Edgar Filing: Community Bankers Acquisition Corp.

Meeting Date, Time, and Place and Record Date

The Community Bankers board of directors is providing this joint proxy statement/prospectus to you in connection with its solicitation of proxies for use at the special meeting of Community Bankers’ stockholders and at any adjournments or postponements of the special meeting.

Your vote is important. Please complete, date and sign the accompanying proxy card and return it in the enclosed, postage prepaid envelope. If your shares are held in “street name,” you should instruct your broker how to vote by following the directions provided by your broker.

Community Bankers will hold the special meeting on , 2008, at .m., local time, at . Only holders of Community Bankers common stock of record at the close of business on , 2008, the Community Bankers record date, will be entitled to receive notice of and to vote at the special meeting. As of the record date, there were shares of Community Bankers common stock outstanding and entitled to vote, with each such share entitled to one vote.

Matters to be Considered

At the special meeting, Community Bankers’ stockholders will be asked to:


	•	adopt the Agreement and Plan of Merger, dated as of December 13, 2007, by and between Community Bankers and BOE, pursuant to which BOE will merge with and into Community Bankers and shares of BOE common stock will be converted into the right to receive 5.7278 shares of Community Bankers common stock, subject to possible adjustment as described in this joint proxy statement/prospectus and cash instead of fractional shares as further described in this joint proxy statement/prospectus;

	•	adopt an amendment to the certificate of incorporation of Community Bankers. At the annual meeting of stockholders on , 2008, Community Bankers stockholders are being asked to adopt two amendments to the certificate of incorporation to be effected upon consummation of the merger with TransCommunity: an amendment to reset the terms of the classes of Community Bankers’ directors and an amendment to change the corporation’s name to “Community Bankers Trust Corporation.” At the special meeting, Community Bankers is asking its stockholders to adopt an additional amendment to the certificate of incorporation, the purpose of which is to further reset the terms of the classes of Community Bankers’ directors. If Community Bankers’ stockholders adopt the amendment to the certificate of incorporation, then upon consummation of the merger Community Bankers’ certificate of incorporation will be amended to continue the staggered board and reset the terms of the various classes of directors; and


	•	authorize the board of directors to adjourn the special meeting to allow time for further solicitation of proxies in the event there are insufficient votes, present in person or represented by proxy at the special meeting, to approve the proposals.

Unless Community Bankers and BOE agree otherwise, the merger will only be consummated if the stockholders of Community Bankers approve the to adopt the amendment to the certificate of incorporation. In addition, the amendment to the certificate of incorporation will only be effected in the event and at the time the merger with BOE is consummated.

Finally, Community Bankers’ stockholders may also be asked to consider any other business that properly comes before the special meeting. Each copy of this joint proxy statement/prospectus mailed to Community Bankers’ stockholders is accompanied by a proxy card for use at the special meeting.

Authorization to Vote on Adjournment


	•	Adoption of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Community Bankers common stock entitled to vote at the special meeting.

	•	Adoption of the amendment to the certificate of incorporation requires the affirmative vote of the holders of a majority of the outstanding shares of Community Bankers common stock entitled to vote at the special meeting.

	•	Authorization for the board of directors to adjourn the special meeting requires the affirmative vote of the holders of a majority of the shares of Community Bankers common stock, present in person or represented by proxy and entitled to vote at the special meeting, whether or not a quorum is present.

On the record date, there were outstanding shares of Community Bankers common stock, each of which is entitled to one vote at the special meeting. On that date, the directors and executive officers of Community Bankers and their affiliates beneficially owned a total of approximately % of the outstanding shares of Community Bankers common stock.

Quorum

The presence in person or representation by proxy, of shares of Community Bankers common stock representing a majority of Community Bankers outstanding shares entitled to vote at the special meeting is necessary in order for there to be a quorum at the special meeting. A quorum must be present in order for the vote on the merger agreement and the proposal to adopt the amendment to the certificate of incorporation. If there is no quorum present at the opening of the meeting, the special meeting may be adjourned by the vote of a majority of the shares of Community Bankers common stock, present in person or represented by proxy and entitled to vote at the special meeting.

Voting of Proxies

Shares of common stock represented by properly executed proxies received at or prior to the Community Bankers special meeting will be voted at the special meeting in the manner specified by the holders of such shares. If you are a stockholder of record (that is, you hold stock certificates registered in your own name), you may vote by following the instructions described on your proxy card. If your shares are held in nominee or “street name,” you will receive separate voting instructions from your broker or nominee with your proxy materials. If you hold your shares in “street name,” you can either obtain physical delivery of the shares directly into your name, and then vote your shares yourself, or request a “legal proxy” directly from your broker and bring it to the special meeting, and then vote your shares yourself. In order to obtain shares directly into your name, you must contact your brokerage house representative. Brokerage firms may assess a fee for your conversion; the amount of such fee varies.

Properly executed proxies that do not contain voting instructions will be voted “FOR” approval of the merger agreement, approval of the proposal to adopt the amendment to the certificate of incorporation, and approval of the proposal to authorize adjournment.

Shares of any stockholder present in person or represented by proxy (including broker non-votes, which generally occur when a broker who holds shares in street name for a customer does not have the authority to vote on certain non-routine matters because its customer has not provided any voting instructions with respect to the matter) at the special meeting who abstains from voting will be counted for purposes of determining whether a quorum exists.

Abstaining from voting (including by way of a broker non-vote), either in person or by proxy, will have the same effect as a vote against the adoption of the merger agreement and adoption of the amendment to the certificate of incorporation, but will have no effect on authorization to adjourn the special meeting. Accordingly, Community Bankers’ board of directors urges its stockholders to complete, date and sign the accompanying proxy card and return it promptly in the enclosed, postage-paid envelope.

Revocability of Proxies

The grant of a proxy on the enclosed proxy card does not preclude you from voting in person or otherwise revoking your proxy. If you are a stockholder of record, there are a number of ways you can change your vote. First, you may send a written notice to the person to whom you submitted your proxy stating that you would like to revoke your proxy. Second, you may complete and submit a later dated proxy with new voting instructions. Third, you may attend the special meeting and vote in person. The latest vote actually received by Community Bankers prior to or at the special meeting will be your vote. Any earlier votes will be revoked. Simply attending the special meeting without voting, however, will not revoke your proxy.

If you have instructed a broker to vote your shares, you must follow the directions you will receive from your broker to change or revoke your proxy.

Solicitation of Proxies

Community Bankers will pay all of the costs of filing the registration statement with the SEC (of which this joint proxy statement/prospectus is a part) and of soliciting proxies in connection with the special meeting. Community Bankers will also pay the costs associated with printing the copies of this joint proxy statement/prospectus that are sent to Community Bankers stockholders and the mailing fees associated with mailing this joint proxy statement/prospectus to Community Bankers stockholders. Solicitation of proxies may be made in person or by mail, telephone, or other electronic means, or other form of communication by directors, officers, and stockholders of Community Bankers who will not be specially compensated for such solicitation. In addition, Community Bankers may engage a proxy solicitation firm. In that event such firm’s fees will be paid with non-trust account funds. Banks, brokers, nominees, fiduciaries, and other custodians will be requested to forward solicitation materials to beneficial owners and to secure their voting instructions, if necessary, and will be reimbursed for the expenses incurred in sending proxy materials to beneficial owners.

No person is authorized to give any information or to make any representation not contained in this joint proxy statement/prospectus and, if given or made, such information or representation should not be relied upon as having been authorized by Community Bankers, BOE, or any other person. The delivery of this joint proxy statement/prospectus does not, under any circumstances, create any implication that there has been no change in the business or affairs of Community Bankers or BOE since the date of this joint proxy statement/prospectus.

At the special meeting, you are being asked to grant authority to the board of directors to adjourn the special meeting to allow time for further solicitation of proxies in the event there are insufficient votes present in person or represented by proxy at the special meeting, to approve the proposals to be considered by Community Bankers stockholders. If you do not specify whether authority is granted or withheld, the proxy will be voted to grant authority to adjourn. Community Bankers has no plans to adjourn the special meeting at this time, but intends to do so, if needed, to promote stockholder interests.

Recommendation of the Board of Directors

The Community Bankers board of directors has unanimously determined that the proposals and the transactions contemplated thereby are in the best interests of Community Bankers and its stockholders. The members of the Community Bankers board of directors unanimously recommend that the Community Bankers stockholders vote at the special meeting to adopt the merger agreement, adopt the amendment to the certificate of incorporation and authorize the board of directors to adjourn the special meeting to a later date or dates, if necessary, to allow time for further solicitation of proxies in the event there are insufficient votes present in person or represented by proxy at the special meeting, to approve the proposals.

In the course of reaching its decision to approve the merger agreement and the transactions contemplated thereby, the Community Bankers board of directors, among other things, consulted with its legal advisors, Nelson Mullins Riley & Scarborough LLP, regarding the legal terms of the merger agreement and with its financial advisor, Keefe, Bruyette & Woods, Inc., as to the fairness, from a financial point of view, to Community Bankers, of the consideration to be received by the holders of BOE common stock in the merger. For a discussion of the factors considered by the Community Bankers board of directors in reaching its conclusion, see “The Merger — Community Bankers’ Reasons for the Merger” and “The Merger — Opinion of Community Bankers’ Financial Advisor.”

Community Bankers’ stockholders should note that Community Bankers’ directors and officers have certain interests in, and may derive benefits as a result of, the merger that are in addition to their interests as stockholders of Community Bankers. See “The Merger — Certain Benefits of Directors and Officers of Community Bankers and BOE.”

BOE SPECIAL MEETING

Meeting Date, Time, and Place and Record Date

The BOE board of directors is providing this joint proxy statement/prospectus to you in connection with its solicitation of proxies for use at the special meeting of BOE’s stockholders and at any adjournments or postponements of the special meeting.

Community Bankers is also providing this joint proxy statement/prospectus to you as a prospectus in connection with the offer and sale by Community Bankers of shares of its common stock to stockholders of BOE in the merger.

BOE will hold the special meeting on , 2008, at .m., local time, at . Only holders of BOE common stock of record at the close of business on , 2008, the BOE record date, will be entitled to receive notice of and to vote at the special meeting. As of the record date, there were shares of BOE common stock outstanding and entitled to vote, with each such share entitled to one vote.

Matters to be Considered

At the special meeting, BOE’s stockholders will be asked to:


	•	approve the Agreement and Plan of Merger, dated as of December 13, 2007, by and between Community Bankers and BOE, pursuant to which BOE will merge with and into Community Bankers and shares of BOE common stock will be converted into the right to receive 5.7278 shares of Community Bankers common stock, subject to possible adjustment as described in this joint proxy


		statement/prospectus and cash instead of fractional shares as further described in this joint proxy statement/prospectus; and


	•	authorize the board of directors to adjourn the special meeting to allow time for further solicitation of proxies in the event there are insufficient votes present at the special meeting, in person or by proxy, to approve the merger agreement.

Each copy of this joint proxy statement/prospectus mailed to BOE’s stockholders is accompanied by a proxy card for use at the special meeting.

Authorization to Vote on Adjournment


	•	Approval of the merger proposal requires approval by more than two-thirds of all votes entitled to be cast by the holders of BOE common stock.

	•	Approval of the proposal to authorize adjournment requires that the votes cast favoring the action to exceed the votes cast opposing the action, whether or not a quorum is present.

On the record date, there were outstanding shares of BOE common stock, each of which is entitled to one vote at the special meeting. On that date, the directors and executive officers of BOE and their affiliates beneficially owned a total of approximately % of the outstanding shares of BOE common stock. Each of BOE’s directors and executive officers has agreed, subject to several conditions, to vote his or her shares of BOE common stock in favor of the merger agreement.

Quorum

The presence, in person or by proxy, of a majority of the votes entitled to be cast on a matter is necessary in order for there to be a quorum at the special meeting. A quorum must be present in order for the vote on the merger agreement to occur. If there is no quorum present at the opening of the meeting, the special meeting may be adjourned by the vote of a majority of shares voting on the motion to adjourn.

Voting of Proxies

Shares of common stock represented by properly executed proxies received at or prior to the BOE special meeting will be voted at the special meeting in the manner specified by the holders of such shares. If you are a stockholder of record (that is, you hold stock certificates registered in your own name), you may vote by following the instructions described on your proxy card. If your shares are held in nominee or “street name,” you will receive separate voting instructions from your broker or nominee with your proxy materials. If you hold your shares in “street name,” you can either obtain physical delivery of the shares directly into your name, and then vote your shares yourself, or request a “legal proxy” directly from your broker and bring it to the special meeting, and then vote your shares yourself. In order to obtain shares directly into your name, you must contact your brokerage house representative. Brokerage firms may assess a fee for your conversion; the amount of such fee varies.

Properly executed proxies which do not contain voting instructions will be voted “FOR” approval of the merger agreement and of the proposal to authorize adjournment.

Shares of any stockholder represented in person or by proxy (including broker non-votes, which generally occur when a broker who holds shares in street name for a customer does not have the authority to vote on certain non-routine matters because its customer has not provided any voting instructions with respect to the matter) at the special meeting who abstains from voting will be counted for purposes of determining whether a quorum exists.

Abstaining from voting (including by way of a broker non-vote), either in person or by proxy, will have the same effect as a vote against approval of the merger agreement. Accordingly, the BOE board of directors urges its stockholders to complete, date and sign the accompanying proxy card and return it promptly in the enclosed, postage-paid envelope.

Revocability of Proxies

The grant of a proxy on the enclosed proxy card does not preclude you from voting in person or otherwise revoking your proxy. If you are a stockholder of record, there are a number of ways you can change your vote. First, you may send a written notice to the person to whom you submitted your proxy stating that you would like to revoke your proxy. Second, you may complete and submit a later dated proxy with new voting instructions. Third, you may attend the special meeting and vote in person. The latest vote actually received by BOE prior to or at the special meeting will be your vote. Any earlier votes will be revoked. Simply attending the special meeting without voting, however, will not revoke your proxy.

If you have instructed a broker to vote your shares, you must follow the directions you will receive from your broker to change or revoke your proxy.

Solicitation of Proxies

BOE will pay all of the costs of soliciting proxies in connection with the BOE special meeting, except that Community Bankers will pay the costs of filing the registration statement with the SEC, of which this joint proxy statement/prospectus is a part. BOE will also pay costs associated with the printing of the copies of this joint proxy statement/prospectus that are sent to BOE stockholders and the mailing fees associated with mailing this joint proxy statement/prospectus to BOE stockholders. Solicitation of proxies may be made in person or by mail, telephone, or facsimile, or other form of communication by directors, officers and employees of BOE who will not be specially compensated for such solicitation. Nominees, fiduciaries, and other custodians will be requested to forward solicitation materials to beneficial owners and to secure their voting instructions, if necessary, and will be reimbursed for the expenses incurred in sending proxy materials to beneficial owners.

No person is authorized to give any information or to make any representation not contained in this joint proxy statement/prospectus and, if given or made, such information or representation should not be relied upon as having been authorized by BOE, Community Bankers or any other person. The delivery of this joint proxy statement/prospectus does not, under any circumstances, create any implication that there has been no change in the business or affairs of BOE or Community Bankers since the date of this joint proxy statement/prospectus.

At the special meeting, you are being asked to grant authority to the board of directors to adjourn the special meeting to allow time for further solicitation of proxies in the event there are insufficient votes represented in person or by proxy at the special meeting, to approve the merger agreement. If you do not specify whether authority is granted or withheld, the proxy will be voted to grant authority to adjourn. BOE has no plans to adjourn the special meeting at this time, but intends to do so, if needed, to promote stockholder interests.

Recommendation of the Board of Directors

The BOE board of directors has unanimously determined that the merger proposal and the transactions contemplated thereby are in the best interests of BOE and its stockholders. The members of the BOE board of directors unanimously recommend that the BOE stockholders vote at the special meeting to approve the merger proposal and the proposal to adjourn the special meeting to allow time for further solicitation of proxies in the event there are insufficient votes represented in person or by proxy at the special meeting to approve the merger proposal.

In the course of reaching its decision to approve the merger proposal and the transactions contemplated thereby, the BOE board of directors, among other things, consulted with its legal advisors, LeClairRyan, A Professional Corporation, regarding the legal terms of the merger agreement and with its financial advisor, Feldman Financial Advisors, Inc., as to the fairness, from a financial point of view, to BOE stockholders of the consideration to be received by the holders of BOE common stock in the merger. For a discussion of the

factors considered by the BOE board of directors in reaching its conclusion, see “The Merger — BOE’s Reasons for the Merger” and “The Merger — Opinion of BOE’s Financial Advisor.”

BOE’s stockholders should note that BOE directors and officers have certain interests in, and may derive benefits as a result of, the merger that are in addition to their interests as stockholders of BOE. See “The Merger — Certain Benefits of Directors and Officers of Community Bankers and BOE.”

THE MERGER

The descriptions of the terms and conditions of the merger proposal, the merger agreement and any related documents in this joint proxy statement/prospectus are qualified in their entirety by reference to the copy of the merger agreement attached as Appendix A to this joint proxy statement/prospectus, to the registration statement, of which this joint proxy statement/prospectus is a part, and to the exhibits to the registration statement.

Structure of the Merger

The merger agreement provides for the merger of BOE with and into Community Bankers. Community Bankers will be the surviving corporation in the merger. Bank of Essex, a wholly owned subsidiary of BOE, will merge with TransCommunity Bank, which will have become a wholly owned subsidiary of Community Bankers following the merger with TransCommunity, with Bank of Essex as the surviving bank. Each share of BOE common stock issued and outstanding at the effective time of the merger (except for shares held by Community Bankers, BOE and Bank of Essex that are not held in a fiduciary capacity or as a result of previously contracted for debts), will be converted into shares of Community Bankers common stock and cash instead of fractional shares, as described below. The directors of Community Bankers will be comprised of fourteen directors: two directors nominated by Community Bankers, six directors nominated by TransCommunity and six directors nominated by BOE. Following the merger, the directors of the surviving bank also will be comprised of fourteen directors: two nominated by Community Bankers, six nominated by TransCommunity and six nominated by BOE. Alexander F. Dillard, Jr., current chairman of BOE, will be chairman of Community Bankers upon consummation of the merger.

Following the merger, the surviving corporation will file an amended and restated certificate of incorporation, substantially in the form attached as Appendix B to this joint proxy statement/prospectus, including the amendment being considered by Community Bankers’ stockholders at the special meeting, assuming it is adopted. In the event the Community Bankers stockholders do not approve the proposal to adopt the amendment to the certificate of incorporation, the merger will not be completed unless Community Bankers and BOE agree otherwise.

Background of the Merger

In early November 2006, Gary A. Simanson, president and chief executive officer of Community Bankers, contacted Alexander F. Dillard, Jr., chairman of BOE, to introduce himself and engage in a general discussion regarding the banking environment in Virginia, the history of BOE and its subsidiary bank, Bank of Essex. Mr. Simanson and Mr. Dillard also discussed Mr. Simanson’s experience and the concept of offering community banks in the region a different alternative for consolidating that would still maintain a local identity.

On November 21, 2006, Mr. Simanson met with Mr. Dillard at his offices in Tappahannock, Virginia, to continue their general discussion. Based on this meeting, Mr. Dillard invited Mr. Simanson to return to Tappahannock to meet with the executive management team of BOE.

On November 30, 2006, Mr. Simanson met with Mr. Dillard, together with the executive management of BOE that included George M. Longest, Jr., president and chief executive officer of BOE, Bruce E. Thomas, chief financial officer of BOE, and William E. Saunders, Jr., chief risk and compliance officer of BOE, to discuss further their backgrounds and views on the banking industry in Virginia and to explore on a preliminary basis the advisability of a possible business combination between Community Bankers and BOE.

Based on this meeting, Mr. Simanson contacted Keefe, Bruyette & Woods, Inc. to serve as financial advisor for Community Bankers in connection with a potential transaction with BOE. Mr. Simanson also contacted Nelson Mullins Riley & Scarborough LLP to serve as legal counsel to Community Bankers.

On January 16, 2007, Messrs. Simanson, Dillard, Longest, Thomas and Saunders met in Richmond, Virginia, at the offices of BOE’s legal counsel to discuss the relative merits and risks of a possible merger transaction. At this meeting, Mr. Simanson presented a proposal for a merger of the companies and the basic proposed terms of a definitive merger agreement. Subsequent to this meeting, the parties held a number of further discussions and meetings and reviewed the proposed transaction with their respective legal and financial advisors and boards of directors.

In March 2007, the parties determined that BOE, at that time, was not interested in entering into a merger upon the general terms proposed by Community Bankers, and the parties discontinued any further discussions.

In June 2007, Community Bankers initiated discussions with TransCommunity, which ultimately led to Community Bankers and TransCommunity entering into a definitive agreement, dated September 5, 2007, whereby TransCommunity would merge with and into Community Bankers.

Shortly after the announcement of the proposed transaction with TransCommunity, Mr. Simanson contacted Messrs. Dillard and Longest to discuss the TransCommunity transaction and to inquire about arranging a meeting with representatives of TransCommunity, BOE and Mr. Simanson. On September 27, 2007, Mr. Simanson advised TransCommunity of the interest of Community Bankers in exploring a merger with BOE and in having representatives of management of TransCommunity attend a meeting with BOE.

At its monthly meeting on September 27, 2007, Mr. Longest advised the BOE board of directors that Mr. Simanson had contacted him regarding the announced transaction with TransCommunity and the interest of Community Bankers in pursuing further discussions with BOE. The BOE board of directors appointed a special committee to explore whether BOE should engage in further discussions with Community Bankers concerning a possible merger. The BOE special committee included Messrs. Dillard and Longest, together with L. McCauley Chenault, Page Emerson Hughes, Jr., and Philip T. Minor. The BOE special committee determined that it would be advisable for BOE to engage in further discussions with Community Bankers and to obtain the information necessary to make an informed recommendation to the full board of directors.

On October 1, 2007, Mr. Simanson met with Mr. Longest to convey Community Bankers’ interest in re-examining a potential merger with BOE and how such a merger would fit in with the proposed merger of TransCommunity and Community Bankers.

On October 4, 2007, Mr. Simanson, along with Bruce B. Nolte, president and chief executive officer of TransCommunity, and M. Andrew McLean, president of TransCommunity Bank, met with Messrs. Dillard and Longest. A general discussion was shared regarding the proposed merger of Community Bankers with TransCommunity and the common experiences of BOE and TransCommunity in the Richmond banking market.

On October 10, 2007, Messrs. Simanson, Dillard and Longest met with representatives of the Federal Reserve Bank of Richmond and the Bureau of Financial Institutions of the Virginia State Corporation Commission with respect to the regulatory and related issues involved in a potential merger of BOE and Community Bankers and the impact such a transaction may have on the proposed merger of TransCommunity and Community Bankers. Mr. Simanson also met with Mr. Nolte on October 10, 2007, to discuss the potential merits of a merger transaction with BOE. Discussions between representatives of BOE and Community Bankers continued over the next couple of weeks.

In a conference call on October 23, 2007 with the BOE special committee, Mr. Longest brought the committee up to date on management’s analysis of Community Bankers and TransCommunity. The BOE special committee determined that the full board of directors should be informed and brought up to date concerning the developments with Community Bankers, with a recommendation that BOE continue its discussions with Community Bankers.

At its regular monthly meeting on October 24, 2007, the BOE board of directors was advised of the work of the special committee and management’s analysis of a potential merger with Community Bankers. The BOE board of directors authorized management to continue discussions with Community Bankers, to proceed with the necessary and appropriate on-site due diligence investigations, and to retain a financial advisory firm and legal counsel. Feldman Financial Advisors, Inc. was retained to serve as the financial advisor for BOE, and LeClairRyan, A Professional Corporation, was retained as legal counsel.

During Community Bankers’ regularly scheduled board of directors meeting on October 29, 2007, Mr. Simanson apprised the board of directors of the developments in the discussions with BOE and requested formal approval of and authority to continue discussions with BOE. The Community Bankers’ board of directors unanimously authorized Mr. Simanson to continue to pursue discussions with BOE to the end that a definitive agreement be presented to the board of directors for further consideration.

On November 4, 2007, members of BOE’s and TransCommunity’s respective special committees, along with Mr. Simanson, held a dinner meeting at the offices of Mr. Dillard to discuss further a potential merger of BOE with Community Bankers and to get acquainted socially.

On November 5, 2007, counsel for Community Bankers delivered to BOE and its counsel a draft of the definitive merger agreement. Negotiations began immediately between counsel for Community Bankers and BOE over the terms and conditions of the draft merger agreement.

During the weekend of November 9-11, 2007, Community Bankers, TransCommunity and Keefe, Bruyette & Woods, Inc. conducted on-site due diligence investigation of BOE. During the following weekend, BOE and its financial and legal advisors performed an on-site due diligence investigation of TransCommunity that included interviews with Mr. Simanson and members of management of TransCommunity.

On November 20, 2007, the BOE special committee held a conference call with its financial and legal advisors. The BOE special committee agreed on a price range that represented what they considered a fair price and directed Trent R. Feldman, of Feldman Financial, to negotiate directly with Community Bankers on the its behalf with respect to certain financial issues. Negotiations continued between counsel concerning various other terms and conditions set forth in the merger agreement, including the terms and conditions of the proposed employment agreements between Community Bankers and Messrs. Longest and Thomas that would become effective upon the closing of the merger.

On November 28, 2007, the BOE special committee met with BOE’s financial and legal advisors. Mr. Feldman presented certain financial information and indicated that Community Bankers was willing to offer $42.50 for each share of BOE common stock, which corresponded to 5.7278 shares of Community Bankers’ common stock based on an agreed value of $7.42 for each share of such stock. After discussion, the BOE special committee requested that management call a special board meeting on November 30, 2007, to bring the BOE board of directors up to date and hear the presentations from BOE’s financial and legal advisors.

On November 30, 2007, the BOE board of directors met to consider the proposed merger. Representatives from LeClairRyan, A Professional Corporation, and Feldman Financial were present. Management reviewed for the BOE board of directors the progress of its negotiations with Community Bankers and reported on the status of its due diligence investigation of Community Bankers and TransCommunity. Counsel for BOE discussed with the board of directors the legal standards applicable to its decisions and actions with respect to its consideration of the proposed merger, and reviewed the structure and legal terms and conditions of the proposed merger agreement and related agreements, including the terms of the proposed employment agreements for Messrs. Longest and Thomas. Representatives of Feldman Financial reviewed with the BOE board of directors the financial terms of the merger and financial information regarding Community Bankers,

TransCommunity, BOE and the merger, as well as information regarding peer companies and comparable transactions. Representatives from Feldman Financial indicated to the BOE board of directors that it would be prepared to render an opinion that the exchange ratio was fair, from a financial point of view, to BOE’s stockholders. After discussion, the BOE board of directors decided to meet on December 3, 2007, without the participation of its financial and legal advisors, to discuss further the potential merger.

On November 30, 2007, the Community Bankers’ board of directors held a special meeting. At that meeting, Mr. Simanson apprised the board of directors that he believed that substantial agreement with BOE had been reached and that BOE’s board of directors was expected to meet on December 5, 2007, and approve the transaction with Community Bankers. Among other things, the Community Bankers’ board of directors discussed the BOE transaction as well as the strategic implications with respect to the merger with TransCommunity, financial statements required for the mergers as a whole and the impact on the timing and cost of the mergers.

The BOE board of directors met on the afternoon of December 3, 2007, with Messrs. Longest and Thomas to discuss and consider the information presented at its meeting on November 30, 2007. The BOE board of directors discussed the history of BOE, its potential for growth going forward considering the current banking environment, and the structure of the combined company after consummation of the merger. There was also a discussion regarding alternatives and how the interest of the stockholders would be best served. After further discussion, the BOE board of directors decided to meet on December 5, 2007, to receive the final reports from its financial and legal advisors.

On December 5, 2007, Community Bankers’ board of directors held a special meeting. At its meeting the Community Bankers’ board of directors received presentations from Nelson Mullins Riley & Scarborough LLP on the legal terms of the merger and merger agreement. The Community Bankers’ board of directors also received a presentation by Keefe, Bruyette & Woods, Inc. on the economics of the proposed BOE transaction. Keefe, Bruyette & Woods, Inc. advised the Community Bankers board of directors that his firm was prepared to issue an opinion that the transaction was fair from a financial point of view to Community Bankers. Community Bankers’ board of directors thereupon approved the form of the BOE merger agreement and authorized the chief executive officer to execute and deliver the merger agreement, subject to the consent of TransCommunity.

Also on December 5, 2007, the BOE board of directors continued its consideration of the proposed merger agreement. Representatives from its financial and legal advisory firms were present. In connection with its deliberations, Feldman Financial rendered to the BOE board of directors its oral opinion that, as of that date, the exchange ratio was fair, from a financial point of view, to BOE’s stockholders. After further review and discussion, the BOE board of directors determined that the transaction contemplated by the merger agreement and the related agreements are advisable and in the best interests of BOE and its stockholders, and the directors voted unanimously to approve the merger with Community Bankers, to approve the merger agreement, and to approve the related agreements. The approvals were made expressly subject to, and contingent upon, the receipt from TransCommunity of its consent to the merger. Accordingly, no executed copies of the merger agreement and related agreements were exchanged with Community Bankers and no public announcement was made.

Over the course of the following week, discussions continued between Community Bankers and TransCommunity concerning the delivery of its consent to the BOE transaction.

On December 12, 2007, Community Bankers’ board of directors held a special meeting at which Community Bankers’ chief executive officer reported on the status of the proposed merger with BOE. Mr. Simanson also reported that, subject to Community Bankers’ board of directors’ approval, he had consented to the payment by TransCommunity of a one-time special dividend payable to its stockholders immediately prior to the closing of the merger with Community Bankers. Community Bankers’ board of directors reaffirmed its approval on December 5, 2007, of the BOE merger agreement and approved Community Bankers’ consent to the payment of the special dividend by TransCommunity.

On December 12, 2007, the BOE board of directors met to receive an update by from management and its financial and legal advisors on the status of the consent from TransCommunity. The meeting was adjourned and reconvened at 5:30 p.m. Management reported that the TransCommunity board of directors voted unanimously to consent to the proposed merger between BOE and Community Bankers and that in anticipation of the mergers, TransCommunity planned to declare a one-time special dividend in the amount of $0.25 per share to TransCommunity stockholders, which would be paid immediately prior to the effective time of the merger with TransCommunity and after all conditions to the closing are satisfied. Representatives of Feldman Financial provided an updated financial analysis of the transaction after taking into account the effect of the payment of the proposed special dividend. Feldman Financial rendered to the BOE board of directors its updated oral opinion, which was subsequently confirmed in writing, as described under “— Opinion of BOE’s Financial Advisor,” that, as of the date of its opinion, the exchange ratio was fair, from a financial point of view, to BOE’s stockholders. After further review and discussion, the BOE board of directors unanimously approved and adopted the merger agreement, dated as of December 13, 2007, and the related agreements, provided that TransCommunity deliver its consent to Community Bankers by 5:00 p.m. on December 13, 2007, with such consent to be in form and substance satisfactory to management of BOE and its counsel.

On December 13, 2007, TransCommunity delivered its consent to Community Bankers approving the merger with BOE, and Community Bankers delivered its consent to TransCommunity to pay the special dividend. Community Bankers and BOE executed the merger agreement on that date and the following day issued a joint press release announcing the transaction.

The Proposed Merger between Community Bankers and TransCommunity

On September 5, 2007, Community Bankers entered into the agreement and plan of merger with TransCommunity. TransCommunity is a registered financial holding company incorporated under the laws of Virginia and is the holding company of TransCommunity Bank. TransCommunity is headquartered in Glen Allen, Virginia and TransCommunity Bank operates five full service offices in its four operating divisions in Goochland, Powhatan, Louisa and Rockbridge, Virginia. TransCommunity Bank had deposits of $192.0 million, loans of $189.0 million, assets of $223.0 million and equity of $29.9 million, at September 30, 2007. The merger agreement by and between Community Bankers and TransCommunity provides for the merger of TransCommunity with and into Community Bankers with Community Bankers as the surviving corporation. The headquarters of the surviving corporation will be the current headquarters of TransCommunity. Following the merger with BOE, TransCommunity Bank will merge with and into Bank of Essex which will be a wholly-owned subsidiary bank of Community Bankers, and will operate each bank division of Bank of Essex under their current names. Community Bankers must complete its merger with TransCommunity by June 7, 2008 or under its certificate of incorporation it must dissolve and liquidate.

Based on the respective companies’ balance sheet at September 30, 2007, assuming no Community Bankers stockholders exercise their conversion rights in the merger with TransCommunity, by combining Community Bankers with TransCommunity and BOE, the resulting company would have approximately $625.6 million in assets, $399.6 million in loans, $433.0 million in deposits and have stockholders equity of approximately $160.9 million. As a result of the proposed merger of Community Bankers and TransCommunity, each share of TransCommunity common stock will be converted into 1.4200 shares of Community Bankers common stock, subject to possible adjustment. If the daily average closing price for Community Bankers’ common stock for the 20 consecutive days of trading in such stock ending five days before the closing date is less than $7.42, Community Bankers will increase the exchange ratio to the quotient obtained by dividing $10.5364 by such daily average closing price. The aggregate consideration to be paid to the stockholders of TransCommunity will be approximately $48.7 million. Upon completion of Community Bankers’ merger with TransCommunity, each award, option, or other right to purchase or acquire shares of TransCommunity common stock pursuant to stock options, stock appreciation rights, or stock awards granted by TransCommunity under TransCommunity’s stock incentive plans, equity compensation plans and stock option plans, which are outstanding immediately prior to the merger, whether or not exercisable, will be converted into and become rights with respect to Community Bankers common stock, and Community Bankers

will assume each right, in accordance with the terms of the relevant TransCommunity stock plan and stock option agreement.

In reaching its decision to approve the merger agreement and recommend the merger to its stockholders, the Community Bankers board of directors reviewed various financial data and due diligence and evaluation materials and made an independent determination of fair market value. In addition, in reaching its decision to approve the merger agreement, the board of directors considered a number of factors, both positive and negative. It believes that the non-exhaustive list of factors below strongly supports its determination to approve the merger agreement and recommendation that its stockholders adopt the merger agreement. The positive factors included:


	•	the markets in which TransCommunity operates;

	•	the growth prospects associated with TransCommunity;

	•	the balance sheet make-up and product mix, including the loan and deposit mix of TransCommunity;

	•	opportunities to grow existing revenue streams and create new revenue streams associated with TransCommunity;

	•	the competitive position of TransCommunity within its operating markets;

	•	the industry dynamics, including barriers to entry;

	•	the experience of the TransCommunity’s board of directors and management, including Bruce Nolte, the current president and chief executive officer of TransCommunity who will become president and chief executive officer of Community Bankers, including their recent experience in consolidating TransCommunity’s subsidiary bank’s charters and existing non-core business lines;

	•	acquisition opportunities in the industry;

	•	the opportunity for further consolidation and cost savings in the banking industry;

	•	the valuation of comparable companies;

	•	the companies’ similar community banking philosophies;

	•	the financial results of TransCommunity, including potential for revenue growth, enhanced operating margins and operating efficiencies; and

	•	Keefe, Bruyette & Woods, Inc.’s fairness opinion that the merger is fair to Community Bankers from a financial point of view.

Negative factors that Community Bankers’ board of directors considered included:


	•	TransCommunity’s poor earnings history;

	•	the disruption that TransCommunity had experienced with its management and board of directors;

	•	the reputational risk that these issues could raise;

	•	TransCommunity’s ability to successfully integrate its subsidiary banks; and

	•	whether other banks would be attracted to join the franchise, although there were and are no plans, arrangements, agreements or understandings other than Community Bankers’ proposed merger with BOE.

After reviewing all of these factors, the Community Bankers board of directors unanimously determined that the merger proposal and the transactions contemplated thereby are in the best interests of Community Bankers and unanimously recommended that Community Bankers’ stockholders vote at the annual meeting to adopt the merger agreement.

In reaching its decision to approve the merger agreement and recommend the merger to its stockholders, the TransCommunity board of directors relied heavily on a special committee comprised of three independent

directors who have substantial experience in financial and strategic matters involving public companies. The board also consulted with TransCommunity management, engaged legal and financial advisors, reviewed various financial data, due diligence and evaluation materials, and made an independent determination that the proposed merger with Community Bankers was fair to TransCommunity’s stockholders from a financial point of view. The board of directors considered a number of factors, positive and negative, in determining whether to recommend that TransCommunity’s stockholders approve the merger agreement. The positive factors included:


	•	the premium over the company’s prevailing stock price to be received by TransCommunity’s stockholders;

	•	the value of the consideration TransCommunity’s stockholders will receive relative to the projected book value and earnings per share of TransCommunity common stock;

	•	Sandler O’Neill’s opinion that the consideration TransCommunity’s stockholders will receive as a result of the merger is fair from a financial point of view;

	•	the fact that TransCommunity’s stockholders will receive shares in a larger company traded on the American Stock Exchange, which will potentially provide greater liquidity for TransCommunity stockholders to sell their shares quickly and efficiently than under the existing OTC Bulletin Board system;

	•	the fact that the exchange ratio is fixed in the event that Community Banker’s stock price increases before closing, but is adjustable in the event that Community Banker’s stock price decreases, thereby affording TransCommunity’s stockholders a combination of upside participation and downside protection;

	•	the additional capital to support a larger bank;

	•	the potential for the combined company to attract merger candidates that TransCommunity would not be likely to attract on its own;

	•	the proposed merger would be a strategic merger of equals in which the combined companies may achieve a level of growth that neither company could achieve on its own;

	•	the financial terms of recent business combinations in the financial services industry and a comparison of the multiples of selected combinations with the terms of the merger;

	•	the skills and experience offered by the Community Bankers’ management and board of directors;

	•	the anticipated compatibility of management and business philosophy of Community Bankers and TransCommunity;

	•	the projected positive value of Community Bankers’ shares offered to TransCommunity’s stockholders in relation to the estimated market value, book value, and earnings per share of TransCommunity common stock;

	•	the competitive and regulatory environment for financial institutions generally; and

	•	the fact that the merger will enable TransCommunity’s stockholders to exchange their shares of common stock in a tax-free transaction.

The negative factors included:


	•	the dilution of ownership rights of TransCommunity’s stockholders;

	•	the reduction in the level of control that TransCommunity’s stockholders would have in the surviving corporation;

	•	no special purposes acquisition company transactions have been completed in the banking industry;


	•	TransCommunity was enjoying progress with its strategic plan, including recently consolidating its subsidiary banks into one subsidiary; and

	•	potential stockholder opposition to the merger.

After reviewing all of these factors, the TransCommunity board of directors unanimously determined that the merger proposal and the transactions contemplated thereby are in the best interests of TransCommunity and unanimously recommended that TransCommunity’s stockholders vote at the special meeting to approve the merger proposal.

Under the merger agreement by and between Community Bankers and TransCommunity, each of Community Bankers and TransCommunity has agreed, except as otherwise contemplated by the merger agreement or with the prior written consent of the other party, and to cause its subsidiaries to:


	•	operate its business only in the usual, regular, and ordinary course;

	•	use reasonable efforts to preserve intact its business organization and assets and maintain its rights and franchises;

	•	use reasonable efforts to cause its representations and warranties to be correct at all times;

	•	in the case of TransCommunity only, use reasonable efforts to provide all information requested by Community Bankers related to loans or other transactions made by TransCommunity with a value equal to or exceeding $250,000;

	•	in the case of TransCommunity only, consult with Community Bankers prior to entering into or making any loans or other transactions with a value equal to or exceeding $500,000; and

	•	take no action which would (1) adversely affect the ability of any party to obtain any consents required for the transactions contemplated by the merger agreement without imposition of a condition or restriction which, in the reasonable judgment of the board of directors of Community Bankers or the board of directors of TransCommunity, would so materially adversely impact the economic or business benefits of the transactions contemplated by the merger agreement as to render inadvisable the consummation of the merger, or (2) materially adversely affect the ability of either party to perform its covenants and agreements under the merger agreement.

Consummation of Community Bankers’ merger with TransCommunity is subject to a number of conditions, including receipt of the required stockholder approval from both Community Bankers and TransCommunity stockholders, regulatory (Federal Reserve Board and Virginia State Corporation Commission’s Bureau of Financial Institutions) approvals as well as satisfaction of certain other customary closing conditions.

Community Bankers and TransCommunity have prepared a separate joint proxy statement/prospectus relating to the merger of Community Bankers and TransCommunity, which has been mailed to Community Bankers and TransCommunity stockholders in connection with the annual meeting of the stockholders of Community Bankers and the special meeting of the stockholders of TransCommunity at which a proposal to approve the merger of Community Bankers and TransCommunity will be considered.

In addition, for an initial business combination, the holders of the shares of common stock issued in Community Bankers initial public offering have the right to convert their shares into cash equal to a pro rata portion of the Community Bankers trust account if they vote against the merger. For Community Bankers to

complete its merger with TransCommunity, the holders of less than 20% of the outstanding shares of common stock issued in the Community Bankers’ initial public offering must have exercised their conversion rights.

Also pursuant to Delaware law, adoption of the merger agreement with TransCommunity requires the affirmative vote of the holders of a majority of the outstanding shares of Community Bankers common stock entitled to vote at the annual meeting.

Community Bankers’ Reasons for the Merger with BOE

In reaching its decision to approve the merger agreement and recommend the merger to its stockholders, the Community Bankers board of directors reviewed various financial data and due diligence and evaluation materials. In addition, in reaching its decision to approve the merger agreement, the board of directors considered a number of factors and believes that the non-exhaustive list of factors below strongly supports its determination to approve the merger agreement and recommendation that its stockholders adopt the merger agreement:


	•	the attractive nature of the markets in which BOE operates and its branch network;

	•	BOE’s demonstrated deposit and loan growth and history of consistent earnings;

	•	BOE’s attractive balance sheet make-up and product mix, including the loan and deposit mix of BOE and the compatibility of that mix with TransCommunity’s balance sheet;

	•	opportunities to grow existing revenue streams and create new revenue streams associated with BOE and the strength of the combined balance sheets, equity levels, and projected market capitalization of Community Bankers, TransCommunity and BOE;

	•	the competitive position and market share of BOE within its operating markets and the likely ability for Bank of Essex, following its merger with TransCommunity Bank, to increase its market share;

	•	the experience of BOE’s board of directors and management, including George M. Longest, Jr., the current president and chief executive officer of BOE who will become president of Community Bankers after the merger and chief executive officer commencing on January 1, 2010;

	•	the potential operating efficiencies and management enhancements of merging Bank of Essex with TransCommunity Bank, and the compatibility of management of Community Bankers, TransCommunity and BOE;

	•	the valuation of comparable companies and the reasonable pricing of the transaction;

	•	the similar operating philosophies and community banking culture of Community Bankers, TransCommunity and BOE;

	•	the all stock for stock nature of the merger consideration, preserving capital for future growth and acquisitions;

	•	the attractiveness of the surviving corporation following the merger to additional merger candidates;

	•	the strong desire of management and the board of directors of BOE to stay involved in future growth of the company; and

	•	Keefe, Bruyette & Woods, Inc.’s fairness opinion that the merger is fair to Community Bankers from a financial point of view.

Bankers and unanimously recommended that Community Bankers’ stockholders vote at the special meeting to adopt the merger agreement.

In addition, Community Banker’s board knew and considered the financial interests of certain Community Bankers directors and executives when it approved the merger agreement. These financial interests are addressed in greater detail under the heading “— Certain Benefits of Directors and Officers of Community Bankers and BOE.”

The foregoing discussion of the factors considered by Community Bankers’ board of directors is not intended to be exhaustive but is believed to include all material factors considered by Community Bankers’ board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, Community Bankers’ board of directors did not find it useful and did not attempt to quantify or assign any relative or specific weight to the various factors that it considered in reaching its determination to approve the merger.

The Community Bankers board of directors believes the merger is in the best interests of Community Bankers and its stockholders. The Community Bankers board of directors recommends that Community Bankers’ stockholders vote “FOR” the approval of the merger proposal and the consummation of the transactions contemplated thereby.

BOE’s Reasons for the Merger

In reaching its decision to approve the merger agreement and recommend the merger to its stockholders, the BOE board of directors consulted with BOE management, as well as with its outside financial and legal advisors, reviewed various financial data, due diligence and evaluation materials and made an independent determination that the proposed merger with Community Bankers was in the best interests of BOE and its stockholders. The board of directors considered a number of positive factors that it believes support its recommendation that BOE’s stockholders approve the merger agreement, including:


	•	the premium over BOE’s prevailing stock price to be received by BOE’s stockholders;

	•	the financial analysis and presentation of Feldman Financial, and its oral opinion that, as of December 12, 2007, the exchange ratio was fair, from a financial point of view, to BOE’s stockholders. For more information, see “— Opinion of BOE’s Financial Advisor”;

	•	the fact that the exchange ratio is fixed in the event that Community Bankers’ stock price increases before closing, but is adjustable in the event that Community Bankers’ stock price decreases, thereby affording BOE’s stockholders a combination of upside participation and downside protection;

	•	its belief that the surviving corporation’s increased size and scale, including its significantly larger pro forma capital base, would better position it to compete and grow its business and to attract other high quality merger candidates;

	•	its belief that the surviving corporation will be positioned to benefit from increased credit portfolio diversity and increased lending capacity;

	•	the corporate governance provisions established for the merger, including the composition of the surviving corporation’s board of directors and the designation of key senior management of the surviving corporation and their proposed employment arrangements;

	•	its knowledge and analysis of the current competitive and regulatory environment for financial institutions generally, BOE’s current competitive position and the other potential strategic alternatives available to BOE, including remaining independent, accelerating branch growth, making acquisitions, developing or acquiring non-bank businesses and selling BOE to a larger financial institution;

	•	the skills and experience offered by the Community Bankers’ management;

	•	its review of Community Bankers’ financial condition and TransCommunity’s financial condition, earnings, business operations and prospects, taking into account the results of BOE’s due diligence


		investigation of Community Bankers and TransCommunity, and the anticipated compatibility of management and shared business philosophy of Community Bankers, TransCommunity, and BOE;


	•	the assessment of the likelihood that the merger would be completed in a timely manner without unacceptable regulatory conditions or requirements, including that no branch divestitures would likely be required, and the ability of the management team to successfully integrate and operate the business of the surviving corporation after the merger; and

	•	the fact that the merger will enable BOE’s stockholders to exchange their shares of BOE, in a tax-free transaction, for registered shares of common stock of a company that will have a significantly larger pro forma market capitalization.


	•	the dilution of ownership rights of BOE’s stockholders;

	•	no special purposes acquisition company transactions have been completed in the banking industry;

	•	the risk that Community Bankers may not be able to close the proposed merger with TransCommunity due to potential stockholder opposition;

	•	whether other banks would be attracted to join the franchise;

	•	the poor earnings history of TransCommunity;

	•	the possibility that the merger and the related integration process could result in the loss of key employees, in the disruption of BOE’s on-going business, and in the loss of customers; and

	•	the risks of the type and nature described under “A Warning about Forward-Looking Statements and “Risk Factors.”

After reviewing all of these factors, the BOE board of directors unanimously determined that the merger proposal and the transactions contemplated thereby are in the best interests of BOE and unanimously recommended that BOE’s stockholders vote at the special meeting to adopt the merger agreement.

BOE’s board of directors knew and considered the financial interests of certain BOE directors and executives when it approved the merger agreement. These financial interests are addressed in greater detail under the heading “— Certain Benefits of Directors and Officers of Community Bankers and BOE.”

The foregoing discussion of the factors considered by BOE’s board of directors is not intended to be exhaustive but is believed to include all material factors considered by BOE’s board of directors. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the BOE board of directors did not find it useful and did not attempt to quantify or assign any relative or specific weight to the various factors that it considered in reaching its determination to approve the merger.

Based on the foregoing, the BOE board of directors believes the merger is in the best interests of BOE and its stockholders. The BOE board of directors recommends that BOE’s stockholders vote “FOR” the approval of the merger proposal and the consummation of the transactions contemplated thereby.

Opinion of Community Bankers’ Financial Advisor

On January 10, 2007, Community Bankers executed an engagement agreement with Keefe, Bruyette & Woods, Inc. Keefe, Bruyette & Woods, Inc.’s engagement encompassed assisting Community Bankers in analyzing, structuring, negotiating and effecting a transaction with BOE. Community Bankers selected Keefe, Bruyette & Woods, Inc. because Keefe, Bruyette & Woods, Inc. is a nationally recognized investment-banking firm with substantial experience in transactions similar to the merger and is familiar with Community Bankers and its business. As part of its investment banking business, Keefe, Bruyette & Woods, Inc. is continually

engaged in the valuation of financial businesses and their securities in connection with mergers and acquisitions.

On December 5, 2007, the Community Bankers board of directors held a meeting to evaluate the proposed merger of BOE with and into Community Bankers. At this meeting, Keefe, Bruyette & Woods, Inc. reviewed the financial aspects of the proposed merger. On December 13, 2007, Keefe, Bruyette & Woods, Inc. rendered a written opinion to Community Bankers as to the fairness to Community Bankers, from a financial point of view, of the exchange ratio to be paid in the merger.

The full text of Keefe, Bruyette & Woods, Inc.’s written opinion is attached as Appendix C to this joint proxy statement/prospectus and is incorporated herein by reference. Community Bankers’ stockholders are urged to read the opinion in its entirety for a description of the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Keefe, Bruyette & Woods, Inc. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion.

Keefe, Bruyette & Woods, Inc.’s opinion speaks only as of the date of the opinion. The opinion is directed to the Community Bankers board and addresses only the fairness, from a financial point of view to Community Bankers, of the exchange ratio offered in the merger. It does not address the underlying business decision to proceed with the merger and does not constitute a recommendation to any Community Bankers stockholder as to how the stockholder should vote at the Community Bankers special meeting on the merger or any related matter.

During the past two years Keefe, Bruyette & Woods, Inc. acted as financial advisor to Community Bankers in its proposed acquisition of TransCommunity.

In rendering its opinion, Keefe, Bruyette & Woods, Inc.:


	•	reviewed, among other things,


	•	the merger agreement,

	•	annual reports to stockholders and annual reports on Form 10-K of BOE,

	•	quarterly reports on Form 10-Q of BOE,

	•	annual reports to stockholders and annual reports on Form 10-K of Community Bankers, and

	•	quarterly reports on Form 10-Q of Community Bankers;


	•	held discussions with members of senior management of Community Bankers and BOE regarding,


	•	past and current business operations,

	•	regulatory relationships,

	•	financial condition, and

	•	future prospects of the respective companies;


	•	reviewed the market prices, valuation multiples, publicly reported financial condition and results of operations for BOE and compared them with those of certain publicly traded companies that Keefe, Bruyette & Woods, Inc. deemed to be relevant;

	•	compared the proposed financial terms of the merger with the financial terms of certain other transactions that Keefe, Bruyette & Woods, Inc. deemed to be relevant;

	•	evaluated the potential pro forma impact of the merger with Community Bankers, including cost savings, that management of Community Bankers expects to result from a combination of the businesses of Community Bankers and BOE; and

	•	performed other studies and analyses that it considered appropriate.

In conducting its review and arriving at its opinion, Keefe, Bruyette & Woods, Inc. relied upon and assumed the accuracy and completeness of all of the financial and other information provided to or otherwise made available to Keefe, Bruyette & Woods, Inc. or that was discussed with, or reviewed by Keefe, Bruyette & Woods, Inc., or that was publicly available. Keefe, Bruyette & Woods, Inc. did not attempt, or assume any responsibility, to verify such information independently. Keefe, Bruyette & Woods, Inc. relied upon the management of BOE and Community Bankers as to the reasonableness and achievability of the financial and operating forecasts and projections (and assumptions and bases therefor) provided to Keefe, Bruyette & Woods, Inc. Keefe, Bruyette & Woods, Inc. assumed, without independent verification, that the aggregate allowances for loan and lease losses for BOE are adequate to cover those losses. Keefe, Bruyette & Woods, Inc. did not make or obtain any evaluations or appraisals of any assets or liabilities of BOE or Community Bankers, nor did they examine or review any individual credit files.

At the direction of Community Bankers’ board of directors, Keefe, Bruyette & Woods, Inc. was not asked to, and it did not, offer any opinion as to the terms of the merger agreement or the form of the merger, other than the exchange ratio, to the extent expressly specified in Keefe, Bruyette & Woods, Inc.’s opinion. Keefe, Bruyette & Woods, Inc. expressed no opinion as to what the value of Community Bankers common stock would be when issued pursuant to the merger or the prices at which Community Bankers common stock or BOE common stock would trade at any time. Additionally, Keefe, Bruyette & Woods, Inc.’s opinion did not address the relative merits of the merger as compared to any alternative business strategies that might exist for Community Bankers, nor did it address the effect of any other business combination in which Community Bankers might engage.

For purposes of rendering its opinion, Keefe, Bruyette & Woods, Inc. assumed that, in all respects material to its analyses:


	•	the merger will be completed substantially in accordance with the terms set forth in the merger agreement;

	•	the representations and warranties of each party in the merger agreement and in all related documents and instruments referred to in the merger agreement are true and correct;

	•	each party to the merger agreement and all related documents will perform all of the covenants and agreements required to be performed by such party under such documents;

	•	all conditions to the completion of the merger will be satisfied without any waivers; and

	•	in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the merger, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, that may be imposed, will have a material adverse effect on the future results of operations or financial condition of the combined entity or the contemplated benefits of the merger, including the cost savings, revenue enhancements and related expenses expected to result from the merger.

Keefe, Bruyette & Woods, Inc. further assumed that the merger will be accounted for as a purchase transaction under generally accepted accounting principles, and that the merger will qualify as a tax-free reorganization for United States federal income tax purposes. Keefe, Bruyette & Woods, Inc.’s opinion is not an expression of an opinion as to the prices at which shares of BOE common stock or Community Bankers common stock will trade since the announcement of the proposed merger or the actual value of the Community Bankers common shares when issued pursuant to the merger, or the prices at which the Community Bankers common shares will trade following the completion of the merger.

In performing its analyses, Keefe, Bruyette & Woods, Inc. made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of Keefe, Bruyette & Woods, Inc., BOE and Community Bankers. Any estimates contained in the analyses performed by Keefe, Bruyette & Woods, Inc. are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the

prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty.

The exchange ratio was determined through negotiation between Community Bankers and BOE and the decision to enter into the merger was made solely by Community Bankers’ board of directors. In addition, the Keefe, Bruyette & Woods, Inc. opinion was among several factors taken into consideration by the Community Bankers board in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Community Bankers board with respect to the fairness of the consideration to be paid in the merger.

Summary of Analysis by Keefe, Bruyette & Woods, Inc.

The following is a summary of the material analyses presented by Keefe, Bruyette & Woods, Inc. to the Community Bankers board, in connection with its written fairness opinion. The summary is not a complete description of the analyses underlying the Keefe, Bruyette & Woods, Inc. opinion or the presentation made by Keefe, Bruyette & Woods, Inc. to the Community Bankers board, but summarizes the material analyses performed and presented in connection with such opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, Keefe, Bruyette & Woods, Inc. did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include information presented in tabular format. Accordingly, Keefe, Bruyette & Woods, Inc. believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion. The tables alone do not constitute a complete description of the financial analyses.

Summary of Proposal. BOE stockholders will receive 5.7278 shares of Community Bankers common stock, subject to possible adjustment. Based on Community Bankers’ closing stock price on December 4, 2007 of $7.44, the exchange ratio represented a value of $42.61 per share to BOE.

Selected Peer Group Analysis. Using publicly available information, Keefe, Bruyette & Woods, Inc. compared the financial performance, financial condition and market performance of BOE to the following depository institutions that Keefe, Bruyette & Woods, Inc. considered comparable to BOE.

Companies included in BOE ’s peer group were:

Fauquier Bankshares, Inc.

Chesapeake Financial Shares, Inc.

Central Virginia Bankshares, Inc.

Monarch Financial Holdings, Inc.

F & M Bank Corp.

Village Bank and Trust Financial Corp.

Southern National Bancorp of Virginia, Inc.

Grayson Bankshares, Inc.

Benchmark Bankshares, Inc.

Bay Banks of Virginia, Inc.

Virginia National Bank

First Capital Bancorp, Inc.

Citizens Bancorp of Virginia, Inc.

Botetourt Bankshares, Inc.

Pinnacle Bankshares Corporation

Shore Financial Corporation

Bank of the James Financial Group, Inc.

Heritage Bankshares, Inc.

Cardinal Bankshares Corporation

MainStreet BankShares, Inc.

To perform this analysis, Keefe, Bruyette & Woods, Inc. used financial information as of or for the three or twelve month period ended September 30, 2007. Market price information was as of December 4, 2007. Certain financial data prepared by Keefe, Bruyette & Woods, Inc., and as referenced in the tables presented below may not correspond to the data presented in BOE’s historical financial statements, or to the data prepared by Feldman Financial Advisors, Inc. presented under the section “Opinion of BOE’s Financial Advisor,” as a result of the different periods, assumptions and methods used by Keefe, Bruyette & Woods, Inc. to compute the financial data presented.

Keefe, Bruyette & Woods, Inc.’s analysis showed the following concerning BOE’s financial performance:


				BOE Peer Group			BOE Peer Group			BOE Peer Group
Financial Performance Measures:	BOE			Median			Maximum			Minimum

Latest Twelve Months Core Return on Average Equity(1)		10.54	%		10.13	%		13.82	%		1.22	%
Latest Twelve Months Core Return on Average Assets(1)		1.06	%		0.94	%		1.27	%		0.13	%
Most Recent Quarter Net Interest Margin		3.82	%		3.85	%		4.68	%		3.54	%
Latest Twelve Months Efficiency Ratio		68	%		68	%		94	%		56	%


(1)		Core income is defined as net income before extraordinary items, less the after-tax portion of investment securities gains or losses and nonrecurring items

Keefe, Bruyette & Woods, Inc.’s analysis showed the following concerning BOE’s financial condition:


				BOE Peer Group			BOE Peer Group			BOE Peer Group
Financial Condition Measures:	BOE			Median			Maximum			Minimum

Tangible Equity / Tangible Assets		9.82	%		9.26	%		17.02	%		6.95	%
Loans / Deposits		90	%		94	%		113	%		66	%
Latest Twelve Months
Net Charge-offs / Avg. Loans		(0.15	)%		0.07	%		0.31	%		(0.04	)%
Loan Loss Reserves / Loans		1.24	%		1.03	%		1.45	%		0.59	%

Keefe, Bruyette & Woods, Inc.’s analysis showed the following concerning BOE’s market performance:


							BOE Peer			BOE Peer
				BOE			Group			Group
Market Performance Measures:	BOE			Peer Group Median			Maximum			Minimum

Price to earnings multiple, based on Last Twelve Months GAAP estimated earnings		11.0	x		14.6	x		50.0	x		10.3	X
Price to book multiple value		1.09	x		1.30	x		1.96	x		0.94	X
Price to tangible book multiple value		1.11	x		1.37	x		2.13	x		0.94	X
Dividend Yield		3.8	%		2.5	%		5.0	%		0.0	%

Selected Transaction Analysis. Keefe, Bruyette & Woods, Inc. reviewed publicly available information related to selected comparably sized acquisitions of bank holding companies announced after January 1, 2005, with headquarters in Virginia, Maryland and North Carolina with aggregate transaction values between $25 million and $100 million. The transactions included in the group were:


Acquiror:		Acquired Company:

Community Bankers Acquisition Corp.		TransCommunity Financial Corporation
SCBT Financial Corporation		TSB Financial Corporation
Yadkin Valley Financial Corporation		Cardinal State Bank
Bradford Bancorp, Inc.		Patapsco Bancorp, Inc.
Gateway Financial Holdings, Inc.		Bank of Richmond, N.A.
Sandy Spring Bancorp, Inc.		CN Bancorp, Inc.
Sandy Spring Bancorp, Inc.		Potomac Bank of Virginia
Crescent Financial Corporation		Port City Capital Bank
BNC Bancorp		SterlingSouth Bank & Trust Company
Premier Community Bankshares, Inc.		Albemarle First Bank
Union Bankshares Corporation		Prosperity Bank & Trust Company
American National Bankshares, Inc.		Community First Financial Corporation
Citizens South Banking Corporation		Trinity Bank

Transaction multiples for the merger were derived from an offer price of $42.61 per share for BOE. For each precedent transaction, Keefe, Bruyette & Woods, Inc. derived and compared, among other things, the implied ratio of price per common share paid for the acquired company to:


	•	the earnings per share of the acquired company for the latest 12 months of results publicly available prior to the time the transaction was announced;

	•	book value per share of the acquired company based on the latest publicly available financial statements of the company available prior to the announcement of the acquisition.

	•	tangible book value per share of the acquired company based on the latest publicly available financial statements of the company available prior to the announcement of the acquisition.

	•	Additionally, for each precedent transaction, Keefe, Bruyette & Woods, Inc. derived and compared the premium paid in aggregate consideration over tangible book value to core deposits. Core deposits were defined as total deposits less jumbo CDs (CDs with balances greater than $100,000).

	•	market premium based on the latest closing price 1-day prior to the announcement of the acquisition.

The results of the analysis are set forth in the following table:


				Comparable			Comparable			Comparable
	Community Bankers/			Transactions			Transactions			Transactions
	BOE			Median			Maximum			Minimum

Price / Trailing 12 months earnings per share		17.8x			30.1x			41.2x			17.4x
Price / Book value		176	%		235	%		336	%		161	%
Price / Tangible Book value		178	%		254	%		336	%		161	%
Core Deposit Premium		12.0	%		20.4	%		32.8	%		13.9	%
Market Premium(1)		61.5	%		45.4	%		91.0	%		21.9	%


(1)		Based on BOE’s closing price of $26.38 on December 4, 2007

No company or transaction used as a comparison in the above analysis is identical to Community Bankers, BOE or the proposed merger. Accordingly, an analysis of these results is not mathematical. Rather, it

involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

Discounted Cash Flow Analysis. Keefe, Bruyette & Woods, Inc. performed a discounted cash flow analysis to estimate a range for the implied equity value per share of BOE common stock. In this analysis, Keefe, Bruyette & Woods, Inc. assumed discount rates ranging from 11.0% to 14.0% to derive (1) the present value of the estimated free cash flows that BOE could generate over a five year period, including certain cost savings forecasted as a result of the merger, and (2) the present value of BOE’s terminal value at the end of year five. Terminal values for BOE were calculated based on a range of 13.0x to 15.0x estimated year six earnings per share. In performing this analysis, Keefe, Bruyette & Woods, Inc. used BOE’s management’s estimates for the first year. Based on management’s estimates, Keefe, Bruyette & Woods, Inc. assumed 8% earnings per share growth thereafter. Certain data was adjusted to account for certain restructuring charges anticipated by management to result from the merger. Keefe, Bruyette & Woods, Inc. assumed that BOE would maintain a tangible equity / tangible asset ratio of 6.00% and would retain sufficient earnings to maintain that level. Any earnings in excess of what would need to be retained represented dividendable cash flows for BOE.

Based on these assumptions, Keefe, Bruyette & Woods, Inc. derived a range of implied equity values per share of BOE common stock of $40.96 to $51.62.

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The analysis did not purport to be indicative of the actual values or expected values of BOE common stock.

Forecasted Pro Forma Financial Analysis. Keefe, Bruyette & Woods, Inc. analyzed the estimated financial impact of the merger on Community Bankers’ 2008 estimated earnings per share. For both Community Bankers and BOE, Keefe, Bruyette & Woods, Inc. used management estimates of earnings per share for 2008, which assumed net income of $2.8 million or $2.31 per share for BOE. In addition, Keefe, Bruyette & Woods, Inc. assumed that the merger will result in cost savings equal to Community Bankers’ management’s estimates. Based on its analysis, Keefe, Bruyette & Woods, Inc. determined that the merger would be accretive to Community Bankers’ estimated GAAP earnings per share in 2008.

Furthermore, the analysis indicated that Community Bankers’ Leverage Ratio, Tier 1 Risk-Based Capital Ratio and Total Risk Based Capital Ratio would all remain “well capitalized” by regulatory standards. This analysis was based on internal projections provided by Community Bankers’ and BOE’s senior management teams. For all of the above analysis, the actual results achieved by Community Bankers following the merger may vary from the projected results, and the variations may be material.

Other Analyses. Keefe, Bruyette & Woods, Inc. reviewed the relative financial and market performance BOE to a variety of relevant industry peer groups and indices. Keefe, Bruyette & Woods, Inc. also reviewed earnings estimates, balance sheet composition, historical stock performance and other financial data for BOE.

The Community Bankers board retained Keefe, Bruyette & Woods, Inc. as an independent contractor to act as financial adviser to Community Bankers regarding the merger. As part of its investment banking business, Keefe, Bruyette & Woods, Inc. is continually engaged in the valuation of banking businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. As specialists in the securities of banking companies, Keefe, Bruyette & Woods, Inc. has experience in, and knowledge of, the valuation of banking enterprises. In the ordinary course of its business as a broker-dealer, Keefe, Bruyette & Woods, Inc. may, from time to time, purchase securities from, and sell securities to, Community Bankers and BOE. As a market maker in securities Keefe, Bruyette & Woods, Inc. may from time to time have a long or short position in, and buy or sell, debt or equity securities of Community Bankers and BOE for Keefe, Bruyette & Woods, Inc.’s own account and for the accounts of its customers.

Community Bankers and Keefe, Bruyette & Woods, Inc. have entered into an agreement relating to the services to be provided by Keefe, Bruyette & Woods, Inc. in connection with the merger. Community Bankers paid to Keefe, Bruyette & Woods, Inc. at the time Keefe, Bruyette & Woods, Inc. issued the fairness opinion in connection with the proposed merger with BOE, a cash fee of $125,000 and has agreed to pay to Keefe, Bruyette & Woods, Inc. an additional cash fee of $375,000 at the time of and contingent upon the closing of the proposed merger with BOE. Pursuant to the Keefe, Bruyette & Woods, Inc. engagement agreement, Community Bankers also agreed to reimburse Keefe, Bruyette & Woods, Inc. for reasonable out-of-pocket expenses and disbursements incurred in connection with its retention and to indemnify Keefe, Bruyette & Woods, Inc. and related parties against certain liabilities, including liabilities under federal securities laws, relating to, or arising out of, its engagement.

