ------------ |  | ------ | --------- | ------- | ------- | -------------- | ------- | --------- | ----------------- | ---- | --------- |  | -------
|                                        |              |  |        |           |         |         | March 31, 2006 |         |           | December 31, 2005
|                                        |              |  |        |           |         |         | Allowance      |         | Percent   |                   |      | Allowance |  | Percent
|Real estate:                            |              |  |        |           |         |         |                |         |           |                   |     
|                                        | Construction |  |        | $         | 206,965 |         | 12%            |         | $         | 270,744           |      | 16%      
|                                        | Residential  |  |        |           | 327,695 |         | 19%            |         |           | 321,509           |      | 19%      
|                                        | Commercial   |  |        |           | 827,860 |         | 48%            |         |           | 727,626           |      | 43%      
|Commercial, industrial and agricultural | 258,706      |  | 15%    |           |         | 253,823 |                | 15%    
|Consumer and installment                |              |  | 86,235 |           | 5%      |         |                | 101,529 |           | 6%               
|All other                               |              |  |        | 17,247    |         | 1%      |                |         | 16,922    |                   | 1%  
|                                        |              |  |        |           |         |         |                |         |           |                   |      |           |  |        
|Total Loans                             |              |  | $      | 1,724,708 |         | 100%    |                | $       | 1,692,153 |                   | 100%











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Page 21





Nonaccrual, Past Due and Restructured Loans



At March 31, 2006, TransCommunity had $315 thousand, or 0.23% of total loans, 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.



Liquidity and Interest Sensitivity



At March 31, 2006, TransCommunity had liquid assets of approximately $20.9 million in the form of cash, federal funds sold and available-for-sale investments.  Management believed that liquid assets were adequate at March 31, 2006.  Management anticipates that additional liquidity will be provided by the growth in deposit accounts and loan repayments at each of its subsidiary banks.  TransCommunitys bank subsidiaries, Bank of Powhatan, Bank of Goochland and Bank of Louisa, also have the ability to purchase federal funds and borrow from the Federal Reserve Bank, if necessary.



Other than as stated, 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 March 31, 2006, TransCommunity had a positive cumulative Gap Rate Sensitivity Ratio of 16.41% 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.



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 December 31, 2005:



|                            |                        |           |  |   |                    |  |   |           |  |   |           |  |   |                  
|--------------------------- | ---------------------- | --------- |  | - | ------------------ |  | - | --------- |  | - | --------- |  | - | -----------------
|                            | Payments due by period
|                            |                        | Total     |  |   | Less than One Year |  |   | 1-3 Years |  |   | 3-5 Years |  |   | More than 5 Years
|Contractual Obligations:    |                        |           |  |   |                    |  |   |           |  |   |           |  |   |                  
|Operating lease obligations | $                      | 3,635,231 |  | $ | 484,415            |  | $ | 956,126   |  | $ | 954,920   |  | $ | 1,239,770        
|Data processing services    |                        | 1,462,989 |  |   | 531,996            |  |   | 930,993   |  |   | -         |  |   | -                
|Total                       | $                      | 5,098,220 |  | $ | 1,016,411          |  | $ | 1,887,119 |  | $ | 954,920   |  | $ | 1,239,770        





As of March 31, 2006, there have been no material changes to the contractual obligations listed above.







---

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TransCommunity's interest sensitivity analysis is shown below:





|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|------------------------------------------------------- |  | ------------ | ---------- |  | ---------- | ---------- | - | ----------- | ---------- | ------ | ---------- | ---------- | - | ----------- | ----------- | - | ----------- | -
|TRANSCOMMUNITY FINANCIAL CORPORATION                   
|INTEREST SENSITIVITY ANALYSIS                          
|March 31, 2006                                         
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|                                                        |  |              |            |  |            |            |   | 1 - 365     |            | 1 to 5 |            | Over 5     |   |             |            
|                                                        |  |              |            |  |            |            |   | Days        |            | Years  |            | Years      |   | Total      
|Uses of Funds:                                          |  |              |            |  |            |            |   |             |            |        |            |            |   |             |            
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Loans:                                                  |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |  
|Real estate                                             |  |              |            |  |            |            |   |             |            |        |            |            |   |             |            
|                                                        |  | Construction |            |  |            |            | $ | 15,224,286  |            | $      | 1,169,068  |            | $ | -           |             | $ | 16,393,354 
|                                                        |  | Residential  |            |  |            |            |   | 17,672,526  |            |        | 5,809,339  |            |   | 1,916,573   |             |   | 25,398,438 
|                                                        |  | Commercial   |            |  |            |            |   | 39,774,320  |            |        | 16,616,621 |            |   | 2,461,946   |             |   | 58,852,887 
|Commercial, industrial and agricultural                 |  |              |            |  | 14,493,014 |            |   | 8,432,175   |            |        | 471,347    |            |   | 23,396,536 
|Consumer and installment                                |  |              |            |  | 4,672,793  |            |   | 2,867,120   |            |        | 72,279     |            |   | 7,612,192  
|All other                                               |  |              |            |  |            | 435,870    |   |             | 25,122     |        |            | -          |   |             | 460,992    
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Total Loans                                             |  |              |            |  |            | 92,272,809 |   |             | 34,919,445 |        |            | 4,922,145  |   |             | 132,114,399
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Federal funds sold                                      |  |              |            |  |            | 8,965,608  |   |             | -          |        |            |            |   |             | 8,965,608  
|Investment securities held to maturity, at cost         |  |              | 18,992,748 |  |            | 5,399,916  |   |             | 1,000,000  |        |            | 25,392,664
|Investment securities available for sale, at fair value |  |              | 4,979,064  |  |            | 2,375,009  |   |             | -          |        |            | 7,354,073 
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Total                                                   |  |              |            |  |            |            | $ | 125,210,229 |            | $      | 42,694,370 |            | $ | 5,922,145   |             | $ | 173,826,744
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Sources of Funds:                                       |  |              |            |  |            |            |   |             |            |        |            |            |   |             |            
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Demand Deposits -                                       |  |              |            |  |            |            |   |             |            |        |            |            |   |             |            
|Interest bearing                                        |  |              |            |  | $          | 37,112,653 |   | $           | -          |        | $          | -          |   | $           | 37,112,653 
|Savings accounts                                        |  |              |            |  |            | 10,753,158 |   |             | -          |        |            | -          |   |             | 10,753,158 
|Time Deposits > $100,000                                |  |              |            |  | 16,398,715 |            |   | 13,782,433  |            |        | -          |            |   | 30,181,148 
|Time Deposits < $100,000                                |  |              |            |  | 20,974,254 |            |   | 24,770,700  |            |        | -          |            |   | 45,744,954 
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Total interest-bearing deposits                         |  |              |            |  | 85,238,780 |            |   | 38,553,133  |            |        | -          |            |   | 123,791,913
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Federal funds purchased                                 |  |              |            |  |            | 1,049,000  |   |             | -          |        |            | -          |   |             | 1,049,000  
|Secured Borrowings                                      |  |              |            |  |            | 10,396,845 |   |             | -          |        |            | -          |   |             | 10,396,845 
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             | -
|Total                                                   |  |              |            |  |            |            | $ | 96,684,625  |            | $      | 38,553,133 |            | $ | -           |             | $ | 135,237,758
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Discrete Gap                                            |  |              |            |  | $          | 28,525,604 |   | $           | 4,141,237  |        | $          | 5,922,145  |   | $           | 38,588,986 
|Cumulative Gap                                          |  |              |            |  | $          | 28,525,604 |   | $           | 32,666,841 |        | $          | 38,588,986 |   |             |            
|                                                        |  |              |            |  |            |            |   |             |            |        |            |            |   |             |             |   |             |  
|Ratio of Cumulative Gap                                 |  |              |            |  |            |            |   |             |            |        |            |            |   |            
|to Total Earning Assets                                 |  |              |            |  | 16.41%     |            |   | 18.79%      |            |        | 22.20%     |            |   |            











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Future Prospects



TransCommunitys strategy is to grow principally through the establishment of de novo banks in relatively under-banked communities experiencing faster-than-average growth.  Newly-chartered banking institutions normally experience losses during their early years of operation, as it takes time to build a loan portfolio generating sufficient interest income to offset operating costs.



Management anticipates that Bank of Powhatan and Bank of Goochland will experience continued growth during 2006.  Bank of Powhatan and Bank of Goochland have recouped their original capital and are in a position to pay dividends to TransCommunity.



TransCommunitys newest bank subsidiary, Bank of Louisa, as well as future de novo banks such as the proposed Bank of Rockbridge, will initially experience operating losses as they establish their customer base, but TransCommunity anticipates that each de novo affiliate will reach profitability as it executes TransCommunitys community banking strategy and takes advantage of the operational cost savings afforded by using TransCommunitys common operating platform of shared services.



|        |                                                           
|------- | ----------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk



Not Applicable.











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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/A, 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.



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 March 31, 2006. 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. The material weakness resulted in the restatement of the financial statements for such periods, as described elsewhere in this periodic report on Form 10-Q/A.