Separately, Community Bankers and Keefe, Bruyette & Woods, Inc. have entered into an agreement relating to the services to be provided by Keefe, Bruyette & Woods, Inc. in connection with Community Bankers’ proposed merger with TransCommunity. Community Bankers paid to Keefe, Bruyette & Woods, Inc. at the time Keefe, Bruyette & Woods, Inc. issued the fairness opinion in connection with the proposed merger with TransCommunity, a cash fee of $125,000 and has agreed to pay to Keefe, Bruyette & Woods, Inc. an additional cash fee of $375,000 at the time of and contingent upon the closing of the proposed merger with TransCommunity. Pursuant to the Keefe, Bruyette & Woods, Inc. engagement agreement, Community Bankers also agreed to reimburse Keefe, Bruyette & Woods, Inc. for reasonable out-of-pocket expenses and disbursements incurred in connection with its retention and to indemnify it against certain liabilities, including liabilities under the federal securities laws.

Opinion of BOE’s Financial Advisor

BOE retained Feldman Financial on November 16, 2007 to provide strategic financial advice to the BOE board on various matters, including the evaluation of a strategic business combination and the potential enhancement of stockholder value. At the December 13, 2007 meeting of the BOE board of directors, Feldman Financial delivered an oral opinion to the BOE board, which opinion was subsequently confirmed in writing, that as of such date and subject to certain considerations set forth in such opinion, the merger consideration to be received by the holders of BOE common stock was fair, from a financial point of view, to BOE’s stockholders.

The full text of Feldman Financial’s written opinion dated December 13, 2007, which sets forth a description of the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached as Appendix D to this document. You should read the opinion carefully and in its entirety. Feldman Financial’s opinion is directed to the BOE board and addresses only the merger consideration. The opinion does not address the underlying business decision of BOE to engage in the transaction and does not constitute a recommendation to you as to how to vote at the special meeting. The summary of Feldman Financial’s opinion set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of such opinion.

In rendering its opinion, Feldman Financial, among other things:


	•	reviewed the merger agreement;

	•	analyzed audited and unaudited historical financial information contained in Forms 10-K and 10-Q concerning BOE and TransCommunity for the last three fiscal years ending December 31, 2006 and monthly and quarterly financial information through September 30, 2007;

	•	analyzed audited and unaudited historical financial information contained in Forms 10-K and 10-Q concerning Community Bankers from its inception on April 6, 2005 through September 30, 2007;

	•	the merger agreement by and between Community Bankers and TransCommunity dated September 5, 2007 and the written consent and waiver by and between Community Bankers and TransCommunity dated December 13, 2007 relating to Community Bankers’ entering into the merger agreement with BOE;


	•	discussed past, present, and future financial performance and operating philosophies with the senior management of BOE and TransCommunity;

	•	reviewed certain internal financial data and financial projections of BOE and TransCommunity;

	•	compared the financial condition, operating performance and market trading characteristics of BOE and TransCommunity to similar financial institutions;

	•	reviewed the stock price trading history of BOE, TransCommunity and Community Bankers;

	•	reviewed the terms of recent acquisitions of companies which we deemed appropriate; and

	•	conducted such other studies, analyses, inquiries, and investigations as we deemed appropriate for the purposes of this opinion.

In preparing its opinion, Feldman Financial assumed and relied upon the accuracy and completeness of all financial and other information that it received, reviewed, or discussed. With respect to certain financial forecasts, Feldman Financial assumed that such forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of BOE and TransCommunity. Neither BOE nor TransCommunity publicly discloses internal financial projections of the type provided to Feldman Financial and, as a result, such projections were not prepared with a view towards public disclosure. The projections were based on numerous variables and assumptions which are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions, and accordingly, actual results could vary significantly from those set forth in such projections. Feldman Financial did not assume any responsibility for independently verifying such information, did not undertake an independent evaluation or appraisal of the assets or liabilities of BOE, TransCommunity or Community Bankers, and was not furnished with any such appraisal or evaluation. Feldman Financial was not retained to and did not review any individual loan credit files. Feldman Financial’s opinion was necessarily based upon financial, economic, market and other conditions as they existed and could be evaluated on the date of its opinion.

In formulating its opinion to the BOE board, Feldman Financial prepared a variety of financial and comparative analyses, including those described below. The following is a summary of the material financial analyses performed by Feldman Financial and reviewed with the BOE board in connection with its opinion dated December 13, 2007, and does not purport to be a comprehensive description of the analyses underlying Feldman Financial’s opinion. The preparation of a fairness opinion is a complex process, involving various determinations as to the most relevant and appropriate methods of financial analyses and the application of these methods to the particular circumstances. Therefore, such an opinion is not readily susceptible to partial analysis or summary description. Accordingly, Feldman Financial believes that its analyses must be considered as a whole, and selecting portions of the analyses and factors, without considering all factors and analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.

Calculation of Implied Value of the Merger Consideration. Feldman Financial calculated the implied value of the consideration to be received by the stockholders of BOE. As detailed in the merger agreement, as consideration for the merger, each issued and outstanding share of BOE Common Stock shall be converted into the right to receive 5.7278 shares of Community Bankers common stock, subject to adjustment if the average closing price, as defined in the merger agreement, of Community Bankers common stock is less than $7.42. Assuming an average closing price of $7.42 for the Community Bankers common stock, the exchange ratio implies merger consideration of $42.50 for each BOE share of common stock. Given the capital structure of BOE at September 30, 2007 comprised of 1,211,267 shares of common stock outstanding and options to purchase BOE common stock totaling 29,359 as of the same date, the aggregate merger consideration approximates $52.0 million. This aggregate merger consideration equated to multiples for BOE of 177.3% of stated book value and 179.9% of tangible book value as of September 30, 2007. The aggregate merger consideration was 17.8x earnings for the most recent twelve month period ended September 30, 2007 and 17.7% of total assets at September 30, 2007. In comparison to BOE’s core deposits at September 30, 2007, the premium in excess of tangible book value as a percentage of such core deposits was 12.0%.

Calculation of Implied Value of the Exchange Ratio. Feldman Financial calculated the implied value of the consideration to be received by the stockholders of BOE based upon changes in the market value of the Community Bankers common stock. For purposes of this analysis, Feldman Financial assumed a range of Community Bankers trading prices of $5.92 to $8.92 per share. In applying this range of trading prices, the implied value of the merger consideration ranged from $42.50 to $51.09 for each share of BOE common stock outstanding. The results of this analysis are summarized in the table below.


CBAC Trading Price	$	5.92		$	6.22		$	6.52		$	6.82		$	7.12		$	7.42		$	7.72		$	8.02		$	8.32		$	8.62		$	8.92
Imputed Offer Price	$	42.50		$	42.50		$	42.50		$	42.50		$	42.50		$	42.50		$	44.22		$	45.94		$	47.65		$	49.37		$	51.09
Exchange Ratio		7.1791			6.8328			6.5184			6.2317			5.9691			5.7278			5.7278			5.7278			5.7278			5.7278			5.7278
Deal Value ($ Mil.)	$	52.0		$	52.0		$	52.0		$	52.0		$	52.0		$	52.0		$	54.2		$	56.3		$	58.4		$	60.6		$	62.7
Price/Book		177.27	%		177.27	%		177.27	%		177.27	%		177.27	%		177.27	%		184.54	%		191.80	%		199.06	%		206.33	%		213.59	%
Price/Tang. Book		179.91	%		179.91	%		179.91	%		179.91	%		179.91	%		179.91	%		187.28	%		194.65	%		202.02	%		209.40	%		216.77	%
Price/LTM EPS		17.79			17.79			17.79			17.79			17.79			17.79			18.52			19.24			19.97			20.70			21.43

Comparable Company Analysis. As part of its analysis, Feldman Financial compared certain financial performance and market valuation data of BOE and TransCommunity with corresponding publicly available information for two groups of comparable community banks comprised of (1) 14 publicly traded community banks headquartered in the Southeast region with assets between $150 and $500 million and equity ratios as a percent of assets in excess of 8.0% (“Small Southeastern Banks”) and (2) eight publicly traded community banks based in Virginia with total assets less than $500 million (“Small Virginia Banks”). The historical financial data used in connection with the ratios provided below was the latest available as of September 30, 2007 and market price data was as of November 27, 2007. The results of the comparisons between BOE, TransCommunity and the median values of the comparative groups are outlined below.


							Small			Small
	BOE			TransCommunity			Southeastern			Virginia
	Financial			Financial			Banks			Banks

Total Assets ($ Mil.)	$	294.8		$	223.0		$	329.0		$	319.8
Equity/Assets		9.96	%		13.42	%		9.26	%		9.26	%
Tangible Equity/Assets		9.82	%		13.42	%		9.03	%		9.17	%
Loans/Assets		72.68	%		83.74	%		77.30			79.27	%
Deposits/Assets		81.76	%		86.06	%		82.44	%		79.57	%
ROAA		1.03	%		(0.32	)%		0.78	%		0.83	%
ROAE		10.30	%		(2.16	)%		7.71	%		8.19	%
NPAs/Assets		0.07	%		0.47	%		0.58	%		0.27	%
Reserves/NPAs		1,297.09	%		255.81	%		135.80	%		186.35	%
Market Value ($ Mil.)	$	31.1		$	33.7		$	36.2		$	36.2
Price/LTM Earnings		10.7	x		NMx			13.9	x		16.5	x
Price/QTR Annualized Earnings		12.1	x		NMx			15.6	x		15.6	x
Price/Book Value		105.99	%		112.56	%		110.58	%		113.81	%
Price/Tangible Book		107.56	%		112.56	%		111.11	%		121.88	%
Price/Assets		10.55	%		15.10	%		10.19	%		11.44	%

Comparable Transaction Analysis. Feldman Financial reviewed publicly available information for announced acquisitions of financial institutions comprising two comparable groups. Feldman Financial reviewed nine transactions that were announced after January 1, 2006 that involved acquisitions of financial institutions headquartered in Virginia (“Virginia Transactions”). In addition, Feldman Financial reviewed publicly available information for sales of 18 financial institutions operating in rural areas of the Southeast region having assets less than $400 million (“Non-Urban Transactions”). The various offer price ratios analyzed were based upon information available at the time of announcement. Feldman Financial compared the median ratios of price-to-book value, price-to-tangible book value, price-to-last twelve months earnings, price-to-assets, tangible book premium-to-core deposits and premium in relation to previous trading prices as

offered in the comparable transactions to the corresponding ratios offered in the merger to BOE. The analysis medians of the comparable transactions yielded the ratios shown below.


	BOE			Virginia			Non-Urban
	Transaction			Transactions			Transactions

Total Assets ($ Mil.)	$	294.8		$	247.4		$	86.7
Tangible Equity/Assets		9.82	%		8.71	%		13.10	%
NPAs/Assets		0.07	%		0.06	%		0.39	%
ROAA		1.03	%		0.66	%		0.74	%
ROAE		10.30	%		6.37	%		6.33	%
Deal Value ($ Mil.)	$	52.0		$	55.8		$	18.1
Deal Value/Book Value		177.27	%		246.03	%		166.13	%
Deal Value/Tangible Book		179.91	%		246.12	%		166.13	%
Deal Value/LTM Earnings		17.79	x		29.87	x		23.68	x
Deal Value/Assets		17.65	%		23.26	%		21.92	%
Premium/Core Deposits		11.96	%		22.65	%		13.12	%
Premium/prior day market price		65.50	%		33.81	%		60.77	%

The acquisition transaction ratios for BOE were based on aggregate merger consideration of $52.0 million as of December 13, 2007, as described in the discussion entitled “— Calculation of Implied Value of the Merger Consideration.”

No company or transaction used in the comparable company or comparable transaction analysis is identical to BOE or the merger. Accordingly, an analysis of the results involves complex considerations and judgments concerning differences in financial and operating characteristics of the various companies as well as other factors that may affect trading values or announced merger values of BOE or the comparable companies.

Discounted Dividend Stream and Terminal Value Analysis. Feldman Financial performed a discounted cash flow analysis to determine a range of present values of BOE on an acquisition basis, assuming BOE continued to operate as an independent company for a five-year period and sold at the end of the period. This range was determined by adding (1) the present value of the estimated future dividend stream that BOE would generate over the five-year period from 2008 through 2012, and (2) the present value of the terminal value of BOE at the end of year 2012. The terminal values of BOE at the end of the period were determined by applying a range of market valuation ratios representing pricing ratios in relation to earnings ranging from 20.0x to 25.0x and pricing ratios in relation to book value ranging from 160% to 260%. The dividend stream and terminal values were discounted to present values using discount rates from 11% to 15%.

Present Values Based on Price/Earnings Multiple in Year 5


Price/
Earnings		(Dollars Per Share)
Multiple		Discount Rate

			11.0	%		12.0	%		13.0	%		14.0	%		15.0	%
	20.0x	$	36.22		$	34.65		$	33.16		$	31.75		$	30.41
	21.0x	$	37.99		$	36.34		$	34.78		$	33.29		$	31.89
	22.0x	$	39.76		$	38.03		$	36.39		$	34.84		$	33.37
	23.0x	$	41.52		$	39.72		$	38.01		$	36.39		$	34.85
	24.0x	$	43.29		$	41.41		$	39.62		$	37.93		$	36.33
	25.0x	$	45.06		$	43.10		$	41.24		$	39.48		$	37.81

Present Values Based on Price/Book Multiple in Year 5


Price/
Earnings			(Dollars Per Share)
Multiple			Discount Rate

				11.0	%		12.0	%		13.0	%		14.0	%		15.0	%
	160	%	$	35.34		$	33.80		$	32.35		$	30.97		$	29.66
	180	%	$	39.64		$	37.92		$	36.29		$	34.74		$	33.27
	200	%	$	43.95		$	42.04		$	40.23		$	38.51		$	36.88
	220	%	$	48.25		$	46.15		$	44.16		$	42.28		$	40.48
	240	%	$	52.56		$	50.27		$	48.10		$	46.04		$	44.09
	260	%	$	56.87		$	54.39		$	52.04		$	49.81		$	47.70

Pro Forma Merger Analysis. Feldman Financial performed a pro forma merger analysis that analyzed certain pro forma effects of the merger with Community Bankers assuming a simultaneous closing with TransCommunity. Using financial data as of September 30, 2007 for Community Bankers, BOE and TransCommunity, the respective management’s earnings estimates for 2008 and an estimated cost savings of 5.0% of the combined expense base of BOE and TransCommunity, the Feldman Financial analysis showed that the merger would be accretive to Community Bankers earnings per share and accretive to Community Bankers book value per share on a pro forma basis in 2008. Feldman Financial indicated in its analysis that actual results achieved in the merger may vary significantly from the pro forma results.

In performing its analyses, Feldman Financial made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of BOE, TransCommunity or Community Bankers. The analyses performed by Feldman Financial are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as a part of Feldman Financial’s evaluation of the fairness from a financial point of view of the merger consideration and were conducted in connection with the rendering of Feldman Financial’s opinion. As described above, Feldman Financial’s opinion and the information provided by Feldman Financial to the BOE board were among various factors taken into consideration by the BOE board in making its determination to approve the merger agreement. The merger consideration was determined through negotiations between BOE and Community Bankers, and was approved by the BOE board.

BOE’s board of directors retained Feldman Financial to act as financial advisor to BOE in connection with the merger based upon Feldman Financial’s experience and expertise and its familiarity with transactions similar to the acquisition. As part of its business, Feldman Financial is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, initial public offerings, private placements, and recapitalizations. Pursuant to a letter agreement signed November 16, 2007 by and between BOE and Feldman Financial, BOE has agreed to pay Feldman Financial a financial advisory fee of $150,000. To date, BOE has paid Feldman Financial a $10,000 retainer fee and $25,000 in connection with its issuance of the financial fairness opinion, and the balance of which is payable upon the closing of the merger. The letter agreement with Feldman Financial also provides that BOE will reimburse Feldman Financial for its reasonable out-of-pocket expenses incurred in connection with its engagement and indemnify Feldman Financial and any related parties against certain expenses and liabilities, which may include certain liabilities under securities laws. Prior to its engagement on November 16, 2007, Feldman had no prior professional relationship with BOE, Community Bankers or TransCommunity.

Merger Consideration

If you are a BOE stockholder, as a result of the merger, each share of BOE common stock you own immediately prior to the completion of the merger will be automatically converted into the right to receive 5.7278 shares of Community Bankers common stock (subject to possible adjustment, as further described below and cash instead of fractional shares.

As of the record date for the BOE special meeting, BOE had shares of common stock issued and outstanding and shares of common stock subject to options. Based on the exchange ratio of 5.7278, Community Bankers would issue approximately shares of Community Bankers common stock in consideration of the merger, excluding shares subject to BOE options that are converted to options with respect to Community Bankers common stock. Accordingly, Community Bankers would have then issued and outstanding approximately shares of Community Bankers common stock based on the number of shares of Community Bankers common stock issued and outstanding on the record date for Community Bankers special meeting. Based on the closing price of Community Bankers common stock of $ on , 2008, the total value of the consideration Community Bankers will pay in the merger to the stockholders of BOE is approximately $ million.

In the event the average of the daily closing prices of Community Bankers common stock as reported on the American Stock Exchange for the 20 consecutive full trading days ending on the fifth day before the anticipated closing date of the merger is less than $7.42, the exchange ratio will be increased to equal the quotient obtained by dividing $42.50 by the average of the daily closing prices during those 20 consecutive full trading days, rounded to the nearest one-ten thousandth.

No assurance can be given that the current fair market value of Community Bankers common stock will be equivalent to the fair market value of Community Bankers common stock on the date that stock is received by a BOE stockholder or at any other time. The fair market value of Community Bankers common stock received by a BOE stockholder may be greater or less than the current fair market value of Community Bankers due to numerous market factors.

Fractional Shares

No fractional shares of Community Bankers common stock will be issued to any holder of BOE common stock in the merger. Each holder of shares of BOE common stock exchanged pursuant to the merger who would otherwise have been entitled to receive a fraction of a share of Community Bankers common stock (after taking into account all certificates delivered by such holder) shall receive, instead of such fraction of a share, cash (without interest) in an amount equal to such fractional part of a share of Community Bankers common stock multiplied by the market value of one share of Community Bankers common stock at the effective time of the merger. The market value of one share of Community Bankers common stock at the effective time of the merger will be the closing price on the American Stock Exchange (as reported by The Wall Street Journal or, if not reported thereby, any other authoritative source selected by Community Bankers) on the last trading day preceding the effective time of the merger.

Treatment of Options

Upon completion of the merger, each award, option, or other right to purchase or acquire shares of BOE common stock pursuant to stock options, stock appreciation rights, or stock awards granted by BOE under BOE’s stock incentive plans, equity compensation plans and stock option plans, which are outstanding immediately prior to the merger, whether or not exercisable, will be converted into and become rights with respect to Community Bankers common stock, and Community Bankers will assume each right, in accordance with the terms of the relevant BOE stock plan and stock option agreement. Each of BOE’s options has vested and is exercisable and will remain vested and exercisable upon completion of the merger with BOE. Community Bankers and BOE anticipate that the fair value of the old options and the fair value of the new options will be the same because the number of shares which are subject to exercise under the predecessor BOE stock options will be converted into a number of shares under the Community Bankers stock options based on the same conversion ratio used to convert BOE stock into Community Bankers stock pursuant to the merger.

Upon completion of the merger, each award, option, or other right to purchase or acquire shares of TransCommunity common stock pursuant to stock options, stock appreciation rights, or stock awards granted by TransCommunity under TransCommunity’s stock incentive plans, equity compensation plans and stock option plans, which are outstanding immediately prior to the merger, whether or not exercisable, will be

converted into and become rights with respect to Community Bankers common stock, and Community Bankers will assume each right, in accordance with the terms of the relevant TransCommunity stock plan and stock option agreement. Each of TransCommunity’s stock options will vest and become immediately exercisable upon completion of the merger, as the merger constitutes a change in control under TransCommunity’s stock plan. Community Bankers and TransCommunity anticipate that the fair value of the old options and the fair value of the new options will be the same because the number of shares which are subject to exercise under the predecessor TransCommunity stock options will be converted into a number of shares under the Community Bankers stock options based on the same conversion ratio used to convert TransCommunity stock into Community Bankers stock pursuant to the merger. Additionally, each outstanding share of TransCommunity restricted stock under any of TransCommunity’s stock plans shall vest pursuant to its terms and shall be converted into and become rights with respect to Community Bankers common stock.

Exchange of Certificates

As soon as reasonably practicable after the effective time of the merger, Community Bankers will mail appropriate transmittal materials to each record holder of BOE common stock for use in effecting the surrender and cancellation of those certificates in exchange for Community Bankers common stock. Risk of loss and title to the certificates will remain with the holder until proper delivery of such certificates to Community Bankers by BOE’s stockholders. BOE’s stockholders should not surrender their certificates for exchange until they receive a letter of transmittal and instructions from Community Bankers. After the effective time of the merger, each holder of shares of BOE common stock issued and outstanding at the effective time must surrender the certificate or certificates representing their shares of BOE common stock to Community Bankers and will, as soon as reasonably practicable after surrender, receive the consideration they are entitled to under the merger agreement, together with all undelivered dividends or distributions in respect of such shares (without interest). Community Bankers will not be obligated to deliver the consideration to which any former holder of BOE common stock is entitled until the holder surrenders the certificate or certificates representing his or her shares for exchange. The certificate or certificates so surrendered must be duly endorsed as Community Bankers may require. Community Bankers will not be liable to a holder of BOE common stock for any property delivered in good faith to a public official pursuant to any applicable abandoned property law.

After the effective time of the merger (and prior to the surrender of certificates of BOE common stock to Community Bankers), record holders of certificates that represented outstanding BOE common stock immediately prior to the effective time of the merger will have no rights with respect to the certificates for BOE common stock other than the right to surrender the certificates and receive the merger consideration in exchange for the certificates.

In the event that any dividend or distribution, the record date for which is on or after the effective time of the merger, is declared by Community Bankers on Community Bankers common stock, no such dividend or other distributions will be delivered to the holder of a certificate representing shares of BOE common stock immediately prior to the effective time of the merger until such holder surrenders such certificate as set forth above.

In addition, holders of certificates that represent outstanding BOE common stock immediately prior to the effective time of the merger will be entitled to vote after the effective time of the merger at any meeting of Community Bankers stockholders the number of whole shares of Community Bankers common stock into which such shares have been converted, even if such holder has not surrendered such certificates for exchange as described above.

Community Bankers stockholders will not be required to exchange certificates representing their shares of Community Bankers common stock or otherwise take any action after the merger is completed.

Expected Tax Treatment as a Result of the Merger

Community Bankers and BOE have not and do not intend to seek a ruling from the Internal Revenue Service, or IRS, as to the federal income tax consequences of the merger. The following discussion describes the anticipated tax consequences of the merger, but does not address, among other matters:


	•	state, local, or foreign tax consequences of the merger;

	•	federal income tax consequences to BOE stockholders who are subject to special rules under the Internal Revenue Code, such as foreign persons, tax-exempt organizations, insurance companies, financial institutions, dealers in stocks and securities, and persons who hold their stock as part of a straddle or conversion transaction;

	•	federal income tax consequences affecting shares of BOE common stock acquired upon the exercise of stock options, stock purchase plan rights, or otherwise as compensation;

	•	the tax consequences to holders of options to acquire shares of BOE common stock; and

	•	the tax consequences to Community Bankers and BOE of any income and deferred gain recognized pursuant to Treasury Regulations issued under Section 1502 of the Internal Revenue Code.

Assuming that the merger is consummated in accordance with the merger agreement, it is anticipated that the following federal income tax consequences will occur:


	•	the merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code;

	•	no gain or loss will be recognized by Community Bankers or BOE as a result of the merger;

	•	no gain or loss will be recognized by the stockholders of BOE as a result of the exchange of all of the shares of BOE common stock that they own for Community Bankers common stock pursuant to the merger, except that gain or loss will be recognized on the receipt of any cash instead of a fractional share;

	•	the tax basis of Community Bankers common stock to be received by the BOE stockholders, who exchange all of their BOE common stock for Community Bankers common stock in the merger, will be the same as the tax basis of the BOE common stock surrendered in exchange therefore (reduced by any amount allocable to a fractional share interest for which cash is received);

	•	the holding period of the Community Bankers common stock to be received by BOE stockholders, who exchange all of their BOE common stock for Community Bankers common stock in the merger (and cash received instead of fractional shares of Community Bankers common stock), will include the holding period of the BOE common stock surrendered in exchange therefore, provided the BOE shares were held as a capital asset by the BOE stockholders on the date of the exchange; and

	•	the payment of cash to BOE stockholders instead of fractional share interests of Community Bankers common stock will be treated for federal income tax purposes as if the fractional shares were distributed as part of the exchange and then were redeemed by Community Bankers. These cash payments will be treated as having been received as distributions in full payment in exchange for the Community Bankers common stock redeemed, as provided in Section 302 of the Internal Revenue Code.

The obligation of Community Bankers and BOE to complete the merger is conditioned on, among other things, receipt by Community Bankers of an opinion of Nelson Mullins Riley & Scarborough LLP and receipt by BOE of an opinion of LeClairRyan, A Professional Corporation, with respect to certain of the federal income tax consequences of the merger. The conditions relating to receipt of the tax opinion may be waived by both Community Bankers and BOE. Neither Community Bankers nor BOE currently intends to waive the conditions relating to the receipt of the tax opinion. If the conditions relating to the receipt of the tax opinion were waived and the material federal income tax consequences of the merger were substantially different from

those described in this joint proxy statement/prospectus, Community Bankers and BOE would resolicit the approval of its stockholders prior to completing the merger.

Tax consequences of the merger may vary depending upon the particular circumstances of each BOE stockholder. Accordingly, BOE stockholders are urged to consult their own tax advisors as to the specific tax consequences to them of the merger, including the applicability and effect of state, local, and foreign tax laws.

Certain Benefits of Directors and Officers of Community Bankers and BOE

General. Some of the officers and directors of Community Bankers and BOE may be deemed to have interests in the merger in addition to their interests as stockholders of BOE generally. These interests include, among others, proposed employee benefits for those who become employees of Community Bankers or a Community Bankers subsidiary after the merger, proposed employment agreements with two of BOE’s current executive officers and one of Community Bankers executive officers, the appointment of six current BOE directors to the board of directors of Community Bankers and the continuation of two directors of Community Bankers as directors of Community Bankers after the merger, the appointment of six directors designated by BOE and two directors designated by Community Bankers to the board of directors of the surviving bank and insurance coverage for BOE’s directors and officers, as described below.

Employee Benefits. Following the merger Community Bankers will provide generally to officers and employees of BOE and Bank of Essex employee benefits under benefit and welfare plans, other than stock plans, on terms and conditions which when taken as a whole are comparable to or better than those then provided by BOE or Bank of Essex to similarly situated officers and employees. For purposes of participation, vesting and benefit accrual under Community Bankers’ employee benefit plans, service with BOE prior to the effective time of the merger will be treated as service with Community Bankers or its subsidiaries.

Director Retention Agreements. In connection with the merger, each of the current directors of BOE has entered into a retention agreement with Community Bankers.

Employment Agreements. Prior to the completion of the merger, Community Bankers will enter into employment agreements with each of George M. Longest, Jr. and Bruce E. Thomas. Mr. Longest will become president of the surviving corporation and, commencing on January 1, 2010, will also become chief executive officer of the surviving corporation. Mr. Thomas will become chief financial officer of the surviving corporation. The term of their employment agreements is for three years after the merger date. On each anniversary of the merger date, upon the review and approval of the board of directors, the terms of the agreements will be extended by an additional year unless the surviving corporation or the employee gives written notice at least 30 days prior to an anniversary date that no further extensions should occur. The employment agreements provide for the payment of two months salary if the employee dies. In the case of termination by the surviving corporation without cause or by the employee for good reason, the agreements require that the employee receive his base salary and certain health benefits for 24 months following the date of termination. The agreements also provide that within two years following a change in control, if employment is terminated by the surviving corporation without cause or by the employee for good reason within 120 days after the occurrence of good reason, the employee will be entitled to accrued obligations, a salary continuance benefit equal to 2.99 times the employee’s final compensation and health care continuance. The employment agreements impose certain limitations on each employee, precluding the employee from soliciting the surviving corporation’s or surviving bank’s employees and customers and, without prior written consent of the surviving corporation, competing with the surviving corporation or the surviving bank by forming, serving as an organizer, director, officer or consultant to, or maintaining more than one percent passive investment in a depository financial institution or holding company if such entity has one or more offices or branches located within a 10-mile radius of the headquarters or any branch banking office of the surviving corporation or surviving bank. This limitation will be for a period of two years from the date on which the employee ceased to be an employee of the surviving corporation except that in the case of a termination without cause or for good reason following a change in control, the non-compete and customer solicitation restrictions will be in force for only one year.

Directors. Community Bankers has agreed to expand the board of directors to 14 members and appoint six directors selected by BOE to its board of directors as soon as practicable following the effective time of the merger. BOE will also nominate six directors and Community Bankers will nominate two directors to the board of the surviving bank following the merger. For more information, see “The Merger — Management and Operations After the Merger.”

Indemnification and Insurance. For six years following the merger, Community Bankers will generally provide indemnification to the present directors and officers of BOE and Bank of Essex against all liabilities arising out of actions or omissions arising out of their service or services as directors and officers of BOE and Bank of Essex. In addition, Community Bankers has agreed to use its reasonable efforts to maintain in effect for a period of up to three years after the effective time of the merger BOE’s current policy for directors and officers, provided that Community Bankers may (1) substitute policies of substantially the same coverage and amounts containing terms and conditions which are substantially no less advantageous as BOE’s current policy for directors and officers or (2), with the consent of BOE prior to the effective time of the merger, substitute any other policy with respect to claims arising from facts or events which occurred prior to the effective time of the merger and covering persons covered by such insurance on the date of the merger agreement. Community Bankers has agreed to make premium payments in an amount not to exceed $114,480 during the three-year period. If the amount of premiums necessary to maintain directors’ and officers’ insurance coverage exceeds $114,480, Community Bankers will use its reasonable efforts to maintain the most advantageous policies of directors’ and officers’ liability insurance obtainable for a premium equal to $114,480 but is not obligated to maintain coverage to the extent the cost of such coverage exceeds that amount.

Stock Options. Certain of the directors and executive officers of BOE hold stock options granted to them under BOE’s option plans. BOE has two stock option plans: the BOE Stock Incentive Plan for employees and the BOE Stock Option Plan for Outside Directors. Upon completion of the merger, each option to purchase or acquire shares of BOE common stock granted by BOE under BOE’s stock option plans, which are outstanding immediately prior to the merger, whether or not exercisable, will be converted into and become rights with respect to Community Bankers common stock, and Community Bankers will assume each right, in accordance with the terms of the relevant BOE stock option plan and stock option agreement. The number of shares of Community Bankers common stock for which each option will be exercisable will be equal to the number of shares of BOE common stock for which such option was exercisable multiplied by the exchange ratio. The per share exercise price of Community Bankers common stock at which the option will be exercisable will be determined by dividing the exercise price per share of BOE common stock at which the option was exercisable by the exchange ratio and rounding up to the nearest cent.

At September 30, 2007, options to acquire 29,359 shares were outstanding, of which 29,359 were exercisable at that date.

The table below sets forth, as of January 28, 2008, information with respect to options under the various BOE stock option plans held by each of BOE’s current directors and officers. All of the stock options are fully vested.


	Number of
Name(1)	Options Held

George M. Longest, Jr.		2,129
Bruce E. Thomas		831
K. Wayne Aylor		0
Terrell D. Vaughan		1,192
R. Tyler Bland, III		260
L. McCauley Chenault		470
Alexander F. Dillard, Jr.		520
George B. Elliott		470
Frances H. Ellis		380
Page Emerson Hughes, Jr.		150
Philip T. Minor		600
L. Edelyn Dawson		0


(1)		The table sets forth the aggregate total number of options granted by BOE to the individuals listed. Each of the individuals received multiple option grants from BOE, at various exercise prices depending on the date of the grant. The exercise prices for the option grants range from $12.25 per share to $28.70 per share.

Management and Operations After the Merger

At the completion of the merger, the board of directors, executive officers and significant employees of Community Bankers will be as set forth below.

The board of directors will be comprised of 14 members, including six directors to be nominated by BOE, two directors nominated by Community Bankers, and six directors nominated by TransCommunity. Alexander F. Dillard, Jr. the current chairman of the board of BOE, would be chairman of the surviving corporation, with Troy A. Peery, Jr. the current chairman of the board of TransCommunity, and Gary A. Simanson, the current president and chief executive officer of Community Bankers, each serving as vice chairman. Chris A. Bagley and Keith Walz would resign as members of the board of directors of Community Bankers after consummation of the merger with BOE.

Following the merger with BOE, the president and chief executive officer of TransCommunity, Bruce B. Nolte, would become the chief executive officer of the surviving corporation through December 31, 2009. The president and chief executive officer of BOE, George M. Longest, Jr., would become the president of the surviving corporation and chief executive officer of the surviving bank and, commencing on January 1, 2010, would become president and chief executive officer of the surviving corporation and would remain the chief executive officer of the surviving bank. The current chief financial officer of BOE, Bruce E. Thomas, would become the chief financial officer of the surviving corporation and the surviving bank. The current chief financial officer of TransCommunity, Patrick J. Tewell, would become the chief accounting officer of the surviving bank. Gary A. Simanson would serve as chief strategic officer of the surviving corporation.

The following table sets forth the board of directors, executive officers and significant employees following the completion of the merger with BOE. The directors noted in the following table as TransCommunity directors, will be appointed to the Community Bankers’ board of directors upon completion of the merger with TransCommunity.


Name	Age		Original Entity	Position

Bruce B. Nolte		61	TransCommunity	Chief Executive Officer through December 31, 2009 and Director
George M. Longest, Jr.		47	BOE	President, Chief Executive Officer after December 31, 2009, Director
Bruce E. Thomas		44	BOE	Chief Financial Officer
Patrick J. Tewell		43	TransCommunity	Chief Accounting Officer
Gary A. Simanson		47	Community Bankers	Chief Strategic Officer and Vice Chairman
Alexander F. Dillard, Jr.		69	BOE	Chairman
Troy A. Peery, Jr.		61	TransCommunity	Vice Chairman
Richard F. Bozard		60	TransCommunity	Director
L. McCauley Chenault		56	BOE	Director
George B. Elliot		73	BOE	Director
Page Emerson Hughes, Jr.		64	BOE	Director
Christopher G. Miller		49	TransCommunity	Director
Philip T. Minor		73	BOE	Director
Eugene S. Putnam, Jr.		48	Community Bankers	Director
Robin Traywick Williams		57	TransCommunity	Director
Jack C. Zoeller		59	TransCommunity	Director

Mr. Simanson is currently president, chief executive officer and director of Community Bankers, and Mr. Putnam is currently a director of Community Bankers. For more information see “Information About Community Bankers Acquisition Corp. — Current Directors.”

Messrs. Longest and Thomas are currently the chief executive officer and chief financial officer, respectively, of BOE. Messrs. Longest, Dillard, Chenault, Elliott, Hughes and Minor are currently directors of BOE. For more information see “Information about BOE — Directors” and “— Executive Officers.”

Certain information regarding TransCommunity’s executive officers and directors who will become executive officers and directors of Community Bankers following the merger with TransCommunity is set forth below:


Name		Principal Occupation During Past Five Years

Bruce B. Nolte		Chief Executive Officer and President, TransCommunity since January 1, 2006; President, TransCommunity since May 1, 2001.
Patrick J. Tewell		Chief Financial Officer since March 12, 2007; Senior Financial/IT Auditor of the Federal Reserve Bank, Richmond, Virginia, from 2004 to 2007; Vice President and Controller, Hanover Bank, from 2002 to 2004; and Vice President and Controller, Commerce Bank, from 2000 to 2002.
Troy A. Peery, Jr.		Chairman of the Board of TransCommunity since January 1, 2006; President, Peery Enterprises (real estate development), Manakin-Sabot, Virginia, since October 1998.
Richard F. Bozard		Vice President and Treasurer, Owens & Minor, Inc. (medical and surgical supplies distributor), Mechanicsville, Virginia, since 1991; Senior Vice President and Treasurer of Owens & Minor Medical, Inc., a subsidiary of Owens & Minor, since 2004.
Robin Traywick Williams		Chairman, Virginia Racing Commission, Richmond, Virginia, from 1998 to 2003; Chief of Staff, Lieutenant Governor of Virginia, during 2001; Director, Bank of Goochland, N.A., Goochland, Virginia
Christopher G. Miller		Chief Financial Officer, Bio-Star Ventures (manager of biotechnology funds), InteliTap LLC, CodeBlue Solutions, LLC, and MileFile, LLC, since 2007. Chief Financial Officer, Star Scientific Inc. (tobacco company), Chester, Virginia, from 2000 to 2007; Chief Executive Officer, The Special Opportunities Group LLC (technology venture capital fund), since 1999.
Jack C. Zoeller		Visiting Research Professor, George Washington University, since 2005; President and Chief Executive Officer, AtlantiCare Risk Management Corp., Vienna, Virginia and Barbados, 1995 to 2005; President and Chief Executive Officer, North American Health & Life Insurance Co., since 1996.

Community Bankers believes that Messrs. Peery, Putnam, Bozard, Miller, Zoeller, Elliott, Hughes and Minor and Ms. Williams are “independent” as that term is defined under the rules of the American Stock Exchange and the rules and regulations of the SEC. After the consummation of the merger, the board of directors of Community Bankers will make a formal determination with respect to the independence of each of its directors.

Following the merger of TransCommunity Bank and Bank of Essex, the board of directors of the surviving bank will be comprised of fourteen directors: two nominated by Community Bankers, six nominated by TransCommunity and six nominated by BOE. George M. Longest, Jr. will become the chief executive officer of the surviving bank, Bruce E. Thomas will become the chief financial officer of the surviving bank, Patrick J. Tewell will become the chief accounting officer of the surviving bank and M. Andrew McLean, the current president of TransCommunity Bank, will become president of the surviving bank.

Conditions to Consummation

The obligations of Community Bankers and BOE to consummate the merger are subject to the satisfaction or waiver (to the extent permitted) of several conditions, including:


	•	the holders of more than two-thirds of all votes entitled to be cast by the holders of BOE common stock must have approved the merger proposal and the holders of a majority of the outstanding shares of Community Bankers common stock entitled to vote at the special meeting must have approved the merger proposal;

	•	the required regulatory approvals described under “— Regulatory Approvals” must have been received, generally without any conditions or restrictions which would, in the reasonable judgment of the board


		of directors of Community Bankers or the board of directors of BOE, so materially adversely affect the economic or business benefits of the transactions contemplated by the merger agreement that, had the conditions or requirements been known, Community Bankers or BOE would not have entered into the merger agreement;


	•	each party must have received all consents (other than those described in the preceding paragraph) required for consummation of the merger and for the prevention of a default under any contract or permit of such party which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a material adverse effect on such party, generally without any conditions or restrictions which would, in the reasonable judgment of the board of directors of Community Bankers or the board of directors of BOE, as applicable, so materially adversely affect the economic or business benefits of the transactions contemplated by the merger agreement that, had the conditions or requirements been known, Community Bankers or BOE would not have entered into the merger agreement;

	•	no court or governmental authority may have taken any action which prohibits, restricts, or makes illegal the consummation of the transactions contemplated by the merger agreement;

	•	the shares of Community Bankers common stock to be issued as consideration in the merger will have been approved for listing on the American Stock Exchange or the Nasdaq Global Market, subject to official notice of issuance;

	•	the representations and warranties of Community Bankers and BOE in the merger agreement must be accurate, without any qualifications, subject to an exception generally for inaccuracies with an aggregate effect not reasonably likely to have a material adverse effect on the applicable party, and the other party must have performed in all material respects all of the agreements and covenants to be performed by it pursuant to the merger agreement, and must have delivered certificates confirming satisfaction of the foregoing requirements and certain other matters;

	•	Community Bankers must have received from each “affiliate” of BOE an agreement stating, among other things, that he or she will comply with federal securities laws when transferring any shares of Community Bankers common stock received in the merger (see “— Resales of Community Bankers Common Stock”);

	•	each of the persons serving as directors of Community Bankers from and after the effective time of the merger will have executed and delivered to Community Bankers a retention agreement as described elsewhere in this proxy statement prospectus (see “— Certain Benefits of Directors and Officers of Community Bankers and BOE”);

	•	there must not have been since the date of the merger agreement any material changes in the members of the board of directors or management of BOE;

	•	each party will have received certain legal opinions and tax opinions from its outside counsel and opinions as to the fairness from a financial point of view of the merger consideration; and

	•	Community Bankers must have completed its merger with TransCommunity.

No assurances can be provided as to when or if all of the conditions precedent to the merger can or will be satisfied or waived by the appropriate party. As of the date of this joint proxy statement/prospectus, the parties know of no reason to believe that any of the conditions set forth above will not be satisfied.

The conditions to consummation of the merger may be waived, in whole or in part, to the extent permissible under applicable law and Community Bankers’ certificate of incorporation, by the party for whose benefit the condition has been imposed, without the approval of such party’s stockholders.

Regulatory Approvals

Community Bankers and BOE have agreed to use their reasonable best efforts to obtain all regulatory approvals required to consummate the transactions contemplated by the merger agreement, which include approval from the Federal Reserve, as detailed below, and the Bureau of Financial Institutions of the Virginia

State Corporation Commission. The merger cannot proceed in the absence of these regulatory approvals. Although Community Bankers and BOE expect to obtain these required regulatory approvals, there can be no assurance as to if and when these regulatory approvals will be obtained.

The merger is subject to the prior approval of the Federal Reserve. Community Bankers filed an application with the Federal Reserve on January 25, 2008. In evaluating the merger, the Federal Reserve is required to consider, among other factors, the financial and managerial resources and future prospects of the institutions and the convenience and needs of the communities to be served. The Bank Holding Company Act of 1956, as amended, and Regulation Y promulgated thereunder, collectively, the BHCA, by the Federal Reserve prohibits the Federal Reserve from approving the merger if:


	•	it would result in a monopoly or be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United States; or

	•	its effect in any section of the country could be to substantially lessen competition or to tend to create a monopoly, or if it would result in a restraint of trade in any other manner, unless the Federal Reserve should find that any anti-competitive effects are outweighed clearly by the public interest and the probable effect of the merger in meeting the convenience and needs of the communities to be served.

The merger may not be consummated any earlier than the 15th day following the date of approval of the merger by the Federal Reserve, during which time the United States Department of Justice is afforded the opportunity to challenge the merger on antitrust grounds. The commencement of any antitrust action would stay the effectiveness of the approval of the Federal Reserve, unless a court of competent jurisdiction should specifically order otherwise.

The merger also is subject to the prior approval of the Bureau of Financial Institutions of the Virginia State Corporation Commission. Community Bankers also filed an application with the Bureau of Financial Institutions of the Virginia State Corporation Commission on January 25, 2008. In evaluating the merger, the Bureau of Financial Institutions of the Virginia State Corporation Commission will determine if:


	•	the proposed acquisition would be detrimental to the safety and soundness of Community Bankers, BOE or Bank of Essex;

	•	Community Bankers, its directors and officers, and any proposed new directors and officers of BOE or Bank of Essex are qualified by character, experience and financial responsibility to control and operate a Virginia financial institution;

	•	the proposed acquisition would be prejudicial to the interests of the depositors, creditors, beneficiaries of fiduciary accounts or stockholders of the Community Bankers, BOE or Bank of Essex; and

	•	the acquisition is in the public interest.

Other than as summarized above, we are not aware of any governmental approvals or actions that may be required for consummation of the merger. Should any other approval or action be required, we currently contemplate that we would seek such approval or action. To the extent that the above summary describes statutes and regulations, it is qualified in its entirety by reference to those particular statutes and regulations.

Representations and Warranties Made by Community Bankers and BOE in the Merger Agreement

Community Bankers and BOE have made certain customary representations and warranties to each other in the merger agreement. For information on these representations and warranties, please refer to the merger agreement attached as Appendix A.

Termination of the Merger Agreement

Notwithstanding the approval of the merger proposal by BOE’s stockholders, we can mutually agree at any time to terminate the merger agreement before completing the merger.

Either BOE or Community Bankers can also terminate the merger agreement:


	•	if the other party is in breach any of its representations, warranties, covenants or agreements under the merger agreement and fails to cure the violation and the breach relates to an inaccuracy that without considering any qualification in such representation, is likely to have a material adverse effect on the breaching party;

	•	if required regulatory approval is denied by final nonappealable action of such regulatory authority or if any action taken by such authority is not appealed within the time limit for appeal;

	•	if any law or order permanently restraining, enjoining, or otherwise prohibiting the consummation of the merger has become final and nonappealable;

	•	if Community Bankers or BOE stockholder approval is not obtained;

	•	if we do not complete the merger by June 30, 2008;

	•	if a party’s board of directors fails to reaffirm its approval upon the other party’s request for such reaffirmation of the merger or if the party’s board of directors resolves not to reaffirm the merger;

	•	if a party’s board of directors fails to include in this joint proxy statement/prospectus its recommendation, without modification or qualification, that the stockholders approve the merger or if the party’s board of directors withdraws, qualifies, modifies, proposes publicly to withdraw, qualify, or modify, in a manner adverse to the other party, the recommendation that the stockholders approve the merger;

	•	if a party’s board of directors affirms, recommends, or authorizes entering into any acquisition transaction other than the merger or, within 10 business days after commencement of any tender or exchange offer for any shares of its common stock, the party’s board of directors fails to recommend against acceptance of such tender or exchange offer or takes no position with respect to such tender or exchange offer; or

	•	if a party’s board of directors negotiates or authorizes the conduct of negotiations (and five business days have elapsed without such negotiations being discontinued) with a third party regarding an acquisition proposal other than the merger.

Either party can also terminate the merger agreement, provided that the party terminating is not in material breach of any representation, warranty, or covenant, or other agreement in the merger agreement, if prior to the adoption of the merger proposal by the stockholders, the other party’s board of directors has (1) withdrawn or modified or changed its recommendation of approval of the merger agreement in a manner adverse to the terminating party in order to approve and permit the other party to accept a superior proposal and (2) determined, after consultation with, and the receipt of advice from outside legal counsel to the other party, that the failure to take such action as described in the preceding clause (1) would be likely to result in a breach of the board of directors’ fiduciary duties under applicable law, provided, however, that at least five business days prior to any such termination, the other party shall, and shall cause its advisors to, negotiate with the terminating party, if such party elects to do so, to make such adjustments in the terms and conditions of the merger agreement as would enable the other party to proceed with the merger on the adjusted terms.

Amendment and Waiver

To the extent permitted by law, Community Bankers and BOE, with the approval of their respective boards of directors, may amend the merger agreement by written agreement at any time without the approval of BOE stockholders or Community Bankers stockholders. However, after the approval of the merger proposal by BOE’s stockholders, no amendment may reduce or modify the consideration to be received by BOE’s stockholders.

Prior to or at the effective time of the merger, either BOE or Community Bankers may waive any default in the performance of any term of the merger agreement by the other party, may waive or extend the time for the fulfillment by the other party of any of its obligations under the merger agreement, and may waive any of

the conditions precedent to the obligations of such party under the merger agreement, except any condition that, if not satisfied, would result in the violation of an applicable law.

Conduct of Business Pending the Merger

Under the merger agreement, each of Community Bankers and BOE has agreed, except as otherwise contemplated by the merger agreement or with the prior written consent of the other party, and to cause its subsidiaries to:


	•	operate its business only in the usual, regular, and ordinary course;

	•	use commercially reasonable efforts to preserve intact its business organization and assets and maintain its rights and franchises;

	•	use commercially reasonable efforts to cause its representations and warranties to be correct at all times;

	•	in the case of BOE only, use best efforts to provide all information requested by Community Bankers related to loans or other transactions made by BOE with a value equal to or exceeding $250,000;

	•	in the case of BOE only, consult with Community Bankers prior to entering into or making any loans or other transactions with a value equal to or exceeding $500,000; and

	•	take no action which would (1) adversely affect the ability of any party to obtain any consents required for the transactions contemplated by the merger agreement without imposition of a condition or restriction which, in the reasonable judgment of the board of directors of Community Bankers or the board of directors of BOE, would so materially adversely impact the economic or business benefits of the transactions contemplated by the merger agreement as to render inadvisable the consummation of the merger, or (2) materially adversely affect the ability of either party to perform its covenants and agreements under the merger agreement.

In addition, each of Community Bankers and BOE has agreed in the merger agreement not to take certain actions or agree or commit to take certain actions, or permit its subsidiaries to take or agree or commit to take certain actions pending consummation of the merger without the prior consent of the other party and except as otherwise expressly contemplated by the merger agreement. Such actions include, without limitation:


	•	amending its certificate of incorporation, articles of incorporation, bylaws, or other governing corporate instruments, except that either party may restate its certificate of incorporation or articles of incorporation without amendment thereto and Community Bankers may amend its certificate of incorporation as contemplated by the merger agreement with TransCommunity;

	•	in the case of BOE only, modifying Bank of Essex’s lending policy;

	•	incurring any obligation for borrowed money in excess of an aggregate of $100,000, except in the ordinary course of business consistent with past practices and that are prepayable without penalty, charge or other payment, or imposing or suffering the imposition of any lien on any asset or permit a lien to exist, with certain limited exceptions;

	•	acquiring or exchanging (other than exchanges in the ordinary course under employee benefit plans) any shares, or securities convertible into any shares, of the capital stock of Community Bankers or BOE or any BOE subsidiary or declaring or paying any dividend or making any other distribution in respect of either party’s common stock, provided that BOE may (to the extent legally and contractually permitted to do so) but will not be obligated to, declare and pay regular quarterly cash dividends on shares of BOE common stock at a rate not in excess of $0.22 per share with usual and regular record and payment dates in accordance with past practice;

	•	subject to certain limited exceptions, issuing, selling, or pledging, encumbering, authorizing the issuance of, sell, pledge, encumber, or authorize the issuance of, or otherwise permit to become


		outstanding any additional shares of Community Bankers or BOE common stock, any capital stock of any of BOE’s subsidiaries or any rights to acquire any such shares;


	•	adjusting, splitting, combining or reclassifying any Community Bankers or BOE capital stock, or issuing or authorizing the issuance of any other securities in respect of, or in substitution for, shares of Community Bankers or BOE common stock, or selling, leasing, mortgaging or otherwise disposing of, in the case of BOE only, any shares of capital stock of any subsidiary, and, in the case of either Community Bankers or BOE, any asset, other than in the ordinary course for reasonable and adequate consideration;

	•	purchasing any securities or making any material investments in any person or otherwise acquiring, or entering into any agreement to acquire, direct or indirect control over any person, except in the ordinary course of business consistent with past practice, subject to certain limited exceptions;

	•	granting any bonus or increase in compensation or benefits to the employees, officers or directors of Community Bankers or BOE or any BOE subsidiary, except in the case of officers and employees, normal individual increases in compensation in the ordinary course of business consistent with past practice and for any bonuses earned pursuant to any incentive plan duly adopted, approved and existing on the date of the merger agreement;

	•	committing or agreeing to pay any severance or termination pay, or any stay or other bonus to any Community Bankers or BOE director, officer or employee, as applicable;

	•	entering into or amending any severance agreements with officers, employees, directors, independent contractors or agents of Community Bankers or BOE or any BOE subsidiary;

	•	changing any fees or other compensation or other benefits to directors of BOE or any BOE subsidiary;

	•	waiving any stock repurchase rights, accelerating, amending or changing the period of exercisability of any rights or restricted stock, as applicable, or in the case of BOE, repricing rights granted under its stock incentive plans, equity compensation plans and stock option plans or authorizing cash payments in exchange for any rights, or accelerating or vesting or committing or agreeing to accelerate or vest any amounts, benefits or rights payable by Community Bankers or BOE or any BOE subsidiary, except as permitted under the terms of the agreement evidencing such right;

	•	except as contemplated by the merger agreement, entering into or amending (unless required by law) any employment contract that does not give Community Bankers, BOE or the BOE subsidiary the unconditional right to terminate the agreement following the effective time of the merger without liability other than for services already rendered;

	•	except for Community Bankers’ adoption of TransCommunity’s benefit plans as contemplated by the merger agreement with TransCommunity and subject to certain limited exceptions relating to requirements of law and maintaining tax qualified status, adopting any new employee benefit plan or terminating or withdrawing from or materially changing any existing employee benefit plans, welfare plans, insurance, stock or other plans, or making any distributions from such employee benefit or welfare plans, except as required by law, the terms of such plans or consistent with past practice;

	•	making any change in any tax or accounting methods or systems of internal accounting controls, except, as may be appropriate and necessary to conform to changes in tax laws, regulatory accounting requirements or generally accepted accounting principles or file any amended tax return, enter into any closing agreement, settle any tax claim or assessment relating to Community Bankers or BOE or any BOE subsidiary, as applicable, surrender any right to claim a refund of taxes, consent to any extension or waiver of the limitation period applicable to any tax claim or assessment relating to Community Bankers or BOE and any BOE subsidiary, as applicable, or take any other similar action relating to the filing of any tax return or the payment of any tax;


	•	commencing any litigation other than in accordance with past practice or settling any litigation for money damages or restrictions on the operations of Community Bankers or BOE or any BOE subsidiary;

	•	entering into, modifying, amending, or terminating any material contract (including any loan contract respect to any extension of credit with an unpaid balance exceeding $500,000) or waiving, releasing, compromising or assigning any material rights or claims, or, in the case of BOE, making any adverse changes in the mix, rates, terms, or maturities of Bank of Essex’s deposits and other liabilities, and including, in the case of Community Bankers, any material amendment to the merger agreement with TransCommunity and the waiver of any material obligation of TransCommunity or right of Community Bankers under such agreement; or

	•	taking any action or failing to take any action that at the time of such action or inaction is reasonably likely to prevent, or would be reasonably likely to materially interfere with, the consummation of the merger.

In addition, the merger agreement provides that neither Community Bankers nor BOE nor any of their respective affiliates and representatives will solicit any acquisition proposal (generally, a tender offer or proposal for a merger, asset acquisition or other business combination which would compete with the merger). Community Bankers and BOE have also agreed not to and not to permit their respective affiliates and representatives to furnish any confidential information, negotiate, or enter into any contract, with respect to any acquisition proposal.

However, the merger agreement also provides that either party may furnish nonpublic information regarding itself and may enter into a confidentiality agreement or discussions or negotiations in response to a bona fide unsolicited written acquisition proposal if:


	•	such party has not violated any of the restrictions against soliciting acquisition proposals;

	•	its board of directors, in its good faith judgment believes (based on, among other things, the advice of its financial advisor) that such acquisition proposal constitutes a superior proposal;

	•	its board of directors concludes in good faith, after consultation with and receipt of a written opinion from its outside legal counsel, that the failure to take such action would be inconsistent with its fiduciary duties, to its stockholders;

	•	(1) at least five business days prior to furnishing any such nonpublic information to, or entering into discussions or negotiations, the party gives the other party written notice of such party’s intention to furnish nonpublic information to, or enter into discussions or negotiations and the identity of such prospective purchaser, and (2) such party receives from such prospective purchaser an executed confidentiality agreement containing terms no less favorable to the disclosing party than the confidentiality terms of the merger agreement; and

	•	contemporaneously with furnishing any such nonpublic information, such party furnishes such nonpublic information to the other party (to the extent such nonpublic information has not been previously furnished by such party).

In addition, each of Community Bankers and BOE have agreed to provide the other party with at least five business days’ prior written notice of a meeting of its board of directors at which meeting such board of directors is reasonably expected to resolve to recommend the acquisition proposal to its stockholders and together with such notice, a copy of the most recently proposed documentation or revisions relating to the acquisition proposal.

Notwithstanding these provisions, the merger agreement contemplates that Community Bankers may enter into additional merger agreements, subject to receiving the prior consent of TransCommunity and BOE.

Expenses and Termination Fees

The merger agreement provides that each party will be responsible for its own direct costs and expenses incurred in connection with the transactions contemplated by the merger agreement. In the case of BOE, these expenses will be paid at closing and prior to the effective time of the merger.

The merger agreement provides that if either party terminates the merger agreement because of a material breach of the merger agreement by the other party, a termination fee of $500,000 would be payable by the breaching party to the non-breaching party. Further, if either party terminates because the stockholders of the other party fail to approve the merger or if either party terminates because the transactions contemplated are not consummated by the June 30, 2008, and another acquisition transaction, involving a change in control, is announced and results in a definitive agreement or a consummated acquisition transaction with the terminating party within 12 months of termination, then the party entering into the definitive agreement or consummating the acquisition transaction will owe the other party a termination fee of $500,000.

If a party terminates the agreement due to a material breach of the other party or the failure of the other party to recommend the merger to its stockholders, the termination fee of $500,000 is payable upon termination. In the case of a termination involving a competing acquisition transaction, the termination fee of $500,000 is payable upon the earlier of the execution of a definitive agreement or the consummation of the transaction. In those cases where a competing acquisition transaction with a third party is consummated, an additional termination fee of $1,200,000 will also be payable upon consummation of the acquisition transaction.

Stock Ownership of Existing Community Bankers, TransCommunity and BOE Stockholders After the Merger

The table below outlines the effect of the various scenarios on the percentage of Community Bankers’ voting interests that existing Community Bankers, TransCommunity and BOE stockholders will own after the merger with BOE is completed, based on the number of shares of each of Community Bankers, TransCommunity and BOE issued and outstanding as of the date of their respective merger agreements. Depending on the scenario, Community Bankers’ stockholders will own from 36.93% to 57.13% of Community Bankers’ voting interests after the merger, TransCommunity stockholders will own 20.76% to 30.54% of Community Bankers’ voting interests after the merger and BOE stockholders will own from 22.11% to 32.53% of Community Bankers’ voting interests after the merger. The table assumes that none of the TransCommunity stockholders exercised appraisal rights in Community Bankers’ merger with TransCommunity and that Community Bankers’ existing stockholders continue to own the warrants to be exercised. The unit purchase option refers to the unit purchase option to purchase 525,000 units (each unit comprised of one share of common stock and one warrant to purchase one share of common stock) held by I-Bankers Securities, Inc., Maxim Group LLC and Legend Merchant Group, Inc., the representatives of the underwriters in Community Bankers’ initial public offering.


								The 525,000 Warrants
								Included in
							525,000 Units	the Units
							Issuable	Issuable
					19.99% of	Community	Upon	Upon
					Community	Bankers’	Exercise of	Exercise of
					Bankers’	7,500,000	the Unit	the Unit
Percent Ownership					coversion	Warrants	Purchase	Purchase
Commmunity					Rights are	are	Option are	Option are
Bankers	TransCommunity		BOE	Total	Exercised	Exercised	Exercised	Exercised

57.13%		20.76%	22.11%	100.00%		X	X	X
56.40%		21.11%	22.49%	100.00%		X	X
55.65%		21.48%	22.88%	100.00%		X
54.98%		21.80%	23.22%	100.00%	X	X	X	X
54.17%		22.19%	23.64%	100.00%	X	X	X
53.34%		22.59%	24.07%	100.00%	X	X
43.66%		27.28%	29.06%	100.00%			X	X
42.40%		27.89%	29.71%	100.00%			X
41.07%		28.53%	30.39%	100/00%
39.89%		29.11%	31.00%	100.00%	X		X	X
38.44%		29.81%	31.75%	100.00%	X		X
36.93%		30.54%	32.53%	100.00%	X


X		- denotes that event occurred

Resales of Community Bankers Common Stock

The issuance of the shares of Community Bankers common stock to be issued to BOE’s stockholders in the merger has been registered under the Securities Act of 1933, or the Securities Act. These shares may be traded freely and without restriction by those stockholders not deemed to be “affiliates” of BOE or Community Bankers as that term is defined under the Securities Act. Any subsequent transfer of such shares, however, by any person who is an affiliate of BOE at the time the merger is submitted for a vote or consent of the stockholders of BOE will, under existing law, require either:


	•	the registration under the Securities Act of the subsequent transfer of the shares of Community Bankers common stock;

	•	compliance with Rule 145 promulgated under the Securities Act (permitting limited sales under certain circumstances); or

	•	the availability of another exemption from registration.

An “affiliate” of BOE, as defined by the rules promulgated pursuant to the Securities Act, is a person who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with BOE. BOE has agreed that it will use its reasonable efforts to cause each person or entity that is an “affiliate” for purposes of complying with Rule 145 to enter into a written agreement relating to such restrictions on sale or other transfer.

Accounting Treatment

The merger will be accounted for using the purchase method of accounting, with Community Bankers being treated as the acquiring entity for accounting purposes. Under the purchase method of accounting, the assets and liabilities of Community Bankers will be adjusted to include the fair value of the assets and liabilities of BOE as of the effective time. Financial statements issued after consummation of an acquisition accounted for as a purchase would reflect such values and would not be restated retroactively to reflect the historical financial position or results of operations of the acquired company.

Appraisal Rights of BOE Stockholders

BOE stockholders do not have appraisal rights in connection with the merger under applicable Virginia law.

PROPOSAL TO AMEND THE
CERTIFICATE OF INCORPORATION OF COMMUNITY BANKERS

At the annual meeting of stockholders on , 2008, Community Bankers stockholders are being asked to adopt two amendments to the certificate of incorporation to be effected upon consummation of the merger with TransCommunity: an amendment to reset the terms of the classes of Community Bankers’ directors and an amendment to change the corporation’s name to “Community Bankers Trust Corporation.” At the special meeting, Community Bankers is asking its stockholders to adopt an additional amendment to the certificate of incorporation. Unless Community Bankers and BOE agree otherwise, the merger will only be consummated if the stockholders of Community Bankers adopt an amendment to the certificate of incorporation. In addition, the amendment to the certificate of incorporation will only be effected in the event and at the time the merger with BOE is consummated. Assuming the amendment is adopted, the surviving corporation will file an amended and restated certificate of incorporation, substantially in the form attached as Appendix B.

Proposed Amendment

Community Bankers is proposing to amend the certificate of incorporation to adjust the terms of its three classes of directors. Community Bankers’ certificate of incorporation provides for a staggered board of directors with three classes of directors, with each class being elected at successive annual meetings following the closing of Community Bankers’ merger with TransCommunity. In order to comply with the requirements set forth in the merger agreement with BOE, Community Bankers is seeking approval for an amended Section F of Article SIXTH, in which each of the three classes of the staggered board of directors is elected as successive annual meetings. The directors in Class I shall be elected for a term expiring at the 2009 Annual Meeting of stockholders, the directors in Class II shall be elected for a term expiring at the 2010 Annual Meeting of stockholders, and the directors in Class III shall be elected for a term expiring at the 2011 Annual Meeting of stockholders. Commencing at the 2009 Annual Meeting of stockholders and at each annual meeting thereafter, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election.

INFORMATION ABOUT COMMUNITY BANKERS ACQUISITION CORP.

Adoption of the amendment to the certificate of incorporation requires the affirmative vote of a majority of the shares of Community Bankers common stock entitled to vote at the special meeting. Abstaining from voting or not voting on this proposal (including broker non-votes), either in person or by proxy, will have the same effect as a vote against adoption of the amendment to the certificate of incorporation.

Board Recommendation

The Community Bankers Board of Directors recommends a vote “FOR” adoption of the amendment to the certificate of incorporation.

Fair Market Value of Target Business

Community Bankers is a blank check company organized under the laws of the State of Delaware on April 6, 2005. As a “Targeted Acquisition Corporation”^sm or “TAC,”^sm Community Bankers was formed to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business in the banking industry. Prior to executing the merger agreement with TransCommunity,

Community Bankers’ activities were limited to organizational matters, completing its initial public offering and seeking and evaluating possible business combination opportunities.

In addition to the merger with BOE, Community Bankers has entered into an agreement and plan of merger, dated as of September 5, 2007, with TransCommunity, a financial holding company based in Glen Allen, Virginia. The merger agreement by and between Community Bankers and TransCommunity provides for the merger of TransCommunity with and into Community Bankers. As a result of the merger, each share of TransCommunity common stock will be converted into 1.4200 shares of Community Bankers common stock, subject to adjustment as further described elsewhere in this joint proxy statement/prospectus. We anticipate that Community Bankers’ merger with TransCommunity will be consummated before Community Bankers’ merger with BOE.

On June 8, 2006, Community Bankers consummated its initial public offering of 7,500,000 units, which commenced trading on the American Stock Exchange under the symbol “BTC.U.” Each unit consisted of one share of common stock and one redeemable common stock purchase warrant. Each warrant entitles the holder to purchase from Community Bankers one share of Community Bankers common stock at an exercise price of $5.00 per share beginning upon the consummation of an initial business combination. As such the warrants will become exercisable upon the completion of the merger with TransCommunity. Community Bankers common stock and warrants started trading separately on the American Stock Exchange as of September 5, 2006, under the symbols “BTC” and “BTC.WS,” respectively.

Recent Developments

On February 15, 2008, Community Bankers announced its results of operations for the period from April 1, 2007 to December 31, 2007. For the period from April 1, 2007 until December 31, 2007, interest income on its trust fund investments, including interest allocable to shares subject to possible conversion, amounted to $1,933,962. This resulted in net income for the period from April 1, 2007 until December 31, 2007 of $1,105,034 or net income per share, basic and diluted, of $0.12 and $0.09, respectively. The aggregate amount of cash and United States treasury securities held in the trust fund as of December 31, 2007, was $58,452,512.

BALANCE SHEETS


	December 31,		March 31,
	2007		2007
	(Unaudited)		(Audited)

ASSETS
Current assets:
Cash	$	162,154	$	676,183
Cash and United States Treasury securities held in trust fund		58,452,512		58,118,729
Prepaid expenses		178,799		17,500
Deferred Acquisition Costs		647,487		—

Total current assets		59,440,952		58,812,412

Total Assets	$	59,440,952	$	58,812,412


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Income taxes payable	$	338,690	$	806,000
Deferred payment to underwriter		2,100,000		2,100,000
Accrued expenses		—		9,185

Total Current Liabilities		2,438,690		2,915,185

Common stock, subject to conversion, 1,499,250 shares at conversion value		11,690,502		11,617,934

Commitments

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value
Authorized 5,000,000 shares; none issued		—		—
Common stock, $0.01 par value
Authorized 50,000,000 shares issued and outstanding, 9,375,000 shares (which includes 1,499,250 shares subject to conversion)		93,750		93,750
Additional paid-in capital		42,988,876		43,061,444
Earnings accumulated during the development stage		2,229,134		1,124,099

Total Stockholders’ Equity		45,311,760		44,279,293

Total Liabilities and Stockholders’ Equity	$	59,440,952	$	58,812,412

STATEMENTS OF INCOME
(Unaudited)


			Year Ended
			March 31, 2007		Cumulative Period
	Nine Months		(derived from the		from April 6, 2005
	Ended		audited financial		(inception) to
	December 31, 2007		statements)		December 31, 2007

Interest on cash and short-term investments held in trust	$	1,944,395	$	2,268,760	$	4,213,155
Operating costs		263,142		338,661		601,803

Income before taxes		1,681,253		1,930,099		3,611,352
Provision for income taxes		576,218		806,000		1,382,218

Net income	$	1,105,035	$	1,124,099		2,229,134

Weighted average shares outstanding-basic		9,375,000		7,997,740		6,140,625

Weighted average shares outstanding-diluted		11,807,432		10,256,708		8,573,075

Net income per share-basic	$	0.12	$	0.14	$	0.36

Net income per share-diluted	$	0.09	$	0.11	$	0.26

Trust Account

The net proceeds from the sale of Community Bankers’ units were approximately $54,950,000. Of this amount, $54,350,000 of the net proceeds, plus $2,100,000 attributable to the underwriters’ discount that I-Bankers Securities, Inc., Maxim Group LLC and Legend Merchant Group, Inc., the representatives of the underwriters in Community Bankers’ initial public offering agreed to defer until Community Bankers consummated its initial business combination, was deposited in an interest-bearing trust account at JPMorgan Chase NY Bank maintained by Continental Stock Transfer & Trust Company, as trustee, pursuant to an agreement signed on June 8, 2006. Except for a portion of the interest earned on the Community Bankers trust account which may be released to Community Bankers, these proceeds will not be released until the earlier of the completion of the merger with TransCommunity or Community Bankers’ liquidation. The remaining $600,000 in net proceeds, together with any interest released to Community Bankers’ to cover operating expenses, were made available to be used by Community Bankers to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses. Substantially all of the net proceeds not held in the trust account of Community Bankers’ initial public offering were intended to be used to acquire a target business, including identifying and evaluating prospective acquisition candidates, selecting the target business, and structuring, negotiating and consummating the business combination. Upon consummation of the merger with TransCommunity, the funds currently held in the trust account, less any amounts paid to stockholders who exercise their conversion rights and the deferred underwriting compensation, will be released to Community Bankers. Community Bankers intends to pay any additional expenses related to the mergers with TransCommunity and BOE and hold the remaining funds as capital at the holding company level pending use for general corporate and strategic purposes. Such purposes could include increasing the capital of Bank of Essex, future mergers and acquisitions, branch construction, asset purchases, payment of dividends, repurchases of shares of Community Bankers common stock and general corporate purposes. Until such capital is fully leveraged or deployed, Community Bankers may not be able to successfully deploy such capital and Community Bankers’ return on such equity could be negatively impacted.

The initial target business or businesses Community Bankers acquires must have a collective fair market value equal to at least 80% of Community Bankers’ net assets at the time of the business combination (excluding the portion of the trust account attributable to the underwriters’ discount). The fair market value of such business or businesses is determined by Community Bankers’ board of directors based upon standards generally accepted by the financial community, such as actual and potential revenues, net income, assets, cash flow and book value. Community Bankers is not required to obtain an opinion from an investment banking firm as to the fair market value if Community Bankers’ board of directors independently determines that the target business has sufficient fair market value, but may do so.

As the merger with TransCommunity will be Community Bankers initial business combination, the fair market value of TransCommunity must meet the fair market value requirements described above. Based on the financial analyses undertaken or reviewed by Community Bankers’ board of directors generally in evaluating and approving the merger agreement by and between Community Bankers and TransCommunity, the board of directors determined that the merger with TransCommunity meets this requirement.

Stockholder Approval of Business Combination

As Community Bankers will be issuing shares of Community Bankers common stock in the merger with BOE totaling more than 20% of the outstanding shares of Community Bankers common stock immediately prior to the effective time of the merger, Delaware law requires that the Community Bankers stockholders adopt the merger agreement for the merger to be consummated. Delaware law requires that the holders of a majority of the outstanding shares of Community Bankers common stock entitled to vote at the special meeting adopt the merger agreement for the merger with BOE to be consummated.

In addition, Community Bankers’ certificate of incorporation requires that it submit the merger with TransCommunity to Community Bankers’ stockholders for approval, even if stockholder approval were not required under Delaware law. Further, as required by its certificate of incorporation, Community Bankers’ will proceed with the merger with TransCommunity only:


	•	if the holders of a majority of the outstanding shares of Community Bankers common stock issued in Community Bankers’ initial public offering and voted at the annual meeting vote in favor of the merger proposal; and

	•	the holders of less than 20% of the outstanding shares of Community Bankers stock issued in Community Bankers’ initial public offering vote against the business combination and exercise their conversion rights.

All of Community Bankers’ insiders, including all of Community Bankers’ officers, directors and initial stockholders, have agreed to vote the 1,875,000 shares of Community Bankers common stock acquired by them before Community Bankers’ initial public offering either for or against the merger with TransCommunity consistent with the majority of the votes cast by the holders of the shares of common stock issued in the initial public offering. This voting arrangement shall not apply to shares included in units purchased in Community Bankers’ initial public offering or purchased following Community Bankers’ initial public offering in the open market by any of Community Bankers’ initial stockholders, officers or directors. Accordingly, they may vote on the merger with TransCommunity with respect to shares of common stock acquired in or after the consummation of Community Bankers’ initial public offering any way they choose. Regarding the merger with BOE, the Community Bankers insiders may vote all of their shares any way they choose. All of Community Bankers directors and executive officers have indicated they will vote in favor of the merger and each of the other proposals to be considered at the special meeting.

Liquidation If the Merger with TransCommunity Does Not Close

If Community Bankers does not complete the merger with TransCommunity by June 7, 2008, Community Bankers’ certificate of incorporation (1) provides that Community Bankers’ corporate powers would automatically thereafter be limited to acts and activities relating to dissolving and winding up its affairs, including

liquidation, and Community Bankers would not be able to engage in any other business activities and (2) requires that Community Bankers’ board of directors within 15 days adopt a resolution finding Community Bankers’ dissolution advisable and provide notice as soon as possible thereafter of a special meeting of stockholders to vote on Community Bankers’ dissolution. Pursuant to Delaware law, Community Bankers’ dissolution would require the affirmative vote of stockholders owning a majority of the then outstanding shares of Community Bankers’ common stock. Community Bankers would promptly prepare a proxy statement and notice of special meeting of stockholders in accordance with the requirements of Delaware law and the federal securities laws, which proxy statement would be required to be submitted to and reviewed by the SEC, and thereafter forward the proxy statement and notice of meeting to Community Bankers’ stockholders no less than 10 nor more than 60 days prior to Community Bankers’ special meeting of stockholders soliciting stockholder votes with respect to its dissolution. In the event that Community Bankers does not initially obtain approval for such dissolution by stockholders owning a majority of the then outstanding shares of Community Bankers common stock, Community Bankers would continue to take all reasonable actions to obtain such approval, which may include adjourning the meeting from time to time to allow Community Bankers to obtain the required vote and retaining a proxy solicitation firm to assist Community Bankers in obtaining such vote. Community Bankers insiders (including all of its directors, officers and initial stockholders) have agreed to vote all shares of Community Bankers common stock owned by them that were purchased prior to or issued in Community Bankers’ initial public offering in favor of such dissolution. However, there can be no assurance that Community Bankers stockholders would approve a dissolution in a timely manner or ever approve a dissolution. If Community Bankers is not able to obtain the approval from a majority of the then outstanding shares of Community Bankers common stock, Community Bankers would not be able to dissolve and liquidate and Community Bankers would not be able to distribute funds from its trust account to public stockholders and these funds would not be available for any other corporate purpose.

Community Bankers anticipates that any liquidation would occur pursuant to Section 281(b) of the DGCL and, in this event, its board of directors would be required under Section 281(b) of the DGCL to adopt, within a three year period, a plan of distribution pursuant to which Community Bankers would pay or make reasonable provision to pay all of Community Bankers’ existing claims and obligations, all contingent, conditional or unmatured contractual claims, claims subject of a pending suit, and claims that are likely to arise or become known within 10 years after its dissolution. Community Bankers’ plan of distribution will provide that Community Bankers will pay or reserve for such claims from its funds not held in trust. Community Bankers’ board of directors intends to adopt a plan of distribution and to distribute the funds held in trust and any of its remaining assets to public stockholders as promptly as practicable following Community Bankers’ dissolution. Until adoption of Community Bankers’ plan of distribution and distribution of the funds held in trust, which Community Bankers anticipates would be accomplished within six months following board approval of Community Bankers’ dissolution, the funds would remain in trust and held by the trustee in permitted investments.

Assuming Community Bankers’ dissolution were submitted to and approved by its stockholders in accordance with Delaware law, the holders of Community Bankers common stock issued in Community Bankers’ initial public offering would, in that event, be entitled to receive their proportionate share of the trust account (including any interest not released to Community Bankers, net of taxes, and the deferred underwriting discount). In addition, such holders would be entitled to receive a pro rata portion of Community Bankers’ remaining assets not held in trust, less amounts Community Bankers would pay, or reserve to pay, for all of Community Bankers’ liabilities and obligations. These liabilities and obligations include Community Bankers’ corporate expenses arising during Community Bankers’ remaining existence and the costs associated with its dissolution and liquidation. Community Bankers’ corporate expenses are expected to be primarily associated with preparation for and conduct of Community Bankers’ special meeting of stockholders and Community Bankers’ continuing public reporting obligations, including legal services, proxy soliciting firms, services of Community Bankers’ independent public accounting firm and legal fees it may incur in the event of disputes with any claimants or creditors. Gary A. Simanson, Community Bankers’ president and chief executive officer, and David Zalman, an initial stockholder, would be personally liable for ensuring that the trust account is not reduced by claims of Community Bankers’ vendors and service providers in the event of Community Bankers’ dissolution and liquidation. Messrs. Simanson and Zalman will not be liable for and will not pay any

termination fees that may be payable by Community Bankers to TransCommunity or BOE under the respective merger agreements. These termination fees may be as little as $500,000 or as much as $1,700,000 and if sufficient operating funds are unavailable, the termination fees will not be paid out of the trust account. To the extent funds reserved to pay liabilities or obligations are not subsequently used for such purpose, the funds would be available for distribution to Community Bankers’ public stockholders or for ongoing corporate expenses including costs of its liquidation during its remaining existence.

Community Bankers’ initial stockholders have waived their rights to participate in any distribution with respect to shares of common stock owned by them before Community Bankers’ initial public offering upon its liquidation prior to a business combination. In addition, the representatives of the underwriters in Community Bankers’ initial public offering have agreed to forfeit any rights to or claims against the portion of the trust account attributable to the contingent underwriting discount in the event Community Bankers does not timely complete a business combination and dissolve and distribute the funds held in the trust account upon its liquidation. There will be no distribution from the trust account with respect to Community Bankers’ warrants, which will expire without value in the event of Community Bankers’ liquidation.

Community Bankers currently estimates that if a liquidation were to occur by approximately , there would be approximately $ in Delaware franchise taxes and income taxes not waived by taxing authorities and for which Messrs. Simanson and Zalman have not agreed to indemnify Community Bankers. Thus, Community Bankers’ management believes that the total amount available for distribution upon liquidation to the holders of the 7,500,000 shares of common stock issued in Community Bankers’ initial public offering, including deferred underwriting discounts and accrued interest through , would be approximately $ or $ per share.

Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. If a corporation, following its dissolution, complies with the statutory procedures set forth in Section 280 of the DGCL, intended to ensure that the corporation makes reasonable provision for all claims against it, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. The procedures in Section 280 include a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions may be made to stockholders. However, it is Community Bankers’ intention to seek approval of its stockholders to make liquidating distributions to its public stockholders as soon as reasonably practicable following Community Bankers’ dissolution in accordance with Section 281(b) of the Delaware statute. Therefore, Community Bankers’ stockholders could potentially be liable for any claims to the extent of distributions received by them in a dissolution and any liability of Community Bankers’ stockholders may extend beyond the third anniversary of such dissolution.

In addition, the proceeds deposited in the trust account could become subject to the claims of Community Bankers’ creditors and Community Bankers could be required to pay its creditors prior to making any distributions to the holders of shares of Community Bankers common stock that were issued in the initial public offering. Community Bankers has prepaid certain of its material legal, printing, accounting, administrative and financial advisory fees and intends to prepay or to obtain waiver agreements from vendors and service providers it may engage in the future for any material amounts. Any such waiver agreements will provide that the applicable vendor or service provider waives any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of Community Bankers and the holders of shares of Community Bankers common stock that were issued in the initial public offering. If any potential vendor or service provider objects to being prepaid or refuses to enter into a waiver agreement, Community Bankers will consider whether there is a suitable alternative provider, the expected aggregate contract amount and Community Bankers’ assessment of the potential risk to the trust account before engaging such person. However, because Community Bankers is a blank check company, rather than an operating company, and Community Bankers’ operations are limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from Community Bankers’ vendors or service providers (such as accountants,

lawyers or investment bankers) or potential target businesses. In addition, TransCommunity and BOE have agreed and Community Bankers will require any other target business to agree as part of any definitive acquisition agreement that it will not pursue any claim or enforce any right, title, interest or claim of any kind in or to any monies held in the trust account. As a result of these efforts coupled with Messrs. Simanson’s and Zalman’s agreement to be responsible to ensure that the proceeds in the trust account are not reduced by the claims of any vendor or service provider, management believes the claims that could be made against Community Bankers is significantly limited and the likelihood that any claim that would result in any liability extending to the trust is remote. However, there can be no guarantee that persons will not seek recourse against the trust account. Accordingly, Community Bankers cannot assure you that the actual per share liquidation price will not be less than $ per share due to claims of creditors.

Competition

If Community Bankers succeeds in effecting the mergers with TransCommunity and BOE, there will be, in all likelihood, intense competition from competitors of the target business in the commercial banking industry and other financial service businesses. Community Bankers cannot assure you that, subsequent to the mergers, Community Bankers will have the resources or ability to compete effectively.

Employees

Community Bankers’ officers and directors are not obligated to contribute any specific number of hours to Community Bankers’ matters and devote only as much time as they deem necessary to its affairs. Community Bankers’ executive officers are also involved with business ventures other than Community Bankers. The amount of time they devote in any time period varies based on the availability of suitable target businesses to investigate although Mr. Simanson devotes the majority of his professional time to Community Bankers’ business. Community Bankers does not currently have and does not intend to have any full time employees prior to the consummation of the merger with TransCommunity. In the event the mergers with TransCommunity and BOE are consummated, Community Bankers will have an estimated employees.

Properties

Community Bankers maintains its executive offices at 9912 Georgetown Pike, Suite D-203, Great Falls, Virginia 22066. The cost for this space is included in the $7,500 per-month fee Community Bankers Acquisition, LLC charges Community Bankers for general and administrative services pursuant to a letter agreement between Community Bankers and Community Bankers Acquisition, LLC. The $7,500 per month fee will no longer be payable following consummation of the merger with TransCommunity. We believe, based on rents and fees for similar services in the Great Falls, Virginia metropolitan area, that the fee charged by Community Bankers Acquisition, LLC is at least as favorable as Community Bankers could have obtained from an unaffiliated person. Community Bankers considers its current office space adequate for its current activities. In the event the merger with TransCommunity is consummated, Community Bankers’ executive offices will be in Glen Allen, Virginia.

Legal Proceedings

To the knowledge of management there is no litigation pending or contemplated against Community Bankers or any of Community Bankers’ officers or directors in their capacity as such.

Periodic Reporting and Financial Information

Community Bankers has registered its units, common stock and warrants under the Securities Exchange Act of 1934, as amended, or the Exchange Act, and has reporting obligations, including the requirement that it file annual and quarterly reports with the SEC. In accordance with the requirements of the Exchange Act, Community Bankers has filed with the SEC an Annual Report on Form 10-K for its fiscal year ended March 31, 2007 and a Quarterly Report on Form 10-Q for its quarter ended September 30, 2007.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

As reported on a Current Report on Form 8-K filed May 18, 2007, Community Bankers advised Yount, Hyde & Barbour, P.C. on May 15, 2007, that the Audit Committee of Community Bankers’ board of directors had determined to engage Miller, Ellin & Company LLP on that date as Community Bankers’ independent registered public accounting firm to audit Community Bankers’ financial statements as of and for the fiscal year ended March 31, 2007, and to serve as Community Bankers’ independent registered public accounting firm for the fiscal year ending March 31, 2008. As reported on a Current Report on Form 8-K filed November 2, 2007, on October 29, 2007, Community Bankers’ board of directors acted in accordance with Community Bankers bylaws to change Community Bankers’ fiscal year to end on December 31, commencing with the fiscal year ending December 31, 2007. The reports of Yount, Hyde & Barbour, P.C. on Community Bankers’ consolidated financial statements as of and for the fiscal year ended March 31, 2006, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principle. During the period from inception through the fiscal year ended March 31, 2006, and through May 15, 2007, there were no (1) disagreements with Yount, Hyde and Barbour, P.C. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Yount, Hyde and Barbour’s satisfaction, would have caused Yount, Hyde and Barbour to make reference thereto in its report on the financial statements for such years, or (2) reportable events described under Item 304(a)(1)(iv) of Regulation S-K.

Community Bankers Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Six Months Ended September 30, 2007

General

Community Bankers was incorporated on April 6, 2005, to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating commercial bank or bank holding company. Community Bankers’ first business combination or series of such transactions must have a fair market value of at least 80% of Community Bankers’ net assets (excluding the amount held in the trust account representing a portion of the underwriters’ discount) at the time of such transaction(s). Community Bankers consummated Community Bankers’ initial public offering on June 8, 2006. Community Bankers have neither engaged in any operations nor generated any revenues to date other than interest income. Community Bankers’ entire activity since inception has been to prepare for and consummate Community Bankers’ initial public offering and to identify and investigate targets for an initial business combination.

Until the announcement on September 6, 2007, that Community Bankers had entered into the agreement and plan of merger with TransCommunity, Community Bankers’ efforts had been primarily organizational, activities relating to Community Bankers’ offering and searching for and identifying targets for an initial business combination. Until the consummation of a business combination, Community Bankers expects interest earned on the offering proceeds held in trust to be Community Bankers’ primary source of income.

Community Bankers entered into the merger agreement with TransCommunity on September 5, 2007. The merger agreement sets forth the terms and conditions of Community Bankers’ acquisition of TransCommunity through the merger of TransCommunity with and into Community Bankers. TransCommunity Bank, a wholly owned subsidiary of TransCommunity, will become a wholly owned subsidiary of the surviving company in the merger.

Under the terms of the merger agreement with TransCommunity, Community Bankers will issue to the stockholders of TransCommunity, for each share of TransCommunity’s common stock that they own, 1.4200 shares of Community Bankers’ common stock, subject to adjustment as described below. If the daily average closing price for Community Bankers’ common stock for the 20 consecutive days of trading in such stock ending five days before the closing date is less than $7.42, Community Bankers will increase the exchange ratio to the quotient obtained by dividing $10.5364 by such daily average closing price.

and shall be converted into an option to acquire the number of shares of Community Bankers’ common stock equal to the number of shares of common stock underlying the option multiplied by the exchange ratio. The exercise price of each option will be adjusted accordingly. Additionally, each outstanding share of TransCommunity restricted stock under any of TransCommunity’s stock plans shall vest pursuant to its terms and shall be converted into and become rights with respect to Community Bankers common stock. Each share of TransCommunity restricted stock will be converted into 1.4200 shares of Community Bankers common stock.

Consummation of the merger with TransCommunity is subject to a number of customary conditions including the approval of the merger by the stockholders of each of TransCommunity and Community Bankers and the receipt of all required regulatory approvals. In addition, closing of the transaction is also conditioned on holders of fewer than 20% of the shares of Community Bankers’ common stock voting against the transaction and electing to convert their shares of Community Bankers’ common stock into cash. Pursuant to the agreement and plan of merger either party may terminate the agreement in the event the merger is not consummated by May 31, 2008.

Due to regulatory and stockholder approvals as well as the closing conditions associated with the transaction, Community Bankers cannot assure stockholders and investors that Community Bankers will consummate the merger in the allotted time. If Community Bankers does not effect the merger with TransCommunity by June 7, 2008, Community Bankers will be forced to dissolve and liquidate.

Community Bankers entered into the merger agreement with BOE on December 13, 2007. The merger agreement sets forth the terms and conditions of Community Bankers’ acquisition of BOE through the merger of BOE with and into Community Bankers. Bank of Essex, a wholly owned subsidiary of BOE, will become a wholly owned subsidiary of the surviving company in the merger.

Under the terms of the merger agreement with BOE, Community Bankers will issue to the stockholders of BOE, for each share of BOE’s common stock that they own, 5.7278 shares of Community Bankers’ common stock, subject to adjustment as described below. If the daily average closing price for Community Bankers’ common stock for the 20 consecutive days of trading in such stock ending five days before the closing date is less than $7.42, Community Bankers will increase the exchange ratio to the quotient obtained by dividing $42.50 by such daily average closing price.

In addition, at the effective time of the merger, each outstanding option to purchase shares of BOE’s common stock under any of BOE’s stock plans shall vest pursuant to its terms and shall be converted into an option to acquire the number of shares of Community Bankers’ common stock equal to the number of shares of common stock underlying the option multiplied by the exchange ratio. The exercise price of each option will be adjusted accordingly.

Consummation of the merger with BOE is subject to a number of customary conditions including the approval of the merger by the stockholders of each of BOE and Community Bankers and the receipt of all required regulatory approvals. Pursuant to the agreement and plan of merger either party may terminate the agreement in the event the merger is not consummated by June 30, 2008.

Results of Operations for the Three Months Ended September 30, 2007. For the three months ended September 30, 2007, operating costs of $111,605 consisted primarily of $31,167 in legal and other professional fees, $26,813 for office and administrative services, $23,625 for amortization of prepaid insurance and $30,000 for travel and due diligence. Interest income on the trust fund investments, including interest allocable to shares subject to possible conversion, amounted to $712,368. This resulted in net income for the three months ended September 30, 2007 of $372,550, net of $228,338 of provision for income taxes.

Results of Operations for the Six Months Ended September 30, 2006. For the six months ended September 30, 2007, operating costs of $171,887 consisted primarily of $36,516 in legal and other professional fees, $55,871 for office and administrative services and $49,000 for amortization of prepaid insurance and $30,500 for travel and due diligence. Interest income on the trust fund investments, including interest allocable to shares subject to possible conversion, amounted to $1,418,538. This resulted in net income for the six months ended September 30, 2007 of $779,392, net of $477,691 of provision for income taxes.

Liquidity and Capital Resources. The net proceeds of Community Bankers’ initial public offering, after deducting the underwriters discount and initial public offering expenses, was $54,950,000. Of these net proceeds, $54,350,000 has been placed in a trust account at J.P. Morgan Chase Bank maintained by Continental Stock Transfer & Trust Company, New York, New York, as trustee, and invested in U.S. government securities together with an additional $2,100,000 of deferred underwriting compensation. The funds held in the trust account, other than the deferred underwriting compensation, may be used as consideration to pay the sellers of a target business with which Community Bankers ultimately completes a business combination. One-half of the interest earned on the trust account, net of taxes, will be retained in the trust account for distribution to public stockholders under certain circumstances. The remaining interest earned on the trust account, net of taxes, up to $1,129,000 may be released to us periodically to fund Community Bankers’ working capital requirements. Upon the consummation of a business combination, Community Bankers will pay the deferred underwriting compensation to the underwriters out of the proceeds of the initial public offering held in trust. Any amounts not paid as consideration to the sellers of the target business or to the underwriters as deferred underwriting fees may be used to finance the operations of the target business, pay expenses associated with the merger, make capital contributions, repurchase Community Bankers’ securities or to engage in subsequent acquisitions.

As of September 30, 2007, Community Bankers had cash not held in trust of $397,225, including interest released to us from the trust account. During the balance of 2007 and in 2008 until consummation of a business combination, Community Bankers will generate interest income on Community Bankers’ cash outside of the trust account which can also be used to pay part of Community Bankers’ costs and expenses. Community Bankers will be using the funds not held in trust together with interest released to us from the trust account from time to time for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination. Community Bankers’ cash requirements are expected to change based on the timing, nature and outcome of Community Bankers’ intended business combination.

Community Bankers is obligated, commencing June 5, 2006, and ending upon the acquisition of a target business, to pay to Community Bankers Acquisition, LLC, an affiliate of one of Community Bankers’ directors and executive officers and a stockholder, a monthly fee of $7,500 for office space and general and administrative services. Community Bankers anticipates that Community Bankers will incur, in addition to the administrative fee to Community Bankers Acquisition LLC, expenses for legal, accounting and other expenses attendant to the structuring, negotiating and completing of Community Bankers’ initial business combination, due diligence of prospective target businesses, expenses in legal and accounting fees relating to bank regulatory compliance, SEC reporting obligations and internal controls and for general working capital that will be used for miscellaneous expenses and reserves, including director and officer liability insurance premiums. Community Bankers has prepaid $687,000 in expenses for professional fees, administrative services and insurance and believes that Community Bankers has sufficient capital to meet Community Bankers’ day-to-day operating expenses until consummation of Community Bankers’ initial business combination. However, Community Bankers may need to raise additional funds through a private offering or debt or equity securities if it is required to consummate a business combination that is presented to us. Community Bankers would only consummate such a fundraising simultaneously with the consummation of a business combination.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. Community Bankers’ exposure to market risk is limited to interest income sensitivity with respect to the funds placed in the trust account. However, the funds held in Community Bankers’ trust account have been invested only in U.S. “government securities,” defined as any Treasury Bill issued by the United States having a maturity of one hundred and eighty days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company

Act of 1940, so Community Bankers is not deemed to be an investment company under the Investment Company Act. Thus, Community Bankers is subject to market risk primarily through the effect of changes in interest rates on government securities. The effect of other changes, such as foreign exchange rates, commodity prices and/or equity prices, does not pose significant market risk to us.

Community Bankers Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Year Ended March 31, 2007 and the Period April 6, 2005 to March 31, 2006

The following discussion of Community Bankers’ financial condition and results of operations should be read in conjunction with Community Bankers’ financial statements included in this joint proxy statement/prospectus, the accuracy of which involves risks and uncertainties. Community Bankers’ actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by Community Bankers described in “Risk Factors” on page .

General

Community Bankers was incorporated on April 6, 2005, to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating commercial bank or bank holding company. Community Bankers’ first business combination or series of such transactions must have a fair market value of at least 80% of Community Bankers’ net assets (excluding the amount held in the trust account representing a portion of the underwriters’ discount) at the time of such transaction(s). Community Bankers consummated its initial public offering on June 8, 2006. Community Bankers neither engaged in any operations nor generated any revenues, other than interest income, nor incurred any debt or expenses during the period ended March 31, 2007, other than in connection with Community Bankers’ initial public offering, meeting Community Bankers’ regulatory reporting requirements including legal and accounting and certain legal and other expenses related to pursuing acquisitions of targets. Community Bankers’ entire activity since inception has been to prepare for and consummate our initial public offering and to identify and investigate targets for an initial business combination.

Community Bankers is not presently engaged in, and will not engage in, any substantive commercial business until it consummates the merger with TransCommunity or another business combination. Community Bankers intends to utilize cash derived from the proceeds of its initial public offering, its capital stock, debt or a combination of cash, capital stock and debt, in effecting the merger with TransCommunity or another business combination. If Community Bankers is unable to consummate the merger with TransCommunity by June 7, 2008, Community Bankers will be required to dissolve and liquidate.

Results of Operations for the Period April 6, 2005 (inception) to March 31, 2006

For the period ended March 31, 2006, Community Bankers had no operating costs or income.

Results of Operations for the Year Ended March 31, 2007

For the year ended March 31, 2007, operating costs of $338,661 consisted primarily of $117,222 in legal and professional fees, $75,000 for office and administrative services, $87,500 for amortization of prepaid insurance and $7,748 in travel expenses. Interest income on the trust account investments, including interest allocable to shares subject to possible conversion, amounted to $2,268,760. This resulted in net income for the year ended March 31, 2007 of $1,124,099.

Liquidity and Capital Resources

The net proceeds of Community Bankers’ initial public offering, after deducting the underwriters’ discount and offering expenses, was $54,950,000. Of these net proceeds, $54,350,000 was placed in a trust account at J.P. Morgan Chase Bank maintained by Continental Stock Transfer & Trust Company, New York, New York, as trustee, and invested in United States government securities together with an additional $2,100,000 of deferred underwriting compensation. The funds held in the trust account, other than the deferred underwriting compensation, may be used as consideration to pay the sellers of a target business with which

Community Bankers ultimately completes a business combination. One-half of the interest earned on the trust account, net of taxes, will be retained in the trust account for distribution to the holders of shares of Community Bankers common stock that was issued in the initial public offering under certain circumstances. The remaining interest earned on the trust account, net of taxes, up to $1,129,000 may be released to Community Bankers periodically to fund its working capital requirements. Upon the consummation of the merger with TransCommunity or another business combination, Community Bankers will pay the deferred underwriting compensation to the underwriters in its initial public offering out of the proceeds of its initial public offering held in trust. Any amounts not paid as consideration to the sellers of the target business or to the underwriters in Community Bankers’ initial public offering as deferred underwriting fees may be used to finance the operations of the target business or for subsequent acquisitions.

As of March 31, 2007, Community Bankers had cash not held in trust of $676,183, including $600,000 of interest released to Community Bankers from the trust account. In 2007, Community Bankers will generate interest income on its cash outside of the trust account which can also be used to pay part of its costs and expenses. Community Bankers uses the funds not held in trust together with interest released to Community Bankers from the trust account from time to time for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the business combination. Community Bankers’ cash requirements are expected to change based on the timing, nature and outcome of our intended business combination.

Off Balance Sheet Arrangements

As of March 31, 2007, Community Bankers did not have any off balance sheet arrangements.

Contractual Obligations

The following table shows the amounts due in connection with Community Bankers’ contractual obligations as of March 31, 2007.


	Payments Due by Period
			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years

Long-term contractual obligations (1)(2)	$	105,000	$	90,000	$	15,000		—		—


(1)		Represents sums payable to Community Bankers Acquisition LLC, an affiliate of Community Bankers’ president and a stockholder, for office space, office and secretarial services commencing June 5, 2006 and continuing at $7,500 per month through the acquisition of a target business.

(2)		Does not include $2,100,000 which the underwriters in Community Bankers’ initial public offering deposited in the trust account at JP Morgan Chase NY Bank maintained by Continental Stock Transfer & Trust Co., as trustee, and which fees will be deferred and paid to such underwriters only upon consummation of a business combination within 18 months after June 8, 2006 (or 24 months in the event a letter of intent, agreement in principle or definitive agreement has been executed within 18 months after June 8, 2006 and the business combination has not yet been consummated within such 18 month period). In the event a business combination is not timely completed, such funds will be forfeited by such underwriters and available for distribution upon Community Bankers’ liquidation.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. Community Bankers’ exposure to market risk is limited to interest income sensitivity with respect to the funds placed in the trust account. However, the funds held in the Community Bankers trust account have been invested only in U.S. “government securities,” defined

as any Treasury Bill issued by the United States having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act of 1940, so Community Bankers is not deemed to be an investment company under the Investment Company Act. Thus, Community Bankers is subject to market risk primarily through the effect of changes in interest rates on government securities. The effect of other changes, such as foreign exchange rates, commodity prices and/or equity prices, does not pose significant market risk to Community Bankers.

Current Directors

The Community Bankers board of directors includes the following incumbent directors.

Eugene S. Putnam, Jr. has served as chairman of the board of directors of Community Bankers since June 2005. Mr. Putnam has over twenty years of experience in the financial services industry. Mr. Putnam began his financial services career in Los Angeles in 1986 as an operations and corporate cash manager with First Interstate Bank of California. In 1988, Mr. Putnam joined Crestar Financial Corporation ($26 billion in assets) in Richmond, Virginia. At Crestar, Mr. Putnam was a senior vice president, serving in various capacities with responsibility for corporate finance, treasury, mergers and acquisition financing, capital planning, balance sheet management and investor relations. In 1998, SunTrust Banks Inc. ($103 billion in assets) acquired Crestar and Mr. Putnam joined SunTrust in Atlanta as senior vice president and director of investor relations and corporate communications. In 2001, Mr. Putnam was recruited to Houston and joined Sterling Bancshares Inc. ($3.5 billion in assets) as executive vice president and chief financial officer where he served until 2003. From August 2003 until June 2005 he served as president of Coastal Securities LP, a registered broker-dealer. From June 2005 until June 2007, he served as executive vice president and chief financial officer of Aegis Mortgage Corporation, formerly one of the largest mortgage production franchises in the U.S. which filed for bankruptcy protection in August 2007. Mr. Putnam graduated from UCLA with a Bachelor of Science degree in economics and earned a MBA with a concentration in finance from The University of North Carolina at Chapel Hill. Mr. Putnam is 48 years old.

Gary A. Simanson has served as Community Bankers’ president, chief executive and financial officer, secretary and director since its inception in April 2005. Mr. Simanson has been managing director of First Capital Group, L.L.C., an investment banking advisory firm specializing in bank mergers and acquisitions, from March 1997 to the present. In such capacity, Mr. Simanson has both initiated and advised on bank merger and acquisition transactions around the country and has spoken nationally on bank mergers and acquisitions. In addition to serving as managing director of First Capital Group, Mr. Simanson also served as Senior Vice President concentrating in bank mergers and acquisitions and capital markets with FTN Financial Capital Markets, a wholly owned investment banking and financial services subsidiary of First Horizon National Corporation (NYSE: FHS) from 1998 to 1999. From 1992 to 1995, Mr. Simanson was an associate general counsel at Union Planters Corporation, then a NYSE-traded bank holding company (presently part of Regions Financial Corporation (NYSE: RF)), where his duties included the negotiation and preparation of all bank merger and acquisition transaction documents, due diligence, regulatory filings, registration statements and other securities filings and other bank regulatory matters. From 1989 to 1992 he was a practicing attorney, specializing in the securities, bank regulatory and bank merger and acquisition areas. Mr. Simanson received a Bachelor of Arts degree majoring in economics from George Washington University in 1981, writing his thesis on the Monetary Control Act of 1980; Masters of Business Administration majoring in finance from George Washington University in 1984; and a Juris Doctor from Vanderbilt University in 1989, writing his thesis on money laundering and the Bank Secrecy Act. Mr. Simanson is licensed to practice law in the states of New York, Tennessee and Colorado. Mr. Simanson is 47 years old.

Chris A. Bagley has been a director of Community Bankers since October 2007. Mr. Bagley has been chief credit officer with Prosperity Bank since 2001. From 1997 to 2001, Mr. Bagley served as banking center president at Prosperity Bank. Prosperity Bank is a bank subsidiary of Prosperity Bancshares, Inc. (Nasdaq: PRSP) a $6 billion in asset bank holding company headquartered in Houston, Texas, which operates 105 banking centers in Texas under a community banking philosophy. Mr. Bagley received a Bachelor of Business Administration in finance from Stephen F. Austin State University and a Masters of Business Administration in finance from the University of Houston. Mr. Bagley is 46 years old.

Stewart J. Paperin has served as a director of the Company since April 2005. Mr. Paperin has served from 1996 to the present as executive vice president of the Soros Foundations, a worldwide private philanthropic foundation, where he oversees financial, administrative and economic development activities. Mr. Paperin has been responsible for the foundation’s activities in over forty countries and has led its efforts in economic development which have included successful investment and start-up of an array of banks and financial services companies. Mr. Paperin has served as director of Enterprise Acquisition Corp., a Delaware blank check company, since 2007. Mr. Paperin also served from 1996 to July 2005 as a senior advisor and portfolio manager for Soros Fund Management LLC, a financial services company, and since July 2005 has served as a consultant to Soros Fund Management LLC. His responsibilities have encompassed supervision of an extensive portfolio of Russian investments including a substantial holding in the national telephone company of Russia, OAO Svyazinvest, where he was also a Director. Mr. Paperin has also served as a director of Penn Octane Corporation (Nasdaq: POCC), a company engaged in the purchase, transportation and sale of liquefied petroleum gas, from 1996 to 2007. Prior to joining the Soros organizations, Mr. Paperin served from 1990 to 1993 as President of Brooke Group International, an investment firm concentrated on the former Soviet Union, and from 1989 to 1991 as senior vice president and chief financial officer of Western Union Corporation, a provider of money transfer and message services, which was controlled by Brooke Group. Mr. Paperin also served as chief financial officer of Timeplex Corporation, a telecommunications equipment provider, from 1986 to 1989 and of Datapoint Corporation, a computer equipment manufacturer, from 1985 to 1986. Mr. Paperin was also a financial officer of Pepsico Corporation from 1980 to 1985 and has also served as a management consultant at Cresap McCormick & Paget from 1975 to 1980. Mr. Paperin was awarded a Bachelor of Arts and a Master of Science degree at the State University of New York at Binghamton. He is a member of the Council for Foreign Relations and was awarded an honorary Doctor of Humane Letters by the State University of New York. Mr. Paperin is 59 years old.

Keith Walz has been a director of Community Bankers since April 2005. Mr. Walz is managing partner at Kinsale Capital Partners, a leveraged buy-out private equity investment firm, which he co-founded in January 2006. From March 1996 to January 2006, Mr. Walz served as president of ABN AMRO Capital (USA), a small business investment company (SBIC) subsidiary of the ABN AMRO Bank N.V. (NYSE:ABN) group of companies, an international banking group with 3,000 banks in 60 countries. During his tenure with the firm, Mr. Walz also served as a managing director in ABN AMRO’s Global Private Equity division, a private equity firm with over $2 billion in invested capital. As a senior partner with the firm, Mr. Walz participated in the sourcing, evaluation, and monitoring of over 35 investments, representing $200 million of capital invested. Mr. Walz specializes in Enterprise Software and Network Infrastructure investments and has served on the board of directors of over a dozen companies in which ABN AMRO has invested. He has also held operating roles with ABN AMRO portfolio companies, including chairman and chief executive officer of Worldweb.net, a provider of content management solutions for enterprise web sites. Prior to joining ABN AMRO Capital, Mr. Walz was a vice president from 1991 to 1996 in ABN AMRO’s Investment Banking division, responsible for financial reporting, analysis, and systems. From 1989 to 1991 he served as a finance associate with Tyson Foods, Inc., a processor and distributor of chicken, pork and other food products, where he focused on enhancing enterprise business processes and systems through the use of client/server computing technologies. He received a Masters of Business Administration from DePaul University and a Bachelor of Science degree in finance from the University of Arkansas. Mr. Walz is 40 years old.

Special Advisors

Community Bankers also may consult, from time to time, with certain individuals who have experience in the financial and/or banking sectors, who Community Bankers calls its special advisors, each of whom may also be a stockholder, who may assist Community Bankers in its search for, and evaluation of, its target business and other matters relating to its operations. However, no compensation of any kind, including finder’s and consulting fees, other than reimbursement for any out-of-pocket expenses incurred in connection with activities on Community Bankers’ behalf, such as identifying potential target businesses and performing due diligence on suitable business combinations, will be paid to any of Community Bankers’ existing stockholders, including its special advisors, or any of their affiliates, for services rendered to Community Bankers prior to or

in connection with the consummation of the business combination. Community Bankers’ special advisor is as follows:

David W. Spainhour has served as a special advisor to the board of directors since June 2005. He is Chairman Emeritus of Pacific Capital Bancorp, (Nasdaq: PCBC) which is the holding company for Pacific Capital Bank, a nationally chartered bank. With 48 branches and $7.0 billion in assets, Pacific Capital Bancorp is the largest independent banking company headquartered on the Central Coast of California and operates under the local brand names of Santa Barbara Bank & Trust, First Bank of San Luis Obispo, First National Bank of Central California, South Valley National Bank, San Benito Bank, and Pacific Capital Bank. Mr. Spainhour joined the bank in 1966 as controller, was named senior vice president in 1972, elected to the board of directors in 1974 and served as president and chief executive officer from 1989 until being named chairman of the board of directors of Santa Barbara Bank & Trust in 1996. He served as chairman of the board of directors of the holding company, Pacific Capital Bancorp, from April 2000 until his retirement in 2004. Prior to joining Santa Barbara Bank & Trust, he spent 12 years with the former Security Pacific National Bank in Los Angeles. Additionally, he serves on a variety of community boards and has received numerous honors and awards, including most recently the Santa Barbara News-Press Lifetime Achievement Award in 2000. He attended Glendale College, UCLA, the National School of Bank Investments, and the University of Southern California’s Managerial Policy Institute. In 1970 he graduated from the Pacific Coast Banking School, University of Washington, where he was named to the school’s Hall of Fame in 1998 for his personal achievements and contributions to the financial services community.

Community Bankers may identify, from time to time, additional individuals to serve as special advisors if those individuals possess a level of experience within the financial or banking sectors that Community Bankers believes may be beneficial to it.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires Community Bankers’ executive officers and directors, and persons who own more than 10% of any publicly traded class of Community Bankers’ equity securities, to file reports of ownership and changes in ownership of equity securities of Community Bankers with the SEC and the American Stock Exchange. Officers, directors, and greater-than-10% stockholders are required by the SEC’s regulations to furnish the Company with copies of all Section 16(a) forms that they file.

Based solely upon a review of Forms 3 and Forms 4 furnished to Community Bankers during the most recent fiscal year, and Forms 5 with respect to its most recent fiscal year, Community Bankers believes that all such forms required to be filed pursuant to Section 16(a) of the Exchange Act were timely filed, as necessary, by the officers, directors, and security holders required to file the same during the fiscal year ended March 31, 2007.

Board of Directors

The board of directors oversees the business affairs of Community Bankers and monitors the performance of management. Pursuant to Community Bankers’ bylaws, the board of directors has established that the board of directors shall consist of five members. Community Bankers’ board of directors is divided into three classes with only one class of directors being elected in each year and each class serving a three-year term. The term of office of the first class of directors, consisting of Messrs. Bagley and Walz, will expire at Community Bankers’ first special meeting of stockholders following completion of the initial public offering. The term of office of the second class of directors, consisting of Mr. Paperin, will expire at the second special meeting following completion of the initial public offering. The term of office of the third class of directors, consisting of Mr. Simanson and Mr. Putnam, will expire at the third special meeting following completion of the initial public offering.

During the fiscal year ended March 31, 2007, Community Bankers’ board of directors acted through one meeting and through unanimous written consent. During 2007, all directors attended at least 75% of the meetings of Community Bankers’ board of directors and the committees on which they served except that Mr. Paperin did not attend one of the two meetings of the audit committee during that period.

Community Bankers’ board of directors has established policies regarding meetings and executive sessions. Under such policies, Community Bankers’ board of directors is to meet at least quarterly and the independent directors of Community Bankers’ board of directors shall meet in executive session without management on a regularly scheduled basis, but no less than once annually. Community Bankers’ board of directors encourages all current board of directors members to attend the special meeting of stockholders; provided, however, attendance shall not be required if personal circumstances affecting the board of directors member or director nominee make his or her attendance impracticable or inappropriate.

Committees of the Board of Directors

Community Bankers’ board of directors has an audit committee, a nominating committee and compensation committee, each consisting of Eugene S. Putman, Jr., Stewart J. Paperin and Keith Walz.

Audit Committee

Each of the directors Community Bankers appointed to its audit committee are independent as defined by the rules of the American Stock Exchange and the rules and regulations of the SEC. Each member of Community Bankers’ audit committee is financially literate under the current listing standards of the American Stock Exchange, one of whom qualifies as an “audit committee financial expert,” as such term is defined by SEC rules.

The audit committee, in accordance with its charter, reviews the professional services and independence of Community Bankers’ independent registered public accounting firm and Community Bankers’ accounts, procedures and internal controls. The audit committee also recommends the firm selected to be Community Bankers’ independent registered public accounting firm, reviews and approves the scope of the annual audit, reviews and evaluates with the independent public accounting firm Community Bankers’ annual audit and annual consolidated financial statements, reviews with management the status of internal accounting controls, evaluates problem areas having a potential financial impact on Community Bankers that may be brought to the committee’s attention by management, the independent registered public accounting firm or the board of directors, and evaluates all of Community Bankers’ public financial reporting documents. The audit committee also monitors compliance on a quarterly basis with the terms of Community Bankers’ initial public offering. If any noncompliance is identified, then the audit committee is charged with the responsibility to take immediately all action necessary to rectify such noncompliance or otherwise cause compliance with the terms of Community Bankers’ initial public offering. The audit committee held two meetings during the fiscal year ended March 31, 2007, and two meetings during the transition year April 1, 2007 to December 31, 2007.

Nominating Committee

Community Bankers’ board of directors has also established a nominating committee, consisting of Stewart J. Paperin, Eugene S. Putnam, Jr. and Keith Walz, and has adopted a charter for this committee. The nominating committee is responsible for making recommendations to the board of directors regarding the membership of Community Bankers’ board of directors, including; (1) recommending to the board of directors the slate of director nominees for election at the special meeting of stockholders; (2) considering, recommending and recruiting candidates to fill any vacancies or new positions on the board of directors, including candidates that may be recommended by stockholders; (3) establishing criteria for selecting new directors; and (4) reviewing the backgrounds and qualifications of possible candidates for director positions. The nominating committee held one meeting during the transition year April 1, 2007 to December 31, 2007.

The nominating committee will evaluate a candidate proposed by any single stockholder or group of stockholders that beneficially owned more than 5% of Community Bankers common stock for at least one year (and will hold the required number of shares through the meeting of stockholders at which the election will occur) and that satisfies the notice, information and consent procedures set forth below.

Community Bankers’ bylaws require that all nominations for persons to be elected as a director, other than those made by the board of directors, be made pursuant to written notice to Community Bankers’ Secretary. The notice must be received not less than 60 nor more than 90 days prior to the meeting at which

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the election will take place (or not later than 10 days after notice or public disclosure of such meeting date if such disclosure occurs less than 70 days prior to the date of such meeting). The notice must set forth:


	•	as to each person whom the stockholder proposes to nominate for election or reelection as a director:


	•	the name, age, business address and residence address of the person;


	•	the principal occupation or employment of the person;


	•	the class and number of shares of capital stock of the Corporation which are beneficially owned by the person; and


	•	any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of Exchange Act; and


	•	as to the stockholder giving the notice:


	•	the name and record address of the stockholder; and


	•	the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder.

No material changes have been made to the procedures by which stockholders may recommend nominees to Community Bankers’ board of directors.

Compensation Committee

Community Bankers’ board of directors has also established a compensation committee, consisting of Eugene S. Putnam, Jr., Keith Walz and Stewart J. Paperin, in order to comply with the American Stock Exchange corporate governance listing requirements. Community Bankers’ compensation committee does not currently have a charter, as management will receive no compensation until completion of a business combination and held no meetings during the fiscal year ended March 31, 2007, or the transition year April 1, 2007 to December 31, 2007.

Code of Conduct and Ethics

Community Bankers’ has adopted a Code of Conduct and Ethics that applies to all employees as well as its principal executive, financial and accounting officers. Community Bankers will provide a copy of its Code of Conduct and Ethics free of charge to any person who submits a written request to Gary A. Simanson, President and Chief Executive Officer, Community Bankers Acquisition Corp., 9912 Georgetown Pike, Suite D-203, Great Falls, Virginia 22066.

Communicating with the Board of Directors

Community Bankers’ board of directors has established a policy regarding stockholder communications. Communications from security holders should be in the form of written correspondence, and should be sent via registered mail or overnight delivery service to Community Bankers’ corporate office, care of the corporate secretary. The correspondence shall include supporting documentation evidencing the security holder’s security holdings in Community Bankers. Community Bankers’ board of directors will not respond to or act upon any security holder correspondence that pertains to the solicitation of services or products (for use by Community Bankers or its board of directors) conducted by or obtained from the security holder or any entity with which the security holder has an affiliation. Security holders should follow the rules adopted under the Exchange Act and the procedures disclosed within the Community Bankers’ bylaws and proxy statement to submit stockholder proposals intended for inclusion in Community Bankers’ proxy statement for the next annual meeting of stockholders and should follow the procedures described within Community Bankers’ proxy statement or other Exchange Act filings to submit board of director nominations. See procedure for stockholder nominations set forth above.

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Executive Compensation

No executive officer or director has received any cash compensation for services rendered. Commencing on June 5, 2006, through the acquisition of a target business, Community Bankers will pay Community Bankers Acquisition, LLC, an affiliate of Mr. Simanson, Community Bankers’ president and chief executive officer, and Mr. Zalman, a stockholder, a fee of $7,500 per month for providing Community Bankers with office space and certain office and secretarial services.

Other than this $7,500 per-month fee, no compensation of any kind, including finder’s and consulting fees, will be paid to any of Community Bankers’ existing stockholders, or any of their respective affiliates, including First Capital Group, an entity owned by Mr. Simanson, for services rendered to Community Bankers with respect to the initial business combination. However, Community Bankers’ existing stockholders will be reimbursed for any out-of-pocket expenses incurred in connection with activities on Community Bankers’ behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Such individuals may be paid consulting, management or other fees from target businesses, either prior to or as a result of the business combination, with such amounts being fully disclosed to stockholders, to the extent then known, in the proxy materials furnished to the stockholders. There is no limit on the amount of these out-of-pocket expenses and there will be no review of the reasonableness of the expenses by anyone other than Community Bankers’ board of directors, which includes persons who may seek reimbursement, or a court of competent jurisdiction if such reimbursement is challenged.

Employment Agreements

Currently, Community Bankers does not have an employment agreement with Gary A. Simanson, its sole executive officer. Community Bankers expects to enter into employment agreements with each of Bruce B. Nolte, Patrick J. Tewell, Richard C. Stonbraker, M. Andrew McLean and Gary A. Simanson prior to the completion of the merger with TransCommunity. Upon completion of the proposed merger with BOE, Community Bankers also expects to enter into employment agreements with George M. Longest, Jr. and Bruce E. Thomas. For more information, see “The Merger — Certain Benefits of Directors and Officers of Community Bankers and BOE — Employment Agreements.”

Director Compensation

None of Community Bankers’ directors received compensation for their service to Community Bankers since inception through December 31, 2007, nor have there been any grants of stock based awards or stock options to directors. Compensation has not been determined for directors of the surviving corporation following the merger with TransCommunity or following the merger with BOE.

Indemnification Matters

Community Bankers’ certificate of incorporation provides for indemnification of agents including directors, officers and employees to the maximum extent allowed by Delaware law. Community Bankers’ certificate of incorporation requires indemnification of any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent if Community Bankers’ board of directors (or other committee or entity empowered to make such a determination) formally determines that he acted in good faith and in a manner reasonably deemed consistent with, or not opposed to, Community Bankers’ best interests. With respect to any criminal action or proceeding, Community Bankers’ board of directors (or other committee or entity empowered to make such a determination) must formally determine that he had no reasonable cause to believe his conduct was unlawful. In the case of any action, suit or proceeding by or in the right of Community Bankers, no indemnification shall be made if such person is determined to be liable to Community Bankers, unless and only to the extent that the court in which such proceeding was brought determines upon application that such person is fairly and reasonably entitled to indemnity. To the extent that a director, officer, employee or agent has prevailed in defense of any such action, suit or proceeding, he shall be indemnified against expenses (including attorneys’

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fees) actually and reasonably incurred by him. The indemnification provided by Community Bankers’ certificate of incorporation is not exclusive of any other rights to which those seeking indemnification may be entitled under any statute, bylaw, agreement, vote of uninvolved stockholders, directors or otherwise.

Community Bankers’ certificate of incorporation also provides that Community Bankers may purchase and maintain insurance covering its directors, officers, employees and agents against any liability asserted against any of them and incurred by any of them, whether or not Community Bankers would have the power to indemnify them against such liability under the provisions of Community Bankers’ certificate of incorporation and applicable Delaware law.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to Community Bankers’ directors, officers or controlling persons pursuant to the provisions described above, or otherwise, Community Bankers has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Community Bankers Related Party Transactions

Prior to the date of Community Bankers’ initial public offering, Community Bankers sold an aggregate of 1,875,000 shares of its common stock at a purchase price of $0.025 per share or an aggregate of $46,875 (sale transactions as to 1,850,000 of these shares occurred in April 2005 and as to the 25,000 shares beneficially issued to David Spainhour in June 2005) to the following holders of Community Bankers’ outstanding common stock:


	Number of
Name	Shares		Relationship to Us

Gary A. Simanson		575,000	President, Chief Executive and Financial Officer, Secretary and Director
Community Bankers Acquisition, LLC		575,000	Affiliate of Messrs. Simanson and Zalman
The David and Vicki Jo Zalman 2006 Children’s Trust		475,000	Stockholder
Eugene S. Putnam, Jr. 2004 Irrevocable Trust		75,000	Chairman of the Board
Stewart J. Paperin		75,000	Director
Keith Walz		75,000	Director
David W. Spainhour and Carolyn E. Spainhour, Trustees of the Spainhour Family Trust U/A dated 8/22/97		25,000	Special advisor

All of the shares owned by Community Bankers’ initial stockholders are held in escrow by Continental Stock Transfer & Trust Company as escrow agent. These shares will be released from escrow on June 2, 2009, but only if the merger with TransCommunity or another business combination is completed on or before the deadlines contained in Community Bankers’ certificate of incorporation. The holders of the majority of these shares are entitled to make up to two demands that Community Bankers register these shares for resale pursuant to an agreement signed concurrently with the consummation of Community Bankers’ initial public offering. The holders of the majority of these shares are entitled to elect to exercise these registration rights at any time after the date on which these shares of common stock are released from escrow. In addition, these stockholders will have certain “piggy-back” registration rights on registration statements filed subsequent to the date on which these shares of common stock are released from escrow. Community Bankers will bear the expenses incurred in connection with the filing of any such registration statements.

In addition, Gary A. Simanson, president and chief executive officer of Community Bankers, and David Zalman, a stockholder, agreed as part of Community Bankers’ initial public offering, pursuant to an agreement with the representatives of the underwriters in the initial public offering, that they or their affiliates or designees, would purchase up to 1,000,000 warrants in the aggregate in open market transactions at market prices not to exceed $0.80 per warrant. Under this agreement, I-Bankers Securities, Inc., Maxim Group LLC and Legend Merchant Group, Inc., the representatives of the underwriters, also agreed to place an irrevocable

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order for the purchase by them, or their affiliates or designees, of up to 500,000 warrants in the aggregate under identical terms and conditions as the purchases by Mr. Simanson and Mr. Zalman. As a result of the agreement, Community Bankers Acquisition LLC, an affiliate of Mr. Simanson, acquired an aggregate of 349,724 warrants and the representatives of the underwriters acquired an aggregate of 300,000 warrants.

Community Bankers Acquisition, LLC, an affiliate of Mr. Simanson, Community Bankers’ president and chief executive officer, has agreed that, commencing on the effective date of Community Bankers’ initial public offering prospectus through the acquisition of a target business, it will make available to Community Bankers a small amount of office space and certain office and secretarial services, as Community Bankers may require from time to time. Community Bankers has agreed to pay Community Bankers Acquisition, LLC $7,500 per month for these services. An aggregate of $180,000, including a prepaid amount of $37,500, has been paid through December 31, 2007.

Community Bankers will reimburse its officers, directors and stockholders for any reasonable out-of-pocket business expenses incurred by them in connection with certain activities on Community Bankers’ behalf such as identifying and investigating possible target businesses and business combinations. There is no limit on the amount of accountable out-of-pocket expenses reimbursable by Community Bankers, which will be reviewed only by Community Bankers’ board of directors or a court of competent jurisdiction if such reimbursement is challenged. As of the date of this joint proxy statement/prospectus, the out-of-pocket expenses currently owed by Community Bankers to its officers and directors is estimated to be less than $ .

Other than the $7,500 per month administrative fees and reimbursable out-of-pocket expenses payable to Community Bankers’ officers, directors and stockholders, no compensation or fees of any kind, including finders and consulting fees, will be paid to any of Community Bankers’ existing stockholders, officers or directors who owned Community Bankers common stock prior to Community Bankers’ initial public offering, or to any of their respective affiliates, including First Capital Group which is affiliated with Mr. Simanson, for services rendered to Community Bankers with respect to the initial business combination.

All ongoing and future material transactions between Community Bankers and any of its officers and directors or their respective affiliates will be on terms believed by Community Bankers to be no less favorable than are available from unaffiliated third parties and will require prior approval in each instance by a majority of the members of Community Bankers’ board of directors who do not have an interest in the transaction. In their consideration of each transaction, these members of the board of directors will be provided with access, should they so request and at Community Bankers’ expense, to Community Bankers’ attorneys or independent legal counsel selected by them. Moreover, Community Bankers shall endeavor to obtain and present to the directors considering such transaction estimates obtained from unaffiliated third parties for similar goods or services to ascertain whether such transaction is on terms that are no less favorable to Community Bankers than is otherwise available from such unaffiliated third parties. If a transaction with an affiliated third party is found to be on terms less favorable to Community Bankers than with an unaffiliated third party, Community Bankers will not engage in such transaction.

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Principal Stockholders of Community Bankers

Beneficial Owners of at Least Five Percent of Community Bankers Common Stock

The following table shows, as of March 7, 2008, and to the best of Community Bankers’ knowledge, all beneficial owners of 5% or more of the voting securities of Community Bankers.


	Common Stock
Name and Address of Beneficial Owner	Beneficially Owned(1)			Percent of Class(1)

Daniel B. Zwirn		963,674(2	)		10.28	%
Zwirn Holdings, LLC DBZ GP, LLC D.B. Zwirn and Co. L.P. D.B. Zwirn Spec. Opportunities Fund, Ltd. D.B. Zwirn Spec. Opportunities Fund, L.P. 745 Fifth Ave, 18th Floor New York, NY 10151
Baupost Group, L.L.C.		927,400(3	)		9.9	%
SAK Corporation Seth A. Klarman 10 St. James Avenue, Suite 2000 Boston, MA 02116
HBK Investments LP		926,600(4	)		9.9	%
HBK Services LLC HBK Partners II LP HBK Management LLC HBK Master Fund LP 300 Crescent Court, Ste 700 Dallas, TX 75201
Gary A. Simanson		862,500(5	)		9.2	%
Community Bankers Acquisition LLC 9912 Georgetown Pike, Suite D-203 Great Falls, Virginia 22066
Andrew Weiss, PH.D.		815,585(6	)		8.7	%
Weiss Capital, LLC Weiss Asset Management, LLC 29 Commonwealth Ave, 10th Floor Boston, MA 02116
Polar Securities, Inc.		607,300(7	)		6.5	%
North Pole Capital Master Fund 372 Bay Street, 21^st Floor Toronto, Ontario M5H 2W9, Canada
Azimuth Opportunity, LLC		539,990(8	)		5.76	%
c/o Wsmiths Finance Nemours Chambers P.O. Box 3170 Road Town, Tortola, British Virgin Islands
The David and Vicki Jo Zalman 2006		475,000(9	)		5.1	%
Children’s’ Trust
c/o New ICM 220 Sam Biskin El Campo, TX 77437


(1)		Unless otherwise noted in these footnotes, Community Bankers believes that all shares referenced in this table are owned of record by each person named as beneficial owner and that each person has sole voting and dispositive power with respect to the shares of common stock owned by each of them.

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(2)		Based on information derived from a jointly filed Form 4 filed on October 18, 2007, by such persons with the SEC. As of the date of the filing, D.B. Zwirn & Co., L.P.; DBZ GP, LLC; Zwirn Holdings, LLC; and Daniel B. Zwirn may each be deemed the beneficial owner of(1) 355,282 shares owned by D.B. Zwirn Special Opportunities Fund, L.P. and (2) 608,392 shares owned by D.B. Zwirn Special Opportunities Fund, Ltd. (the “Funds”). D.B. Zwirn & Co., L.P. is the manager of each of the Funds, and consequently has voting control and investment discretion over the shares held by each of the Funds. Daniel B. Zwirn is the managing member of and thereby controls Zwirn Holdings, LLC, which in turn is the managing member of and thereby controls DBZ GP, LLC, which in turn is the general partner of and thereby controls D.B. Zwirn & Co., L.P. In addition, each of D.B. Zwirn & Co., L.P.; DBZ GP, LLC; Zwirn Holdings, LLC; and Daniel B. Zwirn disclaims beneficial ownership of the shares held by the Funds. The business address of D.B. Zwirn Special Opportunities Fund, Ltd. is P.O. Box 896 GeorgeTown Harbour Centre, 2nd Floor Grand Cayman, Cayman Islands, British West Indies.


(3)		Based on information derived from a Schedule 13G, dated February 13, 2007, filed by such entities with the SEC. Baupost Group, LLC (“Baupost”) is a registered investment adviser. SAK Corporation is the manager of Baupost and has sole voting and dispositive power with respect to the shares set forth above; however, Seth A. Klarman, as the sole director SAK Corporation and a controlling person of Baupost, may be deemed to have beneficial ownership under Section 13(d) of the securities beneficially owned by Baupost.


(4)		Based on information derived from a Schedule 13G, dated February 4, 2008, filed by such entities with the SEC. Jamiel A. Akhtar, Richard L. Booth, David C. Haley, Lawrence H. Lebowitz and William E. Rose are each managing members of HBK Management, LLC and may be deemed to have control over such entities.

(5)		Based on information derived from a Schedule 13G/A, dated January 7, 2008, filed by such entities with the SEC. As of the date of the filing, Gary A. Simanson beneficially owned 862,500 shares, including 287,500 shares held by Community Bankers Acquisition, LLC, of which Gary A. Simanson is the sole manager and has sole voting and dispositive power with respect to such shares.

(6)		Based on information derived from a Schedule 13G, dated February 9, 2007, filed by such entities with the SEC. Andrew M. Weiss, Ph.D., as the managing member of Weiss Asset Management, LLC and managing member of Weiss Capital, LLC, may be deemed to have control over both entities. Mr. Weiss disclaims beneficial ownership of the shares reported above, except to the extent of his pecuniary interest.


(7)		Based on information derived from a Schedule 13G, dated February 29, 2008, filed by such entities with the SEC. Polar Securities Inc. serves as investment manager to North Pole Capital Master Fund and a number of discretionary accounts with respect to which it has voting and discretionary authority over the shares reported here.


(8)		Based on information derived from a Schedule 13G, dated September 20, 2007, filed with the SEC.


(9)		Daniel Zalman, the trustee of the trust for which David Zalman’s minor children are beneficiaries, exercises sole dispositive, voting and investment power for such shares based on information derived from a schedule 13G, filed with the SEC. David Zalman disclaims beneficial ownership of such shares. David Zalman was one of Community Bankers’ initial stockholders.

Security Ownership of Directors and Executive Officers

The following table sets forth information regarding the beneficial ownership of Community Bankers common stock as of the date hereof by:


	•	each of Community Bankers’ executive officers and directors; and

	•	all Community Bankers’ executive officers and directors as a group.

Unless otherwise indicated, Community Bankers believes that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.

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	Amount and			Approximate
	Nature of			Percentage of
	Beneficial			Outstanding
Name and Address of Beneficial Owner(1)	Ownership			Common Stock

Gary A. Simanson		862,500	(2)(3)		9.2	%
Community Bankers Acquisition, LLC		287,500			3.1	%
Eugene S. Putnam, Jr.		75,000	(4)		*	%
Stewart J. Paperin		75,000			*	%
Keith Walz		75,000			*	%
Chris Bagley		0			*	%
All executive officers and directors as a group (5 individuals)		1,375,000			14.7	%


*		Less than 1%

(1)		Unless otherwise noted in these footnotes, Community Bankers believes that all shares referenced in this table are owned of record by each person named as beneficial owner and that each person has sole voting and dispositive power with respect to the shares of common stock owned by each of them. Except as otherwise indicated, the business address of each of the following is c/o Community Bankers, 9912 Georgetown Pike, Ste. D203, Great Falls, Virginia 22066. All of Community Bankers’ officers and directors have agreed (1) to vote all of their respective shares of common stock beneficially owned by them and acquired prior to the initial public offering either for or against Community Bankers’ initial business combination as determined by the majority of the votes cast by the holders of the shares of Community Bankers common stock issued in Community Bankers’ initial public offering and (2) to vote all shares then beneficially owned by them in the event Community Bankers is unable to timely complete a business combination in favor of its dissolution and liquidation.

(2)		Includes 575,000 shares held by Mr. Simanson and 287,500 shares held by Community Bankers Acquisition, LLC, of which Mr. Simanson is the sole manager and has sole voting and dispositive power with respect to such shares.

(3)		Does not include an aggregate of 349,724 warrants held by Community Bankers Acquisition LLC, which are not exercisable.

(4)		The shares are held by the Eugene S. Putnam, Jr. 2004 Irrevocable Trust, of which Mr. Putnam serves as the trustee and has sole voting and dispositive power.

INFORMATION ABOUT BOE FINANCIAL SERVICES OF VIRGINIA, INC.

BOE Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Nine Months Ended September 30, 2007

BOE owns all of the stock of its sole direct subsidiary, Bank of Essex. BOE was incorporated under Virginia law in 2000 to become the holding company for the Bank of Essex. The headquarters of BOE is located in Tappahannock, Virginia.