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 more fully described in Note 25 of the Notes to Consolidated Financial Statements in our 2005 Form 10KSB/A, we discovered accounting errors in our previously reported financial results for 2005 and concluded on August 10, 2006 that previously issued financial statements would need to be restated due to the determination that there was a material weakness in our internal control over financial reporting.  A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of March 31, 2006, we identified the following material weakness:



·

The Companys methods of accounting and documentation for loans participated to third-parties failed certain tests to qualify for sale accounting treatment under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125.  Specifically, the Company discovered that it had incorrectly accounted for loans subject to certain loan participation agreements entered into with third-party financial institutions from the second quarter of 2004.  During the second quarter of 2004, the Company implemented an automated loan documentation system which contained the option to include certain language that provided for termination of the participation agreement.  This right to repurchase the participated balance allows the Company to retain a level of control over the loans sold to third parties.  This termination clause allowed the







---

Page 25



originating institution to repurchase the loans sold to third parties, which failed certain tests to qualify for sale accounting treatment under FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a replacement of FASB Statement No. 125.  The Company had previously not reflected the participated balances of loans subject to these agreements on its balance sheet, which amounted to $10.4 million and $12.5 million at March 31, 2006 and December 31, 2005, respectively.



In September 2006, the Company amended the loan participation agreements to eliminate the right to repurchase the participated balance and adopted accounting controls to report the loans at issue properly under FASB Statement No. 140 in the future.  In addition, during 2006, the Company recruited personnel to our organization and promoted others who have expertise in financial controls and reporting, including a new chief financial officer and a corporate controller, made other changes in accounting personnel, and retained outside experts to improve the overall quality and level of experience of our organization.



In connection with the restatement identified above, we also identified a significant deficiency in internal control over financial reporting.  A significant deficiency is a control deficiency, or a combination of internal control deficiencies, that adversely affects a company's ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles.  The significant deficiency in internal control over financial reporting is as follows:



·

The Companys methods of accounting and record generation and maintenance for loan origination costs and for amortizing fees are inadequate. In misapplying Statement of Financial Accounting Standards No. 91, Accounting for Non-Refundable Fees and Costs Associated with Originating or Acquiring Loans and Indirect Costs of Leases (FAS 91), the Company has applied an incorrect income recognition method.



The significant deficiency that we have identified does not have a material impact on the Companys financial data and other financial results for any of the years presented in this Form 10-Q/A.



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.



Additionally, we are considering centralizing certain operational areas to provide a clearer segregation of responsibilities in connection with origination and monitoring activities.  The Company has identified a consultant to help the Company analyze its alternatives and implement any recommended process improvements.  The Company expects to receive the consultants recommendations by the end of January 2007.



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







---

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educate and train our employees on our existing policies and procedures in our effort to constantly improve our internal controls and control environment.



Other than as described above, there were no changes in the Companys internal control over financial reporting in the quarter ended March 31, 2006 that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



Part II

Other Information



Item 1.

Legal Proceedings



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



Item 1A.

Risk Factors



Pursuant to the transition guidance provided by the staff of the Division of Corporation Finance, this item is not applicable to TransCommunity since it will not be required to file its first 10-K requiring the inclusion of risk factors until it files its 10-K for the fiscal year ending December 31, 2006.  TransCommunity voluntarily included risk factors in its form 10-KSB for the fiscal year ended December 31, 2005, and there have been no material changes to those risk factors.



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



None.







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Page 27





Item 6.

Exhibits



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





|            |                                                                                                                                                                                               
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. | Description of Exhibits                                                                                                                                                                       
|            |                                                                                                                                                                                               
|3.1         | Articles of Incorporation of TransCommunity (as amended May 24, 2005) (1)                                                                                                                     
|            |                                                                                                                                                                                               
|3.2         | Bylaws of TransCommunity (as amended April 26, 2006) (2)                                                                                                                                      
|            |                                                                                                                                                                                               
|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 Sabanes-Oxley Act of 2002 (filed herewith)





|    |  |                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form SB-2 (No. 333-125560) filed with the Commission on June 6, 2005.
|(2) |  | Incorporated by reference to Exhibit 3.2 to the Companys Current Report on Form 8-K filed with the Commission on May 2, 2006                            















---

Page 28









SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |                              
|---------------------- | -----------------------------
|                       | TRANSCOMMUNITY FINANCIAL     
|                       | CORPORATION                  
|                       | (Registrant)                 
|                       |                              
|Date: January 22, 2007 | /s/ Bruce B. Nolte           
|                       | Bruce B. Nolte               
|                       | Chief Executive Officer      
|                       | (principal executive officer)





|                       |                                             
|---------------------- | --------------------------------------------
|                       | TRANSCOMMUNITY FINANCIAL                    
|                       | CORPORATION                                 
|                       | (Registrant)                                
|                       |                                             
|Date: January 22, 2007 | /s/ William B. Littreal                     
|                       | William B. Littreal                         
|                       | Chief Financial Officer                     
|                       | (principal financial and accounting officer)