Bank of Essex was established in 1926 and is headquartered in Tappahannock, Virginia. Bank of Essex operates eight full-service offices in Virginia, engages in a general commercial banking business and provides a wide range of financial services primarily to individuals and small businesses, including individual and commercial demand and time deposit accounts, commercial and consumer loans, travelers checks, safe deposit box facilities, investment services and fixed rate residential mortgages. Two offices are located in Tappahannock, one each in Manquin, Mechanicsville, West Point, Glen Allen, Burgess and Callao, Virginia, respectively.

Essex Services, Inc. is a wholly owned subsidiary of Bank of Essex and was formed to sell title insurance to Bank of Essex’s mortgage loan customers. Essex Services, Inc. also offers insurance products through an ownership interest in Bankers Insurance, LLC and investment products through an affiliation with VBA Investments, LLC.

BOE recently constructed a new headquarters facility which is located at 1325 Tappahannock Boulevard, approximately one mile from its former Main Office at 323 Prince Street. Upon the opening of this office

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BOE simultaneously closed a branch bank located across the highway from the new headquarters and redesignated the current main office as a branch bank. The former main office also houses Bank of Essex’s data processing department and loan processing center. BOE began operating from this new location and closed the branch bank on June 12, 2006.

BOE’s expansion efforts have contributed to its growth and improved profitability. Total assets have increased from $115.5 million at the end of 1996 to $281.4 million at December 31, 2006. Net income has grown from $947,000 in 1996 to $3.1 million in 2006. Diluted earnings per share were $1.01 in 1996 versus $2.58 in 2006. BOE’s return on assets was 0.85% in 1996 and 1.15% in 2006. Return on equity was 10.57% in 1996 and 11.47% in 2006.

Loan growth since BOE expanded into metropolitan Richmond has come principally from rate sensitive commercial loans which have served to mitigate BOE’s interest rate risk. At the same time this growth in commercial loans has increased Bank of Essex’s credit risk.

Recent Developments

On February 4, 2008, BOE announced its results of operations for the fourth quarter of 2007. Net income for the fourth quarter of 2007 was $596,000, a decrease of $317,000, or 34.7%, from net income of $913,000 for the same period in 2006. The decrease to net income for the fourth quarter of 2007 compared to the same period in 2006 was due to a December 2006 sale of a former branch banking facility. This nonrecurring item caused gain on sale of other properties to be $477,000 in the fourth quarter of 2006 compared to $0 for the same period in 2007. Additionally, there was an increase of $187,000 in noninterest expenses, from $2.209 million in the fourth quarter of 2006 to $2.396 million in the fourth quarter 2007. Offsetting these decreases to net income was an increase of 8.9%, or $209,000, in net interest income. Net interest income was $2.569 million for the fourth quarter 2007 compared to $2.360 million for the fourth quarter of 2006. Also, there was an increase of $55,000, or 11.5%, in noninterest income, from $479,000 in the fourth quarter of 2006, to $534,000 for the same period in 2007. Income tax expense declined 42.0%, or $84,000, from $200,000 in the fourth quarter of 2006 to $116,000 in the fourth quarter of 2007. Additionally, strong asset quality resulted in no additional expense in provision for loan losses for the fourth quarter of both years. On December 31, 2007 loans past due 90 days or more and accruing interest was $17,000 and loans not accruing interest totaled $96,000. For the year ending December 31, 2007 charged-off loans were $272,000 against recoveries of $461,000. Earnings per common share were $0.49 for the fourth quarter in 2007 compared to $0.75 for the same period in 2006.

For the year ended December 31, 2007, BOE reported net income of $2.608 million, compared to net income of $3.123 million for 2006, a decrease of $515,000, or 16.5%. This decrease in earnings was primarily the result of an increase of $876,000, or 11.1%, in noninterest expenses. Salaries was the largest component of this increase, $432,000, which increased primarily from the addition of staff that was hired and trained in 2007 to operate two new full service offices of Bank of Essex in Northumberland County, Virginia.

The year 2007 was the first full year of operations for BOE’s corporate headquarters and branch banking facility that opened in June 2006, accounting for the majority of increases in occupancy expenses of $159,000. Gain on sale of other properties decreased $467,000 from 2006 to 2007 due to the sale of bank property referred to above. Additionally, legal and professional fees increased $236,000 in 2007 compared to 2006 as a result of BOE’s due diligence process prior to announcing the merger agreement with Community Bankers. Offsetting these decreases to net income was an increase of $237,000, or 2.4%, in net interest income, from $9.762 million in 2006 to $9.999 million in 2007. Noninterest income increased $204, 000, or 11.4%, from $1.796 million in 2006 to $2.000 million in 2007. Also improving net income was a 95.2%, or $119,000, reduction in provision for loan losses and a 33.5%, or $292,000, decrease in income tax expense for 2007 compared to 2006. Earnings per common share were $2.15 for the full year 2007 compared to $2.58 for the same period in 2006. Average diluted shares outstanding increased by 5,143 during 2007.

Loans, net of allowance for loan losses, increased 12.6%, or $24.463 million, and were $218.954 million on December 31, 2007. Total deposits grew 5.9%, or $13.728 million, to end 2007 at $244.593 million.

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Balance Sheet


							Percent
	12/31/2007			12/31/2006			Change
	(Unaudited)
	(In thousands)

ASSETS
Cash and due from banks	$	4,100		$	5,520			(25.7	)%
Federal funds sold		—			—			0.0	%
Securities available for sale, at fair value		52,543			55,963			6.1	%
Securities held to maturity (fair value approximately $3,010 in 2007 and $2,949 in 2006)		3,000			3,000			0.0	%
Equity securities, restricted, at cost		1,761			1,553			13.4	%
Loans, net of allowance for loan losses ($2,595 in ’07 and $2,400 in ’06)		218,954			194,491			12.6	%
Bank premises and equipment, net		10,663			10,454			2.0	%
Accrued interest receivable		1,514			1,363			11.1	%
Intangible assets		398			524			(24.0	)%
Other assets		9,498			8,510			11.6	%

Total assets	$	302,431		$	281,378			7.5	%


LIABILITIES
Non-interest bearing deposits	$	26,220		$	27,809			(5.7	)%
Interest bearing deposits		218,373			203,056			7.5	%

Total deposits		244,593			230,865			5.9	%
Federal funds purchased		3,152			3,207			(1.7	)%
Federal Home Loan Bank advances		17,000			12,000			41.7	%
Accrued interest payable		1,007			851			18.3	%
Other liabilities		2,445			2,284			7.0	%
Trust preferred capital notes		4,124			4,124			0.0	%

Total liabilities	$	272,321		$	253,331			7.5	%


STOCKHOLDERS’ EQUITY
Common stock		6,061			6,041			0.3	%
Surplus		5,576			5,477			1.8	%
Retained earnings		18,874			17,256			9.4	%
Accumulated other comprehensive income (loss)		(401	)		(727	)		(44.8	)%

Total stockholders’ equity	$	30,110		$	28,047			7.4	%

Total liabilities and stockholders’ equity	$	302,431		$	281,378			7.5	%

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BOE FINANCIAL SERVICES OF VIRGINIA, INC.

INCOME STATEMENT


	For the		For the
	Quarter Ended		Quarter Ended		Percent
	12/31/2007		12/31/2006		Change
	(Unaudited)
	(In thousands)

Interest and fee income	$	4,848	$	4,386		10.5	%
Interest expense		2,279		2,026		12.5	%

Net interest income	$	2,569	$	2,360		8.9	%
Provision for loan losses		—		—		0.0	%

Net interest income after provision for loan losses	$	2,569	$	2,360		8.9	%
Noninterest income		534		479		11.5	%
Securities gain/(loss)		5		6		(16.7	)%
Gain/(loss) other properties		—		477		(100.0	)%
Noninterest expenses		2,396		2,209		8.5	%
Income taxes		116		200		(42.0	)%

Net income	$	596	$	913		(34.7	)%

Earnings per share, fully diluted	$	0.49	$	0.75		(34.7	)%

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

INCOME STATEMENT


	For the			For the
	Year Ended			Year Ended			Percent
	12/31/2007			12/31/2006			change
	(Unaudited)
	(In thousands)

Interest income	$	18,694		$	16,734			11.7	%
Interest expense		8,695			6,972			24.7	%

Net interest income	$	9,999		$	9,762			2.4	%
Provision for loan losses		6			125			(95.2	)%

Net interest income after provision for loan losses	$	9,993		$	9,637			3.7	%
Noninterest income		2,000			1,796			11.4	%
Securities gain/(loss)		(37	)		(13	)		184.6	%
Gain/(loss) other properties		—			467			(100.0	)%
Noninterest expenses		8,768			7,892			11.1	%
Income taxes		580			872			(33.5	)%

Net income	$	2,608		$	3,123			(16.5	)%

Earnings per share, fully diluted	$	2.15		$	2.58			(16.7	)%

Employees

At September 30, 2007, BOE had 96 full-time equivalent employees. None of its employees is represented by any collective bargaining unit. BOE considers relations with its employees to be excellent.

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SEC Filings

BOE maintains an internet website at www.bankofessex.com. This website contains information relating to BOE and its business. Stockholders of BOE and the public may access BOE’s periodic and current reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to those reports, filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through the “Investors” section of BOE’s website. The reports are made available on this website as soon as practicable following the filing of the reports with the SEC. This information is free of charge and may be reviewed, downloaded and printed from the website at any time.

Market Area

BOE’s eight offices serve a diverse market from the edge of the City of Richmond in Hanover and Henrico Counties to Tappahannock, Virginia on the Rappahannock River in Essex County and into the Northern Neck. From suburban Hanover and Henrico Counties, the market area is primarily rural along Route 360 through King William and King and Queen Counties into Essex County and two recently opened offices in Northumberland County in the Northern Neck of Virginia. BOE’s management believes Route 360 is a developing growth corridor from Richmond to the east. Tappahannock is approximately 40 miles from downtown Richmond and about one hour from Fredericksburg. Through its Tappahannock branches, BOE also serves the central portions of the Middle Peninsula and the Northern Neck of Virginia. Through its West Point office, BOE serves portions of the Middle Peninsula of Virginia.

BOE made application in 2007 with the State Corporation Commission’s Bureau of Financial Institutions and received approval to establish two branches in Northumberland County, Virginia. One location will be constructed in Callao and one in Burgess. Route 360 runs through Northumberland County, which is located in the Northern Neck of Virginia and has experienced significant growth in total deposits the last ten years as the area has evolved from an area dependent upon agricultural and industrial seafood production to a growing waterfront retirement community with associated service businesses. These two offices are currently open in temporary mobile banking units and construction of permanent facilities is expected to begin in mid-year 2008.

Competition

Within the Richmond, Middle Peninsula and Northern Neck areas, BOE operates in a highly competitive environment, competing for deposits and loans with commercial corporations, savings and loans and other financial institutions, including non-bank competitors, many of which possess substantially greater financial resources than those available to BOE. Many of these institutions have significantly higher lending limits than BOE. In addition, there can be no assurance that other financial institutions, with substantially greater resources than BOE, will not establish operations in BOE’s service area. The financial services industry remains highly competitive and is constantly evolving.

In Essex County, BOE commands 38.7% of the deposits in the market, according to the most recently available survey of deposits by the FDIC (June 30, 2007). Serving King William County, the branches at Central Garage and West Point have experienced steady growth, reaching 21.5% of the deposits in the King William County market as of the June 30, 2007 FDIC survey of deposits, while competing with previously established branches. BOE’s office located on Route 360 in eastern Hanover County had $37.7 million in total deposits on June 30, 2007. In Henrico County BOE’s office located near Virginia Center Commons Mall has experienced strong growth while competing against other community banks and established offices of statewide banks in the vicinity. This office had $47.2 million in total deposits on June 30, 2007.

Factors such as rates offered on loan and deposit products, types of products offered, the number and location of branch offices, as well as the reputation of institutions in the market, affect competition for loans and deposits. BOE emphasizes customer service, establishing long-term relationships with its customers, thereby creating customer loyalty, and providing adequate product lines for individuals and small-to-medium size business customers.

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BOE would not be materially or adversely impacted by the loss of a single customer. BOE is not dependent upon a single or a few customers.

Credit Policies

BOE follows written policies and procedures to enhance management of credit risk. The loan portfolio is managed under a specifically defined credit process. This process includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to estimate loss exposure and ascertain compliance with BOE’s policies. Lending authority is granted to individual lending officers with the current highest limit being $500,000 if secured by conforming real estate. A Loan Committee compromised of five loan officers can approve credits of up to $500,000. Approval of such credits requires a majority vote of the Loan Committee. The Executive Committee of the board of directors, meeting monthly, can approve loans up to Bank of Essex’s legal lending limit. The board of directors meets monthly as well and it too may approve loans up to Bank of Essex’s legal lending limit.

BOE’s management generally requires that secured loans have a loan-to-value ratio of 85% or less. Management believes that when a borrower has significant equity in the assets securing the loan, the borrower is less likely to default on the outstanding loan balance.

A major element of credit risk management is diversification. BOE’s objective is to maintain a diverse loan portfolio to minimize the impact of any single event or set of circumstances. Concentration parameters are based on factors of individual risk, policy constraints, economic conditions, collateral and product type.

Lending activities include a variety of consumer, real estate and commercial loans with a strong emphasis on serving the needs of customers within BOE’s market territory. Consumer loans are made primarily on a secured basis in the form of installment obligations or personal lines of credit. The focus of real estate lending is single family residential mortgages, but also includes home improvement loans, construction lending and home equity lines of credit. Commercial lending is provided to businesses seeking credit for working capital, the purchase of equipment and facilities and commercial development.

Properties

The principal office of BOE and Bank of Essex is located at 1325 Tappahannock Boulevard, Tappahannock, Virginia 22560. Bank of Essex operated a branch in the Tappahannock Towne Center in Tappahannock from 1981-2006. In November 1988, Bank of Essex opened the King William office at Central Garage in King William County. The fourth facility, the East Hanover office, opened in August 1992, on Route 360 east of Mechanicsville in Hanover County. In February 1996, Bank of Essex opened its fifth office in West Point, Virginia in King William County. In June 1999, Bank of Essex opened its sixth office in Henrico County near Virginia Center Commons. This office houses other lines of business such as the commercial loan department and fixed rate mortgages. In June 1990, Bank of Essex purchased land in Tappahannock, Virginia. An additional adjoining parcel was purchased in 2004 and the Virginia State Corporation Commission Bureau of Financial Institutions approved the building of a new facility that houses executive offices of BOE as well as a branch office. When this new facility opened the Tappahannock Towne Center Office was closed and sold. The new facility was opened on June 12, 2006. Simultaneous to the opening of the new Main Office the Prince Street Office was redesignated from the Main Office to a branch. In November 2007, Bank of Essex opened its seventh office on Route 360 in Burgess, Virginia which is the lower end of Northumberland County. In January 2008, Bank of Essex opened its eighth office in Callao, Virginia, also located on Route 360 in the upper end of Northumberland County. Bank of Essex is currently operating in temporary facilities but has purchased sites in both locations and expects to be in permanent full-service facilities sometime in 2008. In October 2002 Bank of Essex purchased a small parcel of land adjoining the King William Office.

BOE or Bank of Essex owns all of its properties.

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Legal Proceedings

In the course of its operations, BOE is party to various legal proceedings. Based upon information currently available, and after consultation with its general counsel, management believes that such legal proceedings, in the aggregate, will not have a material adverse effect on BOE’s business, financial position or results of operations.

General

BOE’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within BOE’s statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. BOE uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that BOE uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of BOE’s transactions would be the same, the timing of events that would impact its transactions could change.

Critical Accounting Policies

Allowance for Loan Losses. The allowance for loan losses is an estimate of the losses that may be sustained in BOE’s loan portfolio. The allowance is based on two basic principles of accounting: (i) SFAS 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The use of these values is inherently subjective and BOE’s actual losses could be greater or less than the estimates.

The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management’s periodic evaluation of the adequacy of the allowance is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

The following discussion is intended to assist readers in understanding and evaluating the financial condition and results of operations of BOE and Bank of Essex. This section should be read in conjunction with BOE’s consolidated financial statements and accompanying notes included elsewhere in this report.

Overview

On September 30, 2007 BOE had total assets of $294.767 million, an increase of $13.389 million, or 4.76% from $281.378 million at December 31, 2006. Total assets at September 30, 2006 were $278.088 million. The September 30, 2007 total assets figure represents an increase of 6.00%, or $16.679 million over one year ago. Total loans amounted to $216.172 million on September 30, 2007, an increase of $19.281 million, or 9.79%, over December 31, 2006 total loans of $196.891 million. The September 30, 2007 figure represents an increase of $26.452 million, or 13.94% over total loans of $189.720 million on September 30, 2006. BOE’s available-for-sale securities portfolio decreased $6.581 million, or 11.76%, from $55.963 million at December 31, 2006 to $49.382 million at September 30, 2007.

Total available-for-sale securities were $53.937 million on September 30, 2006. BOE had federal funds sold of $966,000 on September 30, 2007, federal funds purchased of $3.207 million on December 31, 2006 and federal funds sold of $6.016 million on September 30, 2006.

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BOE is required to account for the effect of market changes in the value of securities available-for-sale under SFAS 115. The market value of the September 30, 2007 securities available-for-sale portfolio was $49.382 million compared to a book value $49.548 million. At December 31, 2006 market value of the available-for-sale portfolio was $55.963 compared to a book value of $56.018 million. On September 30, 2006 the market value of the available-for-sale portfolio was $53.937 million with an associated book value of $54.118 million. The impact of the change in market value of available-for-sale securities, net of deferred income taxes, is reflected in the Statement of Changes in Stockholder’s Equity under Accumulated Other Comprehensive Income (Loss).

Total deposits at September 30, 2007 were $240.990 million. This $10.125 million increase is 4.39% greater than total deposits of $230.865 million at December 31, 2006 and $8.899 million, or 3.83% greater than total deposits of $232.091 million at September 30, 2006.

Stockholders’ equity at September 30, 2007 was $29.348 million and represented 9.96% of total assets. Stockholders’ equity was $28.047 million, or 9.97% of total assets at December 31, 2006 and $28.101 million, or 10.11% of total assets at September 30, 2006.

Results of Operations

Net Income. Net income was $640,000 for the third quarter of 2007, or $0.53 per diluted share. This compares to net income of $706,000, or $0.58 per diluted share in the third quarter of 2006. The decrease in earnings in the third quarter of 2007 compared to 2006 was $66,000, or 9.35%.

The decrease in earnings was primarily attributable to a $284,000, or 14.57%, increase in noninterest expenses for the third quarter of 2007. Noninterest expenses were $2.233 million for the third quarter of 2007 compared to $1.949 million for the same period in 2006. Salaries were the largest component of this increase, up $140,000, or 16.93%, for the third quarter of 2007 compared to the same period in 2006. This increase in salaries was largely composed of adding additional banking staff to operate two new branches in Northumberland County, Virginia, both of which BOE anticipates opening in the fourth quarter of 2007.

Offsetting this decrease to net income for the quarter ended September 30, 2007 were an increase of $138,000, or 5.63%, to net interest income after provision for loan losses, an increase of $9,000 to total noninterest income and a decrease of $71,000, or 30.21%, to income tax expense.

For the nine months ended September 30, 2007, net income was $2.012 million, down 8.96%, or $198,000, from net income of $2.210 million for the same period in 2006. This represents a decrease in earnings per share, on a diluted basis of $0.17, or 9.29%, from $1.83 to $1.66. Noninterest expenses increased 12.21%, or $694,000, primarily due to a full year of expenses associated with BOE’s new headquarters and branch banking facility that opened mid-year 2006 and from additional staffing and operating expense mentioned above in relation to entering new banking markets. Total noninterest expenses were $6.378 million through nine months of 2007 compared to $5.684 million for the same period in 2006.

Offsetting this decrease to net income was an increase of $28,000 to net interest income, an increase of $134,000 to total noninterest income, a decrease of $125,000 to provision for loan losses and a reduction of income tax expense of $209,000 for the nine month period ended September 30, 2007.

Net Interest Income. BOE’s results of operations are significantly affected by its ability to manage effectively the interest rate sensitivity and maturity of its interest-earning assets and interest-bearing liabilities. At September 30, 2007, BOE’s interest-earning assets exceeded its interest-bearing liabilities by approximately $35.463 million, compared with a $33.452 million excess one year ago. Net interest margins on a fully tax equivalent basis were 3.96% through September 30, 2007 compared to 4.24% through September 30, 2006. The decrease in net interest margin was the result of an increase of 30 basis points in yield on total earning assets coupled with an increase of 59 basis points in the cost of total sources of funds. BOE’s yield on average earning assets, on a fully tax equivalent and annualized basis, was 7.10% for the first nine months of 2007 compared to 6.80% for the first nine months of 2006. Total cost of funds was 3.15% for the first nine months of 2007 compared to 2.56% for the same period in 2006.

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BOE’s loan-to-deposit ratio was 87.53%, on average, through the first nine months of 2007 compared to 84.10% for the same period in 2006. On September 30, 2007, BOE’s loan-to-deposit ratio was 89.70% compared to 85.28% on December 31, 2006 and 81.74% on September 30, 2006.

Provision for Loan Losses. BOE’s provision for loan losses was $0 for the third quarter of 2007 and also in the third quarter of 2006. During the third quarter of 2007 BOE realized a recovery of $400,000 of a loan charged-off in 2002. This has bolstered BOE’s allowance for loan losses. Allowance for loan losses was $2.672 million on September 30, 2007 compared to $2.400 million on December 31, 2006 and $2.366 million on September 30, 2006. This was 1.24%, 1.22% and 1.25% of total loans for September 30, 2007, December 31, 2006 and September 30, 2006, respectively.

For the third quarter of 2007 BOE had net recoveries of $309,000 represented by charged-off loans of $97,000 and recoveries of $406,000. For the nine months ended September 30, 2007 BOE had net recoveries of $268,000 represented by charged-off loans of $150,000 and recoveries of $418,000. This compares to net charged-off loans of $16,000 for the third quarter of 2006 and net charged-off loans of $8,000 for the first nine months of 2006.

Noninterest Income. Noninterest income was $446,000 in the third quarter of 2007 compared to $437,000 in the same period of 2006. This represents an increase of 2.06%, or $9,000. Service charges on deposit accounts were $284,000 in the third quarter of 2007 and $258,000 in the third quarter of 2006. This is an increase of 1.01%, or $26,000. Securities losses were $39,000 in the third quarter of 2007 and $0 for the same period in 2006. Other noninterest income increased 9.58% or $16,000, from $167,000 in the third quarter of 2006 to $183,000 in the third quarter of 2007.

For the nine month period ended September 30, 2007 noninterest income of $1,423,000 was an increase of $134,000, or 10.40%, from noninterest income of $1,289,000 for the first nine months of 2006. Service charges on deposit accounts were $797,000 for the period compared to $779,000 in 2006. This is an increase of 2.31%, or $18,000. Other income increased $153,000, or 30.97% and was $647,000 for the first nine months of 2007 compared to $494,000 for the same period in 2006.

Noninterest Expenses. Noninterest expenses were $2.233 million and increased $284,000, or 14.57%, in the third quarter of 2007 compared to 2006. Salaries increased, $140,000, from $827,000 in the third quarter of 2006 to $967,000 in the third quarter of 2007. Other operating expenses increased $80,000, or 23.23%, in the third quarter of 2007 and were $426,000 compared to $346,000 for the same period in 2006. Employee benefits and postage expenses each increased $19,000 and data processing expenses as well as stationery and printing expenses increased $16,000 each for the third quarter of 2007 compared to the same period in 2006.

For the nine month period ended September 30, 2007 noninterest expenses were $6.378 million, a $694,000, or 12.21%, increase over noninterest expenses of $5.684 million for the first nine months of 2006. Salaries increased $309,000, or 12.83%, and were $2.717 million for the first nine months of 2007 compared to $2.408 million for the same period in 2006. Other operating expenses increased $161,000, or 15.22%, and were $1.219 million for the nine months ended September 30, 2007 compared to $1.058 million for the same period in 2006. Additional noninterest expense increases for the nine month period ended September 30, 2007 compared to the same period in 2006 were an $87,000 increase in employee benefits and costs, a $64,000 increase in occupancy expenses, an increase of $38,000 increase in data processing expenses a $15,000 increase in stationery and printing costs, a $10,000 increase in furniture and equipment related expenses and a $5,000 increase in both postage expenses and Bank of Essex franchise tax expense.

Income Taxes. Income tax expense was $164,000 in the third quarter of 2007. This represents a decrease of $71,000 compared to $235,000 of income tax expense in the third quarter of 2006. Income tax expense for the nine month period ended September 30, 2007 was $463,000 compared to $672,000 for the same period in 2006. This represents a decrease of $209,000 and is primarily the result of a lower effective tax rate due to the addition of $5.500 million in Bank Owned Life Insurance and tax exempt municipal income.

Asset Quality. BOE’s allowance for loan losses totaled $2.672 million on September 30, 2007, or 1.24% of total loans. On December 31, 2006, the allowance for loan losses totaled $2.400 million and was 1.22% of

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total loans. On September 30, 2006, the allowance for credit losses was $2.366 million and was 1.25% of total loans.

On September 30, 2007, BOE had nonaccruing assets of $206,000 compared to $34,000 on September 30, 2006. Loans past due and still accruing interest totaled $13,000 on September 30, 2007 compared to $78,000 on September 30, 2006.

Capital Requirements. The determination of capital adequacy depends upon a number of factors, such as asset quality, liquidity, earnings, growth trends and economic conditions. BOE seeks to maintain a strong capital base to support its growth and expansion plans, provide stability to current operations and promote public confidence in BOE.

The federal banking regulators have defined three tests for assessing the capital strength and adequacy of banks, based on two definitions of capital. “Tier 1 Capital” is defined as a combination of common and qualifying preferred stockholders’ equity less goodwill. “Tier 2 Capital” is defined as qualifying subordinated debt and a portion of the allowance for loan losses. “Total Capital” is defined as Tier 1 Capital plus Tier 2 Capital.

Three risk-based capital ratios are computed using the above capital definitions, total assets and risk-weighted assets and are measured against regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are grouped into categories according to degree of risk and assigned a risk-weighting and the resulting total is risk-weighted assets. “Tier 1 Risk-based Capital” is Tier 1 Capital divided by risk-weighted assets. “Total Risk-based Capital” is Total Capital divided by risk-weighted assets. The Leverage ratio is Tier 1 Capital divided by total average assets.

BOE’s ratio of Total Capital to risk-weighted assets was 15.92% on September 30, 2007 compared to 14.45% on September 30, 2006. Its ratio of Tier 1 Capital to risk-weighted assets was 14.85% on September 30, 2007 and 13.49% on September 30, 2006. BOE’s leverage ratio (Tier I Capital to average adjusted total assets) was 11.64% on September 30, 2007 and 10.21% on September 30, 2006. These ratios exceed regulatory minimums. BOE issued trust preferred subordinated debt that qualifies as regulatory capital in the fourth quarter of 2003. This trust preferred debt has a 30-year maturity with a 5-year call option and was issued at a rate of three month LIBOR plus 3.00% and was priced at 8.36% in the third quarter of 2007.

Liquidity

Liquidity represents BOE’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, and certain investment securities. As a result of BOE’s management of liquid assets and the ability to generate liquidity through liability funding, management believes that BOE maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customer’s credit needs.

Financial Instruments With Off-Balance Sheet Risk and Credit Risk and Contractual Obligations

Bank of Essex is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its clients and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement Bank of Essex has in particular classes of financial instruments.

Bank of Essex’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. Bank of Essex uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some entities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. BOE does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS 159). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. BOE is in the process of evaluating the impact SFAS 159 may have on its consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. BOE’s market risk is composed primarily of interest rate risk. BOE’s ALCO is responsible for reviewing the interest rate sensitivity position and establishing policies to monitor and limit exposure to this risk. The board of directors reviews and approves the guidelines established by ALCO.

Earnings Simulation Analysis. Interest rate risk is monitored through the use of two complimentary modeling tools: earnings simulation modeling and economic value simulation (net present value estimation). Each of these models measure changes in a variety of interest rate scenarios. While each of the interest rate risk measures has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in BOE, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Earnings simulation and economic value models, which more effectively measure the cash flow and optionality impacts, are utilized by management on a regular basis and are explained below.

Management uses simulation analysis to measure the sensitivity of net interest income to changes in interest rates. The model calculates an earnings estimate based on current and projected balances and rates. This method is subject to the accuracy of the assumptions that management has input, but it provides a better analysis of the sensitivity of earnings to changes in interest rates than other potential analyses.

Assumptions used in the model are derived from historical trends and management’s outlook and include loan and deposit growth rates and projected yields and rates. Such assumptions are monitored and periodically adjusted as appropriate. All maturities, calls and prepayments in the securities portfolio are assumed to be reinvested in like instruments. Mortgage loans and mortgage backed securities prepayment assumptions are based on industry estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Different interest rate scenarios and yield curves are used to measure the sensitivity of earnings to changing interest rates. Interest rates on different asset and liability accounts move differently when the prime rate changes and are reflected in the different rate scenarios.

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200 basis points up and down. The following table represents the interest rate sensitivity on net interest income for BOE across the rate paths modeled as of September 30, 2007:


	Change in Net
	Interest Income
Change in Yield Curve	(Percent)			($ in thousands)

+ 200 basis points		2.46	%	$	278
Most likely rate scenario		0.00	%		—
−200 basis points		(2.96	)%		(334	)

Economic Value Simulation. Economic value simulation is used to determine the estimated fair value of assets and liabilities over different interest rate scenarios. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate scenarios is an indication of the longer term earnings sensitivity capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses simultaneous rate shocks to the balance sheet, whereas the earnings simulation uses rate shock over 12 months. The following chart reflects the estimated change in net economic value over different rate environments using economic value simulation as of September 30, 2007:


	Change in Economic
	Value of Equity
Change in Yield Curve	(Percent)			($ in thousands)

+ 200 basis points		(11.48	)%	$	(4,405	)
Most likely rate scenario		0.00	%		—
−200 basis points		12.06	%		4,627

BOE Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years Ended December 31, 2006 and December 31, 2005

The following discussion is intended to assist the readers in understanding and evaluating the financial condition and results of operation of BOE. This review should be read in conjunction with BOE’s consolidated financial statements and accompanying notes included elsewhere in this Annual Report. This analysis provides an overview of the significant changes that occurred during the periods presented.

Critical Accounting Policies

General. BOE’s financial statements are prepared in accordance with GAAP. The financial information contained within our statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing expense, recovering an asset or relieving a liability. We use historical loss factors as one factor in determining the inherent loss that may be present in our loan portfolio. Actual losses could differ significantly from the historical factors that BOE uses. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of our transactions would be the same, the timing of events that would impact BOE’s transactions could change.

Allowance for Loan Losses. The allowance for loan losses is an estimate of the losses that may be sustained in BOE’s loan portfolio. The allowance is based on two basic principles of accounting: (i) SFAS 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimatable and (ii) SFAS 114, Accounting by Creditors for Impairment of a Loan, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance. The use of these values is inherently subjective and our actual losses could be greater or less than the estimates.

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experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions.

Overview

BOE’s strategic plan is directed toward the enhancement of its franchise value and operating profitability by increasing its asset size and expanding its customer base. BOE operates eight full service offices mainly along the U.S. 360 corridor from Burgess, Virginia to the Richmond, Virginia metropolitan market, a span of about 75 miles. Management believes that its most significant profitable growth opportunities will continue to be within one hour of Tappahannock. (See Information About BOE — Business — General for further explanation on BOE’s strategic plan.)

Year 2006 Compared to Year 2005. On December 31, 2006, BOE had total assets of $281.378 million, total loans of $196.891 million, total deposits of $230.865 million and total stockholder’s equity of $28.047 million. BOE had net income of $3.123 million in 2006, a $22,000, or 0.7% increase from $3.101 million in net income in 2005. This resulted in a return on average equity of 11.47% in 2006 compared to 12.18% in 2005. Return on average assets in 2006 was 1.15%, compared to 1.24% in 2005. BOE’s total loans increased 7.9%, or $14.435 million, in 2006 over 2005. Total loans were $196.891 million at December 31, 2006 compared to $182.456 million at December 31, 2005. Loan increases came from loans secured by real estate, including loans secured by 1 — 4 family properties and commercial lending. This is due to continued growth in and around the corridor surrounding Richmond, Virginia, including the area in and around Essex County. At December 31, 2006, the ratio of non-performing assets to total assets was 0.62% compared to 0.72% at December 31, 2005. Net recoveries to average loans were 0.01% in 2006 compared to net charge offs of 0.05% in 2005. Loans past due 90 days or more and still accruing interest at December 31, 2006 were $102,000 and $260,000 at December 31, 2005. BOE’s allowance for loan losses to period end loans at December 31, 2006 was 1.22% compared to 1.23% at December 31, 2005.

Year 2005 Compared to Year 2004. On December 31, 2005, BOE had total assets of $261.931 million, total loans of $182.456 million, total deposits of $223.132 million and total stockholder’s equity of $26.235 million. BOE had net income of $3.101 million in 2005, a $215,000, or 7.5% increase from $2.885 million in net income in 2004. This resulted in a return on average equity of 12.18% in 2005 compared to 12.12% in 2004. Return on average assets in 2005 was 1.24%, compared to 1.23% in 2004. BOE’s total loans increased 14.3%, or $22.896 million, in 2005 over 2004. Total loans were $182.456 million at December 31, 2005 compared to $159.560 million at December 31, 2004. Loan increases came from loans secured by real estate, including loans secured by 1 — 4 family properties, commercial real estate and construction lending. At December 31, 2005, the ratio of non-performing assets to total assets was 0.72% compared to 1.29% at December 31, 2004. Net charge offs to average loans were 0.05% in 2005 compared to 0.21% in 2004. Loans past due 90 days or more and still accruing interest at December 31, 2005 were $260,000 and $100,000 at December 31, 2004. BOE’s allowance for loan losses to period end loans at December 31, 2005 was 1.23% compared to 1.31% at December 31, 2004.

Results of Operations

Net Income

Year 2006 Compared to Year 2005. BOE had net income of $3.123 million in 2006 compared to $3.101 million in 2005. This represented an increase of 0.7%, or $22,000. Diluted earnings per share in 2006 were $2.58, compared to diluted earnings per share in 2005 of $2.58. These earnings per share are based on average shares outstanding of 1,210,922 in 2006 and 1,203,725 in 2005. The increase in net income included a $490,000 increase in total profits (losses) on other properties resulting from a $485,000 gain on the sale of a bank building. Also improving net income was $160,000 in increases in other categories of noninterest income and a $115,000 reduction in provision for loan losses. Offsetting these increases in net income for 2006 compared to 2005 was a decrease of $112,000, or 1.1%, in net interest income. Comprising net interest income was a $2.391 million, or 16.7%, increase in interest income which was offset by an increase of $2.503 million, or 56.0%, in interest expenses caused by fierce competition among banks for funding and an inverted yield

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curve throughout much of 2006. Also affecting net income was an increase of $631,000, or 8.7%, in noninterest expenses, $93,000 of which was related to the opening of a new headquarters during 2006.

Year 2005 Compared to Year 2004. BOE had net income of $3.101 million in 2005 compared to $2.885 million in 2004. This represented an increase of 7.5%, or $215,000. Diluted earnings per share in 2005 were $2.58, compared to diluted earnings per share in 2004 of $2.42. These earnings per share are based on average shares outstanding of 1,203,725 in 2005 and 1,194,511 in 2004.

BOE’s profitability increased in 2005 in comparison to 2004 due to an increase of $605,000, or 6.5%, in net interest income. Net interest income increased from $9.269 million in 2004 to $9.874 million in 2005.

Additionally, provision for loan losses decreased by $65,000, or 21.2%, in 2005 compared to 2004. Provision for loan losses was $240,000 in 2005 compared to $305,000 in 2004. Provision for loan losses decreased in 2005 compared to 2004 due to a reduction in net charged-off loans. Net charged-off loans were $80,000 in 2005 compared to $345,000 in 2004. This combination resulted in a net interest income after provision for loan losses increase of $670,000, or 7.5%.

Offsetting these increases in net income was a $380,000, or 5.5% increase for 2005 compared to 2004 in noninterest expenses. Noninterest expenses were $7.262 million in 2005 and $6.882 million in 2004. Also offsetting net income increases was an increase of $49,000, or 5.9%, in income tax expenses. Income tax expense totaled $872,000 in 2005 and $823,000 in 2004. Noninterest income decreased $26,000, or 1.6%, and was $1.601 million in 2005 compared to $1.627 million in 2004.

Net Interest Income

Year 2006 Compared to Year 2005. Net interest income is the major component of BOE’s earnings and is equal to the amount by which interest income exceeds interest expense. BOE’s earning assets are composed primarily of loans and securities, while deposits and short-term borrowings represent the major portion of interest-bearing liabilities. Changes in the volume and mix of these assets and liabilities, as well as changes in the yields earned and rates paid, determine changes in net interest income.

Net interest income, on a fully tax equivalent basis, was $10.514 million in 2006, $53,000 less than the $10.567 million reported for 2005. BOE’s level of earning assets increased $16.169 million, or 7.0%, on average, in 2006 to $248.586 million compared to $232.417 million in 2005. Loans receivable were $189.837 million, on average, in 2006 compared to $172.367 million in 2005, an increase of $17.470 million, or 10.1%. The yield on loans receivable increased from 6.93% in 2005 to 7.52% in 2006. On a fully tax equivalent basis the yield on loans receivable increased $2.338 million in 2006, to $14.282 million in 2006 from $11.944 million in 2005. This represents an increase of 19.6%. Investment securities and federal funds sold decreased, on average, 2.2% in 2006 to $58.749 million, down from $60.050 million, on average, in 2005. The tax equivalent yield on investment securities, including equity securities and federal funds sold was 5.45% in 2006 compared to 5.15% in 2005. On a fully taxable equivalent basis, income on investment securities and federal funds sold income increased 3.6%, or $111,000, from $3.092 million in 2005 to $3.203 million in 2006. This earning asset rate and volume activity resulted in a yield on earning assets of 7.03% in 2006 based on $17.485 million in fully taxable equivalent income compared to 6.47% in 2005 based on $15.036 million in fully taxable equivalent income. This is a $2.449 million increase from 2005 to 2006, or 16.3%. BOE’s interest-bearing liabilities increased $20.413 million, on average, from $194.364 million in 2005 to $214.777 million in 2006, an increase of 10.5%. The cost of interest-bearing liabilities increased from 2.30% in 2005 to 3.25% in 2006.

The increase in yield on earning assets of 56 basis points coupled with the increased cost of interest-bearing liabilities of 95 basis points resulted in a net interest margin for BOE of 4.23% in 2006 compared to a net interest margin of 4.55% in 2005. Net interest margin is calculated by dividing BOE’s net interest income on a tax equivalent basis by the average earning assets. Volume increases in loans, coupled with higher rate and volume increases on interest-bearing liabilities resulted in a decrease in the interest spread. BOE’s net interest spread decreased 39 basis points from 4.17% in 2005 to 3.78% in 2006. Spread is calculated by subtracting the cost of interest-bearing liabilities from the yield on earning assets.

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Year 2005 Compared to Year 2004. Net interest income, on a fully tax equivalent basis, was $10.567 million in 2005, 6.7% higher than the $9.902 million reported for 2004. BOE’s level of earning assets increased $14.368 million, or 6.6%, on average, in 2005 to $232.417 million compared to $218.049 million in 2004. Loans receivable were $172.367 million, on average, in 2005 compared to $162.507 million in 2004, an increase of $9.860 million, or 6.1%. The yield on loans receivable increased from 6.56% in 2004 to 6.93% in 2005. On a fully tax equivalent basis the yield on loans receivable increased $1.280 million in 2005, to $11.944 million in 2005 from $10.664 million in 2004. This represents an increase of 12.0%. Investment securities and federal funds sold increased, on average, 8.1% in 2005 to $60.050 million, up from $55.542 million, on average, in 2004. The tax equivalent yield on investment securities, including equity securities and federal funds sold was 5.15% in 2005 compared to 5.12% in 2004. On a fully taxable equivalent basis, income on investment securities and federal funds sold income increased 8.7%, or $248,000, from $2.844 million in 2004 to $3.092 million in 2005. This earning asset rate and volume activity resulted in a yield on earning assets of 6.47% in 2005 based on $15.036 million in fully taxable equivalent income compared to 6.19% in 2004 based on $13.508 million in fully taxable equivalent income. This is a $1.528 million increase from 2004 to 2005, or 11.3%. BOE’s interest-bearing liabilities increased $8.971 million, on average, from $185.393 million in 2004 to $194.364 million in 2005. The cost of interest-bearing liabilities increased from 1.95% in 2004 to 2.30% in 2005, an increase of 18.0%.

The increase in yield on earning assets of 28 basis points coupled with the increased cost of interest-bearing liabilities of 35 basis points resulted in a net interest margin for BOE of 4.55% in 2005 compared to a net interest margin of 4.54% in 2004. Net interest margin is calculated by dividing BOE’s net interest income on a tax equivalent basis by the average earning assets. Volume increases in loans and in securities, coupled with lower rate and volume increases in interest-bearing liabilities resulted in a decrease in the interest spread. BOE’s net interest spread decreased 8 basis points from 4.25% in 2004 to 4.17% in 2005. Spread is calculated by subtracting the cost of interest-bearing liabilities from the yield on earning assets.

BOE’s net interest margin is affected by changes in the amount and mix of earning assets and interest-bearing liabilities, referred to as a “volume change.” It is also affected by changes in yields earned on earning assets and rates paid on interest-bearing deposits and other borrowed funds, referred to as a “rate change.” The following table sets forth for each category of earning assets and interest-bearing liabilities, the average amounts outstanding, the interest earned or incurred on such amounts and the average rate earned or incurred for the years ended December 31, 2006, 2005 and 2004. The table also sets forth the average rate earned on total earning assets, the average rate paid on total interest-bearing liabilities, and the net interest margin on average total earning assets for the same periods.

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BOE FINANCIAL SERVICES OF VIRGINIA, INC.

AVERAGE BALANCES, INTEREST INCOME AND EXPENSES, AND AVERAGE YIELDS AND RATES

Years Ended December 31,


	2006								2005								2004
				Interest		Average						Interest		Average						Interest		Average
	Average Balance			Income/Expense		Yield/Rate			Average Balance			Income/Expense		Yield/Rate			Average Balance			Income/Expense		Yield/Rate
	(Dollars in thousands)

Earning Assets:
Loans receivable	$	189,837			14,282		7.52	%	$	172,367			11,944		6.93	%	$	162,507		$	10,664		6.56	%
Securities, taxable(1)		20,546			951		4.63	%		22,714			965		4.25	%		20,232			890		4.40	%
Securities, non-taxable		35,274			2,091		5.93	%		34,849			2,039		5.85	%		31,448			1,861		5.92	%
Equity securities		1,484			84		5.66	%		1,039			49		4.72	%		935			40		4.28	%
Federal funds sold		1,445			77		5.33	%		1,448			39		2.69	%		2,927			53		1.81	%

Total earning assets	$	248,586		$	17,485		7.03	%	$	232,417		$	15,036		6.47	%	$	218,049		$	13,508		6.19	%

Non-Earning Assets:
Cash and due from banks		6,023								6,327								8,964
Allowance for loan losses.		(2,339	)							(2,205	)							(2,060	)
Other assets		20,246								13,441								10,689

Total non-earning assets		23,930								17,563								17,593

Total assets	$	272,516							$	249,980							$	235,642

Interest-Bearing Liabilities:
Deposits:
Interest-bearing demand (NOW) deposits		26,218			90		0.34	%		28,872			99		0.34	%	$	27,387		$	95		0.35	%
Money market deposits		14,750			226		1.53	%		15,306			154		1.01	%		17,085			143		0.84	%
Savings deposits		21,143			179		0.85	%		23,857			190		0.80	%		22,767			174		0.76	%
Time deposits		135,760			5,560		4.10	%		116,592			3,542		3.04	%		112,749			2,987		2.65	%
Federal funds purchased		2,048			102		4.98	%		2,503			101		4.03	%		1,405			20		1.42	%
FHLB advances & other borrowings		14,858			814		5.48	%		7,234			382		5.29	%		4,000			187		4.68	%

Total interest-bearing liabilities	$	214,777		$	6,971		3.25	%	$	194,364		$	4,469		2.30	%	$	185,393		$	3,606		1.95	%

Non-Interest Bearing Liabilities:
Demand deposits		28,259								28,730								25,139
Other liabilities		2,245								1,417								1,290

Total non-interest bearing liabilities.		30,504								30,147								26,429

Total liabilities		245,281								224,511								211,822

Stockholders’ equity		27,235								25,469								23,820
Total liabilities and stockholders’ equity	$	272,516		$	10,514				$	249,980		$	10,567				$	235,642

Interest spread							3.78	%							4.17	%							4.25	%
Net interest margin							4.23	%							4.55	%				$	9,902		4.54	%


(1)		Income and yields are reported on a tax-equivalent basis assuming a federal tax rate of 34%.

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Net interest income is affected by both (1) changes in the interest rate spread (the difference between the weighted average yield on interest earning assets and the weighted average cost of interest-bearing liabilities) and (2) changes in volume (average balances of interest earning assets and interest-bearing liabilities).

For each category of interest-earning assets and interest-bearing liabilities, information is provided regarding changes attributable to (1) changes in volume of balances outstanding (changes in volume multiplied by prior period interest rate) (2) changes in the interest earned or paid on the balances (changes in rate multiplied by prior period volume) and (3) a combination of changes in volume and rate allocated pro rata.

RATE AND VOLUME ANALYSIS


	Year Ended December 31, 2006									Year Ended December 31, 2005
	Compared to December 31, 2005									Compared to December 31, 2004
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Rate			Volume			Total			Rate			Volume			Total
	(Dollars in thousands)

Interest Earned On:
Loans receivable	$	1,071		$	1,267		$	2,338		$	614		$	666		$	1,280
Securities, taxable	$	210		$	(224	)	$	(14	)		(29	)		104		$	75
Securities, non-taxable	$	26		$	25		$	52			(20	)		199		$	179
Equity securities	$	11		$	24		$	35			4			5		$	9
Federal funds sold	$	38		$	(0	)	$	38			382			(396	)	$	(14	)

Total interest income	$	1,356		$	1,092		$	2,448		$	951		$	578		$	1,529

Interest Paid On:
Interest bearing demand (NOW) deposits	$	(0	)	$	(9	)	$	(9	)	$	(1	)	$	5		$	4
Money market deposits	$	77		$	(5	)	$	72		$	23			(12	)	$	11
Savings deposits	$	13		$	(26	)	$	(12	)		8			9		$	16
Time deposits	$	1,371		$	647		$	2,018			450			105		$	555
Federal funds purchased	$	5		$	(4	)	$	1			57			24		$	81
Federal Home Loan Bank advances and other borrowings	$	14		$	417		$	432			27			168		$	195

Total interest expense	$	1,480		$	1,020		$	2,500		$	564		$	299		$	862

Net interest income	$	(124	)	$	72		$	(52	)	$	387		$	279		$	667

Interest Rate Sensitivity

An important component of both earnings performance and liquidity is management of interest rate sensitivity. Interest rate sensitivity reflects the potential effect on net interest income of a movement in market interest rates. BOE is subject to interest rate sensitivity to the degree that its interest earning assets mature or reprice at a different time interval from that of its interest-bearing liabilities.

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INTEREST SENSITIVITY ANALYSIS

December 31, 2006


	Maturing or Repricing In:
	< 3
	Months			3-12 Months			Over 1 Year			Total
	(Dollars in thousands)

Interest-sensitive assets:
Cash	$	5,520		$	—		$	—		$	5,520
Loans		69,350			26,484			101,057			196,891
Securities		1,015			7,114			52,387			60,516

Total interest-sensitive assets	$	75,885		$	33,598		$	153,444		$	262,927

Interest-sensitive liabilities:
Non-interest bearing deposits	$	—		$	—		$	27,809		$	27,809
Certificates of deposit		22,067			91,695			28,208			141,970
Interest-bearing checking, money market deposits, NOW and savings accounts		17,843			—			43,243			61,086
Federal funds purchased		3,207			—			—			3,207
FHLB advances		—			7,000			5,000			12,000
Trust Preferred Securities		—			—			4,124			4,124

Total interest sensitive liabilities	$	43,117		$	98,695		$	108,384		$	250,196

Period gap		32,768			(65,097	)		45,060			12,731
Cumulative gap		32,768			(32,329	)		12,731
Ratio of cumulative interest sensitive assets to interest sensitive liabilities		176.0	%		77.2	%		105.1	%
Ratio of cumulative gap to interest sensitive assets		12.5	%		(12.3	)%		4.8	%

Provision For Loan Losses

The provision for loan losses is charged to income to bring the total allowance for loan losses to a level deemed appropriate by management of BOE based on such factors as historical experience, the volume and type of lending conducted by BOE, the amount of non-performing assets, regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectibility of loans in BOE’s portfolio.

The provision for loan losses was $125,000 in 2006, a decrease of $115,000, or 48.0%, compared to the $240,000 in provision for 2005. The provision for loan losses reflects a decrease in net charged-off loans in 2006. Charged-off loans were in a net recovery position in 2006 of $26,000 after charging off $138,000 and recovering a total of $164,000. This compares to $80,000 in net charge-offs in 2005 after charging off $159,000 in loans and recognizing $79,000 in recoveries.

Management believes the allowance for loan losses is adequate to absorb losses inherent in the loan portfolio. In view of BOE’s plans to continue its loan growth, management will continue to closely monitor the performance of its portfolio and make additional provisions as necessary.

Non-Interest Income

Non-interest income in 2006 was $2.250 million, an increase of 40.6%, or $650,000, from non-interest income of $1.601 million in 2005. Net gains (losses) on sale of premises and equipment was the largest component of this increase, $490,000. Of this amount, $485,000 was the result of the sale of a former branch banking facility. Net gains (losses) on sale of premises and equipment was a loss of $23,000 in 2005

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compared to a gain of $467,000 in 2006. Other income increased $114,000, or 19.6%, and was $693,000 in 2006 compared to $579,000 in 2005. Service charge income increased 5.7%, or $56,000, and was $1.043 million in 2006 compared to $986,000 in 2005. Net gains on sales of loans was $61,000, an 8.9%, or $5,000, increase over the 2005 total of $56,000. Net security gains (losses) were $16,000 less in 2006 than 2005. Net security gains (losses) were a loss of $13,000 in 2006 compared to a gain of $3,000 in 2005.

Non-interest income in 2005 was $1.601 million, a decrease of $26,000, or 1.6%, from non-interest income of $1.627 million in 2004. Service charges on deposit accounts decreased $8,000, or 0.8%, to $986,000 in 2005 from $994,000 in 2004. Other income increased 25.4%, or $117,000, in 2005. Other income was $579,000 in 2005 and $462,000 in 2004. Securities gains were $3,000 in 2005, a $63,000 decrease from securities gains of $66,000 in 2004. Gains on sales of loans were $56,000 in 2005 and $57,000 in 2004, a $1,000 decrease. Net gains/(losses) on sales of other properties decreased $72,000, or 147.2%, from a $49,000 gain in 2004 to a $23,000 loss in 2005.

Non-Interest Expense

Non-interest expense was $7.893 million in 2006, a $631,000, or 8.7% increase, over non-interest expense of $7.262 million in 2005. Salaries were $3.247 million in 2006 and were the largest component of this increase, $193,000, or 6.3%, over salaries of $3.054 million in 2005. Employee benefits were up $152,000, or 15.5%, higher than employee benefits in 2005 of $982,000. This increase was due to continued increases in health industry costs provided to employees. Data processing expense of $555,000 in 2006 was 4.7%, or $25,000, higher than data processing expense of $530,000 in 2005. Other operating expenses of $1.499 million were $62,000, or 4.3%, higher than other operating expenses of $1.437 million in 2005. Bank franchise tax increased $16,000, or 7.3%, in 2006 and was $238,000 compared to $222,000 in 2005. Stationary and printing expenses increased $34,000, or 24.6%, and were $138,000 in 2005 compared to $172,000 in 2006. Furniture and equipment related expenses were $449,000 in 2006 compared to $415,000 in 2005, an increase of $34,000, or 8.2%. Postage expense increased $22,000, or 14.3%, and was $175,000 in 2006 compared to $153,000 in 2005. Occupancy expenses increased $93,000, or 28.0% and were $423,000 in 2006 compared to $330,000 in 2005.

Non-interest expense was $7.262 million in 2005, a $380,000, or 5.5%, increase, over non-interest expense of $6.882 million in 2004. Salaries were $3.054 million in 2005 and were the largest component of this increase, $196,000, or 6.9%, over salaries of $2.858 million in 2004. This increase was due to an increase in full-time equivalent employees from 88 in 2004 to 93 in 2005. Employee benefits were $982,000, up $178,000, or 22.1% higher than employee benefits in 2004 of $804,000. This increase was due to the increase in full-time equivalent employees described above and continued increases in health industry costs provided to employees. Data processing expense of $530,000 in 2005 was 12.4%, or $59,000, higher than data processing expense of $471,000 in 2004. Other operating expenses of $1.404 million were $32,000, or 2.3%, higher than other operating expenses of $1.437 million in 2004. Bank franchise tax increased $7,000, or 3.5%, in 2005 and was $222,000 compared to $214,000 in 2004.

Analysis of Financial Condition

Loan Portfolio

The loan portfolio is the largest category of BOE’s earning assets and is comprised of commercial loans, agricultural loans, real estate loans, home equity loans, construction loans, consumer loans, and participation loans with other financial institutions. The primary markets in which BOE makes loans include the counties of Essex, King and Queen, King William, Hanover, Henrico, Northumberland and the City of Richmond. The mix of the loan portfolio is weighted toward loans secured by real estate and commercial loans.

Net loans consist of total loans minus the allowance for loan losses, unearned discounts and deferred loan fees. BOE’s net loans were $194.491 million at December 31, 2006, representing an increase of 7.9%, or $14.284 million more than net loans of $180.207 million at December 31, 2005. The average balance of loans as a percentage of average earning assets was 76.4% in 2006, up slightly from 74.2% in 2005.

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In the normal course of business, BOE makes various commitments and incurs certain contingent liabilities, which are disclosed but not reflected in the consolidated financial statements contained in this Annual Report, including standby letters of credit and commitments to extend credit. At December 31, 2006, commitments for standby letters of credit totaled $4.971 million and commitments to extend credit totaled $45.251 million. Commitments for standby letters of credit totaled $4.602 million at December 31, 2005 and commitments to extend credit totaled $40.381 million.

LOAN PORTFOLIO
December 31,


	2006			2005			2004			2003			2002
	(Dollars in thousands)

Loans:
Commercial	$	22,934		$	22,873		$	23,534		$	26,099		$	33,428
Real Estate		138,008			121,296			103,387			106,212			121,570
Real Estate — construction		29,984			32,084			25,924			21,505			1,465
Installment & other		5,965			6,203			6,714			6,693			7,375

Total loans	$	196,891		$	182,456		$	159,559		$	160,509		$	163,838
Allowance for loan losses		(2,400	)		(2,249	)		(2,088	)		(2,128	)		(2,116	)

Net loans	$	194,491		$	180,207		$	157,471		$	158,381		$	161,722

Remaining Maturities of Selected Loan Categories


			Real Estate
	Commercial		Construction
	(In thousands)

within one year	$	7,546	$	22,207

Variable Rate
One to five years	$	8,198	$	468
After five years	$	3,951		63

Total	$	12,149	$	531

Fixed Rate
One to five years	$	2,632	$	6,129
After five years	$	607	$	1,117

Total	$	3,239	$	7,246

Total Maturities	$	22,934	$	29,984

Asset Quality

Generally, interest on loans is accrued and credited to income based upon the principal balance outstanding. It is typically BOE’s policy to discontinue the accrual of interest income and classify a loan on non-accrual when principal or interest is past due 90 days or more and the loan is not well-secured and in the process of collection, or when, in the opinion of management, principal or interest is not likely to be paid in accordance with the terms of the obligation.

BOE will generally charge-off loans after 120 days of delinquency unless they are adequately collateralized, in the process of collection and, based on a probable specific event, management believes that the loan will be repaid or brought current within a reasonable period of time. Loans will not be returned to accrual status until future payments of principal and interest appear certain. Interest accrued and unpaid at the time a

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loan is placed on non-accrual status is charged against interest income. Subsequent payments received are applied to the outstanding principal balance.

Real estate acquired by BOE as a result of foreclosure or in-substance foreclosure is classified as other real estate owned (“OREO”). Such real estate is recorded at the lower of cost or fair market value less estimated selling costs, and the estimated loss, if any, is charged to the allowance for loan losses at that time. Further allowances for losses are recorded as charges to other expenses at the time management believes additional deterioration in value has occurred. BOE had no OREO at December 31, 2006 or 2005.

BOE’s credit policies generally require a loan-to-value ratio of 85% for secured loans. At December 31, 2006, loans past due 90 days or more and still accruing interest totaled $102,000, of which $7,000 was secured by real estate and the remainder was secured and unsecured commercial and installment loans. As of December 31, 2005, loans past due 90 days or more and still accruing totaled $260,000. Non-accrual loans at December 31, 2006 were $0 and at December 31, 2005 non-accrual loans were $174,000.

NON-PERFORMING ASSETS
December 31,


	2006			2005			2004			2003			2002
	(Dollars in thousands)

Nonaccrual and impaired loans	$	1,756		$	1,891		$	3,065		$	1,737		$	2,411
Restructured loans		0			0			0			—			—

Total nonperforming loans	$	1,756		$	1,891		$	3,065		$	1,737		$	2,411
Foreclosed assets		0			0			0			—			—

Total nonperforming assets	$	1,756		$	1,891		$	3,065		$	1,737		$	2,411

Loans past due 90 or more days accruing interest	$	102		$	260		$	100		$	285		$	102
Nonperforming loans to total loans, at period end		0.89	%		1.04	%		1.92	%		1.08	%		1.47	%
Nonperforming assets to period end assets		0.62	%		0.72	%		1.29	%		0.75	%		1.06	%

Allowance for Loan Losses

In originating loans, BOE recognizes that credit losses will be experienced and the risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral for such loan. BOE maintains an allowance for loan losses based upon, among other things, historical experience, the volume and type of lending conducted by BOE, the amount of non-performing assets, regulatory policies, generally accepted accounting principles, general economic conditions, and other factors related to the collectibility of loans in BOE’s portfolios. In addition to general allowances, specific allowances are provided for individual loans when ultimate collection is considered questionable by management after reviewing the current status of loans, which are contractually past due and after considering the net realizable value of any collateral for the loan.

Management actively monitors BOE’s asset quality in a continuing effort to charge-off loans against the allowance for loan losses when appropriate and to provide specific loss allowances when necessary. Although management believes it uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the initial determinations. As of December 31, 2006, the allowance for loan losses amounted to $2.400 million, or 1.22% of total loans. BOE’s allowance for loan losses was $2.249 million at December 31, 2005, or 1.23% of total loans.

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The allowance for loan losses as a percentage of non-performing assets was 136.67% at December 31, 2006. The ratio of allowance for loan losses as a percentage of non-performing assets at December 31, 2005 was 118.93%.

ALLOWANCE FOR LOAN LOSSES
Years ended December 31,


	2006			2005			2004			2003			2002
	(Dollars in thousands)

Balance, beginning of period	$	2,249		$	2,088		$	2,129		$	2,116		$	2,084
Less chargeoffs:
Commercial		0			35			128			613			943
Installment		138			124			265			203			262
Real estate		0			0			38			13			39

Total chargeoffs		138			159			431			829			1,244
Plus recoveries
Commercial		103			15			24			98			17
Installment		59			54			55			44			51
Real estate		2			11			6			—			—

Total recoveries		164			80			85			142			68

Net chargeoffs		(26	)		79			346			687			1,176

Provision for loan losses		125			240			305			700			1,208

Balance, end of period	$	2,400		$	2,249		$	2,088		$	2,129		$	2,116

Allowance for loan losses to period end loans		1.22	%		1.23	%		1.31	%		1.33	%		1.29	%
Allowance for loan losses to non performing assets		136.67	%		118.93	%		614.12	%		122.57	%		87.76	%
Net chargeoffs to average loans		(0.01	)%		0.05	%		0.21	%		0.42	%		0.74	%

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
December 31,


	2006		Percent(1)			2005		Percent(1)			2004		Percent(1)			2003		Percent(1)			2002		Percent(1)
											(Dollars in thousands)

Commercial	$	437		11.6	%	$	524		12.5	%	$	428		14.7	%	$	346		16.3	%	$	432		20.4	%
Installment		188		3.1	%		141		3.4	%		180		4.2	%		89		4.2	%		95		4.5	%
Real Estate		1,775		85.3	%		1,584		84.1	%		1,480		81.1	%		1,694		79.6	%		1,589		75.1	%

	$	2,400		100.0	%	$	2,249		100.0	%	$	2,088		100.0	%	$	2,129		100.0	%	$	2,116		100.0	%


(1)		Percent of loans in each category to total loans.

Investment Activities

Securities available-for-sale are used as part of BOE’s interest rate risk management strategy and may be sold in response to interest rate, changes in prepayment risk, liquidity needs, the need to increase regulatory capital and other factors. The fair value of BOE’s securities available-for-sale totaled $55.963 million at December 31, 2006, compared to $52.393 million at December 31, 2005.

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BOE is required to account for the effect of market changes in the value of securities available-for-sale (AFS) under Statement of Financial Accounting Standard #115 (SFAS 115). The market value of the December 31, 2006 securities available-for-sale portfolio was $54,000 less than the associated book value of these securities. On December 31, 2005 the market value of securities available-for-sale exceeded their book value by $121,000.

As of December 31, 2006 the book value of the available-for-sale investment portfolio increased $3.505 million, or 6.7%, from $52.514 million at December 31, 2005 to $56.018 million at December 31, 2006.

SECURITIES PORTFOLIO


	2006				2005				2004
	Amortized				Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
			(Dollars in thousands)

Held-to-Maturity:
U.S. Treasury Issue and other U.S. Government agencies	$	3,000	$	2,949	$	3,000	$	2,933	$	3,000	$	3,000
State, county and municipal		0		0		0		0		0		0
Other		0		0		0		0		0		0

Total Held-to-Maturity	$	3,000	$	2,949	$	3,000	$	2,933	$	3,000	$	3,000

Available-for-Sale
U.S. Treasury Issue and other U.S. Government agencies	$	16,373	$	16,105	$	14,633	$	14,233	$	17,129	$	17,057
State, county and municipal		38,299		38,226		36,834		36,849		33,720		34,733
Other		1,346		1,632		1,047		1,311		2,904		3,185

Total Available-for-Sale	$	56,018	$	55,963	$	52,514	$	52,393	$	53,753	$	54,955

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SECURITIES PORTFOLIO — MATURITY AND YIELDS
December 31, 2006


	Under 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total
	(Dollars in thousands)

Maturity Distribution:
U.S. Treasury Issue and other U.S. Government agencies	$	4,528		$	10,278		$	1,299		$	3,000		$	19,105
State, county and municipal-tax exempt		4,338			16,455			14,294			1,276			36,363
State, county and municipal-taxable		203			1,323			337			—			1,863
Other		—			1,289			—			343			1,632

Total Investment Securities	$	9,069		$	29,345		$	15,930		$	4,619		$	58,963

Weighted Average Yield:
U.S. Treasury Issue and other U.S. Government agencies		4.43	%		4.07	%		5.49	%		6.00	%		4.55	%
State, county and municipal-tax exempt		5.65	%		5.58	%		5.29	%		5.69	%		5.48	%
State, county and municipal-taxable		5.00	%		5.25	%		4.65	%		0.00	%		5.12	%
Other		0.00	%		6.01	%		0.00	%		4.36	%		5.66	%

Weighted Average Yield by Category		5.03	%		5.06	%		5.29	%		5.79	%		5.17	%

Deposits

BOE primarily uses deposits to fund its loans and investment portfolio. In 2006, BOE’s deposits grew $7.733 million, or 3.5%. Total deposits at December 31, 2006 were $230.865 million compared to $223.132 million at December 31, 2005. Certificates of deposit increased $14.359 million, or 11.3%, from $127.545 million at December 31, 2005 to $141.910 million at December 31, 2006. This was the largest component of growth in deposits in 2006. Non-interest bearing deposits were $27.809 million at December 31, 2006, a $2.982 million, or 9.7%, decrease from $30.791 million at December 31, 2005. Additionally, there was a $2.048 million, or 9.2%, decrease in savings deposits. Savings deposits were $20.103 million at December 31, 2006 compared to $22.151 million at December 31, 2005. NOW accounts decreased $706,000, or 2.6%, from $27.689 million at December 31, 2005 to $26.983 million at December 31, 2006. Money Market Deposit Accounts decreased $889,000, or 5.9%, from $14.955 million at December 31, 2005 to $14.066 million at December 31, 2006.

In 2005, BOE’s deposits grew $16.159 million, or 7.8%. Total deposits at December 31, 2005 were $223.132 million compared to $206.973 million at December 31, 2004. Certificates of deposit increased $14.243 million, or 12.6%, from $113.302 million at December 31, 2004 to $127.545 million at December 31, 2005. This was the largest component of growth in deposits in 2005. Non-interest bearing demand deposits were the only other deposit category experiencing growth in 2005. Non-interest bearing deposits were $30.791 million at December 31, 2005, a $5.186 million, or 20.3%, increase from $25.605 million at December 31, 2004. Offsetting these increases to deposit growth was a $3.165 million, or 12.5%, decrease in savings deposits. Savings deposits were $25.316 million at December 31, 2004 compared to $22.151 million at December 31, 2005. NOW accounts decreased $337,000, or 1.2%, from $28.026 million at December 31, 2004 to $27.689 million at December 31, 2005. Money Market Deposit Accounts increased $232,000, or 1.6%, from $14.723 million at December 31, 2004 to $14.955 million at December 31, 2005.

BOE offers a variety of deposit accounts to individuals and small-to-medium sized businesses. Deposit accounts include checking, savings, money market deposit accounts and certificates of deposit. Certificates of deposit of $100,000 or more totaled $43.980 million at December 31, 2006 and $39.864 million at December 31, 2005, an increase of $8.774 million, or 22.0%.

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AVERAGE DEPOSITS AND AVERAGE RATES PAID
Year Ended December 31,


	2006					2005					2004
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
	(Dollars in thousands)

Interest bearing deposits:
NOW accounts	$	26,218		0.34	%	$	28,872		0.34	%	$	27,387		0.35	%
Money market deposits		14,750		1.53	%		15,306		1.01	%		17,085		0.84	%
Regular savings		21,143		0.85	%		23,857		0.80	%		22,767		0.76	%
Certificates of deposit		135,760		4.10	%		116,592		3.04	%		112,749		2.65	%

Total interest bearing deposits	$	197,871		3.06	%	$	184,627		2.16	%	$	179,988		1.89	%

Noninterest bearing deposits		28,259					28,730					25,139
Total deposits	$	226,130				$	213,357				$	205,127

MATURITIES OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
AT DECEMBER 31, 2006


	Dollars		Percent
	{(Dollars in thousands)

Three months or less	$	10,141		23.06	%
Over three months to six months		8,883		20.20	%
Over six months to one year		17,228		39.17	%
Over one year		7,728		17.57	%

	$	43,980		100.00	%

Short-Term Borrowings

BOE occasionally finds it necessary to purchase funds on a short-term basis due to fluctuations in loan and deposit levels. BOE has several arrangements under which it may purchase funds. Federal Funds guidance facilities are maintained with correspondent banks totaling $16.500 million for the year ending December 31, 2006. $3.207 million was drawn on these facilities at December 31, 2005. As another means of borrowing funds, BOE may borrow from the Federal Home Loan Bank of Atlanta. Total expense on Federal Home Loan Bank of Atlanta borrowings in 2006 was $476,000 and in 2005 was $119,000. Total expense on Federal Funds purchased and other borrowings was $102,000 in 2006 and $101,000 in 2005.

Capital Requirements

The determination of capital adequacy depends upon a number of factors, such as asset quality, liquidity, earnings, growth trends and economic conditions. BOE seeks to maintain a strong capital base to support its growth and expansion plans, provide stability to current operations and promote public confidence in BOE.

BOE’s capital position exceeds all regulatory minimums. The federal banking regulators have defined three tests for assessing the capital strength and adequacy of banks, based on two definitions of capital. “Tier 1 Capital” is defined as a combination of common and qualifying preferred stockholders’ equity less goodwill. “Tier 2 Capital” is defined as qualifying subordinated debt and a portion of the allowance for loan losses. “Total Capital” is defined as Tier 1 Capital plus Tier 2 Capital. Three risk-based capital ratios are computed using the above capital definitions, total assets and risk-weighted assets and are measured against regulatory minimums to ascertain adequacy. All assets and off-balance sheet risk items are grouped into categories according to degree of risk and assigned a risk-weighting and the resulting total is risk-weighted assets. “Total

131

Risk-based Capital” is Total Capital divided by risk-weighted assets. The Leverage ratio is Tier 1 Capital divided by total average assets.

During the fourth quarter of 2003 BOE engaged in a trust preferred offering, raising $4.124 million in trust preferred subordinated debt which qualifies as capital for regulatory purposes. This trust preferred debt has a 30-year maturity with a 5-year call option and was issued at a rate of three month LIBOR plus 3.00% for a weighted average rate of 8.10% during 2006.

The following table shows BOE’s capital ratios:

CAPITAL RATIOS
December 31,


	2006			2005			2004

Tier 1 Risk-based Capital		15.35	%		14.76	%		15.31	%
Total Risk-based Capital		16.35	%		15.67	%		16.49	%
Leverage Ratio		11.62	%		11.55	%		11.50	%

Liquidity

As of December 31, 2006, cash, federal funds sold and available-for-sale securities represented 25.90% of deposits and other liabilities compared to 26.37% at December 31, 2005. Managing loan maturities also provides asset liquidity. At December 31, 2006 approximately $95.834 in loans would mature or reprice with a one-year period.

The following table summarizes BOE’s liquid assets for the periods indicated:

SUMMARY OF LIQUID ASSETS
December 31,


	2006			2005			2004
	(Dollars in thousands)

Cash and due from banks	$	5,520		$	7,365		$	4,354
Federal funds sold		0			0			5,064
Available for sale securities, at fair value		55,963			52,393			54,955

Total liquid assets	$	61,483		$	59,758		$	64,373

Deposits and other liabilities	$	237,358		$	226,572		$	208,657
Ratio of liquid assets to deposits and other liabilities		25.90	%		26.37	%		30.85	%

Financial Ratios

Financial ratios give investors a way to compare BOE’s within industries to analyze financial performance. Return on average assets is net income as a percentage of average total assets. It is a key profitability ratio that indicates how effectively a bank has used its total resources. Return on average assets was 1.15% in 2006 and 1.24% in 2005. Return on average equity is net income as a percentage of average stockholders’ equity. It provides a measure of how productively a corporation’s equity has been employed. BOE’s return on

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average equity was 11.47% in 2006 and 12.18% in 2005. Dividend payout ratio is the percentage of net income paid to stockholders as cash dividends during a given period. It is computed by dividing dividends per share by net income per share. BOE has a dividend payout ratio of 29.67% in 2006 and 28.13% in 2005. BOE utilizes leverage within guidelines prescribed by federal banking regulators as described in the section “Capital Requirements” in the preceding section. Leverage is average stockholders’ equity divided by total quarterly average assets. This ratio was 9.99% in 2006 and 10.19% in 2005.

FINANCIAL RATIOS

Years Ended December 31,


	2006			2005			2004

Return on average assets		1.15	%		1.24	%		1.23	%
Return on average equity		11.47	%		12.18	%		12.12	%
Dividend payout ratio		29.67	%		28.13	%		25.90	%
Average equity to average asset ratio		9.99	%		10.19	%		10.11	%

Financial Instruments With Off-Balance Sheet Risk and Credit Risk and Contractual Obligations

A summary of the contract amount of Bank of Essex’s exposure to off-balance-sheet risk as of December 31, 2006 and 2005, is as follows:


	2006		2005
	(In thousands)

Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	45,251	$	40,381
Standby letters of credit		4,971		4,602

Commitments to extend credit are agreements to lend to a client as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Bank of Essex evaluates each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Bank of Essex upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing clients. Those lines of credit may not be drawn upon to the total extent to which Bank of Essex is committed.

Standby letters of credit are conditional commitments issued by Bank of Essex to guarantee the performance of a client to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk

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involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to clients. Bank of Essex holds certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.

A summary of BOE’s contractual obligations at December 31, 2006 is as follows:

Payment Due by Period


			Less Than						More Than
	Total		1 Year		1-3 Years		3-5 Years		5 Years
	(In thousands)

Contractual Obligations
Federal Funds Purchased	$	3,207	$	3,207	$	0	$	0	$	0
FHLB Advances		12,000		7,000		0		0		5,000
Trust Preferred Capital Notes		4,124		—		—		—		4,124

Total Obligations	$	19,331	$	10,207	$	0	$	0	$	9,124

BOE does not have any capital lease obligations, as classified under applicable FASB statements, or other purchase or long-term obligations.

Recent Accounting Pronouncements

In September 2006, the SEC released Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 expresses the SEC staff’s views regarding the process of quantifying financial statement misstatements. SAB 108 expresses the SEC staff’s view that a registrants materiality evaluation of an identified unadjusted error should quantify the effects of the error on each financial statement and related financial statement disclosures and that prior year misstatements should be considered in quantifying misstatements in current year financial statements. SAB 108 also states that correcting prior year financial statements for immaterial errors would not require previously filed reports to be amended. Such correction may be made the next time the registrant files the prior year financial statements. The cumulative effect of the initial application should be reported in the carrying amounts of assets and liabilities as of the beginning of that fiscal year and the offsetting adjustment should be made to the opening balance of retained earnings for that year. Registrants will disclose the nature and amount of each individual error being corrected in the cumulative adjustment. The SEC staff encourages early application of the guidance in SAB 108 for interim periods of the first fiscal year ending after November 15, 2006. period ended December 31, 2006, BOE does not anticipate the implementation of SAB 108 will have a material impact on its consolidated financial statements.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments — an amendment of FASB Statements No. 133 and 140” (SFAS 155). SFAS 155 permits fair value measurement of any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. The Statement also clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133. It establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. SFAS 155 also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. BOE does not expect the implementation of SFAS 155 to have a material impact on its consolidated financial statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (SFAS 156). 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 certain servicing contracts. The Statement also requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable.

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SFAS 156 permits an entity to choose between the amortization and fair value methods for subsequent measurements. At initial adoption, the Statement permits a one-time reclassification of available for sale securities to trading securities by entities with recognized servicing rights. SFAS 156 also requires separate presentation of servicing assets and servicing liabilities subsequently measured at fair value in the statement of financial position and additional disclosures for all separately recognized servicing assets and servicing liabilities. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after September 15, 2006. BOE does not expect the implementation of SFAS 156 to have a material impact on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some entities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. BOE does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (SFAS 158). SFAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The funded status of a benefit plan will be measured as the difference between plan assets at fair value and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation. For any other postretirement plan, the benefit obligation is the accumulated postretirement benefit obligation. SFAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. The Statement also requires additional disclosure in the notes to financial statements about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. BOE is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employers’ fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. See Note 8 for more information on the impact of SFAS 158.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS 109. The Interpretation prescribes a recognition threshold and measurement principles for the financial statement recognition and measurement of tax positions taken or expected to be taken on a tax return that are not certain to be realized. FIN 48 is effective for fiscal years beginning after December 15, 2006. BOE does not expect the implementation of FIN 48 to have a material impact on its consolidated financial statements.

In September 2006, the Emerging Issues Task Force issued EITF 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.” This consensus concludes that for a split-dollar life insurance arrangement within the scope of this Issue, an employer should recognize a liability for future benefits in accordance with FASB Statement No. 106 (if, in substance, a postretirement benefit plan exits) or APB Opinion No. 12 (if the arrangement is, in substance, an individual deferred compensation contract) based on the substantive agreement with the employee. The consensus is effective for fiscal years beginning after December 15, 2007. BOE is currently evaluating the effect that EITF No. 06-4 will have on its consolidated financial statements when implemented.

In September 2006, The Emerging Issues Task Force issued EITF 06-5, “Accounting for Purchases of Life Insurance- Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4.” This consensus concludes that a policyholder should consider any additional amounts

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included in the contractual terms of the insurance policy other than the cash surrender value in determining the amount that could be realized under the insurance contract. A consensus also was reached that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). The consensuses are effective for fiscal years beginning after December 15, 2006. BOE is currently evaluating the effect that EITF No. 06-5 will have on its consolidated financial statements when implemented.

Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk is monitored through the use of two complimentary modeling tools: earnings simulation modeling and economic value simulation (net present value estimation). Each of these models measures changes in a variety of interest rate scenarios. While each of the interest rate risk measures has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in BOE, the distribution of risk along the yield curve, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships. Earnings simulation and economic value models, which more effectively measure the cash flow and optionality impacts, are utilized by management on a regular basis and are explained below.

Earnings Simulation Analysis

BOE uses its simulation model to estimate earnings in rate environments where rates ramp up or down around a “most likely” rate scenario, based on implied forward rates. The analysis assesses the impact on net interest income over a 12 month time horizon by applying 12-month shock versus the implied forward rates of 200 basis points up and down. The following table represents the interest rate sensitivity on net interest income for BOE across the rate paths modeled as of December 31, 2006:


	Change in Net Interest
	Income
	(Percent)			($ in thousands)

Change in Yield Curve
+200 basis points		0.17	%	$	19
Most likely rate scenario		0.00	%		—
-200 basis points		(1.17	)%		(129	)

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Economic Value Simulation

Economic value simulation is used to determine the estimated fair value of assets and liabilities over different interest rate scenarios. Economic values are calculated based on discounted cash flow analysis. The net economic value of equity is the economic value of all assets minus the economic value of all liabilities. The change in net economic value over different rate scenarios is an indication of the longer term earnings sensitivity capability of the balance sheet. The same assumptions are used in the economic value simulation as in the earnings simulation. The economic value simulation uses simultaneous rate shocks to the balance sheet, whereas the earnings simulation uses rate shock over 12 months. The following chart reflects the estimated change in net economic value over different rate environments using economic value simulation as of December 31, 2006:


	Change in Economic Value of Equity
	(Percent)			($ in thousands)

Change in Yield Curve
+200 basis points		(13.09	)%	$	(4,794	)
Most likely rate scenario		0.00	%		—
-200 basis points		9.67	%		3,541

Directors

Certain information regarding BOE’s directors is set forth below:


			Served as Director
Name	Age		Since

George M. Longest, Jr.		47		1999	President/CEO of BOE since January 1, 1999. Employed by BOE in various capacities since February 1989
George B. Elliott		73		1982	Real estate developer & consultant
L. McCauley Chenault		56		1987	Managing attorney-Chenault Law Offices PLC & practicing law since 1980
R. Tyler Bland, III		64		1996	President and Agent for Tidewater Realty
Page Emerson Hughes, Jr.		64		2004	President/Operator of Holiday Barn, Ltd., Glen Allen, Virginia
Philip T. Minor		73		1974	Partner in Philip Minor Farms in St. Stephens Church, Virginia
Alexander F. Dillard, Jr.		69		1982	A Partner in the law firm of Dillard & Katona, in Tappahannock, Virginia
Frances H. Ellis		63		1995	Owner and operator of landscaping business
L. Edelyn Dawson, Jr.		67		2007	Retired bank executive officer and director

Committees

General

The business and affairs of BOE are managed under the direction of the board of directors in accordance with the Virginia Stock Corporation Act and BOE’s Articles of Incorporation and Bylaws. Members of the board of directors are kept informed of BOE’s business through discussions with the chairman, the president

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and chief executive officer and other officers, by reviewing materials provided to them and by participating in meetings of the board of directors and its committees.

The board of directors has determined that the following six members of the Board are independent as that term is defined under the applicable NASDAQ listing standards: L. Edelyn Dawson, Jr., R. Tyler Bland, III, George B. Elliott, Frances H. Ellis, P. Emerson Hughes, Jr. and Philip T. Minor. In addition, the board of directors has determined that for other committee membership all directors, except Mr. Longest, are independent under the general independence standards.

Codes of Business Conduct and Ethics

The Audit Committee of the board of directors has approved a Code of Business Conduct and Ethics for the directors and employees of BOE and its subsidiaries and a separate Code of Ethics for BOE’s chief executive officer and senior financial officers. The Codes address such topics as protection and proper use of BOE’s assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting and conflicts of interest. The Code of Business Conduct and Ethics and the Code of Ethics are available without charge upon request by contacting BOE’s corporate secretary in writing at BOE Financial Services of Virginia, Inc., Post Office Box 965, 1325 Tappahannock Boulevard, Tappahannock, Virginia 22560 or by visiting BOE’s website www.boefinancial.com.

Board of Director and Committee Meeting Attendance

There were thirteen meetings of the board of directors of BOE in 2006. Each incumbent director attended greater than 75% of the aggregate number of meetings of the board of directors. Additionally, each incumbent director attended greater than 75% of its committees of which he/she was a member in 2006, except R. Harding Ball who attended 50% of the meetings held of the Audit Committee. There are no family relationships among any of the directors or among any directors and any officer. None of the directors serve as directors of other publicly held companies. It is BOE’s policy that each of the directors is expected to attend BOE’s annual stockholder meeting. All of BOE’s nine directors attended the 2006 Annual Meeting.

The board of directors has, among others, a standing Executive Committee, Audit Committee and Compensation Committee.

Executive Committee. The executive committee was composed of Alexander F. Dillard, Jr., George B. Elliott, George M. Longest, Jr., and Philip T. Minor as permanent members with other members rotating quarterly. The rotating members were Mr. R. Harding Ball for the first quarter of 2006, Mr. L. McCauley Chenault for the second quarter of 2006, Mrs. Frances H. Ellis and Mr. P. Emerson Hughes, Jr. for the third quarter of 2006 and Mr. R. Tyler Bland, III for the fourth quarter of 2006. The executive committee is charged with counseling management on current practices, approving loans, either secured or unsecured, and reviewing all loans made and accounts opened. The executive committee met twelve times in 2006.

Audit Committee. The audit committee was composed of Mrs. Frances H. Ellis, Mr. R. Harding Ball, Mr. Philip T. Minor and Mr. R. Tyler Bland, III in 2006. The same directors are currently serving on this committee. The board of directors has determined that each of the members of the audit committee is independent as defined by applicable NASDAQ listing standards and is financially literate. The principal responsibilities of the audit committee are to ensure that the board of directors receives objective information in fulfilling the board of directors’ oversight responsibility to the stockholders relating to the integrity of BOE’s financial statements, BOE’s compliance with legal and regulatory requirements, the qualifications, independence and performance of BOE’s independent auditors and the performance of the internal audit function. The audit committee is directly responsible for the appointment, compensation, retention and oversight of the work of the independent auditors engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attestation services for BOE. The board of directors has adopted a written charter for the audit committee, a current copy of which is available on BOE’s website www.boefinancial.com.

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The audit committee met four times in 2006. For additional information regarding the audit committee, see “Report of the Audit Committee” on page 8 of this joint proxy statement/prospectus.

Compensation Committee. The compensation committee consists of Mr. R. Tyler Bland, III, Mr. L. McCauley Chenault, Mrs. Frances H. Ellis and Mr. P. Emerson Hughes, Jr. The members of the compensation committee are independent directors as defined by applicable NASDAQ listing standards. The compensation committee reviews and recommends the levels and types of compensation of directors, officers and employees. Mr. Minor and Mr. Hughes serve as a subcommittee that administers all incentive and stock option plans for the benefit of employees and directors eligible to participate in such plans. The compensation committee met three times in 2006. The compensation committee has not adopted a written charter.

Compensation Committee Interlocks and Insider Participation

During 2006 and up to the present time, there were transactions between Bank of Essex and certain members of the compensation committee or their associates, all consisting of extensions of credit by Bank of Essex in the ordinary course of business. Each transaction was made on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with the general public. In the opinion of management, none of the transactions involved more than the normal risk of collectibility or presented other unfavorable features.

Director Nomination Process

The Company currently does not have a separate nominating committee. The board of directors does not believe it needs a separate nominating committee because the full board is comprised of a majority of independent directors (as that term is defined in the applicable Nasdaq listing standards) and has the time and resources to perform the function of selecting board nominees. When the board of directors performs its nominating function, the board of directors acts in accordance with BOE’s articles of incorporation and bylaws but does not have a separate charter related to the nomination process.

Stockholders entitled to vote for the election of directors may submit names of candidates for consideration by the board of directors if BOE receives timely written notice, in proper form, for each such recommended director nominee. To be in proper form, the notice must include each nominee’s written consent to be named as a nominee and to serve, if elected, and information about the stockholder making the nomination and the person nominated for election. These requirements are more fully described in Article II, Section 2.3 of BOE’s bylaws, a copy of which will be provided, without charge, to any stockholder upon written request to the Corporate Secretary of BOE, whose address is BOE Financial Services of Virginia, Inc., Post Office Box 965, 1325 Tappahannock Boulevard, Tappahannock, Virginia 22560.

In the consideration of director nominees, including any nominee that a stockholder may submit, the board of directors considers, at a minimum, the following factors for new directors, or the continued service of existing directors:


	•	the ability of the prospective nominee to represent the interests of the stockholders of BOE;

	•	the prospective nominee’s standards of integrity, commitment and independence of thought and judgment;

	•	the prospective nominee’s ability to dedicate sufficient time, energy and attention to the diligent performance of his or her duties, including the prospective nominee’s service on other public company boards; and

	•	the extent to which the prospective nominee contributes to the range of talent, skill and expertise appropriate for the board of directors and meets the applicable Sarbanes-Oxley Act and NASDAQ director standards.

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Communications with Directors

Any director may be contacted by writing to him or her c/o BOE Financial Services of Virginia, Inc., Post Office Box 965, 1325 Tappahannock Boulevard, Tappahannock, Virginia 22560. Communications to the non-management directors as a group may be sent to the same address, c/o the Corporate Secretary of BOE. BOE promptly forwards, without screening, all such correspondence to the indicated directors.

Executive Officers

Set forth below is certain information with respect to BOE’s principal executive officers:

K. Wayne Aylor, 66, is Senior Vice President and Senior Credit Officer with BOE. Mr. Aylor joined BOE in February 2002. Prior to joining the Company, Mr. Aylor served as Vice President and Senior Credit Officer with The Community Bankers Bank in Richmond, Virginia since February 1989.

Bonnie S. Courtney, 54, is Vice President of Operations and Information Technology. Mrs. Courtney has held various positions with BOE since 1981.

George M. Longest, Jr., 47, became President and Chief Executive Officer of BOE on January 1, 1999. Prior to assuming his present position, Mr. Longest had been Senior Vice President and Senior Loan Officer with BOE. Mr. Longest has served as a director of BOE since 1999 and has been with BOE since February 1989.

Suzanne S. Rennolds, 58, is Senior Vice President, Human Resources and Compliance and has been employed by BOE since December 1980.

William E. Saunders, Jr., 45, is Vice President, Risk Management and has been employed by BOE since August 2004. From May 2001 to August 2004, Mr. Saunders was a bank examiner with the Commonwealth of Virginia State Corporation Commission. Prior to May 2001, Mr. Saunders was employed as Operations Officer for e-focust, Inc. and Southside Bank.

Bruce E. Thomas, 44, is Senior Vice President, Chief Financial Officer and Corporate Secretary and has been employed by BOE since October 1990.

Terrell D. Vaughan, 61, is Senior Vice President, Commercial Lending and has been employed by BOE since April 1, 1998.

Interests of Directors and Officers in Certain Transactions

Indebtedness and Other Transactions

Certain directors and executive officers of BOE (defined in this section to include its wholly-owned subsidiary, Bank of Essex), members of their immediate families and corporations, partnerships and other entities with which such persons are associated are customers of BOE. As such, they had transactions in the ordinary course of business with BOE during 2006 and may have additional transactions with BOE in the future. Any loans and commitments to lend included in such transactions were made in the ordinary course of business and upon substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with the general public. In the opinion of management, none of the transactions involved more than the normal risk of collectibility or presented other unfavorable features. At December 31, 2007 and December 31, 2006, loans from BOE to all executive officers and directors, their immediate families and/or affiliated companies in which they are principals amounted to approximately $3,198,695 and $2,885,032, respectively. These amounts represented approximately 9.5% and 10.3% of the total equity capital of BOE as of December 31, 2007 and December 31, 2006, respectively. During 2007 and 2006, no lending relationship between BOE and any one of its executive officers or directors, their immediate families and/or corporations or other entities in which they are principal stockholders, exceeded 15% of BOE’s total equity.

Regulation O promulgated by the Federal Reserve Board and the provisions of the Federal Deposit Insurance Corporation Act of 1991 impose limitations on the amount of credit that may by extended by a state

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banking company such as BOE’s subsidiary, Bank of Essex, to its directors, executive officers and related persons. Management believes it is in compliance with these limitations.

Chenault Law Offices, PLC serves as counsel to BOE. L. McCauley Chenault, a principal of Chenault Law Offices, PLC, is a director of BOE.

The law firm of Dillard & Katona also serves as counsel to BOE. Alexander F. Dillard, Jr., a partner in the firm, is a director of BOE and currently serves as the Chairman of the board of directors.

Compensation Discussion and Analysis

The Company’s Executive Compensation Philosophy

The compensation committee of the board of directors is responsible for establishing and approving the compensation of executive officers of BOE. The compensation committee considers a variety of factors and criteria in arriving at its decisions and recommendations for compensation. The compensation committee’s objective is to align the interests of BOE’s executive officers with those of compensation committee and its stockholders. The compensation committee believes that increases in earnings per share, dividends, and stockholder’s equity improve stockholder market value.

Objectives

BOE’s compensation program generally consists of salary, bonus, and benefits. Benefits include BOE’s defined benefit pension plan, supplemental retirement plan, participation in BOE’s 401(k) plan and health insurance benefits. In addition, BOE offers perquisites to certain executive officers such as use of BOE- owned vehicles. BOE recognizes that competitive compensation is critical for attracting, motivating, and rewarding qualified executives. Therefore, one of the fundamental objectives of BOE’s compensation program is to offer competitive compensation and benefits for all employees, including executive officers, to compete for and retain talented personnel who will lead us in achieving levels of financial performance that enhance stockholder value.

Salary

The base salary of each executive officer named in the Summary Compensation Table below (the “named executive officers”) is designed to be competitive with that of BOE’s peer banks. In establishing the base salary for the named executive officers, the compensation committee relies on an evaluation of the officers’ level of responsibility and performance and on comparative information, including the Virginia Bankers Association’s Salary Survey of Virginia Banks. In establishing the base salary, other than for the chief executive officer, the compensation committee also receives and takes into account the individual compensation recommendations from the chief executive officer. The salary of the chief executive officer is approved by the independent members of the board of directors, upon recommendation of the compensation committee.

Bonus

BOE does not have a formal bonus plan that specifies potential bonus amounts in terms of a percentage of base salary. Cash bonus awards are entirely at the discretion of the compensation committee. In determining whether or not to award cash bonuses and the level of such bonuses for a given year, the Committee considers the overall performance of BOE, including but not limited to, such factors as earnings per share, return on equity, growth and stockholder value, as well as their subjective evaluation of the executive officer’s individual performance. Cash bonus awards for similar executives in market comparisons are also considered.

Stock Incentive Plan and Stock Option Plan for Outside Directors

BOE maintains two stock option plans designed to attract and retain qualified personnel in key positions, provide employees and directors with a proprietary interest in BOE as an incentive to contribute to the success of BOE and reward employees and directors for outstanding performance and the attainment of targeted goals. The stock option plans were approved by stockholders at the May 2000 Annual Meeting, became effective

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July 1, 2000 and will expire July 1, 2010. The employee plan is the BOE Financial Services of Virginia, Inc. Stock Incentive Plan and provides for the grant of 100,000 incentive stock options to employees intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986. The director plan is administered under the BOE Financial Services of Virginia, Inc. Stock Option Plan for Outside Directors and authorizes the grant of 10,000 non-qualified stock options for directors.

The stock option plans are administered by Mr. Minor and Mr. Hughes, a subcommittee of the compensation committee. Under the plans, the subcommittee determines which employees and directors will be granted options, whether such options will be incentive or non-qualified options, the number of shares subject to each option, whether such options may be exercised by delivering other shares of common stock and when such options will become exercisable. In general, the per share exercise price of an incentive stock option and a non-qualified stock option must be at least equal to the fair market value of a share of common stock on the date the option is granted.

Stock options become vested and exercisable in the manner specified by the compensation committee. Each stock option or portion thereof is exercisable at any time on or after it vests until ten years after its date of grant. A review was performed in 2007 of all stock option grants. The review verified that all options were priced at or above the closing stock price on the day the option was approved by the board of directors and granted.

There were no stock options awarded during 2006 or 2007, due primarily to changes in accounting standards for stock options and the impact of those changes on reported earnings. Additionally, on December 22, 2005, the board of directors voted to accelerate the vesting on all outstanding options in order to eliminate the recognition of compensation expense associated with the affected options under SFAS 123R, which became applicable to BOE beginning in the first quarter of 2006. The compensation committee’s ongoing review of executive compensation will include a determination as to whether use of stock option plans or other equity awards is to be recommended.

Pension Plan

The Bank of Essex maintains a noncontributory defined benefit pension plan for all full-time employees who are 21 years of age or older and who have completed one year of eligibility service. Benefits payable under the plan are based on years of credited service, average compensation over the highest consecutive five years, and the plan’s benefit formula (1.60% of average compensation times years of credited service in excess of 20 years but not in excess of 35 years plus .65% (70% if SSNRA is 66) of average compensation in excess of Social Security Covered Compensation times years of credited service up to a maximum of 35 years). For 2006, the maximum allowable annual benefit payable by the plan at age 65 (the plan’s normal retirement age) was $175,000 and the maximum compensation covered by the plan was $220,000. Reduced early retirement benefits are payable on or after age 55 upon completion of 10 years of credited service. Amounts payable under the plan are not subject to reduction for Social Security benefits.

Supplemental Executive Retirement Plan

Bank of Essex has adopted a non-tax qualified Supplemental Executive Retirement Plan (“SERP”) for certain executives to supplement the benefits such executives can receive under Bank of Essex’s other retirement programs and social security. Retirement benefits under the SERP vary by individual and are payable at age 65 for 15 years or life, whichever is longer. In the event of termination prior to age 65 (for reasons other than death, subsequent to a change of control or for cause), benefits still commence at age 65, but are substantially reduced. Benefits payable in the event of termination following a change of control or death commence upon termination or death, and are the approximate actuarial equivalent of the value of normal retirement benefits. No benefits are payable in the event that termination is for cause.

Directors’ Supplemental Retirement Plan

In 2006, BOE established the Directors’ Supplemental Retirement Plan for its non-employee directors. The Directors’ Supplemental Retirement Plan is designed to retain the future services of directors. This plan

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provides for a benefit upon the later of October 1, 2010 or retirement from service on the board of directors at the normal retirement age of 75. Benefits under this plan are payable at retirement for a period of 10 years. The Director’s Supplemental Retirement Plan also contains provisions for change of control, as defined, which allow the directors to retain benefits under the plan in the event of a termination of service subsequent to a change of control, other than for cause.

401(k) Employee Savings Plan

BOE sponsors a 401(k) Employee Savings Plan, for which all full-time employees who are 21 years of age or older are eligible to participate. BOE matches 50% of employee contributions on the first 4% of earned compensation. While employee contributions are immediately vested, BOE contributions are subject to a stated vesting schedule.

Employment Continuity Agreements

BOE has entered into employment continuity agreements with each of George M. Longest, Jr., Bruce E. Thomas, K. Wayne Aylor, Terrell D. Vaughan, Suzanne S. Rennolds, Bonnie S. Courtney and William E. Saunders, Jr. in order to secure their continued services and enable them to devote their full efforts to BOE in the event of a change of control of BOE. Under the continuity agreements, each executive is entitled to certain salary continuance benefits, welfare continuance benefits and outplacement services if BOE terminates his or her employment for any reason other than cause, or if the executive terminates for certain specific reasons, set forth below, within two years following a change of control.

The salary continuance benefit is an amount equal to two times, in the case of Messrs. Longest and Thomas, and one time, in the case of the other executives, the sum of the executive’s base salary in effect as of the change of control date plus the maximum cash bonus payable to him or her. If the executive applies for or accepts employment with BOE within five years of his or her termination of employment, the executive is required to repay to BOE the entire amount of the salary continuance benefit.

Under the welfare continuance benefit, the executive and his or her dependents will continue to be covered, for a one-year period following the executive’s termination of employment, under all welfare plans in which the executive and his or her dependents were participating prior to the date of termination. Welfare plans include any health or dental plans, disability plans, survivor income plans or life insurance plans maintained by BOE. BOE will pay all or a portion of the costs of the benefit on the same basis as is applicable to active employees. The welfare continuance benefit will cease if the executive obtains coverage under one or more welfare plans of a subsequent employer and that provide equal or greater benefits to the executive and his or her dependents.

The outplacement services provided for under the continuity agreements include job search and interview skill services. The services will be provided by a regionally recognized outplacement organization selected by the executive with approval of BOE. The services are available for up to one year after the executive’s termination of employment.

In order for the executive to be entitled to receive benefits in the case of voluntary termination of employment, he or she must voluntarily terminate employment within 90 days after one of the following events: (a) a decrease in his or her aggregate base salary and incentive bonus opportunity or a significant reduction in the amount of additional benefits or perquisites provided to him or her as of the date of the change of control, (b) a decrease in his or her authority, duties or responsibilities as determined as of the date of the change of control, or (c) the assignment of duties to him or her that are inconsistent with his or her duties and responsibilities as of the date of change of control. Benefits will not be payable if the action is isolated, insubstantial or inadvertent and not taken in bad faith, and remedied by BOE within 15 days after receipt of notice thereof given by the executive.

A change of control of BOE will be deemed to occur if (i) any person or group becomes a beneficial owner of 20% or more of the combined voting power of BOE’s outstanding securities that may be cast for election of directors, other than as a result of an issuance of securities initiated by BOE or open market

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purchases approved by the board of directors, so long as the majority of the board of directors approving the purchases is also the majority at the time the purchases are made, or (ii) if as a direct or indirect result of, or in connection with, a cash tender or exchange offer, merger or other business combination, sale of assets, or contested election, the directors constituting the board of directors before any such transactions cease to constitute a majority of the board of directors or its successor’s board within two years of the last such transactions.

In return for payment of benefits under the continuity agreements, each executive agrees to execute a written release, in such form as provided by the Company, of any and all claims the executive may have against BOE.

Other Benefit Plans

Executives participate in BOE’s benefit plans on the same terms as other employees. These plans include medical, dental, life, and disability insurance. BOE provides life insurance coverage equal to three times the employee’s salary for all eligible employees. A guaranteed issue cap on this coverage of $500,000 is dictated by the plan. Coverage in excess of $50,000 is subject to taxation based on Internal Revenue Service guidelines.

Perquisites

BOE provides perquisites to certain executive officers, such as an automobile allowance; however, such amounts are not included in the Summary Compensation Table below because such amounts are less than $10,000.

Summary Compensation Table

The following table reflects total compensation paid or earned during 2006 for the named executive officers.


					Change in
					Pension Value
					and
					Non-Qualified
					Deferred			All Other
					Compensation			Compensation
Name and Principal Position	Salary ($)		Bonus ($)		Earnings ($)			($)(1)		Total ($)

George M. Longest, Jr.	$	135,000	$	5,245	$	35,577	(2)	$	2,700	$	178,522
President and Chief Executive Officer of BOE and Bank of Essex (Principal Executive Officer)
Bruce E. Thomas	$	101,500	$	3,245	$	15,826	(3)	$	2,042	$	122,613
Senior Vice President, Chief Financial Officer and Corporate Secretary of BOE and Bank of Essex (Principal Financial Officer)
K. Wayne Aylor	$	95,500	$	3,245	$	58,980	(4)	$	1,914	$	159,639
Senior Vice President of BOE and Senior Credit Officer of Bank of Essex
Terrell D. Vaughan	$	95,500	$	3,245	$	40,827	(5)	$	1,920	$	141,492
Senior Vice President of BOE and Senior Loan Officer of Bank of Essex


(1)		All other compensation is comprised of BOE’s 401(k) plan matching contributions.

(2)		Includes $22,467 change in value for Mr. Longest in the SERP and $13,110 change in value in the Bank of Essex noncontributory defined benefit plan.

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(3)		Includes $9,167 change in value for Mr. Thomas in the SERP and $6,659 change in value in the Bank of Essex noncontributory defined benefit plan.

(4)		Includes $39,808 change in value for Mr. Aylor in the SERP and $19,172 change in value in the Bank of Essex noncontributory defined benefit plan.

(5)		Includes $20,941 change in value for Mr. Vaughan in the SERP and $19,886 change in value in the Bank of Essex noncontributory defined benefit plan.

Outstanding Equity Awards at Fiscal Year-End

The following table reflects the outstanding stock options as of December 31, 2006 for the named executive officers.


	Option Awards
	Number of Securities
	Underlying
	Unexercised Options				Option
	Exercisable		Option Exercise		Expiration
Name	(#)(1)		Price ($)		Date

George M. Longest, Jr.		677	$	28.70		11/18/2014
		444	$	25.00		10/23/2013
		460	$	22.40		6/27/2012
		548	$	12.25		1/16/2011
Bruce E. Thomas		481	$	28.70		11/18/2014
		350	$	25.00		10/23/2013
Terrell D. Vaughan		452	$	28.70		11/18/2014
		383	$	25.00		10/23/2013
		357	$	22.40		6/27/2012
		340	$	12.25		1/16/2011


(1)		All outstanding options were exercisable at December 31, 2006.

Option Exercises and Stock Vested

The following table reflects stock options exercised and the value realized on exercise during 2006 for certain of the named executive officers.


	Option Awards
	Number of Shares		Value Realized on
	Acquired on Exercise		Exercise
Name	(#)		($)(1)

K. Wayne Aylor		1,785	$	15,466
Bruce E. Thomas		357	$	3,070


(1)		The aggregate dollar amount realized upon exercise was computed by multiplying the number of shares acquired on exercise times the difference between the market price of the underlying securities at exercise and the exercise price of the option.

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Pension Benefits

The following table reflects the actuarial present value of the named executive officers’ accumulated benefit under Bank of Essex’s pension plan and Bank of Essex’s supplemental retirement plan and the number of years of service credited under the plan as of December 31, 2006.


		Number of Years		Present Value of
		Credited		Accumulated Benefit
Name	Plan Name	Service (#)		($)

George M. Longest, Jr.	VBA Master Defined Benefit Pension Plan for Bank of Essex		18		$110,289
	Bank of Essex Supplemental Retirement Plan		1		$27,999
Bruce E. Thomas	VBA Master Defined Benefit Pension Plan for Bank of Essex		16		$57,111
	Bank of Essex Supplemental Retirement Plan		1		$11,424
K. Wayne Aylor	VBA Master Defined Benefit Pension Plan for Bank of Essex		5		$72,976
	Bank of Essex Supplemental Retirement Plan		1		$51,837
Terrell D. Vaughan	VBA Master Defined Benefit Pension Plan for Bank of Essex		9		$100,001
	Bank of Essex Supplemental Retirement Plan		1		$26,097

Change in Control Benefits

As discussed above, BOE maintains employment continuity agreement for its executive officers that provide benefits to such executive officers in the event of a change in control. Based upon a hypothetical change in control date of December 31, 2006, the following table identifies the estimated total change in control termination benefits for the named executive officers during the periods following the change in control.


					Healthcare and
					Other Insurance
Executive Officer	Base Salary ($)		Bonus ($)		Benefits ($)

George M. Longest, Jr.	$	270,000	$	10,490	$	3,858
Bruce E. Thomas	$	203,000	$	6,490	$	3,783
K. Wayne Aylor	$	95,500	$	3,245	$	2,640
Terrell D. Vaughan	$	95,500	$	3,245	$	2,640

The calculations are based on an assumption that each named executive officer’s employment would be terminated on December 31, 2006. Such an assumption would require payment of salary, bonus, and coverage under BOE’s healthcare and other insurance benefits through December 31, 2007. The salary and bonus amounts are based on 2006 amounts. The value of healthcare and other insurance benefits is based upon the type of coverage provided to the executive officer as of December 31, 2006, and valued at the premiums in effect at that time.

Compensation of the Board of Directors

Directors of the Company are paid an annual retainer of $5,000, plus $300 for attendance at each meeting of the board of directors and $100 for attendance at each committee meeting held on the regularly scheduled board of directors meeting date. Directors are paid a $200 fee for attended committee meetings called on days other than regularly scheduled board of directors meeting dates. Mr. Dillard is paid a $6,000 fee for serving as chairman of the board of directors. BOE Employees serving as directors or committee members do not receive any separate compensation for board of directors or committee meetings attended.

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The following table reflects the director compensation earned or paid during 2006.


			Change in Pension
			Value and
			Nonqualified
	Fees		Deferred
	Earned or		Compensation
Name	Paid in Cash ($)		Earnings ($)(1)		Total ($)

R. Harding Ball	$	9,600	$	3,452	$	13,052
R. Tyler Bland, III	$	10,100	$	3,654	$	13,754
L. McCauley Chenault	$	10,000	$	2,088	$	12,088
Alexander F. Dillard, Jr.	$	18,000	$	4,557	$	22,557
George B. Elliott	$	11,900	$	6,493	$	18,393
Frances H. Ellis	$	10,900	$	2,621	$	13,521
Page Emerson Hughes, Jr.	$	10,500	$	2,774	$	13,274
George M. Longest, Jr.	$	5,000		—	$	5,000
Philip T. Minor	$	12,700	$	6,493	$	19,193


(1)		Amounts reflect changes in value in the Directors’ Supplemental Retirement Plan.

Compensation Committee Report

The compensation committee of the board of directors has reviewed and discussed BOE’s Compensation Discussion and Analysis with management. Based upon this review and discussion, the compensation committee recommended to the board of directors that the Compensation Discussion and Analysis be included in BOE’s definitive proxy statement on Schedule 14A for its 2007 Annual Meeting, which is incorporated by reference in BOE’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as filed with the Securities and Exchange Commission.

Respectfully submitted,

L. McCauley Chenault, Chairman

R. Tyler Bland III

Frances H. Ellis

P. Emerson Hughes, Jr.

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Security Ownership of Management

The following table sets forth certain information, as of February 22, 2008, about beneficial ownership of the common stock of BOE for each director, director nominee, certain executive officers and for all directors, director nominees, and executive officers of BOE as a group.


	Amount and Nature
	of Beneficial			Percent of
Name(1)	Ownership(2)			Class

Named Executive Officer and Director:
George M. Longest, Jr.		5,870	(3)(5)		*
Named Executive Officers:
Bruce E. Thomas		1,626	(5)		*
K. Wayne Aylor		2,085			*
Terrell D. Vaughan		2,132	(5)		*
Directors:
R. Tyler Bland, III		9,482	(3)(4)		*
L. McCauley Chenault		2,898	(4)		*
Alexander F. Dillard, Jr.		23,821	(3)(4)		1.96	%
George B. Elliott		3,178	(3)(4)		*
Frances H. Ellis		5,966	(3)(4)		*
Page Emerson Hughes, Jr.		3,030	(3)(4)		*
Philip T. Minor		14,654	(3)(4)		1.21	%
L. Edelyn Dawson, Jr.		250			*
All Directors and Executive Officers as a group (15 persons)		74,992	(3)(4)(5)		6.18	%


*		Represents less than 1% of BOE’s common stock.

(1)		The address of each stockholder is Bank of Essex, P.O. Box 965, Tappahannock, Virginia 22560.

(2)		For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Securities Exchange Act of 1934 under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within sixty days.

(3)		Includes shares held by affiliated corporations, close relatives and dependent children, or as custodians or trustees, as follows: Mr. Longest, 120 shares; Mr. Thomas, 24 shares; Mr. Bland, 2,670; Mr. Dillard, 16,423 shares; Mr. Elliott, 872; Mrs. Ellis, 160 shares; Mr. Hughes, 100 shares; and Mr. Minor, 607 shares.

(4)		Includes shares that may be acquired pursuant to currently exercisable stock options granted under the Company’s Stock Option Plan for Outside Directors as follows: Mr. Bland, 260 shares; Mr. Chenault, 470 shares; Mr. Dillard, 520 shares; Mr. Elliott, 470 shares; Mrs. Ellis, 380 shares; Mr. Hughes, 150 shares; and Mr. Minor, 600 shares.

(5)		Includes 8,000 vested option grants awarded to Executive Officers (including 2,129 for Mr. Longest, 831 for Mr. Thomas and 1,532 for Mr. Vaughan) pursuant to the Company’s Stock Option Plan for Employees, which may be exercised as described under the heading Stock Incentive Plan and Stock Option Plan for Outside Directors.

Security Ownership of Certain Beneficial Owners

As of February 22, 2008, no persons, to BOE’s knowledge, own five percent or more of the outstanding shares of common stock.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires BOE’s directors and designated executive officers, and any persons who own beneficially more than 10% of the outstanding shares of BOE’s common stock, to file with the Securities and Exchange Commission and the Nasdaq Capital Market reports disclosing changes in such ownership. To BOE’s knowledge, based solely on a review of the copies of such reports furnished to BOE and written representations, all transactions by BOE’s directors and designated executive officers were filed timely in 2007 to comply with their respective Section 16(a) filing requirements.

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INFORMATION ABOUT TRANSCOMMUNITY FINANCIAL CORPORATION

TransCommunity Bank and its Divisions

TransCommunity is a financial holding company and the parent company of TransCommunity Bank. TransCommunity was formed in March 2001, principally in response to perceived opportunities resulting from the takeover in recent years of a number of Virginia-based banks by national and regional banking institutions. Until June 29, 2007, TransCommunity was the holding company for four separately-chartered banking subsidiaries — Bank of Powhatan, Bank of Goochland, Bank of Louisa and Bank of Rockbridge. On June 29, 2007, these four subsidiaries were consolidated into a new TransCommunity Bank. Each former subsidiary now operates as a division of TransCommunity Bank, but has retained its name and local identity in the community that it serves.

At September 30, 2007, TransCommunity had total assets of $223.0 million, total loans net of the allowance for loan losses of $186.3 million, total deposits of $192.0 million and total stockholders’ equity of $29.9 million.

TransCommunity’s headquarters are located at 4235 Innslake Drive, Glen Allen, Virginia.

Recent Developments

Net income for the year ended December 31, 2007 was $2.5 million, or $0.54 per share (basic and diluted), versus net income of $117 thousand, or $0.03 per share for the same period during 2006.

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150

TRANSCOMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 2007 and December 31, 2006


	December 31,			December 31,
	2007			2006
	Unaudited
	(Dollars in thousands)

ASSETS
Cash and due from banks	$	2,204		$	3,669
Federal funds sold		2,107			1,422

Total cash and cash equivalents		4,311			5,091
Securities available for sale, at fair value		10,243			13,597
Securities held to maturity, fair value of $6,393 and $21,286 at December 31, 2007 and December 31, 2006, respectively		6,400			21,420
Loans		205,480			151,399
Allowance for loan losses		(3,036	)		(2,065	)

Total loans, net		202,444			149,334
Premises and equipment, net		8,205			6,689
Other investments		938			896
Assets from discontinued operations, net		—			88
Deferred tax asset		3,312			—
Other assets		2,418			1,330

Total assets	$	238,271		$	198,445

LIABILITIES
Deposits:
Demand:
Noninterest bearing	$	20,390		$	20,450
Interest bearing		41,768			37,850
Savings		10,174			9,478
Time		131,266			97,195

Total deposits		203,598			164,973
Note payable		—			500
Federal funds purchased		—			1,517
Accrued interest payable		682			540
Liabilities from discontinued operations, net		—			10
Accrued expenses and other liabilities		758			352

Total liabilities	$	205,038		$	167,892

STOCKHOLDERS’ EQUITY
Common stock (25,000,000 shares authorized $.01 par value) 4,586,741 and 4,581,741 shares issued and outstanding at December 31, 2007 and December 31, 2006, respectively		46			46
Additional paid in capital		39,926			39,809
Accumulated deficit		(6,764	)		(9,262	)
Accumulated other comprehensive income (loss)		25			(40	)

Total stockholders’ equity	$	33,233		$	30,553

Total liabilities and stockholders’ equity	$	238,271		$	198,445

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TRANSCOMMUNITY FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2007 and 2006


	2007			2006
	(Dollars and shares in thousands, except per share data)

Interest and dividend income
Interest on loans, including fees	$	15,795		$	12,366
Interest on federal funds sold		570			1,115
Interest on debt securities-taxable		711			765
Dividends on equity securities		67			61

Total interest and dividend income		17,143			14,307
Interest expense
Interest on deposits		6,628			4,475
Interest on secured borrowings		—			471
Interest on other borrowed funds		48			12

Total interest expense		6,676			4,958

Net interest income		10,467			9,349
Provision for loan losses		1,686			493

Net interest income after provision for loan losses		8,781			8,856

Noninterest income
Bank service charges and fees		1,110			1,011

Total noninterest income		1,110			1,011

Noninterest expense
Salaries and employee benefits		5,433			4,711
Occupancy expenses		723			689
Equipment expenses		699			600
Other operating expenses		3,788			2,933

Total noninterest expense		10,643			8,933

(Loss) income from continuing operations before income taxes		(752	)		934
Income tax expense(benefit)		(3,325	)		15

Net income from continuing operations		2,573			919
Net loss from discontinued operations		(77	)		(802	)

Net income	$	2,496		$	117

Net income per share from continuing operations(basic and diluted)	$	0.56		$	0.20

Net income per share(basic and diluted)	$	0.54		$	0.03

Weighted average number of shares outstanding		4,587			4,582

TransCommunity Bank operates a community banking business in central Virginia west and north of the greater Richmond metropolitan area. TransCommunity Bank is structured to support the operations of its four bank divisions, allowing each bank division, with its own board of directors and local management team to

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exercise broad decision-making flexibility. TransCommunity believes that the best banks are independently run, locally directed, focused on their local communities and able to respond to customer needs as rapidly as possible. Under the TransCommunity business model, each of its community bank divisions has the authority to serve and represent its local community. The focus of TransCommunity’s consolidated bank operations is principally to create cost savings through use of a common operational platform.

Information with respect to each of TransCommunity Bank’s divisions is set forth below.

Bank of Powhatan. Bank of Powhatan commenced its banking operations in March 2000 and has one office located on the north side of U.S. Route 60, the major east-west highway in Powhatan County.

Powhatan County is a suburb of Richmond and is experiencing significant growth in population. According to the University of Virginia Weldon Cooper Center for Public Service, from 2000 to 2006, Powhatan County’s population grew 20%. The Powhatan County deposit market grew 154% or by $149 million from June 30, 2000 to June 30, 2007, according to a report, from the Federal Deposit Insurance Corporation (“FDIC”). The bank is evaluating opening a second office in Powhatan County serving a highly desirable area, which includes the zip code with the highest average household income in the greater Richmond metropolitan area.

At September 30, 2007, the Bank of Powhatan had $64.4 million of total deposits. At June 30, 2007, it had $65.4 million of total deposits, which represents a 26.6% market share in deposits in Powhatan County as of the most recent report from the FDIC.

Bank of Goochland. Bank of Goochland opened in November 2002. Goochland County is contiguous to Powhatan County but separated by the James River west of Richmond and is a 45-minute drive from Charlottesville. Bank of Goochland operates two offices in Goochland County. The main office is located in Centerville, on U.S. Route 250, a heavily-traveled route used by Goochland Country residents in their commute to and from work in the Richmond area. This location is six miles west of Glen Allen (where TransCommunity is headquartered), a significant business community in western Henrico Country. The Bank also operates a second office at historic Goochland Courthouse, which serves the western portion of the Goochland market.

According to the University of Virginia Weldon Cooper Center for Public Service, Goochland County has experienced a 17% population growth from 2000 to 2006. The deposits in Goochland County grew 136% or by $104 million from June 30, 2000 to June 30, 2007, according to the most recent report from the FDIC.

At September 30, 2007, the Bank of Goochland had $89.1 million of total deposits. At June 30, 2007, it had $82.5 million of total deposits, which represents a 46% market share in deposits in Goochland County as of the most recent report from the FDIC.

Bank of Louisa. Bank of Louisa opened its first office in July 2003, in the Town of Louisa, as a branch of the Bank of Powhatan. In April 2004, Bank of Louisa was spun off as a separately-chartered bank subsidiary of TransCommunity. Concurrent with its opening, Bank of Louisa purchased the assets and assumed the deposits of the Louisa branch of Bank of Powhatan. The permanent main office for Bank of Louisa, located in the town of Louisa, opened in April 2005.

Louisa County is contiguous to Goochland County’s northern boundary and just east of Charlottesville. According to the University of Virginia Weldon Cooper Center for Public Service, Louisa County has experienced 18% population growth from 2000 to 2006. Deposits in Louisa County grew 57% or $99 million from June 30, 2000 to June 30, 2007, according to the latest report from the FDIC.

At September 30, 2007, the Bank of Louisa had $30.1 million of total deposits. At June 30, 2007, it had $29.9 million of total deposits, which represents a 11.1% market share in deposits in Louisa County as of the most recent report from the FDIC.

Bank of Rockbridge. The Bank of Rockbridge opened in December 2006 as a new bank subsidiary of TransCommunity. The central valley area including Rockbridge and the City of Lexington area grew 5% in population between 2000 and 2006, according to the University of Virginia Weldon Cooper Center for Public

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Service. Deposits in Rockbridge County and the City of Lexington grew 55% or $171 million during this same time to $480 million, according to the FDIC.

At September 30, 2007, the Bank of Rockbridge had $8.4 million of total deposits. At June 30, 2007, it had $6.3 million of total deposits, which represents a 1.3% market share in deposits in Rockbridge County and the City of Lexington as of the most recent report from the FDIC.

Operating Strategy

TransCommunity’s operating strategy has historically focused on the operating efficiencies that a holding company could offer a multi-bank subsidiary structure. The centralization of many “back room” operations functions that do not routinely touch the customer lowers overall operating costs, as the holding company could provide services such as information technology, telephone and data services, item processing and website management in “bulk” form, and to improve operating efficiencies. In addition, managing the delivery of these services from TransCommunity has allowed its bank managers to devote more time to serving customers. TransCommunity’s current “common operating” platform includes deposit operations, credit administration and accounting.

The business model, however, is not dependent on maintaining separate subsidiary bank charters; rather, the primary focus is local decision-making and empowering the managers in the communities that TransCommunity serves with operational decision-making authority. In recent years, the cost of maintaining separate and independent subsidiaries has increased with more stringent regulatory requirements for internal accounting and financial controls. In January 2007, TransCommunity’s board of directors voted unanimously to consolidate its four existing bank subsidiaries into a single legal entity, TransCommunity Bank. The consolidation was completed on June 29, 2007. TransCommunity believes that the consolidation of its banks will result in significantly lowered operating expenses, and can be achieved without impacting the local decision-making processes that are at the heart of its business model.

TransCommunity’s long-term strategy is to build a profitable financial services organization. This strategy means more product and financial solutions for the customer, more cost savings and revenue generating opportunities. TransCommunity does not plan to expand or acquire other entities for the sake of asset growth alone. Its focus is on revenue growth and profitability, and on developing a complete financial services platform.

Growth Strategy

TransCommunity’s goal is to provide superior, long-term returns to its stockholders by building a significant community banking franchise in Virginia. Virginia is dominated by large, out-of-state banks, which have expanded their market presence in Virginia primarily by acquiring Virginia-domiciled institutions. TransCommunity intends to target underserved or over-consolidated markets in Virginia and to enter those markets through one of the following strategies:


	•	*Strategic De Novo Banks.* TransCommunity has developed substantial knowledge and expertise in organizing de novo banks. To date, it has opened four de novo banks. While TransCommunity has recently chosen to consolidate its four existing bank charters into a single bank, there may be situations where the operational and economic benefits of establishing additional new independent banks outweigh the associated costs. TransCommunity may add new de novo banks in attractive markets where it can hire experienced management teams.

	•	*Selective De Novo Branching.* To date, only Bank of Goochland has established a new branch office. At present, TransCommunity is actively evaluating an additional branch for its Bank of Powhatan division. As it grows, TransCommunity will consider opportunities to establish new branches in its existing market footprint to leverage the brand awareness developed by its bank divisions, and to provide additional convenience to its customers. In some cases, TransCommunity may establish branches in new markets that operate under a separate name with a “doing business as” designation to better establish a close tie to the local community.

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	•	*Opportunistic Acquisitions.* While Virginia is dominated by large, out-of-state banks, there are over 70 banking institutions headquartered in Virginia that have less than $250 million in assets. TransCommunity believes that many of these smaller banks will seek to merge with companies that have the infrastructure in place to handle the growing back-office and regulatory burden faced by smaller institutions. TransCommunity’s decentralized decision-making structure and approach should also be attractive to the management, board of directors, employees and stockholders of such companies. TransCommunity believes that these factors will make TransCommunity a competitive acquirer.

Lending Activities

General. Each of TransCommunity Bank’s divisions emphasizes a range of lending activities, including real estate, commercial, and consumer loans to individuals, small businesses and professional firms located in central Virginia. Each division has its own loan underwriting authority exercised by its president and loan committee. TransCommunity has developed a common set of loan underwriting standards for use by each of its banks which vary by type of loan, as described below. Each of TransCommunity Bank’s divisions seeks to underwrite loans in accordance with these common underwriting guidelines, as well as applicable regulatory supervisory limits. TransCommunity does not maintain a loan committee at the holding company level. TransCommunity believes that local lending authority allows it to be more responsive than its regional and national competitors.

Since loans typically provide higher interest yields than other types of interest-earning assets, TransCommunity seeks to invest a substantial percentage of its earning assets in its loan portfolio. TransCommunity believes it has a competitive market advantage over larger national and regional banking institutions because it provide borrowers with a wide variety of lending products in the range of approximately $250,000 to $1.5 million that these larger banks may not want to offer because of the size or characteristics of the loan, or may not be able to deliver as expeditiously as TransCommunity. At September 30, 2007, TransCommunity had total loans of $189.0 million, representing 92% of its earning assets.

Each of TransCommunity Bank’s divisions seeks to maintain a diversified loan portfolio and to limit the amount of loans to any single client. At September 30, 2007, the 25 largest client relationships at TransCommunity Bank represented $46 million, or 24% of its loan portfolio. As TransCommunity Bank continues to grow and mature, it expects that this concentrations will decrease as a percentage of total loans.

Regardless of the purpose of an individual loan, each of TransCommunity Bank’s divisions seeks to obtain a security interest in real estate whenever possible, in addition to any other collateral available, in order to increase the likelihood of the ultimate repayment of the loan.

Loans Secured by Real Estate. At September 30, 2007, loans secured by real estate represented 80% of the loans in TransCommunity’s consolidated portfolio. Real estate lending by TransCommunity Bank’s divisions generally consists of commercial real estate loans, construction and development loans, and residential and home equity loans. Interest rates for all categories of real estate loans may be fixed or adjustable, with adjustable-rate loans predominating. In addition to interest, TransCommunity generally charges an origination fee on each loan.

Real estate loans originated by TransCommunity’s banks are subject to the same risks as other loans and are particularly sensitive to fluctuations in the value of real estate. While real estate market values in the central Virginia market have risen strongly during the past decade, fluctuations in the value of real estate, as well as other factors arising after a loan has been made, could negatively affect a borrower’s cash flow, creditworthiness and ability to repay the loan.

Commercial Real Estate Loans. At September 30, 2007, commercial real estate loans totaled $49 million or 26% of TransCommunity’s consolidated loan portfolio. These loans generally have rate terms of five years or less, although payments may be structured on a longer amortization basis. Each of TransCommunity Bank’s divisions evaluates every borrower on an individual basis and attempts to determine the business risks and credit profile of each borrower. TransCommunity also generally requires that a borrower’s cash flow be at least 1.15% of monthly debt service obligations. In order to insure secondary sources of payment and liquidity

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to support loan requests, TransCommunity typically reviews personal financial statements of all principal owners and requires their personal guarantees.

Construction and Development Loans. Each of TransCommunity Bank’s divisions offers residential and commercial construction loans to builders and developers as well as to consumers who wish to build their own homes. None of TransCommunity Bank’s divisions makes loans in this category on a fixed-rate basis, and as of September 30, 2007, all loans in this category were adjustable rate loans. As of September 30, 2007, a total of $59 million, or approximately 31% of TransCommunity’s consolidated loan portfolio consisted of construction and development real estate loans. The duration of TransCommunity’s construction and development loans does not normally exceed 24 months. Construction and development loans generally carry a higher degree of risk than long- term financing of existing properties because repayment depends on the ultimate completion of the project and usually the sale of the property. Specific risks include:


	•	cost overruns;

	•	mismanaged construction;

	•	inferior or improper construction techniques;

	•	economic changes or downturns during construction;

	•	a downturn in the real estate market;

	•	rising interest rates which may prevent sale of the property; or

	•	failure to sell completed projects in a timely manner.

TransCommunity attempts to reduce the risk associated with construction and development loans by obtaining personal guarantees where possible and by keeping the loan-to-value ratio of the completed project at or below 80% for commercial loans and 85% for consumer loans.

Residential Loans and Home Equity Loans. None of TransCommunity Bank’s divisions originates traditional long- term residential mortgages, but each of the divisions does issue second mortgage residential loans and home equity lines of credit. With respect to home equity lines of credit, TransCommunity’s policy is to limit extensions of credit to 90% of the available equity in each property. As of September 30, 2007, a total of $43 million, or 23%, of TransCommunity’s consolidated loan portfolio consisted of residential mortgage loans and home equity lines of credit.

Commercial Business Loans. Each of TransCommunity Bank’s divisions makes loans for commercial purposes in various lines of business, including manufacturing, service industry and professional service areas. TransCommunity also offers small business loans utilizing government enhancements such as the Small Business Administration’s, or SBA, 7(a) program and 504 program, which loans are partially guaranteed by the government, thereby reducing their risk. As of September 30, 2007, a total of $19 million, or 10%, of TransCommunity’s consolidated loan portfolio consisted of commercial business loans.

Consumer Loans. Each of TransCommunity Bank’s divisions makes loans to individuals for personal and household purposes, including secured and unsecured installment loans and revolving lines of credit. Consumer loans are underwritten based on the borrower’s income, current debt level, past credit history, and the availability and value of collateral. Consumer loans are both fixed and variable, with negotiable terms. TransCommunity’s installment loans typically amortize over periods not exceeding 60 months. Each of TransCommunity Bank’s divisions offer consumer loans with a single maturity date when a specific source of repayment is available. Typically, each of TransCommunity’s banks requires monthly payments of interest and a portion of the principal on revolving loan products. As of September 30, 2007, a total of $19 million, or 10%, of TransCommunity’s consolidated loan portfolio consisted of loans to consumers.

Loan Approval. Certain credit risks are inherent in making loans. These include prepayment risks, risks resulting from uncertainties in the future value of collateral, risks resulting from changes in economic and industry conditions and risks inherent in dealing with individual borrowers. Each of TransCommunity Bank’s divisions attempts to mitigate repayment risks by adhering to common credit policies and procedures. These

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policies and procedures, which are maintained by TransCommunity and are common to all divisions, include officer lending limits, a multi-layered loan approval process for larger loans, documentation examination, and follow-up procedures for any exceptions to credit policies. Each of TransCommunity Bank’s divisions has a loan committee of its board of directors that is responsible for oversight of the lending function at that bank. When the amount of aggregate loans to a single borrower exceeds an individual officer’s lending authority, the loan request will be considered by an officer with a higher lending authority or by the bank’s loan committee. None of TransCommunity Bank’s divisions makes any loans to (1) any director or officer of that bank, (2) any director or officer of any affiliate bank, or (3) any officer or director of the holding company, unless the loan is approved by the board of directors of the bank and is on terms not more favorable to such person than would be available to a person not affiliated with that bank.

Credit Administration and Loan Review. TransCommunity maintains a continuous loan review system that is managed at the consolidated bank level. Each of TransCommunity Bank’s divisions also applies a consistent credit grading system to each loan, and TransCommunity utilizes an independent consultant to review the loan files annually on a test basis to confirm the grading of each loan. This independent consulting firm reports directly to the chairman of TransCommunity’s audit committee of the board of directors. TransCommunity holds each loan officer responsible for the loans he or she makes, regardless of whether other individuals or committees joined in the approval. This responsibility continues until the loan is repaid or until the loan is formally assigned to another officer.

Lending Limits. The lending activities of each of TransCommunity Bank’s divisions are subject to a variety of lending limits imposed by federal law. In general, a bank is subject to a legal limit on loans to a single borrower equal to 15% of that bank’s capital and unimpaired surplus. This limit will increase or decrease as that bank’s capital increases or decreases. Based on the capitalization of TransCommunity Bank at September 30, 2007, TransCommunity Bank’s total equity capital of $30 million allows for a lending limit up to $4.5 million at any of its divisions.

Deposit Services

TransCommunity focuses on customer service to attract and retain deposits. Each of TransCommunity Bank’s divisions offers a full range of commercial and retail deposit services, including checking accounts, savings accounts, money market accounts and other time deposits of varying types. The principal source of deposits at each of TransCommunity Bank’s divisions is the local, central Virginia market. Because of the historically low interest rate environment in the last four years, each of TransCommunity Bank’s divisions has also been able to obtain a portion of its deposits from bank-to-bank deposits generated outside its local market at certain times. As of September 30, 2007, none of TransCommunity Bank’s consolidated deposits was from out of market sources. Deposit rates are reviewed regularly by senior management of each bank. TransCommunity believes that the deposit rates it offers are competitive with those offered by other financial institutions in its market area. By focusing on core deposits, TransCommunity believes it can continue to keep the overall cost of its deposits low and thereby benefit from wide net interest margins.

Competition

Banks generally compete with other financial institutions through the selection of banking products and services offered, the pricing of services, the level of service provided, the convenience and availability of services, and the degree of expertise and the personal manner in which services are offered. Virginia law permits statewide branching by banks. Consequently, commercial banking in Virginia is highly competitive. Many large banking organizations, most of which are controlled by out-of-state holding companies, currently operate in the greater Richmond, Virginia metropolitan area, and TransCommunity’s primary market area. As of September 30, 2007, the aggregate deposit market in the Commonwealth of Virginia amounted to approximately $182 billion, of which out-of-state banking institutions controlled approximately 46% of these deposits. In addition, competition between commercial banks and thrift institutions (savings institutions and credit unions) has intensified significantly in recent years with the elimination of many previous distinctions between the various types of financial institutions and the granting of expanded powers to thrift institutions in areas which previously had been the sole domain of commercial banks. Legislation enacted in recent years has

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resulted in the almost total elimination of most distinctions between a commercial bank and a thrift institution. Consequently, competition among financial institutions of all types is largely unlimited with respect to legal ability and authority to provide most financial services. Furthermore, as a consequence of federal and Virginia legislation, out-of-state banks not previously allowed to operate in Virginia are allowed to commence operations and compete in TransCommunity’s primary market area. See “Supervision and Regulation.”

TransCommunity faces competition from other banks, as well as thrift institutions, consumer finance companies, insurance companies and other institutions in TransCommunity’s respective market areas. Some of these competitors are not subject to the same degree of regulation and restriction imposed upon the banks. Some of these competitors also have broader geographic markets and substantially greater resources and lending limits than TransCommunity Bank’s divisions and offer certain services that the divisions are not expected to provide in the near term. Such competitors may also be in a position to make more effective use of media advertising, support services and electronic technology than TransCommunity.

Employees

At September 30, 2007, TransCommunity had 73 full-time equivalent employees as compared to 72 full-time equivalent employees at December 31, 2006.

As a financial holding company TransCommunity is heavily regulated. For a further description of the regulations to which TransCommunity is subject see “Supervision and Regulation.”

Properties

TransCommunity’s headquarters are located in approximately 14,000 square feet of leased space at 4235 Innslake Drive, Glen Allen, Virginia. This office space was leased in August 2003 and occupied in December 2003. The office houses corporate operations, along with executive officers. The initial term of this lease is through April 30, 2014.

The Bank of Powhatan is located at 2320 Anderson Highway, Powhatan, Virginia. This bank’s building, which is of new construction, is a two-story brick structure, containing approximately 6,000 square feet. It has four teller stations, three drive-through windows and a drive-up ATM and night depository. TransCommunity owns this property.

The Bank of Goochland is located at 100 Broad Street Road, Manakin-Sabot, Virginia. This bank’s main office building, which is of new construction, is a two-story brick structure containing approximately 9,500 square feet. It has five teller stations, two drive-through windows and a drive-up ATM and a night depository. TransCommunity owns this property.

The Bank of Goochland also operates a branch office in a leased facility located at Goochland Courthouse, containing approximately 1,400 square feet. The initial term of this lease ended on September 1, 2007, after which it is extended on a month-to-month basis.

The Bank of Louisa is located at 217 East Main Street, in the Town of Louisa, Virginia. This bank’s building, which is of new construction, is a two-story brick structure containing approximately 9,000 square feet. It has four teller stations, two drive-through windows, a drive-up ATM and a night depository facility. TransCommunity owns this property.

The Bank of Rockbridge located at 744 North Lee Highway in the City of Lexington, Virginia. This bank’s building, which was an existing bank building, is a two story brick structure containing approximately 4,200 square feet. It has three teller stations, a drive-through window, a walk-up ATM and a night depository facility. TransCommunity leases the premises with an option after three years to extend the life of the lease for additional terms. The lease automatically renewed for a term of three years on January 31, 2007.

TransCommunity believes that all of its properties are adequately covered by insurance. In addition, all of TransCommunity’s properties are in good operating condition and are adequate for TransCommunity’s present and anticipated future needs.

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See Notes 7 and 20 of the notes to consolidated financial statements for the year ended December 31, 2006 for more information on TransCommunity’s properties.

Legal Proceedings

In the ordinary course of operations, TransCommunity and its subsidiary bank expect to be parties to various legal proceedings.

At present, there are no pending or threatened proceedings against TransCommunity or its subsidiary that, if determined adversely, would have a material effect on the business, results of operations, or financial position of TransCommunity or its subsidiary.

On November 2, 2006, James L. Minter filed a lawsuit against TransCommunity and William C. Wiley, the former chief executive officer and chairman of the board of directors of TransCommunity, in the Circuit Court of the County of Powhatan in Virginia. The suit arose out of the purchase of Main Street Mortgage by Bank of Powhatan in early 2001. Main Street Mortgage, a mortgage brokerage company, had operated as a wholly owned subsidiary of Bank of Powhatan and was closed on November 29, 2006. Mr. Minter alleged that in late 2000 Mr. Wiley withheld information concerning the value of Main Street Mortgage from the Bank of Powhatan’s board of directors and that the Bank of Powhatan would not have acquired Main Street Mortgage if the valuation had been provided to the Bank of Powhatan’s board of directors. Mr. Minter’s suit claimed that TransCommunity aided and abetted and conspired with Mr. Wiley in his misrepresentation of Main Street Mortgage’s value. Mr. Minter’s suit also alleged that the December 2005 separation agreement between TransCommunity and William Wiley improperly released claims TransCommunity had against Mr. Wiley arising out of Mr. Wiley’s alleged concealment of the Main Street Mortgage valuation from the Bank of Powhatan’s board of directors in late 2000.

Mr. Minter sought unspecified recessionary and compensatory damages, unspecified treble damages and punitive damages of $350,000 against each defendant, jointly and severally and with interest. Mr. Minter also sought to recover his attorneys’ fees.

TransCommunity believes that insofar as it concerns TransCommunity, Mr. Minter’s suit is without merit.

TransCommunity moved for a dismissal of the lawsuit, brought claims against Mr. Minter for breach of fiduciary duty related to his use of confidential company information for personal gain and removed him from the board of the Bank of Powhatan. In response to TransCommunity’s motion to dismiss the lawsuit, on August 8, 2007, the court dismissed the two counts that Mr. Minter had asserted against TransCommunity. The court, however, permitted Mr. Minter to replead the count in which Mr. Minter alleged that TransCommunity aided and abetted Mr. Wiley in his allegedly fraudulent conduct. Mr. Minter amended his complaint, with the only claim against TransCommunity based on TransCommunity’s alleged derivative liability for Mr. Wiley’s conduct. TransCommunity again moved for a dismissal of Mr. Minter’s claim, and, on December 7, 2007, the court dismissed Mr. Minter’s lone remaining claim against TransCommunity and all of Mr. Minter’s claims against Mr. Wiley with prejudice. TransCommunity’s counterclaim against Mr. Minter for breach of fiduciary duty remains pending.

On December 19, 2007, Mr. Minter filed a new action in the Circuit Court of the County of Powhatan in Virginia, purportedly on behalf of TransCommunity, alleging breach of fiduciary duty and civil conspiracy against defendants Troy A. Peery, Jr., Robin T. Williams, John J. Sponski, John C. Watkins and Bruce B. Nolte, all of whom are current or former directors of TransCommunity. The lawsuit arises out of the same set of facts as the case dismissed by the court in December, 2007, and seeks damages of $3.35 million. Mr. Minter has not yet requested service of the lawsuit’s papers, and may have filed the lawsuit in an attempt to protect the statute of limitations. TransCommunity has put its directors and officers insurance carrier on notice and is evaluating the allegations and claims. Based on the facts presently known, TransCommunity believes it has limited liability exposure arising from this lawsuit.

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TransCommunity Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Nine Months Ended September 30, 2007 and September 30, 2006.

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

Significant Accounting Policies

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

Overview

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

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

In January 2007, TransCommunity’s board of directors voted to consolidate the charters of its four subsidiary banks. This charter consolidation process was completed on June 29, 2007. In addition, a system conversion with TransCommunity’s core processor was successfully completed in August 2007. Costs associated with the charter consolidation process negatively impacted TransCommunity’s performance during the first three quarters of 2007. As TransCommunity operates under a consolidated charter with a converted system, TransCommunity expects overhead costs to decline.

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


	•	increasing loan originations;

	•	increasing core deposit balances;

	•	preserving TransCommunity’s history of strong net interest margins;

	•	retaining high credit standards and low levels of non-performing assets;

	•	maintaining an adequate loan loss reserve;

	•	managing interest rate risk;

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	•	controlling expenses; and

	•	ensuring adequate funding for ongoing growth.

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


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

	•	interest income grew $733 thousand, or 19.4%;

	•	net interest income increased by $339 thousand, or 14.0%;

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

	•	noninterest expenses increased $339 thousand, or 15%; and

	•	provisions for loan losses increased $455 thousand, or 272%.

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


	•	yield on earnings assets increased 76 basis points to 8.53%;

	•	net interest margin increased 22 basis points to 5.32%;

	•	provisions for loan losses increased $823 thousand, or 265%; and

	•	noninterest expenses increased $1.6 million, or 24%.

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

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

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

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

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

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

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

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

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

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

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

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TRANSCOMMUNITY FINANCIAL CORPORATION

NET INTEREST MARGIN ANALYSIS
AVERAGE BALANCE SHEETS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
(In thousand dollars)


	2007								2006
						Average								Average
	Average			Interest		Rates			Average			Interest		Rates
	Balance			Income/		Earned/			Balance			Income/		Earned/
	Sheet			Expense		Paid			Sheet			Expense		Paid

Assets
Loans, including fees(1)	$	169,718		$	11,616		9.15	%	$	138,791		$	9,042		8.71	%
Federal funds sold		11,946			458		5.13			22,845			826		4.83
Investments		16,502			575		4.66			17,970			576		4.29

Total Earning Assets		198,166			12,649		8.53			179,606			10,444		7.77

Allowance for loan losses		(2,033	)							(1,740	)
Non-earning assets		12,785								12,684

Total Assets	$	208,918							$	190,550

Liabilities and Stockholders’ Equity
Deposits:
Demand -
Interest bearing	$	36,014		$	507		1.88	%	$	37,050		$	444		1.60	%
Savings		10,036			116		1.55			9,897			115		1.55
Time deposits		108,750			4,094		5.03			81,382			2,549		4.19

Total deposits		154,800			4,717		4.07			128,329			3,108		3.24
Other borrowed Funds		1,006			48		6.43			10,190			484		6.36

Total interest-bearing Liabilities		155,806			4,765		4.09			138,519			3,592		3.47

Non-interest bearing Deposits		22,073								20,843
Other liabilities		938								964

Total liabilities		178,817								160,326
Stockholders’ equity		30,101								30,224

Total liabilities and stockholders’ equity	$	208,918							$	190,550

Net interest earnings				$	7,884							$	6,852

Interest spread							4.44	%							4.30	%

Net interest margin							5.32	%							5.10	%

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

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

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

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

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

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

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

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

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

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Financial Condition

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

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

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

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

Income Taxes

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

Loans

Total loans increased $23.6 million during the nine months of 2007 to $189 million.

Loans by type are shown in the following schedule:


	September 30,		December 31,
	2007		2006
	(Dollars in thousands)

Real estate:
Construction	$	36,702	$	21,348
Residential		36,589		29,007
Commercial		63759		60,571
Commercial, industrial and agricultural		41,760		31,284
Consumer and installment		10,133		8,725
All other		60		464

Total Loans	$	189,003	$	151,399

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Allocation of the Allowance for Loan Losses

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


	September 30,					December 31,
	2007					2006
	Allowance		Percent			Allowance		Percent
	(Dollars in thousands)

Real estate:
Construction	$	517		19	%	$	291		14	%
Residential		516		19	%		396		19	%
Commercial		898		34	%		826		40	%
Commercial, industrial and agricultural		581		22	%		427		21	%
Consumer and installment		143		5	%		119		6	%
All other		8		1	%		6		0	%

Total Loans		2,663		100	%		2,065		100	%

Nonaccrual, Past Due and Restructured Loans

At September 30, 2007, TransCommunity had $1.0 million in loans classified as non-accrual or past due more than 90 days. At December 31, 2006, TransCommunity had $961 thousand in loans classified as non-accrual or past due more than 90 days. Loans are placed in a non-accrual status when, in the opinion of management, the accrued interest income will not be collected.

Secured Borrowings

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

Liquidity and Interest Sensitivity

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

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

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

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

TRANSCOMMUNITY FINANCIAL CORPORATION
INTEREST SENSITIVITY ANALYSIS
SEPTEMBER 30, 2007
(dollars in thousands)


	1-365 Days		1 to 5 Years		Over 5 Years		Total

Uses of Funds:

Loans:
Real estate:
Construction	$	34,265	$	2,274	$	163	$	36,702
Residential		23,864		10,484		2,241		36,589
Commercial		28,745		33,865		1,149		63,759
Commercial, industrial and agricultural		19,785		20,659		1,316		41,760
Consumer installment		5,686		4,276		171		10,133
All other		14		46		—		60

Total Loans		112,359		71,604		5,040		189,003
Federal funds sold		4,061		—		—		4,061
Investment securities held to maturity, at cost		1,200		4,200		1,000		6,400
Investment securities available for sale, at fair value		7,505		1,806		1,003		10,314

Total	$	125,125	$	77,610	$	7,043	$	209,778


Sources of Funds:

Demand Deposits-
Interest bearing		33,802			—			—			33,802
Savings accounts		10,357			—			—			10,357
Time Deposits > $100,000		35,045			19,613			—			54,658
Time Deposits < $100,000		44,949			25,589			34			70,572

Total interest-bearing deposits		124,153			45,202			34			169,389
Federal funds purchased		—			—			—			—
Borrowings		—			—			—			—

Total	$	124,153		$	45,202		$	34		$	169,389

Discrete Gap	$	972		$	32,408		$	7,009		$	40,388
Cumulative Gap	$	972		$	33,380		$	40,388		$
Ratio of Cumulative Gap to Total Earning Assets		0.46	%		15.91	%		19.25	%

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Contractual Obligations

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


	Payments due by Period
	Total		Less than One Year		1-3 Years		3-5 Years		More than 5 Years

Contractual obligations:
Operating lease obligations	$	2,525,093	$	422,012	$	852,022	$	586,667	$	664,392
Data processing services		2,535,000		518,333		1,036,667		980,000		—

Total	$	5,060,093	$	940,345	$	1,888,689	$	1,566,667	$	664,392

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

Future Prospects

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

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

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

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

TransCommunity Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Years Ended December 31, 2006 and December 31, 2005.

The following discussion provides information about the major components of the results of operations and financial condition, liquidity, and capital resources of TransCommunity through December 31, 2006. This discussion and analysis should be read in conjunction with TransCommunity’s Consolidated Financial

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Statements and Notes to Consolidated Financial Statements. It should also be read in conjunction with “A Warning About Forward Looking Statements.”

Overview

During 2006, TransCommunity reported its first net profit of $117 thousand, versus a loss for the year 2005 of $1.8 million. TransCommunity’s 2006 results thus represent a year-over-year improvement of $1.9 million. Over the same period, income per share, both basic and diluted, improved from a loss of $0.53 to a profit of $0.03.

Net income from continuing operations totaled $919 thousand for the year ended 2006 as compared to a loss of $1.3 million for the year ended 2005, an improvement of $2.3 million. Over the same period earnings per share from continuing operations improved $0.61 per share from a loss of $0.41 in 2005 to a gain of $0.20 during 2006.

Operating results for 2006 were impacted by two significant events. First, during the third quarter of 2006, TransCommunity 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 TransCommunity’s board of directors, TransCommunity completed an evaluation of the manner in which it accounted for loan participation agreements.

As a result, TransCommunity filed an amendment to its annual report on Form 10-KSB for the year ended December 31, 2005. As a result of the restatement, TransCommunity’s period end total loans and secured borrowings were increased by $12.5 million and $7.2 million at December 31, 2005 and 2004, respectively. In addition, interest income on loans and interest expense on other borrowings were also increased by $550 thousand and $112 thousand for the years ended December 31, 2005 and 2004, respectively. None of the adjustments resulting from the restatement had any impact on TransCommunity’s net worth at any date or on its net income, net interest income, noninterest income or noninterest expense for any period.

Second, on November 29, 2006, the board of directors of TransCommunity directed management to close Main Street Mortgage, a mortgage brokerage company. Main Street Mortgage had operated as a wholly-owned subsidiary of the Bank of Powhatan, a wholly-owned subsidiary of TransCommunity, since 2001.

At December 31, 2006, TransCommunity had on a consolidated basis, total assets of $198.4 million, total deposits of $165.0 million, total loans of $151.4 million and total stockholders’ equity of $30.6 million. In comparison at December 31, 2005 and 2004 TransCommunity reported total assets of $190.6 million and $150.3 million, total deposits of $146.6 million and $123.7 million, total loans of $135.1 million and $112.1 million and total stockholders’ equity of $30.4 million and $14.9 million, respectively.

On February 7, 2007, TransCommunity announced the consolidation of the charters of TransCommunity’s four bank subsidiaries into a single legal entity. The consolidation of the bank charters will provide significant financial advantages for TransCommunity’s stockholders, as the costs associated with operating under multiple charters are reduced or eliminated.

During 2006, TransCommunity continued to experience changes in its management team and board of directors. During the first quarter of 2006, Messrs Agee, Crowder, Metts, Minter and J. Purcell submitted their resignations as directors of TransCommunity. Acting on the recommendation of TransCommunity’s nominating and governance committee, the board of directors, appointed a total of six new directors during 2006, including Messrs. Bozard, Broomall, Claeys, Miller, D. Purcell and Zoeller. In the fourth quarter of 2006, and in January, 2007, Messrs Broomall, Claeys, Nuckols and D. Purcell submitted their resignations as directors of TransCommunity. Additionally, in January, 2007, TransCommunity’s chief financial officer, Mr. Littreal, submitted his resignation as an officer of TransCommunity in order to take a similar position at a larger organization.

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Discontinued operations

In 2006, management continued to implement cost control measures in its operating units. In November of 2006, the board of directors approved the closing of Main Street Mortgage. These measures enable TransCommunity to better align its operations with its community banking focus.

Main Street Mortgage was acquired by the Bank of Powhatan in 2001, had generated revenues of $1.9 million and $3.9 million in the years 2006 and 2005. Expenses during the same periods were $2.7 million and $4.0 million.

During 2005, Main Street Mortgage originated residential and commercial mortgage loans of $162 million, generated gross revenues of $3.9 million, and incurred net losses of $84 thousand. In 2006, The operations of Main Street Mortgage resulted in a net loss from discontinued operations of $802 thousand in 2006. Management completed the dissolution of Main Street Mortgage in the first quarter of 2007.

During 2004, TransCommunity established a financial services division to enable our subsidiary banks to offer trust banking, asset management and insurance and securities brokerage services to TransCommunity’s customers. To support these activities, TransCommunity sought and received regulatory approval to exercise trust banking powers through each of its subsidiary banks.

During 2005, losses from financial service activities totaled $339 thousand. As a result, during the fourth quarter of 2005, the TransCommunity board of directors voted to discontinue offering these services in-house and directed management to establish more cost-effective ways to deliver investment products. In the first quarter of 2006, TransCommunity’s financial services operations were integrated into its community banking business segment. See “— Financial Services Segment.”

Once TransCommunity closed its mortgage and financial services operations, the associated operations and cash flows were eliminated from the ongoing operations of TransCommunity. The underlying assets, primarily furniture and computers, associated with these operations were not held for sale. Rather, these assets were distributed to its community banking segment and used in banking operations. TransCommunity does not have any significant continuing involvement in the operations of mortgage or financial service segments.

Pursuant to TransCommunity’s evaluation of the criteria specified in SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, it concluded that its actions to close the operations of the following segments required disclosure in the consolidated financial statements as discontinued operations.

(Loss) Gain from Discontinued Operations


	Years Ended December 31,
	2006			2005			2004
	(In thousand dollars)

Main Street Mortgage	$	(802	)	$	(84	)	$	10
Financial Services		—			(339	)		(303	)

	$	(802	)	$	(423	)	$	(293	)

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Summary Financial Data for Discontinued Operations — Main Street Mortgage


	Years Ended December 31,
	2006			2005			2004
	(in thousand dollars)

Operating Revenues	$	1,887		$	3,872		$	3,221
Salaries and employee benefits	$	1,723		$	3,091		$	2,544
Occupancy expenses		177			226			182
Equipment costs		107			116			97
Other operating expenses		682			523			388
Gain (loss) from discontinued operations	$	(802	)	$	(84	)	$	10

Summary Financial Data for Discontinued Operations — Financial Services


	Years Ended December 31,
	2006		2005			2004
	(In thousand dollars)

Operating Revenues	$	—	$	29		$	11
Salaries and employee benefits	$	—	$	288		$	212
Occupancy expenses		—		30			43
Equipment costs		—		4			8
Other operating expenses		—		46			51
Loss from discontinued operations	$	—	$	(339	)	$	(303	)

Community Banking Segment

Net income for the community banking segment was $2.4 million, an increase of $703 thousand over 2005 net income of $1.7 million. Net interest income grew by $1.6 million, or 22.1%, as a result of increased loan volumes and higher yields. Deposit interest expense benefited from relatively low interest rates as a $17.1 million increase in average deposit balances resulted in only a $1.6 million increase in interest expense on deposits. The provision for loan losses increased $227 thousand largely as a result the growth in TransCommunity’s loan portfolio of $16.3 million. Noninterest income in the community banking segment increased by $297 thousand to $975 thousand during 2006. Noninterest expense in the community banking segment increased by $265 thousand, or 4.5%, while assets grew by $19.1 million, or 10.7%.

Mortgage Segment

Main Street Mortgage’s total revenue in 2006 totaled $1.9 million verses $3.9 million in 2005, a 51.3% decrease. Losses amounted to $802 thousand compared to $84 thousand in 2005. Confronted with increasing losses, as well as the difficulty of turning around this non-core business, the board of directors on November 29, 2006 approved the closing of Main Street Mortgage. Main Street Mortgage had operated as a wholly-owned subsidiary of Bank of Powhatan, which is a wholly-owned subsidiary of TransCommunity, since 2001.

Financial Services Segment

Due to continued losses in this segment, the board of directors voted in the fourth quarter of 2005 to cease operations. The trust department at each of the banks was effectively discontinued at December 31, 2005 and management reorganized the remaining financial services during the quarter ending March 2006 and integrated the remaining Financial Services operations into the community banking segment. For the year ending 2005, TransCommunity realized a loss of $339 thousand from this discontinued operation.

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Financial Condition at December 31, 2006

During the year ended December 31, 2006, TransCommunity’s assets increased by $7.8 million, or 4.1%, to 198.4 million. Of this increase in total assets, $8.8 million represented growth in interest-earning assets, while non-interest bearing assets declined by $1.0 million. Continued strong loan demand throughout the year resulted in an increase of $16.3 million, or 12.1%, in total loans outstanding.

During 2006, investment securities increased by $3.8 million to $35.0 million.

Loan growth in 2006 was concentrated in the commercial and industrial and real estate lending portfolios. TransCommunity’s total loan growth of $16.3 million in 2006 was the result of an $11.1 million or 54.8% increase in commercial and industrial loans from $20.2 million to $31.3 million, and a $4.3 million or 4.0% increase from $106.6 million to $110.9 million in real estate loans.

Customer deposits continue to be TransCommunity’s primary funding source. TransCommunity’s deposits are primarily generated through its community banks. At December 31, 2006, deposits totaled $165.0 million, an increase of $18.4 million or 12.5% from year-end 2005. Time deposits increased $23.5 million. This increase of $23.5 million was offset by a reduction of $8.3 million in interest bearing demand deposits and $12.5 million in securitized borrowings during 2006.

TransCommunity’s capital position remains strong, with all of its regulatory capital ratios at levels that categorize TransCommunity as “well capitalized” under bank regulatory capital guidelines. At December 31, 2006, TransCommunity’s stockholder equity totaled $30.6 million, an increase of $200 thousand from the December 31, 2005 balance. This increase in stockholder equity is primarily the result of TransCommunity achieving a net profit for 2006.

Net Interest Income

Like most financial institutions, the primary component of TransCommunity’s earnings is net interest income. Net interest income is the difference between interest income, principally from loans and investments, and interest expense, principally on customer deposits and borrowings. Changes in net interest income result from changes in volume and changes in interest rates earned and paid. By volume, TransCommunity means the average dollar level of interest-earning assets and interest-bearing liabilities. Spread refers to the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities, and margin refers to net interest income divided by average interest-earning assets. Spread and margin are influenced by the levels and relative mix of interest-earning assets and interest-bearing liabilities, as well as by levels of noninterest-bearing liabilities. During the years ended December 31, 2006 and 2005, TransCommunity’s average interest-earning assets were $181.1 million, and $158.5 million, respectively. During these same years, TransCommunity’s net interest margins were 5.14% and 4.68%, respectively.

Average Balances and Average Rates Earned and Paid. The table contained in Schedule I on page sets forth, for the years 2006, 2005 and 2004, information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities, resultant yields or costs, net interest income, net interest spread, net interest margin and ratio of average interest-earning assets to average interest-bearing liabilities. Average loans include nonaccruing loans, the effect of which is to lower the average yield.

Results of Operations

Net Income. TransCommunity’s net income for 2006 was $117 thousand, an improvement of $1.9 million and $2.7 million from net losses of $1.8 million and $2.6 million in 2005 and 2004, respectively. Net income per share, both basic and diluted, was $0.03 for the year ended December 31, 2006, reflecting per share increases of $0.56 and $1.25 when compared to per share losses of $0.53 and $1.22 per share for the years ended December 31, 2005 and 2004, respectively. Total assets averaged $192.1 million during 2006 as compared to $170.3 million in 2005, an increase of $21.8 million or 12.8%. Total average assets increased $67.4 million or 54.1% when comparing 2006 to 2004.

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During 2006, the prime rate increased 100 basis points, and TransCommunity benefited from its asset sensitive balance sheet position. While it is management’s goal to remain relatively interest rate neutral, TransCommunity is currently asset sensitive and does benefit from a rising interest rate environment. As a result of TransCommunity’s continued growth in interest-earning assets during 2006, combined with slower growth in funding costs and rising interest rates, its net interest income increased $1.9 million, or 25.3% from the year ended December 31, 2005 to the year ended December 31, 2006.

During 2005, TransCommunity continued to experience strong growth at each of its subsidiary banks and TransCommunity was able to raise sufficient capital to support its growth strategy. Total assets averaged $170.3 million during 2005 as compared to $124.6 million in 2004, an increase of $45.7 million or 36.7%. During 2005, the prime rate increased 200 basis points. As a result of TransCommunity’s growth in interest-earning assets during 2005, combined with low funding costs and rising interest rates, TransCommunity’s net interest income increased $2.5 million, or 52.1% during that year. The growth in TransCommunity’s non-interest expense during 2005 included some non-recurring restructuring related costs, which totaled $302 thousand or $0.09 per share.

In absolute terms, TransCommunity’s net interest income after the provision for loan losses increased by $1.7 million or 23.1%, when comparing 2006 to 2005, while its non-interest income grew by $220 thousand and its non-interest expense decreased by $401 thousand. When comparing 2005 to 2004, TransCommunity’s net interest income after the provision for loan losses increased by $2.8 million, while its non-interest income grew by $29 thousand from continuing operations. However, this income growth was largely offset by the increase in non-interest expenses from continuing operations of $1.9 million arising from increased salaries and benefits. Additional details on these components of net income are described below.

Net Interest Income. TransCommunity’s net interest income increased to $9.3 million for the year ended December 31, 2006, an increase of $1.9 million, or 25.3%, over net interest income for 2005. TransCommunity’s growth in interest income was the result of growth in its level of average earning assets as well as continued strong loan demand. Average total interest-earning assets increased $22.6 million or 14.3%, during 2006 as compared to 2005, while TransCommunity’s average yield increased by 101 basis points from 6.88% during 2005 to 7.89% during 2006. The interest rates earned on a significant portion of TransCommunity’s loans adjust immediately when index rates such as TransCommunity’s prime rate changes. Conversely, most of TransCommunity’s interest-bearing liabilities, including certificates of deposit and borrowings, have rates fixed until maturity. As a result, interest rate increases generally result in an immediate increase in TransCommunity’s interest income on loans. There is a delayed impact on interest expense because 64.4% of TransCommunity’s average interest-bearing deposits were classified as time deposits, which only experience increases in interest costs upon renewal.

TransCommunity’s average total interest-bearing liabilities increased by $11.4 million, or 8.9%, from 2005 to 2006. With rates consistently increasing during 2006, TransCommunity’s average cost of interest-bearing liabilities increased by 84 basis points from 2.73% during 2005 to 3.57% during 2006, allowing TransCommunity’s interest rate spread to increase by 17 basis points.

TransCommunity’s average total interest-bearing liabilities increased by $35.1 million, or 37.7%, from 2004 to 2005. With rates consistently increasing during 2005, TransCommunity’s average cost of interest-bearing liabilities increased by 59 basis points from 2.14% during 2004 to 2.73% during 2005, allowing TransCommunity’s interest rate spread to increase 33 basis points.

During 2005, TransCommunity’s net interest income increased by $2.5 million, or 52.1%, to $7.4 million, when compared to 2004. TransCommunity’s growth in interest income for 2005 was the result of growth in its level of average earning assets as well as continued strong loan demand. Average total interest-earning assets increased $43.2 million or 37.5%, during 2005 as compared to 2004, while TransCommunity’s average yield increased by 92 basis points from 5.96% during 2004 to 6.88% in 2005. For 2005, 58.9% of TransCommunity’s average interest-bearing deposits were classified as time deposits.

TransCommunity’s investment income and interest expense for 2005 was impacted by the July 2005 stock offering in which TransCommunity completed the sale of 2.3 million shares of its common stock. A portion of

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the net proceeds from that offering was used to repay the outstanding principal balance of $1.45 million and accrued interest on TransCommunity’s operating line of credit. TransCommunity used $3.3 million of the proceeds from that offering to strengthen the capital position of two of its subsidiary banks, which improved their respective lending limits.

For the year ended December 31, 2006, TransCommunity’s net interest spread was 4.32% and its net interest margin was 5.14%. For the year ended December 31, 2005, TransCommunity’s net interest spread was 4.15% and its net interest margin was 4.68%. For the year ended December 31, 2004, TransCommunity’s net interest spread was 3.82% and its net interest margin was 4.23%.

Provision for Loan Losses. TransCommunity recorded a $493 thousand provision for loan losses for the year ended December 31, 2006, representing an increase of $227 thousand from the $266 thousand provision expense for 2005, but less than the $549 thousand recorded in 2004. The level of the loan loss provision for these years is consistent with loan growth and net charge-offs that TransCommunity experienced.

Provisions for loan losses are charged to income to bring TransCommunity’s allowance for loan losses at period end to a level deemed appropriate by management based on the factors discussed under “— Asset Quality — Allowance for Loan Losses.” While the dollar amount of the provision for loan losses increased on a year-over-year basis, the ratio of the allowance for loan losses to period-ending total loans only increased 17 basis points from 1.19% to 1.36%. Nonperforming loans totaled $961 thousand or 0.6% of total loans at December 31, 2006. Nonperforming loans totaled $165 thousand or 0.12% of total loans at December 31, 2005. TransCommunity reported no nonperforming loans at December 31, 2004.

The allowance for loan losses at December 31, 2006 of $2.1 million represents 1.36% of total loans and 214.9% of nonperforming loans. The allowance for loan losses at December 31, 2005 of $1.6 million equaled 1.19% of total loans outstanding at that date.

Non-Interest Income. For the year ended December 31, 2006, non-interest income from continuing operations increased $220 thousand, or 27.7%, to $1.0 million from $800 thousand for the prior year. The increase in non-interest income resulted primarily from an increase in service charges and fees on deposit accounts.

For the year ended December 31, 2005, non-interest income from continuing operations increased slightly over the amount for 2004. Service charges and fees on deposit accounts increased by 3.8%, to $791 thousand during 2005.

Non-Interest Expense. TransCommunity strives to maintain non-interest expenses at levels that TransCommunity believes are appropriate given the nature of its operations and the need to invest in personnel and facilities to support its growth. TransCommunity’s ratio of non-interest expenses from continuing operations to average total assets during 2006 declined to 4.65% as compared to 5.48% during 2005. TransCommunity was better able to control non-interest expense during the year despite its continued growth. For the year ended December 31, 2006, non-interest expense decreased $401 thousand, or 4.3%, over 2005. Salary and employee benefits expense decreased $407 thousand, or 8.0%, including (1) the non-recurring restructuring charges in 2005 and 2006, (2) pre-opening expenses at the Bank of Rockbridge, (3) merit adjustments to salaries and (4) increased benefit costs. Net occupancy expense increased $75 thousand, or 12.2%, reflecting the expenses associated with TransCommunity’s normal operations.

174

The following table summarizes the changes in TransCommunity’s non-interest expenses over the past two years.


	2006 vs 2005
	2006		2005		%
	(Dollars in thousands)

Compensation & Employee Benefits	$	4,711	$	5,118		(8.00	)%
Net occupancy expense		689		614		12.20	%
Supplies and equipment		797		927		(14.00	)%
Marketing and advertising		130		288		(54.90	)%
Data processing		728		362		101.10	%
Professional Fees		784		918		(14.60	)%
Telecommunications		106		156		(32.10	)%
Other		988		951		3.90	%

Total Non-Interest Expenses	$	8,933	$	9,334		(4.30	)%

For the year ended December 31, 2005, TransCommunity’s non-interest expense increased $1.9 million, or 26.1%, over 2004. Salary and employee benefits expense increased $1.1 million, or 28.1%, including (1) the non-recurring restructuring charges in the fourth quarter of 2005, (2) personnel costs at the proposed Bank of Rockbridge, (3) merit adjustments to salaries and (4) increased benefit costs. Net occupancy expense increased $112 thousand during 2005, or 22.3%, reflecting the expenses associated with TransCommunity’s normal operations and the Bank of Rockbridge building lease agreement.

Income Taxes. At December 31, 2006, TransCommunity had total net operating loss, or NOL, carryforwards of $7.5 million, which begin to expire in 2021. For 2006, the Company utilized $1 million of the NOL carryforward to offset taxable income. Under the Alternative Minimum Tax, or AMT, system, the utilization of an AMT NOL carryover is limited to 90% of the AMT taxable income. This limitation resulted in an AMT tax liability of $15 thousand, which has been recorded in this year’s statement of operations. This AMT is available as a credit to reduce regular tax liability in future years, The AMT credit carryover is included in deferred tax assets, subject to the valuation allowance discussed below. Under Section 382 of the Internal Revenue Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50% change in its equity ownership over a three-year period), the corporation’s ability to use its pre-ownership change net operating loss carryforwards and certain other pre-ownership change tax attributes against its post-ownership change income may be limited. The stock offerings consummated in July 2005, and in 2002 were “ownership changes” which triggered Section 382 and limits the annual utilization of pre-ownership change net operating losses in post-ownership change years. To the extent the NOL limitation amount in any taxable year exceeds TransCommunity’s taxable income in that year, the excess can be carried over effectively to increase the limitation in the next succeeding year or years. Given that none of TransCommunity’s NOLs begin to expire until 2021, TransCommunity believes it will be able to fully utilize its NOLs prior to their respective expiration dates. Management will continue to monitor TransCommunity’s trend toward profitable operations and when sufficient evidence of future taxable income becomes available, it will reduce the valuation allowance and recognize the related tax benefit in the statement of operations. See Note 12 of the notes to TransCommunity’s consolidated financial statements elsewhere in this annual report for information concerning TransCommunity’s NOLs.

At December 31, 2006, and December 31, 2005, TransCommunity had NOL carryforwards of $7.5 million and $8.5 million, respectively. No provision for income tax benefits associated with these NOLs has been recorded in the statement of operations since there is insufficient evidence to conclude that TransCommunity would produce taxable income in the future. Accordingly, the deferred tax asset related to the tax loss carryforwards and other deferred tax assets have been fully reduced by a valuation allowance.

175

Investment Portfolio

TransCommunity currently manages its investment securities portfolio consistent with established policies that include guidelines for Investment quality, rate sensitivity, liquidity and pledging needs on a bank by bank basis. This investment function will be centralized under the proposed centralization of operations and charter collapsing process. The aggregate investment portfolio approximates 115% of TransCommunity’s consolidated stockholders’ equity.

TransCommunity accounts for securities under FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities. This standard requires classification of investments into three categories, “held to maturity,” or HTM, “available for sale,” or AFS, or “trading,” as further defined in Note 1 to TransCommunity’s Consolidated Financial Statements for the year ended December 31, 2006. TransCommunity does not maintain a trading account and has classified no securities in this category. HTM securities are required to be carried on the financial statements at amortized cost. AFS securities are carried on the financial statements at fair value. The unrealized gains or losses, net of deferred income taxes, are reflected in stockholders’ equity. The HTM classification places restrictions on TransCommunity’s ability to sell securities or to transfer securities into the AFS classification. At December 31, 2006, 61.2% of the portfolio was classified as HTM.

TransCommunity holds in its loan and securities portfolios, investments that adjust or float according to changes in “prime” lending rate. These holdings are not considered speculative but instead necessary for good asset/liability management.

The carrying value of the securities portfolio was $35.0 million at December 31, 2006, an increase of $3.8 million or 11.9% from the carrying value of $31.2 million at December 31, 2005. The market value of the AFS securities at December 31, 2006 was $13.6 million. The unrealized loss on the AFS securities was $40,000 at December 31, 2006. The reduction in the net market value loss at December 31, 2006 is reflective of the continued rise in market interest rates.

Since TransCommunity Bank anticipates much of the balance sheet growth to be experienced during 2007, if any, to be in the form of net portfolio loans, specific strategies will be executed during the early part of 2007 to maintain the investment portfolio at an amount comparable to the December 31, 2006 balances.

Investment Securities Portfolio
(Years Ended December 31)

The amortized cost basis of securities held to maturity and available for sale at the dates indicated were as follows:


	2006		2005
	(Dollars in thousands)

Held to maturity	$	21,420	$	25,882
Available for sale		13,637		5,430

	$	35,057	$	31,312

176

Maturity Distribution and Yields of Investment Securities
Taxable-Equivalent Basis
(At December 31, 2006)


	Due in 1 Year					Due After 1 Year
	or Less					Through 5 Years					Due After 5 Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(Dollars in thousands)

Held to maturity	$	15,020		5.10	%	$	5,400		3.89	%	$	1,000		5.15	%	$	21,420		4.79	%
Available for sale		10,330		5.07	%		3,307		4.55	%		—		—			13,637		4.94	%

Total	$	25,350		5.09	%	$	8,707		4.14	%	$	1,000		5.15	%	$	35,057		4.85	%

Loans

Total loans increased $16.5 million during the year ended December 31, 2006 to $151.4 million as a result of continued growth of TransCommunity’s subsidiary banks.

Loans by type are shown in the following schedule:


	At December 31,
	2006		2005		2004		2003		2002
	(Dollars in thousands)

Real estate
Construction		21,348		16,041		17,472		17,396		7,093
Residential		29,007		25,147		21,722		15,904		11,190
Commercial		60,571		65,470		48,701		16,224		9,026
Commercial, Industrial and Agricultural		31,284		20,205		17,425		9,926		5,026
Consumer & Installment		8,725		7,436		6,616		6,180		4,416
All other		464		631		198		490		366
Loans before allowance for
Loan losses		151,399		134,930		112,134		66,120		37,117
Less: Allowance for loan losses		2,065		1,602		1,401		870		527

Net Loans		149,334		133,328		110,733		65,250		36,590

Loan categories that are particularly sensitive to rate changes as of December 31, 2006 are shown in the following schedule:


	Variable Interest Rate:								Fixed Interest Rate:
	Within 1 Year		1 to 5 Years		After 5 Years		Total		Within 1 Year		1 to 5 Years		After 5 Years		Total		Total Maturities
	(Dollars in thousands)

Commercial, industrial and agricultural	$	16,493	$	3,478	$	—	$	19,971	$	1,486	$	9,266	$	561	$	11,313	$	31,284
Real estate - construction		18,656		942		—		19,598		875		875		—		1,750		21,348

Total	$	35,149	$	4,420	$	—	$	39,569	$	2,361	$	10,141	$	561	$	13,063	$	52,632

Concentration of Credit Risk

TransCommunity has a concentration of loans to borrowers secured by commercial real estate. At December 31, 2006, loans to these borrowers amounted to $60.6 million, or 40.0% of TransCommunity’s consolidated loan portfolio. This compares with $65.5 million and $48.7 million and 48.5% and 43.4% for the years 2005 and 2004, respectively.

177

Asset Quality — Allowance for Loan Losses

The allowance for loan losses represents management’s estimate of the amount deemed adequate to provide for potential losses in the loan portfolio. Among other factors, management considers TransCommunity’s historical loss experience, the size and composition of the loan portfolio, the value and adequacy of collateral and guarantors, non-performing credits and current and anticipated economic conditions. There are additional risks of future loan losses, which cannot be precisely quantified nor attributed to particular loans or classes of loans. Because those risks include general economic trends as well as conditions affecting individual borrowers, the allowance for loan losses is an estimate. The allowance is also subject to regulatory examinations and determination as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and size of the allowance in comparison to peer companies identified by regulatory agencies.

Management maintains a list of loans which have a potential weakness that may need special attention. This list is used to monitor such loans and is used in the determination of the sufficiency of TransCommunity’s allowance for loan losses. As of December 31, 2006, the allowance for loan losses was $2.1 million, or 1.36% of total loans, as compared to $1.6 million and $1.4 million, or 1.19%, and $1.25% in 2005 and 2004, respectively.


	At December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)

Allowance for loan losses, January 1	$	1,602		$	1,401		$	870		$	527		$	233
Provision charged to expense		493			266			549			348			294
Loans charged off		(30	)		(65	)		(18	)		(5	)		—
Recoveries		—			—			—			—			—

Allowance for loan losses, December 31	$	2,065		$	1,602		$	1,401		$	870		$	527

Allowance for loan losses to total loans		1.36	%		1.19	%		1.25	%		1.32	%		1.42	%

Nonperforming Assets

At December 31, 2006, TransCommunity had $961 thousand in nonperforming loans. At December 31, 2005 and 2004, TransCommunity had $165 thousand and $0, respectively, of loans classified as nonperforming. Loans are placed on nonaccrual status when, in the opinion of management, the collection of principal and interest are considered to be doubtful. No interest is accrued on loans placed in a nonaccrual status, and any unpaid interest previously accrued on such loans is reversed when a loan is placed in nonaccrual status.

The following table contains nonperforming asset information as of the dates indicated.


	At December 31,
	2006			2005			2004			2003			2002
	(Dollars in thousands)

Loans past due 90 days and accruing interest	$	41		$	140		$	—		$	—		$	—
Nonaccrual loans		920			25			—			—			—
Restructured loans		—			—			—			—			—

Total nonperforming loans		961			165			—			—			—

Other real estate owned		—			—			—			—			—

Total nonperforming assets	$	961		$	165		$	—		$	—		$	—

Allowance for loan losses to nonperforming loans
Allowance for loan losses to total loans		214.86	%		970.91	%		0.00	%		0.00	%		0.00	%
		1.36	%		1.19	%		1.25	%		1.32	%		1.42	%

178

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 allocations for individual loans. The unallocated portion of the allowance reflects management’s estimate of probable inherent but not specifically identified losses within the portfolio.

The following table shows the allocation of the allowance for loan losses at December 31:


	2006					2005					2004
			Percent of					Percent of					Percent of
			Total					Total					Total
	Allowance		Loans			Allowance		Loans			Allowance		Loans
	(Dollars in thousands)

Real estate:
Construction	$	289		14	%	$	192		12	%	$	228		16	%
Residential		392		19	%		304		19	%		270		19	%
Commercial		826		40	%		769		48	%		611		43	%
Commercial, industrial and agricultural		413		20	%		240		15	%		228		16	%
Consumer and installment		124		6	%		80		5	%		50		5	%
All other		21		1	%		17		1	%		14		1	%

Total allowance for loan losses	$	2,065		100	%	$	1,602		100	%	$	1,401		100	%

Premises and Equipment

Premises and equipment decreased to $6.7 million at December 31, 2006 from $6.8 million at December 31, 2005, but was up from $6.1 million at December 31, 2004. This decrease for 2006 was primarily attributable to the depreciation of assets.

Deposits

TransCommunity’s deposits increased $18.4 million, or 12.5% during 2006. A schedule of time deposits by scheduled maturity is shown in TransCommunity’s consolidated balance sheets. Time deposits of $100,000 or more equaled 45.0% of total time deposits at December 31, 2006.


	Average Deposits to Average Rates Paid
	December 31, 2006					December 31, 2005
	Average					Average
	Balance		Average Rate			Balance		Average Rate
	(Dollars in thousands)

Deposits:
Demand -
Interest bearing	$	37,068		1.69	%	$	38,805		1.13	%
Savings		9,778		1.55			9,267		1.20
Time deposits		84,750		4.36			68,876		3.39

Total interest-bearing deposits		131,596		3.40	%		116,948		2.47	%

179

The following table presents the maturity schedule of certificates of deposit of $100,000 or more at the dates indicated:


	December 31
	2006			2005			2004
	(Dollars in thousands)

Within 3 months	$	8,008		$	4,657		$	5,171
3-12 months		13,700			8,024			2,589
1-3 years		15,649			5,394			9,379
Over 3 years		6,357			10,098			9,009

Total	$	43,714		$	28,173		$	26,148

Percent of total deposits		26.50	%		19.22	%		21.14	%

Capital

On July 22, 2005, TransCommunity completed the sale of 2.3 million shares of its common stock at $8.00 per share in a registered public offering to a limited number of institutional investors. The minimum share purchase in the offering was 25,000 shares. The offering was made through a firm commitment underwriting in which Sandler O’Neill served as the sole manager. TransCommunity received net proceeds from the offering of approximately $16.8 million after deducting underwriting discounts and expenses. A portion of the net proceeds from the offering was used to repay the outstanding principal balance of $1.45 million and accrued interest on TransCommunity’s line of credit. TransCommunity utilized $8.0 million, to provide the initial capital for Bank of Rockbridge, a new bank TransCommunity established in Rockbridge County, Virginia. Additionally, TransCommunity used $3.3 million of the proceeds from that offering to strengthen the capital position of two of its subsidiary banks. The remaining proceeds were used to accommodate future growth and for general corporate purposes, which included, among other things, operating expenses of the holding company headquarters.

The Federal Reserve, the Comptroller of the Currency, the FDIC and the Bureau of Financial Institutions of the Virginia State Corporation Commission have adopted risk-based capital measures for regulatory purposes to assist in the assessment of capital adequacy. Management seeks to balance the return on equity to stockholders while satisfying the regulatory standards for risk-based capital ratios. Management believes, as of December 31, 2006, that TransCommunity and each of its subsidiary banks met all of the minimum regulatory capital requirements and are categorized as “well capitalized.” At December 31, 2006, TransCommunity had a leverage ratio of 15.86%, a Tier 1 risk-based capital ratio of 17.16% and a total risk-based capital ratio of 18.32%. The book value of TransCommunity common stock at December 31, 2006 was $6.67 per share.

180


	At December 31,
	2006			2005			2004
	(Dollars in thousands)

Tier 1 Capital:
Common stock	$	46		$	46		$	22
Surplus		39,809			39,778			22,567
Accumulated deficit		(9,262	)		(9,379	)		(7,607	)
Net unrealized losses-securities available for sale		(40	)		(75	)		(44	)
Total equity		30,553			30,370			14,938
Less: intangibles/goodwill		136			491			551
Less: net unrealized losses-securities available for sale		(40	)		(75	)		(44	)

Total Tier 1 Capital		30,457			29,954			14,431

Tier 2 Capital:
Allowance for loan losses(1)		2,065			1,602			1,422

Total Tier 2 Capital		2,065			1,602			1,422

Total risk-based capital	$	32,522		$	31,556		$	15,853

Risk-weighted assets	$	177,512		$	158,379		$	104,974
Capital ratios:
Average equity to average assets		15.79	%		13.28	%		10.67	%
Leverage ratio		15.86	%		17.59	%		11.58	%
Tier 1 risk-based capital ratio		17.16	%		18.91	%		13.75	%
Total risk-based capital ratio		18.32	%		19.92	%		15.10	%


(1)		includes allowance for loan losses associated with discontinued operations for 2005 and 2004.

Liquidity and Interest Sensitivity

“Liquidity” measures whether an entity has sufficient cash flow to meet its financial obligation and commitments on a timely basis. TransCommunity is liquid when it has the cash available to meet borrowing and cash withdrawal requirements of customers and it can pay for current and planned expenditures and satisfy its debt obligations.

TransCommunity funds loan demand and operation expenses from four primary sources:


	•	Net Income.

	•	Deposits. TransCommunity can offer new products or change its rate structure in order to increase deposits. In 2006 TransCommunity generated $18.4 million in deposit growth.

	•	Sale of securities and overnight funds. At year-end 2006 TransCommunity had $13.6 million in securities designated “available for sale.”

	•	Borrowings from the Federal Reserve Bank of Richmond.

TransCommunity’s management believes that its current level of liquidity is sufficient to meet its current and anticipated operational needs including current loan commitments, deposit maturities and other obligations.

181

Off-Balance Sheet Arrangements

The following table sets forth contractual obligations and other commitments representing required and potential cash outflows as of December 31, 2006:


			Less Than						After Five
	Total		One Year		1-3 Years		3-5 Years		Years
	(Dollars in thousands)

Minimal annual rentals or noncancellable operating leases		2,748		478		900		693		677
Loan Commitments		53,289		24,992		13,668		3,332		11,297

		56,037		25,470		14,568		4,025		11,974

At December 31, 2006, TransCommunity had $53.3 million of off-balance sheet credit exposure in the form of $48.3 million of commitments and $5.0 million of standby letters of credit. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Standby letters of credit are conditional commitments issued by TransCommunity to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. TransCommunity generally holds collateral supporting those commitments if deemed necessary.

Interest Rate Risk

Closely related to the concept of liquidity is the concept of interest rate sensitivity (i.e., the extent to which assets and liabilities are sensitive to changes in interest rates). Interest rate sensitivity is often measured by the extent to which mismatches or “gaps” occur in the repricing of assets and liabilities within a given period. Gap analysis is utilized to quantify such mismatches. A “positive” gap results when the amount of earning assets repricing within a given time period exceeds the amount of interest-bearing liabilities repricing within that time period. A “negative” gap results when the amount of interest-bearing liabilities repricing within a given time period exceeds the amount of earning assets repricing within such time period.

TransCommunity’s potential interest rate volatility is a primary component of its market risk. Fluctuations in interest rates will ultimately impact the level of income and expense recorded on a large portion of TransCommunity’s assets and liabilities, and the market value of all interest-earning assets, other than those which possess a short term to maturity. Based upon TransCommunity’s nature of operations, TransCommunity is not subject to foreign currency exchange. TransCommunity does not own any trading assets and does not have any hedging transactions in place, such as interest rate swaps and caps.

TransCommunity monitors and controls interest rate risk through a variety of techniques, including use of traditional interest rate sensitivity analysis (also known as “gap analysis”). Traditional gap analysis involves arranging TransCommunity’s interest-earning assets and interest-bearing liabilities by repricing periods and then computing the difference (or “interest rate sensitivity gap”) between the assets and liabilities that are estimated to reprice during each time period and cumulatively through the end of each time period.

Both interest rate sensitivity modeling and gap analysis are done at a specific point in time and involve a variety of significant estimates and assumptions. Interest rate sensitivity modeling requires, among other things, estimates of how much and when yields and costs on individual categories of interest-earning assets and interest — bearing liabilities will respond to general changes in market rates, future cash flows and discount rates.

Gap analysis requires estimates as to when individual categories of interest-sensitive assets and liabilities will reprice, and assumes that assets and liabilities assigned to the same repricing period will reprice at the same time and in the same amount. Gap analysis does not account for the fact that repricing of assets and liabilities is discretionary and subject to competitive and other pressures.

The schedule on the following page does not necessarily indicate the impact of general interest rate movements on TransCommunity’s net interest income because the repricing of certain categories of assets and liabilities, for example, prepayments of loans and withdrawal of deposits, is beyond TransCommunity’s control. As a result, certain assets and liabilities indicated as repricing within a stated period may in fact reprice at different times and at different levels.

182

SCHEDULE I

TRANSCOMMUNITY FINANCIAL CORPORATION

INTEREST SENSITIVITY ANALYSIS

December 31, 2006

(Dollars in thousands)


	1 - 365			1 to 5			Over 5
	Days			Years			Years			Total

Uses of Funds:
Loans:
Real estate
Construction	$	19,531		$	1,817		$	—		$	21,348
Residential		18,423			8,450			2,134			29,007
Commercial		36,595			22,075			1,901			60,571
Commercial, industrial and agricultural		17,979			12,744			561			31,284
Consumer and installment		5,338			3,266			139			8,743
All other		263			201			—			464

Total Loans (see Note 14)		98,129			48,553			4,735			151,417
Federal funds sold	$	1,422		$	—		$	—		$	1,422
Investment securities held to maturity, at cost		15,020			5,400			1,000			21,420
Investment securities available for sale, at fair value		10,317			3,280			—			13,597

Total	$	124,888		$	57,232		$	5,735		$	187,855

Sources of Funds:
Demand Deposits -
Interest bearing	$	37,850		$	—		$	—		$	37,850
Savings accounts		9,478			—			—			9,478
Time Deposits > $100,000		21,708			22,006			—			43,714
Time Deposits < $100,000		26,694			26,780			7			53,481

Total interest-bearing deposits		95,730			48,786			7			144,523
Federal funds purchased		1,517			—			—			1,517
Note payable		500			—			—			500

								—
Total	$	97,747		$	48,786		$	7		$	146,540

Discrete Gap	$	27,141		$	8,446		$	5,728		$	41,315
Cumulative Gap	$	27,141		$	35,587		$	41,315
Ratio of Cumulative Gap to Total Earning Assets		14.45	%		18.94	%		21.99	%

183

SCHEDULE II

TRANSCOMMUNITY FINANCIAL CORPORATION

NET INTEREST MARGIN ANALYSIS AVERAGE BALANCE SHEETS

FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004

(Dollars in thousands)


	2006								2005								2004
	Average			Interest		Average			Average			Interest		Average			Average			Interest		Average
	Balance			Income/		Rates			Balance			Income/		Rates			Balance			Income/		Rates
	Sheet			Expense		Earned/Paid			Sheet			Expense		Earned/Paid			Sheet			Expense		Earned/Paid

ASSETS: (2)
Loans, including fees(1)	$	140,049		$	12,344		8.81	%	$	121,030		$	9,636		7.96	%	$	89,925		$	6,345		7.06	%
Federal funds sold		22,635			1,115		4.93			20,414			678		3.32			7,072			89		1.26
Investments		18,433			826		4.48			17,065			597		3.50			18,302			435		2.38

Total Earning Assets		181,117			14,285		7.89			158,509			10,911		6.88			115,299			6,869		5.96

Allowance for loan losses		(1,790	)							(1,553	)							(1,106	)
Non-earning assets		12,725								13,304								10,430

Total Assets	$	192,052$							$	170,260							$	124,623


LIABILITIES AND STOCKHOLDERS’ EQUITY(2)
Deposits:
Demand -
Interest bearing	$	37,068		$	627		1.69	%	$	38,805		$	440		1.13	%	$	25,729		$	254		0.99	%
Savings		9,778			152		1.55			9,267			111		1.20			7,575			77		1.02
Time deposits		84,750			3,696		4.36			68,876			2,337		3.39			54,243			1,452		2.68

Total deposits		131,596			4,475		3.40			116,948			2,888		2.47			87,547			1,783		2.04
Other borrowed
Funds(1)		7,881			501		6.36			11,168			610		5.46			5,502			211		3.83

Total interest-bearing
Liabilities		139,477			4,976		3.57			128,116			3,498		2.73			93,049			1,994		2.14
Non-interest bearing
Deposits		21,212								18,751								15,081
Other liabilities		1,038								784								3,198

Total liabilities		161,727								147,651								111,328
Stockholders’ equity		30,325								22,609								13,295

Total liabilities and
stockholders’ equity	$	192,052		$					$	170,260							$	124,623

Net interest earnings					9,309							$	7,413							$	4,875

Interest spread							4.32	%							4.15	%							3.82	%

Net interest margin							5.14	%							4.68	%							4.23	%


(1)		Average balances for certain loans and secured borrowings totaling approximately $7.5 million, $10.1 million and $3.8 million for the years ended December 31, 2006, 2005 and 2004, respectively, were calculated using month-end balances. All other reported average balances were calculated using daily balances.

(2)		Average balances, interest income and interest expense include the results from discontinued operations. See Note 14 in the Consolidated Financial Statements.

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SCHEDULE III

TRANSCOMMUNITY FINANCIAL CORPORATION

EFFECT OF RATE-VOLUME CHANGE ON NET INTEREST INCOME

(dollars in thousands)


	2006 Compared to 2005								2005 Compared to 2004
	Increase (Decrease)								Increase (Decrease)
	Volume			Rate		Total			Volume			Rate		Total

Interest Income:
Loans, including fees	$	1,514		$	1,194	$	2,708		$	2,195		$	1,096	$	3,291
Federal funds sold		74			363		437			168			421		589
Investments		48			181		229			(29	)		191		162

Total Earning Assets		1,636			1,738		3,374			2,334			1,708		4,042

Interest Expense:
Demand deposits		(20	)		207		187			129			57		186
Savings deposits		6			35		41			17			17		34
Time deposits		539			820		1,359			392			493		885

Total deposits		525			1,062		1,587			538			567		1,105
Other borrowed Funds		(180	)		71		(109	)		217			182		399

Total interest-bearing Liabilities		345			1,133		1,478			755			749		1,504

Net increase (decrease) in net interest income	$	1,291		$	605	$	1,896		$	1,579		$	959	$	2,538

Note: Volume changes have been determined by multiplying the prior years’ average rate by the change in average balances outstanding. The rate change is the difference between the total change and the volume change.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices. TransCommunity’s primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of TransCommunity’s asset/liability management process. The board of directors of each bank delegates responsibility for carrying out asset/liability management policies to the Asset/Liability Committee, or ALCO, of TransCommunity Bank. In this capacity, ALCO develops guidelines and strategies that govern TransCommunity’s asset/liability management related activities, based upon estimated market risk sensitivity, policy limits, and overall market interest rate levels and trends. Under the new consolidated entity, it is anticipated that this function will be consolidated into the single bank’s operations and the board will establish the same type of ALCO committee to operate for the consolidated investment portfolio using the currently existing guidelines and procedures used by each separately chartered bank.

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with TransCommunity’s financial instruments also change, affecting net interest income, the primary component of TransCommunity’s earnings. The flat yield curve that currently exists, has existed now for several years and has forced the banks’ ALCO committees to focus on maintaining a short maturity highly liquid portfolio with a high level of floating investments. This portfolio structure is also necessary to maintain the liquidity for a growing loan portfolio experienced by TransCommunity Bank. The chart below summarized the estimated impact on net interest income from

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interest rate changes as listed based on earning assets and interest bearing liabilities for the years ended 2006 and 2005.


	2006
Rate Change	Estimated Net Interest Income Impact
	(Dollars in thousands)

+ 200 bp	$	834
+ 100 bp		419
- 100 bp		(415	)
- 200 bp		(831	)


	2005
Rate Change	Estimated Net Interest Income Impact
	(Dollars in thousands)

+ 200 bp	$	603
+ 100 bp		299
- 100 bp		(308	)
- 200 bp		(613	)

As market conditions vary from those currently being experienced, the banks, and in the future the consolidated bank, will monitor and make appropriate adjustments to the investment portfolio to address these changes to include, but not be limited to, increasing the duration on the portfolio and converting a larger portion of TransCommunity’s investment portfolio from floating to fixed rates.

SUPERVISION AND REGULATION

Holding Company Regulation and Structure

The following discussion sets forth some of the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries and provides some specific information that is currently relevant to BOE and Bank of Essex and will be relevant to Community Bankers following the merger. Other laws and regulations that govern various aspects of the operations of banks and bank holding companies are not described herein, although violations of such laws and regulations could result in supervisory enforcement action against a holding company, Bank of Essex or directors, officers and employees of each. The regulatory framework is intended primarily for the protection of depositors and the Federal Deposit Insurance Fund and not for the protection of security holders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. In the future, a change in applicable statutes, regulations or regulatory policy may have a material effect on Community Bankers and/or Bank of Essex.

Upon Federal Reserve approval Community Bankers will be a registered bank holding company under the bank holding company laws of the Commonwealth of Virginia. Community Bankers will also be subject to regulation and supervision by the Bureau of Financial Institutions of the Virginia State Corporation Commission.

Currently, BOE is and Community Bankers, following the merger, will be subject to regulation under the BHCA and the examination and reporting requirements of the Federal Reserve System. Under the BHCA, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank, or merge or consolidate with another bank holding company, without the prior approval of the Federal Reserve.

The BHCA also limits the activities of a bank holding company and its subsidiaries to that of banking, managing or controlling banks, or any other activity that is determined to be so closely related to banking or to managing or controlling banks that an exception is allowed for those activities. Under the Gramm-Leach-

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Bliley Act, or GLBA, however, qualifying bank holding companies may elect to be “financial holding companies” and to engage in a wider variety of activities, provided that each depository institution subsidiary of a financial holding company remains well capitalized and well managed.

Community Bankers has filed an election with the Federal Reserve to be a financial holding company upon consummation of the proposed transaction. As a financial holding company Community Bankers would be permitted to engage in a greater array of activities than a bank holding company, such as securities activities such as underwriting, dealing, and brokerage, investment and merchant banking, and insurance underwriting, sales and brokerage activities.

The Bureau of Financial Institutions of the Virginia State Corporation Commission and Federal Reserve Bank of Richmond conduct regular examinations of Bank of Essex, reviewing such matters as the adequacy of loan loss reserves, quality of loans and investments, management practices, compliance with laws, and other aspects of their operations. In addition to these regular examinations, Bank of Essex must furnish the Bureau of Financial Institutions of the Virginia State Corporation Commission and the Federal Reserve Bank of Richmond with periodic reports containing a full and accurate statement of its affairs.

Gramm-Leach-Bliley Act of 1999

The GLBA enables qualifying bank holding companies to acquire insurance companies and securities firms and effectively repeals depression-era laws that prohibited the affiliation of banks and other financial services entities under a single holding company.

Qualifying bank holding companies may elect to become financial holding companies under the GLBA. Financial holding companies are permitted to engage in activities considered financial in nature, as defined in GLBA, and may engage in a substantially broader range of activities than bank holding companies or banks. The GLBA enables financial holding companies to offer virtually any type of financial service, or services incident to financial services, including banking, securities underwriting, insurance underwriting and making merchant banking investments in commercial and financial companies.

Financial services authorized by the GLBA also may be engaged in by a “financial subsidiary” of a national or state bank, with the exception of insurance or annuity underwriting, insurance company portfolio investments, real estate investment and development, and merchant banking, all of which must be conducted under the financial holding company. In addition, the GLBA allows insurers and other financial services companies to acquire banks; removes various restrictions that applied to bank holding company ownership of securities firms and mutual fund advisory companies; and establishes the overall regulatory structure applicable to bank holding companies that also engage in insurance and securities operations.

To become a financial holding company, a bank holding company must provide notice to the Federal Reserve of its desire to become a financial holding company, and certify to the Federal Reserve that it and each of its bank subsidiaries is “well-capitalized,” “well-managed” and has at least a “satisfactory” rating under the Community Reinvestment Act (“CRA”). In the first quarter of 2004, TransCommunity has elected to be treated as a financial holding company under the GLBA.

The GLBA establishes a system of functional regulation, under which the Federal Reserve will regulate the banking activities of financial holding companies and other federal regulators will regulate banks’ financial subsidiaries. The SEC regulates securities activities of financial holding companies and state insurance regulators will regulate their business activities. The GLBA also provides new protections against the transfer and use by financial institutions of consumers’ non-public, personal information.

The GLBA also modifies other current financial laws, including laws related to financial privacy and community reinvestment. The new financial privacy provisions generally prohibit financial institutions, including BOE, from disclosing nonpublic personal financial information to nonaffiliated third persons unless customers have the opportunity to “opt out” of the disclosure.

In accordance with Federal Reserve regulations promulgated under the GLBA, Bank of Essex is required to disclose its policies for collecting and protecting confidential information. Customers generally may prevent

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Bank of Essex from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with a nonaffiliated third party. Additionally, Bank of Essex generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers.

FDIC Insurance

Deposits at Bank of Essex are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to the limits set forth under applicable law, including coverage for certain retirement accounts of up to $250,000. The deposits of these banks are subject to the deposit insurance assessments of the Deposit Insurance Fund, or DIF, of the FDIC.

Each insured institution is assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels and certain other factors. An institution’s assessment rate depends upon the category to which it is assigned. Risk Category I, which contains the least risky depository institutions, is expected to include more than 90% of all institutions. Unlike the other categories, Risk Category I contains further risk differentiation based on the FDIC’s analysis of financial ratios, examination component ratings and other information. Assessment rates are determined by the FDIC and currently range from five to seven basis points for the healthiest institutions (Risk Category I) to 43 basis points of assessable deposits for the riskiest (Risk Category IV). The FDIC may adjust rates uniformly from one quarter to the next, except that no single adjustment can exceed three basis points.

Interstate Banking

Federal law permits bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions, including nation-wide and state-imposed concentration limits. Banks are also able to branch across state lines, provided certain conditions are met, including that applicable state laws expressly permit such interstate branching. Virginia has adopted legislation that permits branching across state lines, provided there is reciprocity with the state in which the out-of-state bank is located. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under the applicable federal or state law.

Capital Requirements

Banking regulatory agencies have issued risk-based and leverage capital guidelines applicable to banking organizations which they supervise. Under the risk-based capital guidelines of the federal regulatory agencies, BOE and Bank of Essex are required to maintain a minimum ratio of total capital to risk-weighted assets of at least 8% and a minimum Tier 1 capital to risk-weighted assets of at least 4%. Following the merger, Community Bankers will be required to comply with this capital requirement. At least half of total capital is required to be composed of common equity, retained earnings and qualifying perpetual preferred stock, less certain intangibles and other adjustments (Tier 1 capital). The remainder (Tier 2 capital) may consist of a limited amount of subordinated debt and other qualifying debt (including certain hybrid capital instruments), and a limited amount of the loan loss reserve. As of September 30, 2007, Bank of Essex was considered well capitalized under the regulatory guidelines of the Federal Reserve.

In addition, the Federal Reserve has established minimum leverage capital ratio guidelines for bank holding companies. These requirements provide for a minimum leverage ratio of tier 1 capital to adjusted average quarterly assets less certain amounts (“leverage ratio”) equal to 3% for bank holding companies that are rated a composite “1” and 4% for all other bank holding companies that meet certain criteria, including having the highest regulatory rating. The risk-based capital guidelines of the federal regulatory agencies explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability to manage these risks, as important factors to be taken into account by the agencies in assessing an institution’s overall capital adequacy. The capital guidelines also provide that an institution’s

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exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organization’s capital adequacy.

Prompt Corrective Action

As an insured depository institution, the Bank of Essex also is required to comply with the capital requirements promulgated under the Federal Deposit Insurance Act and the Federal Reserve’s prompt corrective action regulations thereunder, which set forth five capital categories, each with specific regulatory consequences. Under these regulations, the categories are:


	•	Well Capitalized — The institution exceeds the required minimum level for each relevant capital measure. A well capitalized institution is one (i) having a total capital ratio of 10% or greater, (ii) having a tier 1 capital ratio of 6% or greater, (iii) having a leverage capital ratio of 5% or greater and (iv) that is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

	•	Adequately Capitalized — The institution meets the required minimum level for each relevant capital measure. No capital distribution may be made that would result in the institution becoming undercapitalized. An adequately capitalized institution is one (i) having a total capital ratio of 8% or greater, (ii) having a tier 1 capital ratio of 4% or greater and (iii) having a leverage capital ratio of 4% or greater or a leverage capital ratio of 3% or greater if the institution is rated composite 1 under the CAMELS (Capital, Assets, Management, Earnings, Liquidity and Sensitivity to market risk) rating system.

	•	Undercapitalized — The institution fails to meet the required minimum level for any relevant capital measure. An undercapitalized institution is one (i) having a total capital ratio of less than 8% or (ii) having a tier 1 capital ratio of less than 4% or (iii) having a leverage capital ratio of less than 4%, or if the institution is rated a composite 1 under the CAMEL rating system, a leverage capital ratio of less than 3%.

	•	Significantly Undercapitalized — The institution is significantly below the required minimum level for any relevant capital measure. A significantly undercapitalized institution is one (i) having a total capital ratio of less than 6% or (ii) having a tier 1 capital ratio of less than 3% or (iii) having a leverage capital ratio of less than 3%.

	•	Critically Undercapitalized — The institution fails to meet a critical capital level set by the appropriate federal banking agency. A critically undercapitalized institution is one having a ratio of tangible equity to total assets that is equal to or less than 2%.

If the Federal Reserve determines, after notice and an opportunity for hearing, that the bank is in an unsafe or unsound condition, the regulator is authorized to reclassify the bank to the next lower capital category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.

If the Bank of Essex is not well capitalized, it cannot accept brokered deposits without prior FDIC approval and, if approval is granted, cannot offer an effective yield in excess of 75 basis points on interests paid on deposits of comparable size and maturity in such institution’s normal market area for deposits accepted from within its normal market area, or national rate paid on deposits of comparable size and maturity for deposits accepted outside the bank’s normal market area. Moreover, if the Bank of Essex becomes less than adequately capitalized, it must adopt a capital restoration plan acceptable to the Federal Reserve that is subject to a limited performance guarantee by the corporation. The bank also would become subject to increased regulatory oversight, and is increasingly restricted in the scope of its permissible activities. Each company having control over an undercapitalized institution also must provide a limited guarantee that the institution will comply with its capital restoration plan. Except under limited circumstances consistent with an accepted capital restoration plan, an undercapitalized institution may not grow. An undercapitalized institution may not acquire another institution, establish additional branch offices or engage in any new line of business unless determined by the appropriate Federal banking agency to be consistent with an accepted capital

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restoration plan, or unless the FDIC determines that the proposed action will further the purpose of prompt corrective action. The appropriate federal banking agency may take any action authorized for a significantly undercapitalized institution if an undercapitalized institution fails to submit an acceptable capital restoration plan or fails in any material respect to implement a plan accepted by the agency. A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities.

An insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the payment, the institution, would be undercapitalized. In addition, an institution cannot make a capital distribution, such as a dividend or other distribution that is in substance a distribution of capital to the owners of the institution if following such a distribution the institution would be undercapitalized. Thus, if payment of such a management fee or the making of such would cause the bank to become undercapitalized, it could not pay a management fee or dividend to us.

Limits on Dividends and Other Payments

BOE is and following the merger Community Bankers will be a legal entity separate and distinct from its bank subsidiary. A significant portion of the revenues of Community Bankers will depend upon dividends or fees paid to it by Bank of Essex. Virginia law prohibits a Virginia chartered bank from paying dividends that would be greater than Bank of Essex’s accumulated retained earnings. Additionally, a Virginia chartered bank may not declare a dividend if the total amount of all dividends, including the proposed dividend, declared by the bank in any calendar year exceeds the total of the bank’s retained net income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the FDIC.

In addition, BOE and Bank of Essex are and following the merger, Community Bankers will be subject to various general regulatory policies and requirements relating to the payment of dividends, including the requirements to maintain adequate capital above regulatory minimums. Appropriate federal regulatory authorities are authorized to determine, under certain circumstances relating to the financial condition of a bank or bank holding company, that the payment of dividends would be unsafe or unsound practice and to prohibit payment thereof. Appropriate federal regulatory authorities have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, Community Bankers will be subject to state laws that limit the amount of dividends it can pay to its stockholders. Community Bankers expects that these laws, regulations or policies may materially impact the ability of Bank of Essex and, therefore, Community Bankers’ ability to pay dividends.

There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance funds in the event that the depository institution is insolvent or in danger of becoming insolvent. For example, under the policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to commit resources to support its subsidiary depository institutions.

Other Regulations

Community Bankers will be and Bank of Essex is subject to certain other federal laws and regulations which directly impact operations of Community Bankers:

USA PATRIOT Act

The USA PATRIOT Act amended, in part, the Bank Secrecy Act, collectively, the BSA, providing for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering by enhancing anti-money laundering and financial transparency laws, as well as enhanced information collection tools and enforcement mechanics for the U.S. government,

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including: (1) requiring standards for verifying customer identification at account opening; (2) rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering; (3) reports by nonfinancial trades and businesses filed with the Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000; (4) filing suspicious activities reports by brokers and dealers if they believe a customer may be violating U.S. laws and regulations; and (5) requires enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.

Under the USA PATRIOT Act, the Federal Bureau of Investigation, or FBI, can send banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities. The Bank of Essex can be requested, to search its records for any relationships or transactions with persons on those lists. If Bank of Essex find any relationships or transactions, Bank of Essex must file a suspicious activity report and contact the FBI.

The Office of Foreign Assets Control, or OFAC, which is a division of the U.S. Department of the Treasury, is responsible for helping to insure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC has sent, and will send, banking regulatory agencies lists of names of persons and organizations suspected of aiding, harboring or engaging in terrorist acts. If Bank of Essex finds a name on any transaction, account or wire transfer that is on an OFAC list, Bank of Essex must freeze such account, file a suspicious activity report and notify the FBI. Bank of Essex has appointed an OFAC compliance officer to oversee the inspection of Bank of Essex’s accounts and the filing of any notifications. Bank of Essex actively checks high-risk OFAC areas such as new accounts, wire transfers and customer files. Bank of Essex performs these checks utilizing software, which is updated each time a modification is made to the lists provided by OFAC and other agencies of Specially Designated Nationals and Blocked Persons.

Community Reinvestment Act

Bank of Essex is subject to the requirements of the CRA. The CRA imposes on financial institutions an affirmative and ongoing obligation to meet the credit needs of their local communities, including low and moderate-income neighborhoods, consistent with the safe and sound operation of those institutions. Bank of Essex’s efforts in meeting community credit needs are currently evaluated as part of the examination process pursuant to lending, investment and service tests. These factors are considered in evaluating mergers, acquisitions and applications to open a branch or facility, and an unsatisfactory rating can substantially delay or block a transaction.

Consumer Laws and Regulations

Bank of Essex is subject to various laws and regulations dealing generally with consumer protection matters. Bank of Essex may be subject to potential liability under these laws and regulations for material violations. Bank of Essex’s loan operations are also subject to federal laws applicable to credit transactions, such as the:


	•	Federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

	•	Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

	•	Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;

	•	Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures;

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	•	Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

	•	Servicemembers Civil Relief Act; and

	•	Rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

Deposit operations at the Bank of Essex are also subject to federal laws applicable to deposit transactions, such as the:


	•	Truth in Savings Act, which imposes disclosure obligations to enable consumers to make informed decisions about accounts at depository institutions;

	•	Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that Act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

	•	Rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

Sarbanes-Oxley Act of 2002

Community Bankers and BOE are subject to the periodic reporting requirements of the Exchange Act, including the filing of annual, quarterly and other reports with the SEC. As an Exchange Act reporting company, Community Bankers is directly affected by the Sarbanes-Oxley Act of 2002, or SOX, that is aimed at improving corporate governance and reporting procedures. Community Bankers and BOE believe they are in substantial compliance with applicable SEC and other rules and regulations implemented pursuant to SOX and intends to comply with any applicable rules and regulations implemented in the future.

Change in Control

Subject to various exceptions, the BHCA and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company. Moreover, the Bureau of Financial Institutions must approve an acquisition of a Virginia financial holding company. In general under federal and Virginia law, control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of a bank holding company. Under federal law, control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:


	•	the bank holding company has registered securities under Section 12 of the Exchange Act; or

	•	no other person owns a greater percentage of that class of voting securities immediately after the transaction.

Economic and Monetary Policies

The operations of BOE are affected not only by general economic conditions, but also by the economic and monetary policies of various regulatory authorities. In particular, the Federal Reserve regulates money, credit and interest rates in order to influence general economic conditions. These policies have a significant influence on overall growth and distribution of loans, investments and deposits and affect interest rates charged on loans or paid for time and savings deposits. Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

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COMPARATIVE RIGHTS OF COMMUNITY BANKERS
AND BOE STOCKHOLDERS

Community Bankers and BOE are incorporated under the laws of the State of Delaware and the Commonwealth of Virginia, respectively. Accordingly, the rights of Community Bankers’ stockholders and BOE’s stockholders are governed by the laws of the States of Delaware and Virginia, respectively. As a result of the merger, BOE’s stockholders will become stockholders of Community Bankers. Thus, following the merger, the rights of BOE’s stockholders who become Community Bankers’ stockholders in the merger will be governed by the laws of the State of Delaware and by the Community Bankers certificate of incorporation and bylaws. Community Bankers stockholders are being asked at the annual meeting of stockholders on , 2008, to adopt two amendments to the certificate of incorporation to be effected upon consummation of the merger with TransCommunity: an amendment to reset the terms of the classes of Community Bankers’ directors and an amendment to change the corporation’s name to “Community Bankers Trust Corporation.” At the special meeting, Community Bankers is asking its stockholders to adopt an additional amendment to the certificate of incorporation to further reset the terms of the classes of Community Bankers’ directors. Upon consummation of Community Bankers’ merger with BOE, BOE’s stockholders will be governed by Community Bankers’ amended and restated certificate of incorporation, as further amended, in substantially the form attached as Appendix B. If the amendment to the certificate of incorporation is adopted and the merger consummated, the Community Bankers board of directors will amend the bylaws to conform those sections relating to the staggered board of directors to the certificate of incorporation. BOE stockholders will be governed by Community Bankers’ bylaws, as a result of the merger. Virginia corporate law only refers to shares and stockholders and does not use the term “stock” or “stockholder.” Nonetheless, for ease of understanding throughout this joint proxy statement/prospectus, Community Bankers have applied the term “stock” to refer to the ownership rights of the stockholders of BOE and “stockholders” to refer to the “stockholders” of BOE. Accordingly, with respect to BOE, any references to “stock” should also be understood to refer to “shares” under Virginia corporate law and any references to “shareholders” should also be understood to refer to “stockholders” under Virginia Corporate Law.

The following is a comparison of certain rights of Community Bankers stockholders and those of BOE’s stockholders. Certain significant differences in the rights of Community Bankers stockholders and those of BOE’s stockholders arise from differing provisions of Community Bankers’ and BOE’s respective governing corporate instruments and respective governing laws.

The following summary is not intended to be a complete statement of Delaware or Virginia law or of the provisions of each company’s governing documents affecting, and the differences between, the rights of Community Bankers stockholders and those of BOE’s stockholders. The identification of specific provisions or differences is not meant to indicate that other equally or more significant differences do not exist. This summary is qualified in its entirety by reference to the respective governing corporate instruments of Community Bankers and BOE and Delaware and Virginia laws.

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Community Bankers		BOE


Authorized Capital

Community Bankers is authorized to issue 50,000,000 shares of common stock, par value $0.01 per share, of which shares were issued and outstanding as of the date of this joint proxy statement/prospectus. Community Bankers is authorized to issue 5,000,000 shares of preferred stock, par value $0.01 per share, of which no shares are issued and outstanding as of the date of this joint proxy statement/prospectus. Community Bankers’ certificate of incorporation does not provide that stockholders have a preemptive right to acquire authorized and unissued shares of Community Bankers’ stock.		BOE is authorized to issue 10,000,000 shares of common stock, par value $5.00 per share, of which shares were issued and outstanding as of the date of this joint proxy statement/prospectus, and 1,000,000 shares of preferred stock, par value $5.00 per share, of which no shares are issued and outstanding as of the date of this joint proxy statement/prospectus. BOE’s articles of incorporation do not provide that stockholders have a preemptive right to acquire authorized and unissued shares of BOE.

Number of Directors

Community Bankers’ bylaws provide that the board must consist of no less than one director, with the exact number fixed by the board of directors. The Community Bankers board of directors currently has five members.		BOE’s articles of incorporation and bylaws provide that the board must consist of not less than five directors and no more than 15 directors, with the exact number fixed by the board of directors. The BOE board of directors currently has nine members.

Classification of Directors

Community Bankers’ certificate of incorporation divides the board of directors into three classes of directors, as nearly equal as possible, with each class being elected to a staggered three-year term.		BOE’s articles of incorporation provide for a staggered board; the number of directors are divided into three groups with each group containing one-third of the total, as nearly equal in number as possible. Each group is elected to a staggered three-year term.

Vacancies and Newly Created Directorships

Community Bankers’ certificate of incorporation and bylaws provide that vacancies on the board of directors, including vacancies resulting from any increase in the authorized number of directors, may be filled by the affirmative vote of a majority of the remaining members of the board of directors or the sole remaining member of the board of directors. The term of a director appointed to fill a vacancy expires at the next stockholders’ meeting wherein directors are elected.		BOE’s bylaws provide that a vacancy on the board of directors, including a vacancy resulting from the removal of a director or an increase in the number of directors, may be filled by the stockholders, the board of directors or the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors, and may, in the case of a resignation that will become effective at a specified later date, be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs.

Removal of Directors

Community Bankers’ bylaws provide that any director may be removed, with or without cause, by holders of a majority of the shares entitled to vote at an election of directors.		BOE’s articles of incorporation and bylaws provide that a director may be removed from office as a director by the stockholders of a majority of the votes entitled to be cast at an election of directors only with cause.

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Community Bankers		BOE


Election of Directors

Community Bankers’ bylaws provide that all stockholder action, including the election of directors, is determined by a vote of the holders of a majority of the shares represented in person or by proxy and entitled to vote, at a meeting of stockholders at which a quorum is present. Community Bankers’ certificate of incorporation does not provide for cumulative voting for the election of directors.		BOE’s bylaws provide that directors shall be elected by BOE stockholders at each annual meeting at which a quorum is present, and the persons who receive the greatest number of votes shall be deemed elected as directors even though they do not receive a majority of the votes cast. BOE’s articles of incorporation do not provide for cumulative voting for the election of directors.

Nomination of Director Candidates

According to the Community Bankers’ bylaws, nominations of persons for election to the board of directors at a meeting of stockholders may be made at such meeting by or at the direction of the board of directors, by any committee or persons appointed by the board of directors or by any stockholder of Community Bankers entitled to vote for the election of directors at the meeting who complies with the notice procedures. Such nominations by a stockholder shall be made by giving written notice to the Secretary of Community Bankers, not less than 60 days nor more than 90 days prior to the meeting; provided however, that in the event that less than 70 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder, to be timely, must be received no later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs.		According to BOE’s bylaws, no person will be eligible for election as a director at a meeting of stockholders unless nominated by the board of directors or by a stockholder who is a stockholder of record of a class of shares entitled to vote for the election of directors. In order to nominate a director candidate, a stockholder must give BOE written notice, either by personal delivery to the Secretary or an Assistant Secretary of BOE at the principal office of BOE, or by first class United States mail, with postage prepaid, addressed to the Secretary of BOE at BOE’s principal office and be received on or after the first day of February and before the first day of March of the year in which the meeting will be held if the meeting is to be an annual meeting or not less than 60 days before an annual meeting, if the date of the applicable annual meeting has been changed by more than 30 days, or not later than the close of business on the tenth day following the day on which notice of a special meeting of stockholders called for the purpose of electing directors is first given to stockholders.

Special Meetings of the Board

Community Bankers’ bylaws allow for special meetings of the board of directors to be held whenever called by (1) the Chairman, the Chief Executive Officer or the President; (2) the Chairman, the Chief Executive Officer, the President or the Secretary on the written request of a majority of the board of directors; or (3) resolution adopted by the board of directors.		BOE’s bylaws allow for special meetings of the board of directors to be called by the Chairman, the President or a majority of the directors.

195


Community Bankers		BOE


Stockholder Action Without Meeting

Community Banker’s bylaws provide that an action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken by written consent, without prior notice and without a vote, if the written consent is signed by the holders of outstanding stock having at least the minimum number of votes that would be necessary to take such action at a meeting at which all shares entitled to vote thereon were present and voted, and is delivered to Community Bankers.		BOE’s bylaws provide that action required or permitted to be taken at a meeting of stockholders may be taken without a meeting and without action by the board of directors if the action is taken by all the stockholders entitled to vote on the action. The action will be evidenced by one or more written consents describing the action taken, signed by all the stockholders entitled to vote on the action, and delivered to the Secretary of BOE for inclusion in the minutes or filing with the corporate records.

Special Meetings of Stockholders

Community Bankers’ bylaws provide that special meetings of the stockholders may be called by a majority of the board of directors or by the Chairman, the Chief Executive Officer or the President and will be called by the Secretary at the request in writing of stockholders owning a majority of the shares of the entire capital stock of Community Bankers issued and outstanding and entitled to vote.		BOE’s bylaws provide that special meetings of the stockholders may be called only by the Chairman, the President or the board of directors.

196


Community Bankers		BOE


Stockholder Vote Required for Merger

Delaware law provides that the affirmative vote of a majority of all outstanding shares entitled to vote is required to adopt a merger agreement. Adoption of the merger agreement by stockholders is not required by Delaware law if (1) the agreement of merger does not amend in any respect the certificate of incorporation of Community Bankers, (2) each share of stock of Community Bankers outstanding immediately prior to the effective date of the merger is to be an identical outstanding or treasury share of the surviving corporation after the effective date of the merger, and (3) either no shares of common stock of the surviving corporation and no shares, securities or obligations convertible into such stock are to be issued or delivered under the plan of merger, or the authorized unissued shares or the treasury shares of common stock of the surviving corporation to be issued or delivered under the plan of merger plus those initially issuable upon conversion of any other shares, securities or obligations to be issued or delivered under such plan do not exceed 20% of the shares of common stock of Community Bankers outstanding immediately prior to the effective date of the merger. However, Community Bankers’ certificate of incorporation provides that the initial acquisition by Community Bankers of a company must be submitted to the stockholders for a vote regardless of whether it must be submitted under DGCL. Approval of such acquisition requires the affirmative vote of the holders of a majority of Community Bankers outstanding shares of common stock issued in the initial public offering of Community Bankers’ cast at the meeting. In addition, the holders of less than 20% of the outstanding shares of common stock issued in the Community Bankers’ initial public offering must have voted against the acquisition and thereafter exercised their right to convert their shares into cash equal to a pro rata portion of the Community Bankers trust account. If an initial acquisition, such as the merger with TransCommunity, is required to be approved by stockholders pursuant to Delaware law, then both the Delaware requirements and the certificate of incorporation requirements must be met to approve the acquisition. The merger with BOE would not be an initial acquisition and only Delaware law, and not the provisions of the certificate of incorporation would apply.		Virginia law provides that unless the articles of incorporation, or the board of directors in conditioning its submission of the plan of merger to the stockholders, require a greater vote, the plan of merger to be authorized will be approved by more than two-thirds of all votes entitled to be cast by each voting group. Virginia law also provides that the articles of incorporation may provide for greater or lesser vote so long as the vote is not less than a majority of all votes cast on the plan by each voting group entitled to vote on the transaction at a meeting at which a quorum of the voting group exists. BOE’s articles of incorporation do not provide for a greater or lessor vote than that provided pursuant to Virginia law.

197


Community Bankers		BOE


Affiliated Transaction Statute

Community Bankers has elected not to be governed by Section 203 of the DGCL, which limits engaging in a business combination with any interested stockholder.		BOE is subject to 13.1-725.1 and related provisions of the Virginia Stock Corporation Act known as the “Affiliated Transaction Statute.” Generally, no corporation may engage in any affiliated transaction with any interested stockholder for a period of three years following such interested stockholder’s determination date unless the transaction is approved by a vote of a majority of the disinterested directors and by the vote of holders of two thirds of the voting shares of the corporation other than shares owned by the interested stockholder.

State Anti-takeover Provisions

Community Bankers has elected not to be governed by Section 203 of the DGCL, which limits engaging in a business combination with any interested stockholder. There is no other Delaware law on this issue.		BOE is subject to 13.1-728.4 of the Virginia Stock Corporation Act, which provides that certain notice and informational filings and special stockholder meetings and voting procedures must occur prior to consummation of a proposed “control share acquisition.” “Control share acquisition” is defined as any acquisition of an issuer’s shares that would entitle the acquirer to exercise or direct the voting power of the issuer in the election of directors within any of the following ranges: • one fifth or more but less than one third of such voting power; • one third or more but less than a majority of such voting power; or • a majority or more of such voting power.

Indemnification of Directors and Officers

In accordance with Delaware law, Community Bankers’ certificate of incorporation and bylaws provide that Community Bankers will indemnify any person who was or is a party to any threatened pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative by reason of the fact he is or was a director, officer, employee, or agent of the corporation, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement incurred by him in connection with such action, suit or proceeding, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation. The board of directors may indemnify and advance expenses to any officer, employee or agent of Community Bankers to the extent authorized by the board of directors.		According to BOE’s articles on incorporation, BOE will indemnify any individual who is, was or is threatened to be made a party to a proceeding (including a proceeding by or in the right of BOE) because such individual is or was a director or officer of BOE or because such individual is or was serving BOE, or any other legal entity in any capacity at the request of BOE while a director or officer of BOE, against all liabilities and reasonable expenses incurred in the proceeding except such liabilities and expenses as are incurred because of such individual’s willful misconduct or knowing violation of the criminal law.

198


Community Bankers		BOE


Limitation on Liability of Directors

Community Bankers’ certificate of incorporation and bylaws provide that a director is not personally liable to the company or any of its stockholders for monetary damages for breach of fiduciary duty as director except for liability: • for any breach of the director’s duty of loyalty to the corporation or its stockholders; • for acts or omissions not in good faith or which involved intentional misconduct, or a knowing violation of law; • under Section 174 of the General Corporation Law of Delaware; or • for any transaction from which the director derive an improper personal benefit		BOE’s articles of incorporation provide that in every instance in which the Virginia Stock Corporation Act permits the limitation or elimination of liability of directors or officers of a corporation to the corporation or its stockholders, the directors and officers of BOE shall not be liable to BOE or its stockholders, except where such liabilities as are incurred because of such individual’s willful misconduct or knowing violation of the criminal law.

199


Community Bankers		BOE


Amendments to Governing Instruments

Delaware law provides that a corporation may amend its articles of incorporation if the board of directors proposes the amendment to the stockholders and the amendment receives the requisite stockholder approval. Unless a corporation’s articles of incorporation provide otherwise, amendments must be approved by a majority of all votes entitled to be cast on the matter, as well as a majority of the votes entitled to be cast on the matter within each voting class entitled to vote as a separate voting class on the amendment. Community Bankers’ certificate of incorporation provides that a majority of the entire board of directors may amend the bylaws.		According to BOE’s articles of incorporation, amendments to the articles of incorporation require approval by the affirmative vote of a majority of all the votes entitled to be cast at a meeting of stockholders of the Corporation, and shall require approval by the affirmative vote of a majority of the votes entitled to be cast by each voting group entitled to vote thereon as a separate voting group, except (1) that any amendment to Articles IV or VI or Section 3.3 or any amendment to the articles of incorporation of the corporation permitting cumulative voting by the stockholders require the approval by the affirmative vote of more than two-thirds of the votes entitled to be cast by each voting group entitled to vote thereon as a separate voting group and (2) that the affirmative vote of more than two-thirds of all the votes entitled to be cast at a meeting of stockholders of the Corporation, and the affirmative vote of more than two-thirds of all votes entitled to be cast by each voting group entitled to vote thereon as a separate voting group, shall be required for approval of any amendment if the effect of such amendment is (A) to reduce the stockholder vote required to approve a merger, statutory share exchange, a sale of all or substantially all the assets of the Corporation or the dissolution of the Corporation or (B) to delete all or any part of clause (2) of this sentence. BOE’s bylaws provide that the bylaws may be amended or repealed, and new bylaws may be made, at any regular or special meeting of the board of directors. Bylaws made by the board of directors may be repealed or changed and new bylaws may be made by the stockholders, and the stockholders may prescribe that any bylaw made by them shall not be altered, amended or repealed by the board of directors.

200

COMPARATIVE MARKET PRICES AND DIVIDENDS

Community Bankers common stock is listed on the American Stock Exchange under the symbol “BTC” and BOE common stock is listed on the Nasdaq Capital Market under the symbol “BSXT.” The following table sets forth the high and low trading prices of shares of Community Bankers common stock as reported on the American Stock Exchange and BOE common stock as reported by the Nasdaq Capital Market. Community Bankers stockholders and BOE stockholders are advised to obtain current market quotations for Community Bankers common stock and BOE common stock. The market price of Community Bankers common stock and BOE common stock will fluctuate between the date of this joint proxy statement/prospectus and the completion of the merger. No assurance can be given concerning the market price of Community Bankers common stock or BOE common stock before the effective date of the registration statement or the market price of Community Bankers common stock after the effective date of the registration statement. Community Bankers has not paid any cash dividends on its common stock during the periods presented. Upon completion of the merger, Community Bankers expects to pay regular dividends to its stockholders. Subject to board and regulatory approval, Community Bankers expects to pay quarterly cash dividends in an amount not less than the quotient obtained by dividing $0.22 by the BOE exchange ratio, for the foreseeable future.


	Community Bankers						BOE
	Common Stock(1)						Common Stock
	High		Low		Dividends		High		Low		Dividends

2006
First Quarter		—		—		—	$	37.50	$	34.39		—
Second Quarter		—		—		—	$	35.27	$	31.64	$	0.38
Third Quarter		—		—		—	$	34.19	$	30.00		—
Fourth Quarter	$	7.23	$	7.00		—	$	32.09	$	30.73	$	0.39
2007
First Quarter	$	7.50	$	7.10		—	$	32.50	$	30.45	$	0.19
Second Quarter	$	7.44	$	7.23		—	$	32.00	$	28.17	$	0.20
Third Quarter	$	7.46	$	7.31		—	$	28.93	$	25.12	$	0.21
Fourth Quarter	$	7.45	$	7.36		—	$	40.00	$	23.50	$	0.22
2008
First Quarter (through February 21, 2008)	$	7.54	$	7.38		—	$	32.98	$	25.00		—


(1)		Community Bankers common stock began trading on the American Stock Exchange on September 5, 2006.

The closing price for the Community Bankers common stock and BOE common stock on December 13, 2007, the last trading day before announcement of the execution of the merger agreement, was $7.41 and $26.47, respectively.

201

PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma condensed combined consolidated balance sheet combines the pro forma consolidated balance sheets of Community Bankers and TransCommunity as of September 30, 2007 giving effect to the merger of Community Bankers and TransCommunity, as if the merger with TransCommunity had been consummated on September 30, 2007, and combines the pro forma consolidated balance sheets of Community Bankers, TransCommunity and BOE as of September 30, 2007, giving effect to the merger of Community Bankers and TransCommunity and the merger of Community Bankers and BOE, as if the mergers had been consummated on September 30, 2007. The following unaudited pro forma condensed combined consolidated statements of income combine the pro forma statements of income of Community Bankers and the historical statements of operations of TransCommunity for the six-month period ended September 30, 2007, and the year ended March 31, 2007, giving effect to the merger with TransCommunity, as if it had occurred at the beginning of all periods presented, and combine the pro forma statements of income of Community Bankers, the historic statements of operations of TransCommunity and the historic statements of income of BOE for the six-month period ended September 30, 2007, and the year ended March 31, 2007, giving effect to both the merger with TransCommunity and the merger with BOE, as if they had occurred at the beginning of all periods presented.

The unaudited pro forma condensed combined consolidated balance sheet at September 30, 2007 and the statements of income for the periods ended September 30, 2007 and March 31, 2007, respectively, have been prepared using two different levels of approval of the merger with TransCommunity by the Community Bankers stockholders, as follows:


	•	Assuming Maximum Approval: This presentation assumes that 100% of Community Bankers stockholders approve the merger with TransCommunity; and

	•	Assuming Minimum Approval: This presentation assumes that only 80.1% of Community Bankers stockholders approve the merger with TransCommunity and the remaining 19.9% all vote against the merger and elect to exercise their conversion rights.

We are providing this information to aid you in your analysis of the financial aspects of the merger with BOE. The unaudited pro forma condensed combined consolidated financial statements described above should be read in conjunction with the historical financial statements of Community Bankers, TransCommunity and BOE and the related notes thereto. The unaudited pro forma information is not necessarily indicative of the financial position or results of operations that may have actually occurred had the mergers taken place on the dates noted, or the future financial position or operating results of the combined company.

202

COMMUNITY BANKERS ACQUISITION CORP.

TRANSCOMMUNITY FINANCIAL CORPORATION

BOE FINANCIAL SERVICES OF VIRGINIA, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
ASSUMING MAXIMUM APPROVAL
SEPTEMBER 30, 2007


	Community
	Bankers		TransCommunity								BOE Financial						Pro Forma
	Acquisition		Financial			Pro Forma			Pro Forma		Services of			Pro Forma			Combined
	Corp.		Corporation			Acquisition			Combined		Virginia, Inc			Acquisition			(CBA, TFC
	(CBA)		(TFC)			Adjustments			(CBA & TFC)		(BOE)			Adjustments			& BOE)
	(In thousands, except share and per share data)

ASSETS
Cash and due from banks	$	397	$	6,051		$	57,937	(B)	$	63,238	$	4,619		$	—		$	67,857
							(1,147	)(A1)
Federal funds sold		—		4,061			—			4,061		966			—			5,027
Cash and United States Treasury securities held in trust fund		57,937		—			(57,937	)(B)		—		—			—			—
Securities available for sale, at fair value		—		10,314			—			10,314		49,382			—			59,696
Securities held to maturity		—		6,400			(44	)(E)		6,356		4,761			(51	)(N)		11,066
Loans, net of allowance for loan losses		—		186,340			72	(E)		186,412		213,500			(299	)(N)		399,613
Premises and equipment, net		—		7,114						7,114		10,577			—			17,691
Core deposit intangible		—		—			5,684	(E)		5,684		—			9,702	(N)		15,386
Goodwill		—		—		$	15,011	(F)		15,011		—			16,224	(O)		31,235
Other assets		687		2,768			3,647	(E)		7,102		10,962			—			18,064

Total Assets	$	59,021	$	223,048		$	23,223		$	305,292	$	294,767		$	25,576		$	625,635


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	—	$	22,575		$	—		$	22,575	$	28,968		$	—		$	51,543
Interest bearing		—		169,389			291	(E)		169,680		212,022			(203	)(N)		381,499

Total Deposits	$	—		191,964			291			192,255		240,990			(203	)		433,042
Federal Home Loan Bank advances		—		—			—			—		17,000			—			17,000
Trust preferred capital notes		—		—			—			—		4,124			—			4,124
Other liabilities		2,344		1,152			1,400	(C)		4,896		3,305			1,400	(L)		9,601
															1,000	(L1)		1,000
Total liabilities	$	2,344	$	193,116		$	1,691		$	197,151	$	265,419		$	2,197		$	464,767

Common stock, subject to conversion, 1,449,250 shares at conversion value		11,582		—			(11,582	)(J1)		—		—			—			—

STOCKHOLDERS’ EQUITY
Community Bankers Acquisition Corp. Preferred stock, $0.01 par value Authorized 5,000,000 shares; none issued		—		—			—			—		—			—			—
Common Stock, $0.01 par value Authorized 50,000,000 shares Issued and outstanding 9,375,000 shares (which includes 1,499,250 shares subject to conversion)		94		—			65	(A)		159		—			69	(K)		228
Additional paid-in capital		43,098		—			51,399	(A)		94,497		—			52,658	(K)		147,155
							11,582	(J1)		11,582								11,582
Earnings accumulated during the development stage		1,903		—			—			1,903		—			—			1,903
																		—
TransCommunity Financial Corporation																		—
Common Stock, $0.01 par value																		—
Authorized 25,000,000 shares																		—
Issued and outstanding 4,586,741 shares		—		46			(46	)(D)		—		—			—			—
Additional paid-in capital		—		39,904			(39,904	)(D)		—		—			—			—
Accumulated deficit		—		(10,027	)		11,174	(D)		—		—			—			—
							(1,147	)(A1)
Accumulated other comprehensive loss		—		9			(9	)(D)		—		—			—			—
BOE Financial Services of Virginia, Inc. Common Stock, $5 par value Authorized 10,000,000 shares Issued and outstanding 1,211,267 shares		—		—			—			—		6,056			(6,056	)(H)		—
Additional paid-in capital		—		—			—			—		5,551			(5,551	)(H)		—
Retained Earnings		—		—			—			—		18,542			(18,542	)(H)		—
Accumulated other comprehensive loss		—		—			—			—		(801	)		801	(H)		—

Total stockholders’ equity		45,095		29,932			33,114			108,141		29,348			23,379			160,868

Total liabilities and stockholders’ equity	$	59,021	$	223,048		$	23,223		$	305,292	$	294,767		$	25,576		$	625,635

See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

203

COMMUNITY BANKERS ACQUISITION CORP.
TRANSCOMMUNITY FINANCIAL CORPORATION
BOE FINANCIAL SERVICES OF VIRGINIA, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEET
ASSUMING MINIMUM APPROVAL
SEPTEMBER 30, 2007


	Community		TransCommunity								BOE Financial						Pro Forma
	Bankers		Financial			Pro Forma			Pro Forma		Services of			Pro Forma			Combined
	Acquisition		Corporation			Acquisition			Combined		Virginia, Inc			Acquisition			(CBA, TFC
	Corp. (CBA)		(TFC)			Adjustments			(CBA & TFC)		(BOE)			Adjustments			& BOE)
	(In thousands, except share and per share data)

ASSETS
Cash and due from banks	$	397	$	6,051		$	57,937	(B)	$	51,656	$	4,619		$	—		$	56,275
		—		—			(11,582	) (J2)
							(1,147	) (A1)
Federal funds sold		—		4,061			—			4,061		966			—			5,027
Cash and United States Treasury securities held in trust fund		57,937		—			(57,937	) (B)		—		—			—			—
Securities available for sale, at fair value		—		10,314			—			10,314		49,382						59,696
Securities held to maturity		—		6,400			(44	) (E)		6,356		4,761			(51	) (N)		11,066
Loans, net of allowance for loan losses		—		186,340			72	(E)		186,412		213,500			(299	) (N)		399,613
Premises and equipment, net		—		7,114			—			7,114		10,577			—			17,691
Core deposit intangible		—		—			5,684	(E)		5,684		—			9,702	(N)		15,386
Goodwill		—		—			15,011	(F)		15,011		—			16,224	(O)		31,235
Other assets		687		2,768			3,647	(E)		7,102		10,962			—			18,064

Total Assets	$	59,021	$	223,048		$	11,641		$	293,710	$	294,767		$	25,576		$	614,053


LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	—	$	22,575		$	—		$	22,575	$	28,968		$	—		$	51,543
Interest bearing		—		169,389			291	(E)		169,680		212,022			(203	) (N)		381,499

Total Deposits		—		191,964			291			192,255		240,990			(203	)		433,042
Federal Home Loan Bank advances		—		—			—			—		17,000			—			17,000
Trust preferred capital notes		—		—			—			—		4,124			—			4,124
Other liabilities		2,344		1,152			1,400	(C)		4,896		3,305			1,400	(L)		9,601
															1,000	(L1)		1,000
Total liabilities	$	2,344	$	193,116		$	1,691		$	197,151	$	265,419		$	2,197		$	464,767

Common stock, subject to conversion, 1,449,250 shares at conversion value		11,582		—			(11,582	) (J2)		—		—			—			—

STOCKHOLDERS’ EQUITY
Community Bankers Acquisition Corp. Preferred stock, $0.01 par value Authorized 5,000,000 shares; none issued		—		—			—			—		—			—			—
Common Stock, $0.01 par value Authorized 50,000,000 shares Issued and outstanding 9,375,000 shares (which includes 1,499,250 shares subject to conversion)		94					65	(A)		144					69	(K)		213
							(15	) (J2)
Additional paid-in capital		43,098		—			51,163	(A)		94,512		—			52,658	(K)		147,170
							15	(J2)
Earnings accumulated during the development stage		1,903		—			—			1,903		—			—			1,903
																		—
TransCommunity Financial Corporation																		—
Common Stock, $0.01 par value																		—
Authorized 25,000,000 shares																		—
Issued and outstanding 4,586,741 shares		—		46			(46	) (D)		—		—			—			—
Additional paid-in capital		—		39,904			(39,904	) (D)		—		—			—			—
Accumulated deficit		—		(10,027	)		11,174	(D)		—		—			—			—
							(1,147	) (A1)
Accumulated other comprehensive loss		—		9			(9	) (D)		—		—			—			—
BOE Financial Services of Virginia, Inc.
Common Stock, $5 par value Authorized 10,000,000 shares Issued and outstanding 1,211,267 shares		—		—			—			—		6,056			(6,056	) (M)		—
Additional paid-in capital		—		—			—			—		5,551			(5,551	) (M)		—
Retained Earnings		—		—			—			—		18,542			(18,542	) (M)		—
Accumulated other comprehensive loss		—		—			—			—		(801	)		801	(M)		—
Total stockholders’ equity		45,095		29,932			21,532			96,559		29,348			23,379			149,286

Total liabilities and stockholders’ equity	$	59,021	$	223,048		$	11,641		$	293,710	$	294,767		$	25,576		$	614,053

See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

204

COMMUNITY BANKERS ACQUISITION CORP.
TRANSCOMMUNITY FINANCIAL CORPORATION
BOE FINANCIAL SERVICES OF VIRGINIA, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007


	Community
	Bankers		TransCommunity			Pro Forma			Pro Forma			BOE Financial
	Acquisition		Financial			Acquisition			Combined (CBA			Services of		Pro Forma Acquisition			Pro Forma Combined
	Corp.(1)		Corporation(2)			Adjustments			& TFC)			Virginia, Inc(3)		Adjustments			(CBA, TFC & BOE)
	(In thousands, except share and per share data)

Interest income		$1,429		$8,133			$(5	)(H)		$9,557			$9,155		$58	(Q)		$18,770
Interest expense		—		3,015			(73	)(I)		2,942			4,228		51	(R)		7,221

Net interest income		1,429		5,118			68			6,615			4,927		7			11,549
Provision for loan losses		—		512			—			512			—		—			512

Net interest income after provision for loan losses		1,429		4,606			68			6,103			4,927		7			11,037

Noninterest income		—		563			—			563			989		—			1,552

Noninterest expense		172		5,698			—			5,870			4,244		—			10,114
Amortization of intangibles		—		—			355	(G)		355			—		606	(P)		961

Total noninterest expense		172		5,698			355			6,225			4,244		606			11,075

Income (loss) before income taxes		1,257		(529	)		(287	)		441			1,672		(599	)		1,514
Provision for income taxes		478		—			—			478			300		(204	)(S)		574

Net income (loss) from continuing operations		779		(529	)		(287	)		(37	)		1,372		(395	)		940
Net (loss) from discontinued operations		—		(77	)		—			(77	)		—		—			(77	)

Net income (loss)		$779		$(606	)		$(287	)		$(114	)		$1,372		$(395	)		$863

Net Income (Loss) Per Common Share
No conversions:
Basic		$0.08		$(0.12	)					$(0.002	)		$1.14					$0.04
Diluted		0.07		(0.12	)					(0.002	)		1.13					0.04
Maximum conversions:
Basic										(0.001	)							0.04
Diluted										(0.001	)							0.04
Weighted Average Shares Outstanding
No conversions:
Basic		9,375,000		4,587,000						15,888,540			1,208,732					22,811,915
Diluted		11,807,432		4,587,000						18,320,972	*		1,215,455					25,282,855
Maximum conversions:
Basic										14,389,290								21,312,665
Diluted										16,821,722	*							23,783,605


*		Basic and diluted earnings per share same due to net loss.
(1)		For the six month period ended September 30, 2007.
(2)		For the six month period ended June 30, 2007.
(3)		For the six month period ended June 30, 2007.

See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

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COMMUNITY BANKERS ACQUISITION CORP.
TRANSCOMMUNITY FINANCIAL CORPORATION
BOE FINANCIAL SERVICES OF VIRGINIA, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDING MARCH 31, 2007


	Community
	Bankers
	Acquisition		TransCommunity			Pro Forma			Pro Forma			BOE Financial		Pro Forma			Pro Forma
	Corp.		Financial			Acquisition			Combined			Services of		Acquisition			Combined
	(1)		Corporation(2)			Adjustments			(CBA & TFC)			Virginia, Inc(3)		Adjustments			(CBA, TFC & BOE)
	(In thousands, except share and per share data)

Interest income	$	2,269	$	14,307			$(9	)(H)	$	16,567		$	16,734		$(117	)(Q)		$33,418
Interest expense		—		4,958			(146	)(I)		4,812			6,972		(102	)(R)		11,886

Net interest income		2,269		9,349			137			11,755			9,762		15			21,532
Provision for loan losses		—		493			—			493			125		—			618

Net interest income after provision for loan losses		2,269		8,856			137			11,262			9,637		15			20,914

Noninterest income		—		1,011			—			1,011			2,250		—			3,261

Noninterest expense		339		8,933			—			9,272			7,892		—			17,165
Amortization of intangibles		—		—			711	(G)		711			—		1,213	(P)		1,924

Total noninterest expense		339		8,933			711			9,983			7,892		1,213			19,088

Income from continuing operations before income taxes		1,930		934			(574	)		2,290			3,995		(1,198	)		5,087
Provision for income taxes		806		15			—			821			872		(407	)(S)		1,286

Net income from continuing operations		1,124		919			(574	)		1,469			3,123		(791	)		3,801
Net (loss) from discontinued operations		—		(802	)		—			(802	)		—		—			(802	)

Net income	$	1,124	$	117			$(574	)	$	667		$	3,123		$(791	)		$2,999

Net Income (Loss) Per Common Share
No conversions:
Basic	$	0.14	$	0.03					$	0.05		$	2.60					$0.14
Diluted		0.11		0.03						0.04			2.58					0.13
Maximum conversions:
Basic										0.05								0.15
Diluted										0.04								0.14
Weighted Average Shares Outstanding
No conversions:
Basic		7,997,740		4,581,741						14,503,812			1,201,465					21,385,563
Diluted		10,256,708		4,581,741						16,762,780			1,210,922					23,698,699
Maximum conversions:
Basic										13,004,562								19,886,313
Diluted										15,263,530								22,199,449


(1)		For the twelve month period ended March 31, 2007.

(2)		For the twelve month period ended December 31, 2006.

(3)		For the twelve month period ended December 31, 2006.

See Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

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Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial Statements

The pro forma information presented is not necessarily indicative of the results of operations or the combined financial position that would have resulted had the merger been consummated at the beginning of the periods indicated, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined company. It is anticipated that the merger will be completed in the second quarter of 2008.


*Note 1 —*	*Basis of Presentation and TransCommunity Acquisition*

Basis of Presentation

The unaudited pro forma condensed combined consolidated financial statements give effect to the merger of Community Bankers and TransCommunity in a business combination accounted for as a purchase. As a result of the merger, TransCommunity common stock will be converted into Community Bankers.

TransCommunity Acquisition

Upon completion of the acquisition, each common share of TransCommunity is assumed to be converted into 1.42 common shares of Community Bankers.

The pro forma balance sheet reflects the proposed exchange ratio as if it had occurred on September 30, 2007 based on an estimated market value of Community Bankers common stock of $7.42 per share. If the daily average closing price for Community Bankers’ common stock for the 20 consecutive days of trading in such stock ending five days before the closing date is less than $7.42, Community Bankers will increase the exchange ratio resulting in Community Bankers issuing more shares of Community Bankers stock to TransCommunity stockholders such that the total minimum consideration would remain unchanged.

Transaction costs incurred in the merger are assumed to be $1,000,000 for Community Bankers and $400,000 for TransCommunity which are reflected as liabilities as of the merger date. TransCommunity does not anticipate incurring material non-recurring charges related to the merger.

No tax provision or deferred taxes are reflected in the pro forma acquisition adjustments due to the net operating losses previously incurred by TransCommunity and the uncertainty of realization of deferred taxes in future periods.

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Pro Forma Adjustments

Described below is the pro forma estimate of the total purchase price of the transaction as well as the adjustment to allocate the purchase price based on the preliminary estimates of the fair values of the assets and liabilities of TransCommunity. This estimate does not include TransCommunity’s plans to declare a one-time special dividend in the amount of $0.25 per share to TransCommunity stockholders, which dividend would be paid immediately prior to the effective time of the merger of TransCommunity and Community Bankers. This dividend would be subject to regulatory approval and would only occur after all conditions to the closing are satisfied.


Estimated fair value of Community Bankers’ common stock to be issued to TransCommunity’s stockholders	$	48,328
Fair value of vested Community Bankers’ common stock to be issued to TransCommunity’s restricted stockholders		236
Fair value of vested Community Bankers’ common stock to be issued to TransCommunity’s option holders		2,900
Transaction related costs incurred by Community Bankers in the merger		1,000

Total purchase price paid by Community Bankers for TransCommunity		52,464
Less adjusted net assets of TransCommunity		(37,453	)

Goodwill recorded in the merger		15,011

The adjusted net assets of TransCommunity are determined as follows:
TransCommunity’s stockholders’ equity at September 30, 2007		29,932
Less special dividend of $0.25 per share		(1,147	)
Less transaction related costs incurred by TransCommunity in the merger		(400	)
Adjustments for fair values of assets acquired and liabilities assumed		9,068

Adjusted net assets of TransCommunity		37,453

The fair value adjustments for the TransCommunity Corporation assets acquired and liabilities assumed are as follows:
Increase in loans		72
Decrease in securities		(44	)
Core deposit intangible		5,684
Increase in deposits		(291	)
Deferred income taxes		3,647

Total fair value adjustments	$	9,068


Estimated fair value of Community Bankers’ common stock to be issued to TransCommunity’s stockholders:	Common Stock	Restricted Stock	Stock Options

Number of shares for TransCommunity	4,586,741	22,375	275,275
Exchange ratio	1.42	1.42	1.42

	6,513,172	31,773	390,891
Stock price	7.42	7.42	7.42

Estimated Fair Value	48,327,738	235,752	2,900,408

BOE Acquisition

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and liabilities of BOE. BOE anticipates incurring non-recurring charges related to the merger. These charges are estimated to be $1,000,000 to be paid in the third and fourth quarters of 2008 and relate primarily to the termination of certain data processing contracts. BOE does not anticipate charges from the formation of employee contracts.


Estimated fair value of Community Bankers’ common stock to be issued to BOE’s’ stockholders	$	51,479
Fair value of vested Community Bankers’ common stock to be issued to BOE’s option holders		1,248
Transaction related costs incurred by Community Bankers in the merger		1,000

Total purchase price paid by Community Bankers for BOE		53,727
Less adjusted net assets of BOE		(37,503	)

Goodwill recorded in the merger		16,224

The adjusted net assets of BOE are determined as follows:
BOE’s stockholders’ equity at September 30, 2007		29,348
Less transaction related costs incurred by BOE in the merger		(400	)
Less non-recurring charges		(1,000	)
Adjustments for fair values of assets acquired and liabilities assumed		9,555

Adjusted net assets of BOE		37,503

The fair value adjustments for the BOE assets acquired and liabilities assumed are as follows:
Decrease in loans		(299	)
Decrease in securities		(51	)
Core deposit intangible		9,702
Decrease in deposits		203

Total fair value adjustments	$	9,555

Estimated fair value of Community Bankers’ common stock to be issued to BOE’s stockholders:		Common Stock		Stock Options

Number of shares for BOE		1,211,267		29,359
Exchange ratio		5.7278		5.7278

		6,937,895		168,162
Stock price		7.42		7.42

Estimated Fair Value		51,479,182		1,247,766


*Note 2 —*	*Description of Pro Forma Acquisition Adjustments*

The purchase accounting and pro forma adjustment related to the unaudited pro forma condensed combined consolidated balance sheet and income statements are described below:


A.	Issuance of 6,544,945 shares of Community Bankers $0.01 par value common stock with an effective date value of $7.42 per shares, combined with the value of vested options issued to TransCommunity option holders.

A.1	A1 Payment of special dividend of $0.25 per share to TransCommunity stockholders prior to the effective time of the merger.

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B.	To record the release of funds held in trust.

C.	To record liabilities incurred for transaction costs.


D.	To eliminate TransCommunity’s equity accounts.


E.	To record fair value adjustments to TransCommunity’s assets acquired and liabilities assumed.


F.	To record goodwill.


G.	To record amortization of the core deposit intangible using the straight-line method over a eight-year life.

H.	To reduce interest income for the effects the fair value adjustments to loans and securities over a three year period.


I.	To reduce interest expense for the effects of the fair value adjustments to deposits over a two year period.


J1.	Assuming maximum approval, to reclassify common stock subject to redemption to permanent equity.

J2.	Assuming minimum approval, to record refund of funds to converting stockholders, representing 19.99%.


K.	Issuance of 6,937,895 shares of Community Bankers $0.01 par value common stock with an effective date value of $7.42 per shares, combined with the value of vested options issued to BOE option holders.


L.	To record liabilities incurred for transaction costs.


L1.	To record liabilities for non-recurring charges.


M.	To eliminate BOE’s equity accounts.


N.	To record fair value adjustments to BOE’s assets acquired and liabilities assumed.

O.	To record goodwill.


P.	To record amortization of the core deposit intangible using the straight-line method over a eight-year life.


Q.	To reduce interest income for the effects the fair value adjustments to loans and securities over a three year period.


R.	To reduce interest expense for the effects of the fair value adjustments to deposits over a two year period.


S.	Tax effect of adjustments.

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DESCRIPTION OF SECURITIES OF COMMUNITY BANKERS

Community Bankers’ Transfer Agent and Warrant Agent

Community Bankers is authorized to issue 50,000,000 shares of common stock, par value $.01, and 5,000,000 shares of preferred stock, par value $.01. After the merger with BOE, Community Bankers will have approximately shares of common stock outstanding. No shares of preferred stock are currently outstanding. Community Bankers common stock is listed on the American Stock Exchange under the symbol “BTC.”

Units

Each unit consists of one share of common stock and one redeemable warrant. Each redeemable warrant entitles the holder to purchase one share of common stock at an exercise price of $5.00 per share. Community Bankers’ units are listed on the American Stock Exchange under the symbol “BTC.U.”

Common Stock

Community Bankers’ stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders. In connection with the vote required for the merger, all of Community Bankers’ directors and officers have indicated they will vote in favor of the merger.

Community Bankers’ board of directors is divided into three classes, each of which will generally serve for a term of three years with only one class of directors being elected in each year. There is no cumulative voting with respect to the election of directors.

If Community Bankers is forced to dissolve and liquidate and the dissolution and liquidation were to be approved by stockholders owning a majority of Community Bankers common stock upon Community Bankers’ failure to timely complete the merger with TransCommunity, holders of common stock issued in its initial public offering would be entitled to receive their proportionate share of the trust account (including any interest not released to Community Bankers, net of taxes, and the deferred underwriting discount) plus any remaining assets less amounts Community Bankers pays, or reserves to pay, for all of its liabilities and obligations. These liabilities and obligations include Community Bankers’ corporate expenses arising during its remaining existence and the costs associated with its dissolution and liquidation. To the extent that funds reserved to pay obligations or liabilities are not subsequently used for such purpose, the funds will be available for distribution to Community Bankers’ holders of common stock issued in its initial public offering. Community Bankers insiders agreed to waive their rights to share in any liquidating distribution with respect to common stock owned by them prior to consummation of Community Bankers’ initial public offering in the event Community Bankers is not able to timely complete the merger with TransCommunity. In addition, I-Bankers Securities, Inc., Maxim Group LLC and Legend Merchant Group, Inc. the representatives of the underwriters in Community Bankers’ initial public offering agreed to forfeit any rights to or claims against the portion of the trust account attributable to the underwriters’ discount in the event Community Bankers is not able to timely complete the merger with TransCommunity.

Community Bankers’ stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock, except that holders of common stock issued in Community Bankers’ initial public offering, other than those shares acquired by Community Bankers insiders, who have waived such rights, have the right to have their shares of common stock converted to cash equal to their pro rata portion of the Community Bankers trust account if they properly elect such conversion and vote against a business combination such as the merger with TransCommunity which is ultimately approved and completed. Holders of common stock issued in Community Bankers’ initial public offering who convert their stock into cash equal to a pro rata portion of the Community Bankers trust account will continue to own their redeemable warrants and have the right to sell, transfer or exercise such redeemable warrants.

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Preferred Stock

Community Bankers’ certificate of incorporation authorizes the issuance of 5,000,000 shares of blank check preferred stock with such designations, rights and preferences as may be determined from time to time by Community Bankers’ board of directors. Accordingly, Community Bankers’ board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of common stock, although the underwriting agreement executed in connection with Community Bankers’ initial public offering prohibits Community Bankers, prior to completion of the merger with TransCommunity, from issuing preferred stock which participates in any manner in the proceeds of the trust account, or that votes separately or as a class with the common stock on the merger. The issuance of preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control of Community Bankers. Although there are no shares of preferred stock outstanding and Community Bankers does not currently intend to issue any shares of preferred stock, there is no assurance that Community Bankers will not do so in the future.

Redeemable Warrants

Community Bankers currently has 7,500,000 redeemable warrants outstanding. Each redeemable warrant entitles the registered holder to purchase one share of Community Bankers’ common stock at a price of $5.00 per share, subject to adjustment as discussed below, at any time commencing upon the completion of the merger with TransCommunity, provided a current prospectus is available as discussed below. The redeemable warrants will expire on June 4, 2011 at 5:00 p.m., New York City time. Community Bankers warrants are listed on the American Stock Exchange under the symbol “BTC.W.”

An additional 525,000 warrants relating to Community Bankers common stock may be issued upon exercise of the unit purchase option issued to I-Bankers Securities, Inc., Maxim Group LLC and Legend Merchant Group, Inc. the representatives of the underwriters, in connection with Community Bankers’ initial public offering. The unit purchase option allows the I-Bankers Securities, Inc., Maxim Group LLC and Legend Merchant Group, Inc. representatives of the underwriters to purchase an aggregate of 525,000 units, at a purchase price of $10.00 per unit, including 525,000 warrants, each of which allows the representatives of the underwriters to purchase one share of Community Bankers common stock at a price of $7.50 per share.

Provided Community Bankers obtains the prior consent of the I-Bankers Securities, Inc., one of the representatives of the underwriters in Community Bankers’ initial public offering, Community Bankers may call the outstanding redeemable warrants, including those issuable upon exercise of the purchase option described above, but excluding those warrants repurchased by Community Bankers Acquisition, LLC, an affiliate of Gary A. Simanson, Community Bankers’ president and chief executive officer, and by the representatives of the underwriters in Community Bankers’ initial public offering so long as such warrants are held by the representatives of the underwriters, for redemption:


	•	in whole and not in part;

	•	at a price of $.01 per warrant at any time after the redeemable warrants become exercisable;

	•	upon not less than 30 days’ prior written notice of redemption to each warrant holder; and

	•	if, and only if, the reported last sale price of the common stock equals or exceeds $11.50 per share, for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to warrant holders and a registration statement is in effect with respect to the shares of common stock underlying the warrants.

If the foregoing conditions are satisfied and Community Bankers calls the warrants for redemption, each warrant holder shall then be entitled to exercise his or her warrant, prior to the date scheduled for redemption, by payment of the exercise price in cash. In addition, Community Bankers may elect to permit the exercise of warrants called for redemption on a “cashless basis.” Exercises on a cashless basis enable the holder to exercise the warrants without paying the cash exercise price of the warrants. In a cashless exercise, the warrant holder is able to acquire a number of shares of common stock equal to the inherent value of the warrants to be exercised (the aggregate fair market value of the common stock that may be acquired upon the exercise of the warrants minus the total exercise price of the warrants) divided by the value of the common stock. The

212

“value” of the common stock will be determined using the average reported last sale price of the common stock for the ten trading days ending on the third business day prior to the notice of redemption to warrant holders. In the notice of redemption, Community Bankers will provide to each warrant holder the “value” of the common stock and the number of shares of Community Bankers common stock that such warrant holder would receive upon exercise of the warrants on a cashless basis.

The exercise price and number of shares of common stock issuable on exercise of the redeemable warrants may be adjusted in certain circumstances including in the event of a stock dividend, or Community Bankers’ recapitalization, reorganization, merger or consolidation. However, the redeemable warrants will not be adjusted for issuances of common stock, preferred stock or other securities at a price below their respective exercise prices.

The redeemable warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified check payable to us, for the number of redeemable warrants being exercised. The warrant holders do not have the rights or privileges of holders of common stock or any voting rights until they exercise their redeemable warrants and receive shares of common stock. After the issuance of shares of common stock upon exercise of the redeemable warrants, each holder will be entitled to one vote for each share held of record on all matters to be voted on by stockholders.

No redeemable warrants will be exercisable unless at the time of exercise a prospectus relating to common stock issuable upon exercise of the redeemable warrants is current and the common stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the redeemable warrants. Under the terms of the warrant agreement, Community Bankers has agreed to meet these conditions and use commercially reasonable efforts to maintain a current prospectus relating to common stock issuable upon exercise of the redeemable warrants until the expiration of the redeemable warrants. However, Community Bankers cannot assure you that it will be able to do so. The redeemable warrants may be deprived of any value and the market for the redeemable warrants may be limited if the prospectus relating to the common stock issuable upon the exercise of the redeemable warrants is not current or if the common stock is not qualified or exempt from qualification in the jurisdictions in which the holders of the redeemable warrants reside.

No fractional shares will be issued upon exercise of the redeemable warrants. However, if, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, Community Bankers will, upon exercise, round to the nearest whole number of shares of common stock to be issued to the warrant holder.

The transfer agent for Community Bankers’ securities and warrant agent for its redeemable warrants is Continental Stock Transfer & Trust Company, New York, New York.

LEGAL MATTERS

The validity of the shares of Community Bankers common stock to be issued in connection with the merger will be passed upon for Community Bankers by Nelson Mullins Riley & Scarborough LLP, 101 Constitution Avenue, N.W., Suite 900, Washington, D.C. 20001. In addition, certain U.S. federal income tax consequences of the merger will be passed upon for Community Bankers by Nelson Mullins Riley & Scarborough LLP and for BOE by LeClairRyan, A Professional Corporation.

EXPERTS

The financial statements of Community Bankers for the year ended March 31, 2007, appearing in this joint proxy statement/prospectus and in the registration statement have been included herein in reliance upon

213

the report of Miller, Ellin & Company LLP, an independent registered public accounting firm, given on the authority of such firm as experts in accounting and auditing. The financial statements of Community Bankers for the year ended March 31, 2006, appearing in this joint proxy statement/prospectus and in the registration statement have been included herein in reliance upon the report of Yount, Hyde & Barbour, PC, an independent registered public accounting firm, given on the authority of such firm as experts in accounting and auditing.

The financial statements of TransCommunity for the years ended December 31, 2006 and December 31, 2005, appearing in this joint proxy statement/prospectus and in the registration statement have been included herein in reliance upon the report of McGladrey & Pullen, LLP, an independent registered public accounting firm, given on the authority of such firm as experts in accounting and auditing. The financial statements of TransCommunity for the year ended December 31, 2004, appearing in this joint proxy statement/prospectus and in the registration statement have been included herein in reliance upon the report of S.B. Hoover & Company, LLP, an independent registered public accounting firm, given on the authority of such firm as experts in accounting and auditing.

The financial statements of BOE for the years ended December 31, 2006, December 31, 2005, and December 31, 2004, appearing in this joint proxy statement/prospectus and in the registration statement have been included herein in reliance upon the report of Yount, Hyde & Barbour, P.C., an independent registered public accounting, given on the authority of such firm as experts in accounting and auditing.

PROPOSAL TO AUTHORIZE ADJOURNMENT
OF THE COMMUNITY BANKERS SPECIAL MEETING

If, at the Community Bankers special meeting, the number of shares of Community Bankers common stock, present in person or by proxy, is insufficient to constitute a quorum or the number of shares of Community Bankers common stock voting in favor is insufficient to adopt the merger agreement and to adopt the amendment to the certificate of incorporation, Community Bankers management intends to move to adjourn the special meeting to a later date or dates, if necessary, in order to enable the Community Bankers board of directors to solicit additional proxies. In that event, Community Bankers will ask its stockholders to vote only upon the adjournment proposal and not the proposals relating to adoption of the merger agreement and the adoption of the amendment to the certificate of incorporation.

In this proposal, Community Bankers is asking you to grant discretionary authority to the holder of any proxy solicited by the Community Bankers board of directors so that such holder can vote in favor of the proposal to adjourn the special meeting to a later date or dates, if necessary, to solicit additional proxies. If the stockholders of Community Bankers approve the adjournment proposal, Community Bankers could adjourn the special meeting, and any adjourned session of the special meeting, and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders who have previously voted. Among other things, approval of the adjournment proposal could mean that, even if Community Bankers had received proxies representing a sufficient number of votes against any of the proposals to defeat the proposal, Community Bankers could adjourn the special meeting without a vote on the merger agreement proposal or any other proposal and seek to convince the holders of those shares to change their votes to votes in favor of the approval of the merger agreement.

Generally, if the special meeting is adjourned, no notice of the adjourned meeting is required to be given to stockholders, other than an announcement at the special meeting of the place, date and time to which the meeting is adjourned. However, Community Bankers’ bylaws provide that if the adjournment or adjournments are for more than 30 days, or if after adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the adjourned meeting.

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PROPOSAL TO AUTHORIZE ADJOURNMENT
OF THE BOE SPECIAL MEETING

Under Community Bankers’ bylaws, the adjournment proposal requires the affirmative vote of the holders of a majority of the shares of Community Bankers common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present. Abstentions and broker non-votes will not affect the vote on the adjournment proposal.

Board Recommendation

The Community Bankers board of directors recommends a vote “FOR” the proposal to authorize the board of directors to adjourn the special meeting of stockholders to allow time for the further solicitation of proxies to approve the adoption of the merger agreement and the adoption of the amendment to the certificate of incorporation.

215

If, at the BOE special meeting, the number of shares of BOE common stock, present in person or by proxy, is insufficient to constitute a quorum or the number of shares of BOE common stock voting in favor of approval of the merger agreement is insufficient to approve the merger agreement, BOE management intends to move to adjourn the special meeting in order to enable the BOE board of directors to solicit additional proxies. In that event, BOE will ask its stockholders to vote only upon the adjournment proposal and not the proposal relating to the approval of the merger agreement.

In this proposal, BOE is asking you to grant discretionary authority to the holder of any proxy solicited by the BOE board of directors so that such holder can vote in favor of the proposal to adjourn the special meeting to solicit additional proxies. If the stockholders of BOE approve the adjournment proposal, BOE could adjourn the special meeting, and any adjourned session of the special meeting, and use the additional time to solicit additional proxies, including the solicitation of proxies from stockholders who have previously voted. Among other things, approval of the adjournment proposal could mean that, even if BOE had received proxies representing a sufficient number of votes against approval of the merger agreement to defeat the merger agreement proposal, BOE could adjourn the special meeting without a vote on the merger agreement proposal and seek to convince the holders of those shares to change their votes to votes in favor of the approval of the merger agreement.

Generally, if the special meeting is adjourned, no notice of the adjourned meeting is required to be given to stockholders, other than an announcement at the special meeting of the place, date and time to which the meeting is adjourned. However, BOE’s bylaws provide that if the special meeting is adjourned to a date more than 120 days after the date fixed for the original meeting, notice of the adjourned meeting will be given as in the case of the original meeting.

WHERE YOU CAN FIND MORE INFORMATION

Approval of the proposal to authorize the board of directors to adjourn the special meeting of stockholders requires that the votes cast favoring the action to exceed the votes cast opposing the action, whether or not a quorum is present.

Board Recommendation

The BOE board of directors recommends a vote “FOR” the proposal to authorize the board of directors to adjourn the special meeting of stockholders to allow time for the further solicitation of proxies to approve the merger agreement.

OTHER MATTERS

Neither the Community Bankers board of directors nor the BOE board of directors know of any matters to be presented at their respective special meetings other than the proposals described in this joint proxy statement/prospectus. If any other matters are properly brought before either special meeting or any adjournment of either meeting, the enclosed proxy will be deemed to confer discretionary authority on the individuals named as proxies to vote the shares represented by the proxy as to any such matters.

Community Bankers has filed a registration statement on Form S-4 to register the issuance of Community Bankers common stock to be issued to BOE’s stockholders in the merger. This joint proxy statement/prospectus is a part of that registration statement and constitutes a prospectus of Community Bankers, a proxy statement for Community Bankers’ special meeting and a proxy statement of BOE for BOE’s special meeting

216

of stockholders. As allowed by SEC rules, this joint proxy statement/prospectus does not contain all the information you can find in the registration statement or the exhibits to the registration statement.

Each of Community Bankers, TransCommunity and BOE files reports, proxy statements, and other information with the SEC. You may inspect or copy these materials at the Public Reference Room at the SEC at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the SEC public reference room. Community Bankers’, TransCommunity’s and BOE’s public filings are also available to the public from commercial document retrieval services and at the Internet web site maintained by the SEC at http://www.sec.gov. BOE’s public filings are also available at the Internet website of BOE at http://www.boefinancial.com.

When deciding how to cast your vote, you should rely only on the information contained in this joint proxy statement/prospectus. We have not authorized anyone to provide you with information that is different from what is contained in this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated , 2008. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than such date, and neither the mailing of this joint proxy statement/prospectus to stockholders nor the issuance of Community Bankers common stock shall create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to purchase, the securities offered by this joint proxy statement/prospectus, or the solicitation of a proxy, in any jurisdiction to or from any person to whom or from whom it is unlawful to make such offer, solicitation of an offer or proxy solicitation in such jurisdiction. Neither the delivery of this joint proxy statement/prospectus nor any distribution of securities pursuant to this joint proxy statement/prospectus, under any circumstances, creates any implication that there has been no change in the information set forth or incorporated into this joint proxy statement/prospectus by reference or in our affairs since the date of this joint proxy statement/prospectus. The information contained in this joint proxy statement/prospectus with respect to Community Bankers was provided by Community Bankers and the information contained in this joint proxy statement/prospectus with respect to BOE was provided by BOE.

217

INDEX TO FINANCIAL STATEMENTS


	Page

Community Bankers Acquisition Corp. Condensed Unaudited Financial Statements		F-3
Balance Sheets as of September 30, 2007 and March 31, 2007		F-4
Statements of Income for the Six Months Ended September 30, 2007 and September 30, 2006, and for the Period from April 6, 2005 (inception) to September 30, 2007		F-5
Statements of Stockholders’ Equity as of September 30, 2007 and March 31, 2007		F-6
Statements of Cash Flows for the Six Months Ended September 30, 2007 and September 30, 2006, and for the Period from April 6, 2005 (inception) to September 30, 2007		F-7
Notes to Unaudited Consolidated Financial Statements		F-8
Community Bankers Acquisition Corp. Audited Financial Statements		F-13
Reports of Independent Registered Public Accounting Firms		F-14
Balance sheets as of March 31, 2007 and March 31, 2007		F-16
Statements of Income for the Year Ended March 31, 2007, the Period from April 6, 2005 (inception) to March 31, 2006, and for the Period from April 6, 2005 (inception) to March 31, 2007		F-17
Statements of Stockholders’ Equity for the Year Ended March 31, 2007, the Period from April 6, 2005 (inception) to March 31, 2006, and for the Period from April 6, 2005 (inception) to March 31, 2007		F-18
Statements of Cash Flows for the Year Ended March 31, 2007, the Period from April 6, 2005 (inception) to March 31, 2006, and for the Period from April 6, 2005 (inception) to March 31, 2007		F-19
Notes to Financial Statements		F-20
TransCommunity Financial Corporation Condensed Consolidated Unaudited Financial Statements		F-26
Consolidated Balance Sheet as of September 30, 2007 and December 31, 2006 (Unaudited)		F-27
Consolidated Statements of Operations for the Nine Months Ended September 30, 2007 and 2006 (Unaudited)		F-28
Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2007 and 2006 (Unaudited)		F-29
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 (Unaudited)		F-30
Notes to Consolidated Financial Statements (Unaudited)		F-31
TransCommunity Financial Corporation Condensed Consolidated Audited Financial Statements		F-40
Reports of Independent Registered Public Accounting Firms		F-41
Consolidated Balance Sheets as of December 31, 2006 and December 31, 2005		F-43
Consolidated Statements of Operations for the Years Ended December 31, 2006, December 31, 2005 and December 31, 2004		F-44
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2006, December 31, 2005 and December 31, 2004		F-45
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, December 31, 2005 and December 31, 2004		F-46
Notes to Consolidated Financial Statements		F-47
BOE Financial Services of Virginia, Inc. Consolidated Unaudited Financial Statements		F-78
Consolidated Balance Sheets as of September 30, 2007, December 31, 2006 and September 30, 2006		F-79
Consolidated Statements of Income for the Nine Months Ended September 30, 2007, and September 30, 2006		F-80

F-1


	Page

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and September 30, 2006		F-81
Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months Ended September 30, 2007 and September 30, 2006		F-82
Notes to Consolidated Financial Statements		F-83
BOE Financial Services of Virginia, Inc. Consolidated Audited Financial Statements		F-88
Report of Independent Registered Public Accounting Firm		F-89
Consolidated Balance sheets as of December 31, 2006 and December 31, 2005		F-90
Consolidated Statements of Income as of December 31, 2006, December 31, 2005 and December 31, 2004		F-91
Consolidated Statements of Stockholders’ Equity as of December 31, 2006, December 31, 2005 and December 31, 2004		F-92
Consolidated Statements of Cash Flows as of December 31, 2006, December 31, 2005 and December 31, 2004		F-94
Notes to Financial Statements		F-96

F-2

COMMUNITY BANKERS ACQUISITION CORP. CONDENSED UNAUDITED FINANCIAL
STATEMENTS

F-3

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

BALANCE SHEETS


	September 30,		March 31,
	2007		2007
	(Unaudited)		(Audited)

ASSETS
Current assets:
Cash	$	397,225	$	676,183
Cash and United States Treasury securities held in trust fund		57,937,087		58,118,729
Prepaid expenses		687,000		17,500

Total current assets		59,021,312		58,812,412

Total Assets	$	59,021,312	$	58,812,412


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Income taxes payable	$	244,692	$	806,000
Deferred payment to underwriter		2,100,000		2,100,000
Accrued expenses		—		9,185

Total Current Liabilities		2,344,692		2,915,185

Common stock, subject to conversion, 1,499,250 shares at conversion value		11,581,624		11,617,934

Commitments

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value Authorized 5,000,000 shares; none issued		—		—
Common stock, $0.01 par value Authorized 50,000,000 shares; Issued and outstanding, 9,375,000 shares (which includes 1,499,250 shares subject to conversion)		93,750		93,750
Additional paid-in capital		43,097,755		43,061,444
Earnings accumulated during the development stage		1,903,491		1,124,099

Total Stockholders’ Equity		45,094,996		44,279,293

Total Liabilities and Stockholders’ Equity	$	59,021,312	$	58,812,412

See accompanying notes to financial statements.

F-4

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

STATEMENTS OF INCOME (UNAUDITED)


					Cumulative Period
					from April 6,
					2005
	Six Months Ended		Six Months Ended		(Inception) to
	September 30,		September 30,		September 30,
	2007		2006		2007

Interest on cash and short-term investments held in trust	$	1,428,970	$	868,096	$	3,697,730
Operating costs		171,886		93,132		510,548

Income before taxes		1,257,084		774,964		3,187,182
Provision for income taxes		477,692		294,486		1,283,691

Net income	$	779,392	$	480,478	$	1,903,491

Weighted average shares outstanding-basic		9,375,000		7,520,455		5,812,913

Weighted average shares outstanding- diluted		11,807,432		9,731,315		8,154,729

Net income per share-basic	$	0.08	$	0.06	$	0.33

Net income per share-diluted	$	0.07	$	0.05	$	0.23

See accompanying notes to financial statements.

F-5

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

STATEMENTS OF STOCKHOLDERS’ EQUITY


								Earnings
								Accumulated
								During the
	Common Stock				Additional			Development		Stockholders’
	Shares		Amount		Paid-In Capital			Stage		Equity

Balance at March 31, 2006 (audited)		1,875,000		18,750		28,125			—		46,875
Sale of 7,500,000 units, net of underwriters’ discount and offering expenses (includes 1,499,250 shares subject to possible conversion)		7,500,000		75,000		54,651,153			—		54,726,153
Less: proceeds subject to possible redemption of 1,499,250 shares, 19.99% of public shares are subject to redemption		—		—		(11,617,934	)		—		(11,617,934	)
Proceeds from issuance of option		—		—		100			—		100
Net income		—		—		—			1,124,099		1,124,099

Balance at March 31, 2007 (audited)		9,375,000		93,750		43,061,444			1,124,099		44,279,293
Revaluation of shares subject to redemption		—		—		36,311			—		36,311
Net income		—		—		—			779,392		779,392

Balance at September 30, 2007 (unaudited)		9,375,000	$	93,750	$	43,097,755		$	1,903,491	$	45,094,996

See accompanying notes to financial statements.

F-6

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

STATEMENTS OF CASH FLOWS (UNAUDITED)


							Cumulative
							Period
							April 6,
							2005
	Six Months Ended			Six Months Ended			(Inception) to
	September 30,			September 30,			September 30,
	2007			2006			2007

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	779,392		$	480,478			1,903,491
(Increase) in prepaid expenses		(669,500	)		(70,000	)		(687,000	)
Increase (decrease) in accrued expenses and income tax payable		(570,492	)		62,818			(244,693	)

Net Cash (Used in) Provided by Operating Activities		(460,600	)		347,660			1,461,184

CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) in cash and securities held in trust fund		181,642			(57,018,096	)		57,937,087

Net Cash (Used in) Investing Activities		181,642			(57,018,096	)		57,937,087

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock		—			—			46,875
Gross proceeds from initial public offering		—			60,000,000			60,000,000
Proceeds from note payable to stockholder		—			20,000			40,000
Payment of note payable to stockholder		—			(40,000	)		(40,000	)
Proceeds from issuance of underwriters purchase option		—			100			100
Payment of costs of the public offering		—			(2,745,248	)		(3,173,847	)
Net Cash Provided by (Used in) Financing Activities		—			57,234,852			56,873,128
NET INCREASE IN CASH		(278,958	)		564,416			397,225
CASH AT BEGINNING OF PERIOD		676,183			2,360			—

CASH AT END OF PERIOD	$	397,225		$	566,776		$	397,225

NON-CASH FINANCING ACTIVITY
Accrual of deferred payment to underwriter	$	—		$	2,100,000		$	2,100,000

Decrease in value of common stock subject to conversion	$	36,310		$	—		$	36,310

See accompanying notes to financial statements.

F-7

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO CONDENSED FINANCIAL STATEMENTS


1.	ORGANIZATION, BUSINESS OPERATIONS

The condensed financial statements at September 30, 2007 and for the three- and six-month periods ended September 30, 2007 and September 30, 2006, are unaudited and include the accounts of Community Bankers Acquisition Corp. (a corporation in the development stage). The condensed balance sheet at March 31, 2007, has been derived from the audited financial statements included in Community Bankers’ Annual Report on Form 10-K. The results of Community Bankers’ operations for the interim period are not necessarily indicative of the operating results for the full year. The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in Community Bankers’ Annual Report on Form 10-K for the year ended March 31, 2007.

In the opinion of management, all adjustments (consisting of normal accruals) have been made that are necessary to present fairly the financial position of Community Bankers as of September 30, 2007, and the results of its operations and its cash flows for the three and six months ended September 30, 2007. Until the announcement on September 6, 2007, that Community Bankers had entered into an agreement and plan of merger with a target company, Community Bankers’ efforts had been primarily organizational, activities relating to its initial public offering and searching for and identifying targets for an initial business combination. Until the consummation of a business combination, Community Bankers expects interest earned on the offering proceeds held in trust to be its primary source of income.

The statements and related notes have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations.

Community Bankers was incorporated in Delaware on April 6, 2005 as a blank check company whose objective is to merge with or acquire an operating commercial bank or bank holding company. As discussed in Note 6, Community Bankers issued a press release and filed a Current Report on Form 8-K on September 7, 2007, reporting that Community Bankers has entered into an agreement and plan of merger with TransCommunity Financial Corporation. Community Bankers’ fiscal year end has been changed from March 31 to December 31.

The registration statement for Community Bankers’ initial public offering was declared effective June 5, 2006. Community Bankers consummated the initial public offering on June 8, 2006 and received net proceeds of $54,950,000 which is discussed in Note 2. Community Bankers’ management has broad discretion with respect to the specific application of the net proceeds of this initial public offering, although substantially all of the net proceeds are intended to be generally applied toward consummating a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business whose objective is to operate a commercial bank or bank holding company (“Business Combination”). There is no assurance that Community Bankers will be able to successfully effect a Business Combination. Upon the closing of the initial public offering, $56,450,000 of the proceeds, including $2,100,000 attributable to the underwriters’ discount which the representatives of the underwriters have agreed to defer until the initial Business Combination, are being held in a trust account (“Trust Fund”) and invested in U.S. government securities or other high-quality, short term interest-bearing investments, until the earlier of (1) the consummation of its first Business Combination or (2) distribution of the Trust Account as described below; provided, however, that up to $1,129,000 of interest income, net of taxes payable on interest earned on the Trust Account, may be released to Community Bankers periodically to cover its operating expenses. The remaining proceeds and any interest released to Community Bankers to cover its operating expenses will be used to pay for business, legal and accounting due diligence on prospective mergers or acquisitions and continuing general and administrative expenses. Community Bankers, after signing a definitive agreement for the Business Combination, will submit such transaction for stockholder approval. In the event that stockholders owning 20% or more of the

F-8

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO CONDENSED FINANCIAL STATEMENTS — (Continued)

outstanding stock excluding, for this purpose, those persons who were stockholders immediately prior to the initial public offering, both vote against the Business Combination and exercise their conversion rights, the Business Combination will not be consummated. All of Community Bankers’ stockholders prior to the initial public offering, including all of the officers and directors of Community Bankers (“Initial Stockholders”), have agreed to vote all of their founding shares of common stock either for or against the Business Combination as determined by the majority of the votes cast by the holders of the common stock who purchase shares sold in the initial public offering (“Public Stockholders”) with respect to a Business Combination. After consummation of Community Bankers’ first Business Combination, these voting safeguards no longer apply.

With respect to the first Business Combination which is approved and consummated, any Public Stockholder, other than Community Bankers’ Initial Stockholders, who vote against the Business Combination may demand that Community Bankers redeem his or her shares. The per share redemption price will equal the amount in the Trust Fund as of the record date for determination of stockholders entitled to vote on the Business Combination divided by the number of shares of common stock held by Public Stockholders at the consummation of the initial public offering. Accordingly, Public Stockholders holding 19.99% of the aggregate number of shares owned by all Public Stockholders may seek redemption of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Fund computed without regard to the shares held by Initial Stockholders.

Community Bankers’ Certificate of Incorporation provides that in the event that Community Bankers does not consummate a Business Combination by the later of (1) 18 months after the consummation of the initial public offering or (2) 24 months after the consummation of the initial public offering in the event that either a letter of intent, an agreement in principle or a definitive agreement to complete the Business Combination was executed but was not consummated within such 18-month period (such later date being referred to as the “Termination Date”), the board of directors will adopt a resolution, within 15 days thereafter, finding Community Bankers’ dissolution advisable and provide notice as promptly thereafter as practicable to stockholders in connection with Community Bankers’ dissolution in accordance with Section 275 of the Delaware General Corporation Law. In the event that Community Bankers is so dissolved, Community Bankers shall promptly adopt and implement a plan of distribution which provides that only the holders of shares sold in the initial public offering shall be entitled to receive liquidating distributions and Community Bankers shall pay no liquidating distributions with respect to any other shares of capital stock of Community Bankers. In the event of liquidation, it is likely that the per share value of residual assets remaining available for distribution (including Trust Fund assets) will be less than the initial public offering price per share in the initial public offering (assuming no value is attributed to the Redeemable Warrants contained in the Units sold in the initial public offering as described in Note 2).


2.	INITIAL PUBLIC OFFERING

On June 8, 2006, Community Bankers sold 7,500,000 units (“Units”) in the initial public offering. Each Unit consists of one share of Community Bankers’ common stock, $0.01 par value, and one Redeemable Common Stock Purchase Warrant (“Warrant”). Each Warrant will entitle the holder to purchase from Community Bankers one share of common stock at an exercise price of $5.00 commencing on the completion of a Business Combination and expiring five years from the date of the initial public offering. The Warrants will be redeemable by Community Bankers at a price of $0.01 per Warrant upon 30 days’ notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30 trading day period ending on the third business day prior to the date on which notice of the redemption is given.

In addition, Community Bankers sold to I-Bankers Securities, Inc., Maxim Group LLC and Legend Merchant Group, Inc. or their designees, for $100, an option to purchase up to 525,000 units in the aggregate.

F-9

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO CONDENSED FINANCIAL STATEMENTS — (Continued)

The units issuable upon exercise of this option are identical to those offered in this initial public offering, except that each of the warrants underlying this option entitles the holder to purchase one share of common stock at a price of $7.50. This option is exercisable at $10.00 per unit commencing on the later of the consummation of a Business Combination or one year from the date of the initial public offering. This option expires June 4, 2011. In lieu of the payment of the exercise price, this option may be converted into units on a net-share settlement or cashless exercise basis to the extent that the market value of the units at the time of conversion exceeds the exercise price of this option. This option may only be exercised or converted by the option holder and cannot be redeemed by Community Bankers for cash.


3.	NOTE PAYABLE

Community Bankers Acquisition, LLC, an affiliate of Community Bankers’ president and one of its stockholders, has entered into a revolving credit agreement with Community Bankers in the amount of $100,000. Advances under the credit facility were $40,000. The loan was non-interest bearing and was repaid on June 29, 2006.


4.	RELATED PARTY TRANSACTIONS

Community Bankers presently occupies office space provided by an affiliate of Community Bankers’ president and an Initial Stockholder. Such affiliate has agreed that, until the acquisition of a target business by Community Bankers, it will make such office space, as well as certain office and secretarial services, available to Community Bankers, as may be required by Community Bankers from time to time. Community Bankers has agreed to pay such affiliate $7,500 per month for such services commencing June 5, 2006. At September 30, 2007, an aggregate of $180,000 has been paid.


5.	CAPITAL STOCK

Common Stock

Community Bankers is authorized to issue 50,000,000 shares of common stock. Stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders. Stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock, except that Public Stockholders have the right to have their shares of common stock converted to cash equal to their pro rata share of the trust fund if they both elect such conversion within the prescribed time period and they subsequently vote against the Business Combination and the Business Combination is ultimately approved and completed. Assuming the Business Combination is not timely completed and Community Bankers’ dissolution is approved by Community Bankers’ stockholders in accordance with Delaware law, Public Stockholders will be entitled to receive their proportionate share of the Trust Fund (including any interest not released to us, net of taxes, and the deferred underwriting discount). In addition, Public Stockholders will be entitled to receive a pro rata portion of Community Bankers’ remaining assets not held in trust, less amounts Community Bankers pay, or reserve to pay, for all of Community Bankers’ liabilities and obligations. Initial Stockholders have agreed to waive their rights to share in any liquidating distribution with respect to common stock owned by them prior to consummation of the initial public offering in the event Community Bankers is not able to timely complete a Business Combination.

Pursuant to letter agreements with Community Bankers, the Initial Stockholders have waived their right to receive distributions with respect to their founding shares upon Community Bankers’ liquidation.

F-10

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO CONDENSED FINANCIAL STATEMENTS — (Continued)

Preferred Stock

Community Bankers is authorized to issue 5,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.

The agreement with the underwriters prohibits Community Bankers, prior to a Business Combination, from issuing preferred stock without the consent of the Representatives of the underwriters.


6.	PROPOSED BUSINESS COMBINATION

On September 5, 2007, Community Bankers entered into an agreement and plan of merger with TransCommunity. The agreement and plan of merger sets forth the terms and conditions of Community Bankers’ acquisition of TransCommunity through the merger of TransCommunity with and into Community Bankers. TransCommunity Bank, N.A., a wholly owned subsidiary of TransCommunity, will become a wholly owned subsidiary of the surviving company in the merger.

Under the terms of the agreement and plan of merger, Community Bankers will issue to the shareholders of TransCommunity, for each share of TransCommunity’s common stock that they own, 1.4200 shares of Community Bankers’ common stock (the “Exchange Ratio”), subject to adjustment as described below. If the daily average closing price for Community Bankers’ common stock for the 20 consecutive days of trading in such stock ending five days before the closing date is less than $7.42, Community Bankers will increase the Exchange Ratio to the quotient obtained by dividing $10.5364 by such daily average closing price.

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

The agreement and plan of merger also provides for Community Bankers’ headquarters to move to the headquarters of TransCommunity. Following the consummation of the merger, the Board of Directors of the surviving company will consist of ten directors, four of whom will be nominated by Community Bankers and six of whom will be nominated by TransCommunity. In addition, the chief executive officer and chief financial officer of TransCommunity will take those positions with the surviving company, and Community Bankers’ chief executive officer will become the surviving company’s chief strategic officer.

Consummation of the merger is subject to a number of customary conditions including the approval of the merger by the shareholders of each of TransCommunity and Community Bankers and the receipt of all required regulatory approvals. In addition, closing of the transaction is also conditioned on holders of fewer than 20% of the shares of Community Bankers’ common stock voting against the transaction and electing to convert their shares of Community Bankers’ common stock into cash. Pursuant to the agreement and plan of merger either party may terminate the agreement and plan of merger in the event the merger is not consummated by May 31, 2008. As a result of the execution of the agreement and plan of merger, pursuant to Community Bankers’ certificate of incorporation, it has until June 7, 2008 to complete the transaction before it would otherwise be required to liquidate.


7.	COMMITMENTS

On September 5, 2007, Community Bankers entered into an agreement with Keefe, Bruyette & Woods to provide financial advisory and investment banking services to Community Bankers in connection with the proposed merger with TransCommunity discussed in Note 6. Community Bankers paid $125,000 upon

F-11

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO CONDENSED FINANCIAL STATEMENTS — (Continued)

execution of the agreement and, in the event that the business combination with TransCommunity is consummated, it will pay a cash fee to Keefe, Bruyette & Woods at closing of $375,000.

In addition, Community Bankers agreed to pay to I-Bankers Securities, Inc. serving as the underwriting syndicate’s representative, $2,100,000 attributable to the underwriters’ discount which the representatives of the underwriters have agreed to defer until the initial Business Combination. Until a Business Combination is completed, these funds are held in the Trust Account. If Community Bankers does not complete a Business Combination, then the 2% deferred discount will become part of the funds returned to Community Bankers’ Public Stockholders from the trust account upon its liquidation as part of any plan of dissolution and distribution approved by Community Bankers’ stockholders.

F-12

COMMUNITY BANKERS ACQUISITION CORP. AUDITED FINANCIAL STATEMENTS

F-13

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Community Bankers Acquisition Corp.

We have audited the accompanying balance sheet of Community Bankers Acquisition Corp. (a corporation in the development stage) as of March 31, 2007 and the related statements of income, stockholders’ equity and cash flows for the year ended March 31, 2007 and the period from April 6, 2005 (inception) to March 31, 2007. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The Corporation is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Community Bankers Acquisition Corp. as of March 31, 2007 and the results of its operations and its cash flows for the year ended March 31, 2007 and the period from April 6, 2005 (inception) to March 31, 2007, in conformity with U.S. generally accepted accounting principles.

/s/ Miller Ellin & Company, LLP

June 19, 2007

F-14

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Community Bankers Acquisition Corp.

We have audited the accompanying balance sheet of Community Bankers Acquisition Corp. (a corporation in the development stage) as of March 31, 2006, and the related statements of income, stockholders’ equity and cash flows for the period from April 6, 2005 (inception) to March 31, 2006. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Community Bankers Acquisition Corp. as of March 31, 2006 and the results of its operations and its cash flows for the period from April 6, 2005 (inception) to March 31, 2006, in conformity with U.S. generally accepted accounting principles.

/s/ Yount, Hyde & Barbour, PC

Winchester, Virginia

April 18, 2006 (except for Note 1 and Note 3 as to which the date is June 1, 2006)

F-15

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

BALANCE SHEETS


	March 31, 2007		March 31, 2006

ASSETS
Current assets:
Cash	$	676,183	$	2,360
Cash and United States Treasury securities held in trust fund		58,118,729		—
Prepaid expenses		17,500		—

Total current assets		58,812,412		2,360
Deferred offering costs		—		434,597

Total Assets	$	58,812,412	$	436,957


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Income taxes payable	$	806,000	$	—
Note payable		—		20,000
Deferred payment to underwriter		2,100,000		—
Accrued expenses		9,185		370,082

Total Current Liabilities		2,915,185		390,082

Common stock, subject to conversion, 1,499,250 shares at conversion value		11,617,934		—

Commitments

STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value Authorized 5,000,000 shares; none issued		—		—
Common stock, $0.01 par value Authorized 50,000,000 shares; Issued and outstanding, 9,375,000 shares in 2007 and 1,875,000 in 2006 (which includes 1,499,250 shares subject to conversion)		93,750		18,750
Additional paid-in capital		43,061,444		28,125
Earnings accumulated during the development stage		1,124,099		—
Total Stockholders’ Equity		44,279,293		46,875

Total Liabilities and Stockholders’ Equity	$	58,812,412	$	436,957

See accompanying notes to financial statements.

F-16

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

STATEMENTS OF INCOME


			For the Period		Cumulative
			from		Period from
	Year		April 6, 2005		April 6, 2005
	Ended		(Inception) to		(Inception) to
	March 31, 2007		March 31, 2006		March 31, 2007

Other income:
Interest on cash and short-term investments held in trust	$	2,268,760	$	—	$	2,268,760
Operating costs		338,661		—		338,661

Income before taxes		1,930,099		—		1,930,099
Provision for income taxes		806,000		—		806,000

Net income	$	1,124,099	$	—	$	1,124,099

Weighted average shares outstanding
Basic		7,997,740		1,807,292		4,913,793
Diluted		10,256,708		1,807,292		7,192,761
Net income per share-basic	$	0.14	$	—	$	0.23

Net income per share-diluted	$	0.11	$	—	$	0.16

See accompanying notes to financial statements.

F-17

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

STATEMENTS OF STOCKHOLDERS’ EQUITY


								Earnings
								Accumulated
					Additional			During the
	Common Stock				Paid-In			Development		Stockholders’
	Shares		Amount		Capital			Stage		Equity

Balance at April 6, 2005 (date of inception)		—	$	—	$	—		$	—	$	—
Issuance of common stock to initial stockholders		1,875,000		18,750		28,125			—		46,875
Net income		—		—		—			—		—

Balance at March 31, 2006		1,875,000		18,750		28,125			—		46,875
Sale of 7,500,000 units, net of underwriters’ discount and offering expenses (includes 1,499,250 shares subject to possible conversion)		7,500,000		75,000		54,651,153			—		54,726,153
Less: proceeds subject to possible redemption of 1,499,250 shares, 19.99% of public shares are subject to redemption		—		—		(11,617,934	)		—		(11,617,934	)
Proceeds from issuance of option		—		—		100			—		100
Net income		—		—		—			1,124,099		1,124,099

Balance at March 31, 2007		9,375,000	$	93,750	$	43,061,444		$	1,124,099	$	44,279,293

See accompanying notes to financial statements.

F-18

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

STATEMENTS OF CASH FLOWS


				For the			Cumulative
				Period			Period
				from			from
				April 6, 2005			April 6, 2005
	Year Ended			(Inception) to			(Inception) to
	March 31, 2007			March 31, 2006			March 31, 2007

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,124,099		$	—		$	1,124,099
(Increase) in prepaid expenses		(17,500	)		—			(17,500	)
Increase (decrease) in accrued expenses and income tax payable		445,103			370,082			815,185

Net Cash Provided by Operating Activities		1,551,702			370,082			1,921,784

CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) in cash and securities held in trust fund		(58,118,729	)		—			(58,118,729	)

Net Cash (Used in) Investing Activities		(58,118,729	)		—			(58,118,729	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock		—			46,875			46,875
Gross proceeds from initial public offering		60,000,000			—			60,000,000
Proceeds from note payable to stockholder		20,000			20,000			40,000
Payment of note payable to stockholder		(40,000	)		—			(40,000	)
Proceeds from issuance of underwriters purchase option		100			—			100
Payment of costs of the public offering		(2,739,250	)		(434,597	)		(3,173,847	)

Net Cash Provided by (Used in) Financing Activities		57,240,850			(367,722	)		56,873,128

NET INCREASE IN CASH		673,823			2,360			676,183
CASH AT BEGINNING OF PERIOD		2,360			—			—

CASH AT END OF PERIOD	$	676,183		$	2,360		$	676,183

NON-CASH FINANCING ACTIVITY
Accrual of deferred payment to underwriter	$	2,100,000		$	—		$	2,100,000

See accompanying notes to financial statements.

F-19

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO FINANCIAL STATEMENTS


1.	ORGANIZATION, BUSINESS OPERATIONS

The Corporation was incorporated in Delaware on April 6, 2005 as a blank check company whose objective is to merge with or acquire an operating commercial bank or bank holding company. The Corporation has neither engaged in any operations nor generated revenue to date other than interest income. The Corporation’s fiscal year end is March 31.

The registration statement for the Corporation’s initial public offering (“Offering”) was declared effective June 5, 2006. The Corporation consummated the Offering on June 8, 2006 and received net proceeds of $54,950,000 which is discussed in Note 3. The Corporation’s management has broad discretion with respect to the specific application of the net proceeds of this Offering, although substantially all of the net proceeds are intended to be generally applied toward consummating a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business whose objective is to operate a commercial bank or bank holding company (“Business Combination”). There is no assurance that the Corporation will be able to successfully effect a Business Combination. Upon the closing of the Offering, $56,450,000 of the proceeds, including $2,100,000 attributable to the underwriters’ discount which the representatives of the underwriters have agreed to defer until the initial Business Combination, are being held in a trust account (“Trust Account”) and invested in U.S. government securities or other high-quality, short term interest-bearing investments, until the earlier of (1) the consummation of its first Business Combination or (2) distribution of the Trust Account as described below; provided, however, that up to $1,129,000 of interest income, net of taxes payable on interest earned on the Trust Account, may be released to the Corporation periodically to cover its operating expenses. The balance in the Trust Account as of March 31, 2007 was $58,118,729. Interest released to the Corporation to cover its operating expenses and the proceeds of the Offering that were not deposited in the Trust Account will be used to pay for business, legal and accounting due diligence on prospective mergers or acquisitions and continuing general and administrative expenses. The Corporation, after signing a definitive agreement for the Business Combination, will submit such transaction for stockholder approval. In the event that stockholders owning 20% or more of the outstanding stock excluding, for this purpose, those persons who were stockholders immediately prior to the Offering, both vote against the Business Combination and exercise their conversion rights, the Business Combination will not be consummated. All of the Corporation’s stockholders prior to the Offering, including all of the officers and directors of the Corporation (“Initial Stockholders”), have agreed to vote all of their founding shares of common stock either for or against the Business Combination as determined by the majority of the votes cast by the holders of the common stock who purchase shares sold in this Offering (“Public Stockholders”) with respect to a Business Combination. After consummation of the Corporation’s first Business Combination, these voting safeguards no longer apply.

With respect to the first Business Combination which is approved and consummated, any Public Stockholder, other than the Corporation’s Initial Stockholders, who voted against the Business Combination may demand that the Corporation redeem his or her shares. The per share redemption price will equal the amount in the Trust Fund as of the record date for determination of stockholders entitled to vote on the Business Combination divided by the number of shares of common stock held by Public Stockholders at the consummation of the Offering. Accordingly, Public Stockholders holding 19.99% of the aggregate number of shares owned by all Public Stockholders may seek redemption of their shares in the event of a Business Combination. Such Public Stockholders are entitled to receive their per share interest in the Trust Fund computed without regard to the shares held by Initial Stockholders. In this respect, $11,617,934 has been classified as common stock subject to possible conversion at March 31, 2007.

The Corporation’s Certificate of Incorporation provides that in the event that the Corporation does not consummate a Business Combination by the later of (1) 18 months after the consummation of the Offering or (2) 24 months after the consummation of the Offering in the event that either a letter of intent, an agreement

F-20

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO FINANCIAL STATEMENTS — (Continued)

in principle or a definitive agreement to complete the Business Combination was executed but was not consummated within such 18-month period (such latter date being referred to as the “Termination Date”), the board of directors will adopt a resolution, within 15 days thereafter, finding the Corporation’s dissolution advisable and provide notice as promptly thereafter as practicable to stockholders in connection with our dissolution in accordance with Section 275 of the Delaware General Corporation Law. In the event that the Corporation is so dissolved, the Corporation shall promptly adopt and implement a plan of distribution which provides that only the Public Stockholders shall be entitled to receive liquidating distributions and the Corporation shall pay no liquidating distributions with respect to any other shares of capital stock of the Corporation. In the event of liquidation, it is likely that the per share value of residual assets remaining available for distribution (including Trust Fund assets) will be less than the initial public offering price per share in the Offering (assuming no value is attributed to the Redeemable Warrants contained in the Units sold in the Offering as described in Note 3).


2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements include the accounts of the Corporation. The Corporation has not commenced operations effective March 31, 2007. All activity through March 31, 2007, is related to the Corporation’s formation and the Offering.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingencies at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual amounts could differ from those estimates.

Cash Equivalents

The Corporation considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Corporation to credit risk consist of cash and cash equivalents. The Corporation’s policy is to limit the amount of credit exposure to any one financial institution and place investments with financial institutions evaluated as being creditworthy, or in short-term money market funds which are exposed to minimal interest rate and credit risk.

Income Taxes

The Corporation recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.

F-21

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Earnings per Common Share

Basic earnings per share (“EPS”) is computed by dividing net income applicable to common stock by the weighted average common shares outstanding during the period. Diluted EPS reflects the additional dilution for all potentially dilutive securities such as stock warrants.

Recently Issued Accounting Standards

Management does not believe that any recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.


3.	INITIAL PUBLIC OFFERING

On June 8, 2006, the Corporation sold 7,500,000 units (“Units”) in the Offering. Each Unit consists of one share of the Corporation’s common stock, $0.01 par value, and one Redeemable Common Stock Purchase Warrant (“Warrant”). Each Warrant will entitle the holder to purchase from the Corporation one share of common stock at an exercise price of $5.00 commencing on the later of the completion of a Business Combination or one year from the effective date of the Offering and expiring five years from the date of the Offering. The Warrants will be redeemable by the Corporation at a price of $0.01 per Warrant upon 30 days’ notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least $11.50 per share for any 20 trading days within a 30 trading day period ending on the third business day prior to the date on which notice of the redemption is given.

In addition, the Corporation sold to I-Bankers Securities, Inc., Maxim Group LLC and Legend Merchant Group, Inc. or their designees, for $100, an option to purchase up to 525,000 units in the aggregate. The units issuable upon exercise of this option are identical to those offered in this Offering, except that each of the warrants underlying this option entitles the holder to purchase one share of common stock at a price of $7.50. This option is exercisable at $10.00 per unit commencing on the later of the consummation of a Business Combination or one year from the date of the Offering. This option expires June 4, 2011. In lieu of the payment of the exercise price, this option may be converted into units on a net-share settlement or cashless exercise basis to the extent that the market value of the units at the time of conversion exceeds the exercise price of this option. This option may only be exercised or converted by the option holder and cannot be redeemed by the Corporation for cash.

The sale of the option to the representatives of the underwriters is accounted for as an equity transaction in accordance with Emerging Issues Task Force No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock, and measured at its fair value. As a result, the Corporation’s cash position and stockholders’ equity increased by the $100 proceeds from the sale. The Corporation accounted for the fair value of the option as an expense of the Offering. The Corporation has determined based upon a trinomial model that the estimated fair value of the option on the date of sale was approximately $2.4145 per unit or an aggregate of $1,267,613 assuming an expected life of five years, volatility of 32.371% and a risk-free interest rate of 4.929%. Although an expected life of five years was used, if the Corporation does not consummate a Business Combination within the prescribed time period and liquidate, this option would become worthless.

Because the Corporation does not have a trading history, the Corporation estimated the potential volatility of its common stock price using the average volatility of ten publicly-traded banking institutions with market capitalizations ranging from $64 million to $288 million with an average of $149 million. The Corporation believes that the average volatility of these representative institutions is a reasonable benchmark to use in estimating the expected volatility of its common stock after consummation of a Business Combination, because these sample institutions are operating banks or bank holding companies that are similar in size to

F-22

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO FINANCIAL STATEMENTS — (Continued)

target business acquisitions. The volatility calculation of 32.371% was derived using the volatility of representative banks. This calculation used the daily closing prices for the five year period ended April 30, 2006. Using a higher volatility would have the effect of increasing the implied value of this option.

Pursuant to Rule 2710(g)(1) of the NASD Conduct Rule, the option to purchase 525,000 units is deemed to be underwriting compensation and therefore upon exercise the underlying shares and warrants are subject to a 180-day lock-up. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of the Offering.

Although this option and its underlying securities have been registered by the Corporation, the Corporation has granted to the holders of this option demand and “piggy back” registration rights until the later of five years from the date of the Offering or one year after the warrants are exercised with respect to the securities directly and indirectly issuable upon exercise of this option. The Corporation will bear all fees and expenses attendant to registering the securities, other than underwriting commissions which will be paid for by the holders themselves. The exercise price and number of units issuable upon exercise of this option shall be adjusted in certain circumstances including in the event of a stock dividend, or the Corporation’s recapitalization, reorganization, merger or consolidation. However, no adjustments to this option will be made for issuances of common stock at a price below the exercise price of this option.


4.	DEFERRED OFFERING COSTS

Deferred offering costs consisted principally of legal and other offering expenses incurred through March 31, 2006 that were related to the Offering and were charged to capital upon receipt of the capital raised.


5.	NOTE PAYABLE

Community Bankers Acquisition, LLC, an affiliate of the Corporation’s president and one of its stockholders, entered into a revolving credit agreement with the Corporation in the amount of $100,000. Advances under the credit facility were $40,000. The loan was non-interest bearing and was repaid on June 29, 2006.


6.	RELATED PARTY TRANSACTIONS

The Corporation presently occupies office space provided by an affiliate of the Corporation’s president and an Initial Stockholder. Such affiliate has agreed that, until the acquisition of a target business by the Corporation, it will make such office space, as well as certain office and secretarial services, available to the Corporation, as may be required by the Corporation from time to time. The Corporation has agreed to pay such affiliate $7,500 per month for such services commencing June 5, 2006. At March 31, 2007, an aggregate of $75,000 has been paid.


7.	CAPITAL STOCK

Common Stock

The Corporation is authorized to issue 50,000,000 shares of common stock. Stockholders are entitled to one vote for each share held of record on all matters to be voted on by stockholders. Stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the common stock, except that Public Stockholders have the right to have their shares of common stock converted to cash equal to their pro rata share of the trust fund if they both elect such conversion within the prescribed time period and they subsequently vote against the Business Combination and the Business Combination is ultimately approved and completed. Assuming the Business Combination is not

F-23

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO FINANCIAL STATEMENTS — (Continued)

timely completed and the Corporation’s dissolution is approved by our stockholders in accordance with Delaware law, Public Stockholders will be entitled to receive their proportionate share of the Trust Fund (including any interest not released to us, net of taxes, and the deferred underwriting discount). In addition, Public Stockholders will be entitled to receive a pro rata portion of our remaining assets not held in trust, less amounts Community Bankers pay, or reserve to pay, for all of our liabilities and obligations. Initial Stockholders have agreed to waive their rights to share in any liquidating distribution with respect to common stock owned by them prior to consummation of the Offering in the event the Corporation is not able to timely complete a Business Combination.

Pursuant to letter agreements with the Corporation, the Initial Stockholders have waived their right to receive distributions with respect to their founding shares upon the Corporation’s liquidation.

Preferred Stock

The Corporation is authorized to issue 5,000,000 shares of preferred stock with such designations, voting and other rights and preferences as may be determined from time to time by the Board of Directors.

The agreement with the underwriters prohibits the Corporation, prior to a Business Combination, from issuing preferred stock without the consent of the representatives of the underwriters.


8.	INCOME TAX

Effective April 1, 2007, the Corporation adopted the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with FASB Statement 109, “Accounting for Income Taxes”, and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Corporation’s financial statements as of April 1, 2007. The evaluation was performed for the tax year ended March 31, 2006, which remains subject to examination for Federal and state purposes as of March 31, 2007.

The Corporation’s policy is the classify assessments, if any, for tax related interest as interest expense and penalties as general and administrative expenses.

F-24

COMMUNITY BANKERS ACQUISITION CORP.
(A Corporation in the Development Stage)

NOTES TO FINANCIAL STATEMENTS — (Continued)

The components of the provision for income tax is as follows:


			For the Period from
			April 6, 2005
	Year Ended		(Inception) to
	March 31, 2007		March 31, 2006

Federal
Current	$	690,000	$	—
Deferred		—		—

		690,000		—

State
Current		116,000		—
Deferred		—		—

		116,000		—

	$	806,000	$	—

There were no deferred tax assets or liabilities at March 31, 2007 and 2006.


9.	PER SHARE INFORMATION

In accordance with SFAS No. 128, “Earnings Per Share”, basic earnings per common share (“Basic EPS”) is computed by dividing the net income by the weighted-average number of shares outstanding. Diluted earnings per common share (“Diluted EPS”) is computed by dividing the net income by the weighted-average number of common shares and dilutive common share equivalents and warrants then outstanding. SFAS No. 128 requires the presentation of both Basic EPS and Diluted EPS on the face of the Corporation’s Statements of Income.

The following table sets forth the computation of basic and diluted per share information:


			For the Period from
	Twelve		April 6, 2005
	Months Ended		(Inception) to
	March 31, 2007		March 31, 2007

Numerator:
Net Income	$	1,124,099	$	1,124,099

Denominator:
Weighted-average common shares outstanding		7,997,740		4,913,793
Dilutive effect of warrants		2,278,968		2,278,968

Weighted-average common shares outstanding, assuming dilution		10,256,708		7,192,761

Net Income Per Share:
Basic	$	.14	$	.23

Diluted	$	.11	$	.16

F-25

TRANSCOMMUNITY FINANCIAL CORPORATION CONDENSED UNAUDITED FINANCIAL
STATEMENTS

F-26

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 30, 2007 and December 31, 2006


	September 30,			December 31,
	2007			2006
	(Dollars in thousands)

ASSETS
Cash and due from banks	$	6,051		$	3,669
Federal funds sold		4,061			1,422

Total cash and cash equivalents		10,112			5,091
Securities available for sale, at fair value		10,314			13,597
Securities held to maturity, fair value of $6,356 and $21,286 at September 30, 2007 and December 31, 2006, respectively		6,400			21,420
Loans		189,003			151,399
Allowance for loan losses		(2,663	)		(2,065	)

Total loans, net		186,340			149,334
Premises and equipment, net		7,114			6,689
Other investments		938			896
Assets from discontinued operations, net		—			88
Other assets		1,830			1,330

Total assets	$	223,048		$	198,445


LIABILITIES
Deposits:
Demand:
Noninterest bearing	$	22,575		$	20,450
Interest bearing		33,802			37,850
Savings		10,357			9,478
Time		125,230			97,195

Total deposits		191,964			164,973
Note payable		—			500
Federal funds purchased		—			1,517
Accrued interest payable		656			540
Liabilities from discontinued operations, net		—			10
Accrued expenses and other liabilities		496			352

Total liabilities		193,116			167,892


STOCKHOLDERS’ EQUITY
Common stock (25,000,000 shares authorized $.01 par value) 4,586,741 and 4,581,741 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively		46			46
Additional paid in capital		39,904			39,809
Accumulated deficit		(10,027	)		(9,262	)
Accumulated other comprehensive income (loss)		9			(40	)

Total stockholders’ equity		29,932			30,553

Total liabilities and stockholders’ equity	$	223,048		$	198,445

See accompanying notes to unaudited consolidated financial statements.

F-27

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

For the Nine Months Ended September 30, 2007 and 2006


	For the Nine Months Ended
	September 30,			September 30,
	2007			2006
	(Dollars and shares in thousands except for per share data)

Interest and dividend income
Interest on loans, including fees	$	11,616		$	9,064
Interest on federal funds sold		458			826
Interest on debt securities		538			545
Dividends on equity securities		37			31

Total interest income		12,649			10,466
Interest expense
Interest on deposits		4,717			3,108
Interest on other borrowed funds		48			476

Total interest expense		4,765			3,584

Net interest income		7,884			6,882
Provision for loan losses		1,134			311

Net interest income after provision for loan losses		6,750			6,571

Noninterest income
Bank service charges and fees		832			768

Total noninterest income		832			768

Noninterest expense
Salaries and employee benefits		4,063			3,494
Occupancy expenses		533			494
Equipment expenses		527			438
Other operating expenses		3,149			2,258

Total noninterest expense		8,272			6,684

(Loss) income from continuing operations before income taxes		(690	)		655
Income tax expense		—			—
Net (loss) income from continuing operations		(690	)		655
Net loss from discontinued operations		(77	)		(651	)

Net (loss) income	$	(767	)	$	4

Net (loss) income per share from continuing operations (basic and diluted)	$	(0.15	)	$	0.14

Net (loss) income per share (basic and diluted)	$	(0.17	)	$	0.00

Weighted average number of shares outstanding		4,587			4,582

See accompanying notes to unaudited consolidated financial statements.

F-28

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Nine Months Ended September 30, 2007 and 2006


												Accumulated
	Shares of		Common				Additional					Other
	Common		Stock		Common		Paid in		Accumulated			Comprehensive
	Stock		Subscriptions		Stock		Capital		Deficit			Income (Loss)			Total
	(Dollars and shares in thousands)

Balance, December 31, 2005		4,582	$	—	$	46	$	39,778	$	(9,379	)	$	(75	)	$	30,370
Net income		—		—		—		—		4			—			4
Unrealized gain on securities available for sale		—		—		—		—		—			27			27

Total comprehensive loss																31
Stock compensation expense		—		—		—		27		—			—			27

Balance, September 30, 2006		4,582	$	—	$	46	$	39,804	$	(9,375	)	$	(48	)	$	30,428

Balance, December 31, 2006		4,582	$	—	$	46	$	39,809	$	(9,262	)	$	(40	)	$	30,553
Net loss		—		—		—		—		(767	)		—			(767	)
Unrealized gain on securities available for sale		—		—		—		—		—			49			49
Total comprehensive loss																(718	)
Common Stock issued		5		—		—		38								38
Stock-based compensation expense		—		—		—		57		—			—			57
Dissolution of subsidiary		—		—		—		—		2			—			2

Balance, September 30, 2007		4,587	$	—	$	46	$	39,904	$	(10,027	)	$	9		$	29,932

See accompanying notes to unaudited consolidated financial statements.

F-29

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Nine Months Ended September 30, 2007 and 2006


	For the Nine Months Ended
	September 30,			September 30,
	2007			2006
	(Dollars and shares in thousands)

Operating activities:
Net (loss) income	$	(767	)	$	4
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for loan losses		1,134			346
Amortization of security premiums and accretion of discounts, net		(14	)		18
Depreciation		419			414
Stock-based compensation expense		57			27
Loss on disposition of property		—			(7	)
(Increase) Decrease in other assets		(498	)		360
Increase in interest payable		116			205
Increase (Decrease) accrued expenses and other liabilities		134			(75	)

Net cash provided by (used in) operating activities		581			1,292
Investing activities:
Purchase of securities held to maturity		(6,000	)		(43,000	)
Purchase of securities available for sale		(18,522	)		(13,250	)
Proceeds from maturities of securities held to maturity		21,025			52,000
Proceeds from maturities of securities available for sale		21,863			3,000
Purchase of other investments		(42	)		(121	)
Net increase in loans		(38,122	)		(16,585	)
Purchase of premises and equipment		(774	)		(196	)

Net cash used in investing activities		(20,572	)		(18,152	)

Financing activities:
Net (decrease) increase in federal funds purchased		(1,517	)		854
Proceeds from stock options exercised		38			—
Net (decrease) increase in note payable		(500	)		475
Net decrease in secured borrowings		—			(1,435	)
Net decrease in noninterest bearing and interest bearing demand deposits		(1,923	)		(6,363	)
Net increase (decrease) in savings deposits		879			(282	)
Net increase in time deposits		28,035			20,378

Net cash (used in) provided by financing activities		25,012			13,627

Net increase (decrease) in cash and cash equivalents		5,021			(3,233	)
Cash and cash equivalents:
Beginning of the period		5,091			16,816

End of the period	$	10,112		$	13,583

Supplemental disclosures of cash flow information:
Interest paid	$	4,650		$	3,387

See accompanying notes to unaudited consolidated financial statements.

F-30

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


NOTE 1	Principles of Consolidation and Basis of Presentation:

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

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


NOTE 2	Impacts of Certain Accounting Pronouncements:

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

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


NOTE 3	Investment Securities:

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

F-31

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Securities Available for Sale
September 30, 2007


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(Dollars in thousands)

Gov’t-sponsored enterprises-discount notes*	$	1,000	$	—	$	(1	)	$	999
Gov’t-sponsored enterprises-notes*		9,305		23		(13	)		9,315

Total Securities Available for Sale	$	10,305	$	23	$	(14	)	$	10,314

Securities Held to Maturity
September 30, 2007


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(Dollars in thousands)

Gov’t-sponsored enterprises-discount notes*	$	—	$	—	$	—		$	—
Gov’t-sponsored enterprises-notes*		6,400		—		(44	)		6,356

Total Securities Held to Maturity	$	6,400	$	—	$	(44	)	$	6,356

Securities Available for Sale
December 31, 2006


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(Dollars in thousands)

Gov’t-sponsored enterprises-discount notes*	$	7,213	$	—	$	(7	)	$	7,206
Gov’t-sponsored enterprises-notes*		6,424		—		(33	)		6,391

Total Securities Available for Sale	$	13,637	$	—	$	(40	)	$	13,597

Securities Held to Maturity
December 31, 2006


			Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(Dollars in thousands)

Gov’t-sponsored enterprises-discount notes*	$	13,008	$	—	$	(12	)	$	12,996
Gov’t-sponsored enterprises-notes*		8,412		—		(122	)		8,290

Total Securities Held to Maturity	$	21,420	$	—	$	(134	)	$	21,286


*		FHLB

F-32

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

Securities Available for Sale
September 30, 2007


	Less than 12 Months					12 Months or More				Total
	Fair		Unrealized					Unrealized				Unrealized
	Value		Loss			Fair Value		Loss		Fair Value		Loss
	(Dollars in thousands)

Description of securities:
Gov’t-sponsored enterprises-notes*	$	792	$	(13	)	$		$		$	792	$	(13	)
Gov’t-sponsored enterprises-discount notes*		999		(1	)		—		—		999		(1	)

Total	$	1,791	$	(14	)	$	—	$	—	$	1,791	$	(14	)

Securities Held to Maturity

September 30, 2007


	Less than 12 Months					12 Months or More				Total
			Unrealized					Unrealized				Unrealized
	Fair Value		Loss			Fair Value		Loss		Fair Value		Loss
	(Dollars in thousands)

Description of securities:
Gov’t-sponsored enterprises-notes*	$	6,356	$	(44	)	$		$		$	6,356	$	(44	)
Gov’t-sponsored enterprises-discount notes*							—		—		—		—

Total	$	6,356	$	(44	)	$	—	$	—	$	6,356	$	(44	)

Securities Available for Sale

December 31, 2006


	Less than 12 Months					12 Months or More					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
	(Dollars in thousands)

Description of securities:
Gov’t-sponsored enterprises-notes*	$	4,990	$	(4	)	$	1,401	$	(29	)	$	6,391	$	(33	)
Gov’t-sponsored enterprises-discount notes*		7,206		(7	)		—		—			7,206		(7	)

Total	$	12,196	$	(11	)	$	1,401	$	(29	)	$	13,597	$	(40	)

F-33

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Securities Held to Maturity

December 31, 2006


	Less than 12 Months					12 Months or More					Total
			Unrealized					Unrealized					Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
	(Dollars in thousands)

Description of securities:
Gov’t-sponsored enterprises-notes*	$	1,999	$	(1	)	$	6,291	$	(121	)	$	8,290	$	(122	)
Gov’t-sponsored enterprises-discount notes*		12,996		(12	)		—		—			12,996		(12	)

Total	$	14,995	$	(13	)	$	6,291	$	(121	)	$	21,286	$	(134	)


*		Issued by the Federal Home Loan Bank (FHLB)

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

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


NOTE 4	Stock Based Compensation:

2001 Stock Option Plan

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

F-34

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

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


	Nine Months Ended September 30,
	2007			2006

Outstanding at January 1	$	246,625		$	281,425
Granted		56,000			5,000
Exercised		(5,000	)		—
Lapsed		(22,350	)		(1,200	)

Options outstanding at September 30		275,275			285,225
Options exercisable at September 30		233,275			274,492
Weighted average exercise price	$	9.97		$	9.95
Weighted average remaining contracted life at September 30		55 months			79 months

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

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

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


	Nine Months Ended
	September 30, 2007			September 30, 2006

Expected volatility		20	%		5	%
Expected dividend		0			0
Expected term (years)		5			10
Risk free rate		4.6	%		4.6	%

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

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

2007 Equity Compensation Plan

On May 29, 2007, the shareholders of TransCommunity approved the TransCommunity Financial Corporation 2007 Equity Compensation Plan (the “2007 Plan”). The complete text of the 2007 Plan was filed as an exhibit to the Form 10-Q dated June 30, 2007. The following general description of the principal

F-35

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

features of the 2007 Plan is qualified in its entirety by reference to such exhibit. Additional information with respect to the 2007 Plan is included in TransCommunity’s proxy statement for its 2007 annual meeting of shareholders, as filed with the Commission on April 23, 2007.

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

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

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

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

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


Date		Percentage

March 1, 2008		20%
March 1, 2009		20%
March 1, 2010		60%

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

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


NOTE 5	Earnings (Losses) Per Share:

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

F-36

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 6	Business Segments:

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

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

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


	For Nine Months Ended September 30, 2006
	Community			Main			Trans-
	Banking			Street			Community			Eliminations			Consolidated
	(Dollars in thousands)

Net interest income (expense)	$	6,539		$	(30	)	$	343		$	—		$	6,852
Provision for loan losses		(310	)		(36	)		—			—			(346	)
Noninterest income		734			1,773			339			(305	)		2,541
Noninterest expense		(4,610	)		(2,359	)		(2,425	)		351			(9,043	)
Income (loss) from subsidiaries		—			—			1,701			(1,701	)		—

Net income (loss) from continuing operations		2,353			(652	)		(42	)		(1,655	)		4
Net loss from discontinued operations		—			—			—			—			—

Net income (loss)	$	2,353		$	(652	)		(42	)	$	(1,655	)	$	4

Total Assets	$	184,484		$	211		$	30,692		$	(22,005	)	$	193,382


NOTE 7	Secured Borrowings:

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

F-37

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 8	Capital:

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


	September 30,			December 31,
	2007			2006
	(Dollars in thousands)

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


NOTE 9	Litigation:

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

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

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

F-38

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

TransCommunity believes that, insofar as it concerns TransCommunity, Minter’s suit is without merit.

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


NOTE 10	Pending Merger:

On September 5, 2007, TransCommunity entered into an Agreement and Plan of Merger with Community Bankers. The Merger Agreement sets forth the terms and conditions of Community Bankers’ acquisition of TransCommunity through the merger of TransCommunity with and into Community Bankers. TransCommunity Bank, N.A., a wholly-owned subsidiary of TransCommunity, will become a wholly-owned subsidiary of Community Bankers in the Merger.

Under the terms of the Merger Agreement, Community Bankers will issue to the shareholders of TransCommunity, for each share of TransCommunity’s common stock that they own, 1.4200 shares of Community Bankers’ common stock (the “Exchange Ratio”), subject to adjustment as described below. If the daily average closing price for Community Bankers’ common stock for the 20 consecutive days of trading in such stock ending five days before the closing date is less than $7.42, Community Bankers will increase the Exchange Ratio to the quotient obtained by dividing $10.5364 by such daily average closing price. There will be no adjustment if such daily average closing price is $7.42 or greater.

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

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

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

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


NOTE 11	Subsequent Events:

None.

F-39

TRANSCOMMUNITY FINANCIAL CORPORATION CONSOLIDATED AUDITED FINANCIAL
STATEMENTS

F-40

Report of the Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
TransCommunity Financial Corporation
Glen Allen, Virginia

We have audited the accompanying consolidated balance sheets of TransCommunity Financial Corporation and Subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, changes in stockholders equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TransCommunity Financial Corporation and Subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for the years ended, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2 to the consolidated financial statements, in 2006 TransCommunity Financial Corporation and Subsidiaries adopted Statement of Financial Accounting Standards No. 123R, Share-Based Payment.

(McGladrey <DATA,ampersand> Pullen
Sign.eps)

Richmond, Virginia

April 13, 2007

F-41

S.B. HOOVER & COMPANY, L.L.P.
Certified Public Accountants

124 Newman Avenue Harrisonburg, Virginia 22801-4004 (540)434-6736 FAX (540)434-3097

The Board of Directors and Stockholders
TransCommunity Financial Corporation
Richmond, Virginia

We have audited, before the effects of the adjustments for the correction of the error described in Note 25, the consolidated statement of operations, changes in stockholders’ equity, and cash flows of TransCommunity Financial Corporation for the year ended December 31, 2004 (the 2004 financial statements before the effects of the adjustments discussed in Note 25 are not presented herein). The 2004 consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, except for the error described in Note 25, the 2004 financial statements present fairly, in all material respects, and the results of operations and its cash flows of TransCommunity Financial Corporation for the year ended December 31, 2004 in conformity with U.S. generally accepted accounting principles.

We were not engaged to audit, review or apply any procedures to the adjustments for the correction of the error described in Note 25 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by McGladrey & Pullen, LLP.

/s/ S. B. Hoover & Company, L.L.P.

Harrisonburg, Virginia
March 20, 2005 (except for reclassification of discontinued operations as described
in Notes 1 and 14, as to which date is April 12, 2007)

Members of the American Institute of Certified Public Accountants and Virginia Society of Certified Public Accountants

F-42

DECEMBER 31, 2006 AND 2005

CONSOLIDATED BALANCE SHEETS


	2006			2005
	(Dollars in thousands)

ASSETS
Cash and due from banks	$	3,669		$	4,132
Federal funds sold		1,422			12,684

Total cash and cash equivalents		5,091			16,816
Securities available for sale, at fair value		13,597			5,355
Securities held to maturity, fair value of $21,286 and $25,722 at December 31, 2006 and 2005, respectively		21,420			25,882
Loans		151,399			134,930
Allowance for loan losses		(2,065	)		(1,602	)

Total loans, net		149,334			133,328
Premises and equipment, net		6,689			6,841
Other investments		896			536
Assets from discontinued operations, net		88			835
Other assets		1,330			1,055
Total assets	$	198,445		$	190,648


LIABILITIES
Deposits:
Demand:
Noninterest bearing	$	20,450		$	17,253
Interest bearing		37,850			46,144
Savings		9,478			9,471
Time		97,195			73,735

Total deposits		164,973			146,603
Federal funds purchased		1,517			272
Note payable		500			—
Secured borrowings		—			12,515
Accrued interest payable		540			302
Liabilities from discontinued operations, net		10			202
Accrued expenses and other liabilities		352			384

Total liabilities		167,892			160,278
Commitments and Contingencies (Notes 19 and 20)

STOCKHOLDERS’ EQUITY
Common stock (25,000,000 shares authorized - $.01 par value) 4,581,741 shares issued and outstanding at December 31, 2006 and 2005, respectively		46			46
Additional paid in capital		39,809			39,778
Accumulated deficit		(9,262	)		(9,379	)
Accumulated other comprehensive loss		(40	)		(75	)

Total stockholders’ equity		30,553			30,370

Total liabilities and stockholders’ equity	$	198,445		$	190,648

See accompanying notes to consolidated financial statements.

F-43

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2006, 2005 and 2004


	2006			2005			2004
	(Dollars in thousands, except per share data)

Interest and dividend income
Interest on loans, including fees	$	12,366		$	9,683		$	6,369
Interest on federal funds sold		1,115			678			89
Interest on debt securities — taxable		765			561			413
Dividends on equity securities		61			35			23

Total interest and dividend income		14,307			10,957			6,894

Interest expense
Interest on deposits		4,475			2,888			1,783
Interest on secured borrowings		471			550			112
Interest on other borrowed funds		12			59			99

Total interest expense		4,958			3 ,497			1,994

Net interest income		9,349			7,460			4,900
Provision for loan losses		493			266			549

Net interest income after provision for loan losses		8,856			7,194			4,351

Noninterest income
Bank service charges and fees		1,011			791			762

Total noninterest income		1,011			791			762

Noninterest expense
Salaries and employee benefits		4,711			5,118			4,003
Occupancy expenses		689			614			502
Equipment expenses		600			596			549
Other operating expenses		2,933			3,006			2,347

Total noninterest expense		8,933			9,334			7,401

Income (loss) from continuing operations before income taxes		934			(1,349	)		(2,288	)
Income tax expense		(15	)		—			—

Net Income (loss) from continuing operations		919			(1,349	)		(2,288	)
Net loss from discontinued operations		(802	)		(423	)		(293	)

Net income (loss)	$	117		$	(1,772	)	$	(2,581	)

Net income (loss) per share from continuing operations (basic and diluted)	$	0.20		$	(0.41	)	$	(1.08	)

Net income (loss) per share (basic and diluted)	$	0.03		$	(0.53	)	$	(1.22	)

Weighted average number of shares outstanding		4,581,741			3,315,479			2,114,275

See accompanying notes to consolidated financial statements.

F-44

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2006, 2005, and 2004


															Accumulated
	Shares of								Additional						Other
	Common			Common Stock					Paid in			Accumulated			Comprehensive
	Stock			Subscriptions			Common Stock		Capital			Deficit			Income (Loss)			Total
	(Dollars in thousands)

Balance, December 31, 2003		2,068		$	—		$	21	$	19,916		$	(5,026	)	$	(10	)	$	14,901
Net loss		—			—			—		—			(2,581	)		—			(2,581	)
Unrealized loss on securities available for sale		—			—			—		—			—			(34	)		(34	)

Total comprehensive loss		—			—			—		—			—			—			(2,615	)
Subscriptions received		—			2,743			—		—			—			—			2,743
Common stock issued		183			(2,743	)		2		2,556			—			—			(185	)
Deferred compensation expense		—			—			—		95			—			—			95

Balance, December 31, 2004		2,251		$	—		$	23	$	22,567		$	(7,607	)	$	(44	)	$	14,939

Balance, December 31, 2004		2,251		$	—		$	23	$	22,567		$	(7,607	)	$	(44	)	$	14,939

Net loss		—			—			—		—			(1,772	)		—			(1,772	)
Unrealized loss on securities available for sale		—			—			—		—			—			(31	)		(31	)

Total comprehensive loss		—			—			—		—			—			—			(1,803	)
Subscriptions received					19,040														19,040
Common stock issued		2,343			(19,040	)		23		17,307			—			—			(1,710	)
Common stock repurchased		(12	)		—			—		(172	)		—			—			(171	)
Deferred compensation expense		—			—			—		76			—			—			76

Balance, December 31, 2005		4,582		$	—		$	46	$	39,778		$	(9,379	)	$	(75	)	$	30,370

Balance, December 31, 2005		4,582		$	—		$	46	$	39,778		$	(9,379	)	$	(75	)	$	30,370

Net income		—			—			—		—			117			—			117
Unrealized gain on securities available for sale		—			—			—		—			—			35			35

Total comprehensive income																			152
Stock based compensation expense		—			—			—		31			—			—			31
Balance, December 31, 2006		4,582		$	—		$	46	$	39,809		$	(9,262	)	$	(40	)	$	30,553

See accompanying notes to consolidated financial statement.

F-45

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2006, 2005 and 2004


	2006			2005			2004
	(Dollars in Thousands)

Operating activities:
Net income (loss) from continuing operations	$	117		$	(1,772	)		(2,581	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Provision for loan losses		526			331			654
Amortization of security premiums and accretion of discounts, net		(4	)		7			(72	)
Depreciation		555			538			418
Deferred compensation expense		—			76			95
Stock-based compensation expense		31			—			—
Loss(Gain) on disposition of property		22			2			(1	)
Decrease (increase) in other assets		324			(288	)		(194	)
Increase (decrease) in accrued interest payable		238			96			—
(Decrease) increase in accrued expenses and other liabilities		(224	)		71			242

Net cash provided by (used in) operating activities		1,585			(939	)		(1,439	)

Investing activities:
Purchase of securities held to maturity		(56,025	)		(71,200	)		(23,137	)
Purchase of securities available for sale		(22,967	)		(9,000	)		(21,101	)
Proceeds from maturities of securities held to maturity		60,500			55,200			30,750
Proceeds from maturities of securities available for sale		14,750			18,500			5,506
Proceeds from sale of securities available for sale		—			3,000			—
Purchase of other investments		(360	)		(28	)		(150	)
Net (increase) decrease in loans		(27,562	)		(23,015	)		(46,089	)
Proceeds from sale of premises and equipment		48			—			2
Purchase of premises and equipment, net		(376	)		(1,402	)		(1,472	)

Net cash used in investing activities		(31,992	)		(27,945	)		(55,692	)

Financing activities:
Net change in federal funds purchased		1,245			(2,005	)		1,776
Net proceeds from offering of common stock		—			19,040			2,743
Costs of stock offering		—			(1,710	)		(186	)
Net other borrowings (repayments)		500			(1,450	)		252
Common stock repurchase		—			(173	)		—
Net (decrease) increase in secured borrowings		(1,434	)		5,296			7,219
Net (decrease) increase in noninterest bearing and interest
bearing demand deposits		(5,096	)		11,244			24,675
Net increase in savings deposits		7			969			2,676
Net increase in time deposits		23,460			10,729			13,636

Net cash provided by financing activities		18,682			41,940			52,791

Net (decrease) increase in cash and cash equivalents		(11,725	)		13,055			(4,340	)
Cash and cash equivalents:
Beginning of the period		16,816			3,760			8,100

End of the period	$	5,091		$	16,816		$	3,760

Supplemental disclosures of cash flow information:
Interest paid	$	4,737		$	3,402		$	1,933
Non-cash investing and financing transactions:
Transferred of secured borrowing due to loan participation agreement becoming eligible for sales accounting treatment in accordance with Statement 140. (See Notes 9 and 25)		11,081			—			—

See accompanying notes to consolidated financial statements.

F-46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1	NATURE OF OPERATIONS:

TransCommunity Financial Corporation (“TransCommunity” or the “Company”) is a bank holding company whose principal activity is the formation, ownership and operation of independently-managed community banks. TransCommunity’s first subsidiary, the Bank of Powhatan, N.A. (“Bank of Powhatan”), was organized as a national banking association in 1999, and commenced operations on March 20, 2000. TransCommunity’s second subsidiary, Bank of Goochland, N.A. (“Bank of Goochland”), was organized and incorporated during 2002, and commenced operations on November 25, 2002. On April 19, 2004, TransCommunity established its third independent community bank in the central Virginia area, the Bank of Louisa, N.A. (“Bank of Louisa”), TransCommunity initially established the Bank of Louisa in July 2003 as a branch of Bank of Powhatan. The assets and liabilities of this branch office were transferred to Bank of Louisa contemporaneously with the receipt by that bank of its independent national banking charter in April 2004. On December 11, 2006, TransCommunity commenced the operations of the Bank of Rockbridge, its fourth subsidiary bank (“Bank of Rockbridge” together with Bank of Powhatan, Bank of Goochland, and Bank of Louisa, the “banks.”)

TransCommunity’s subsidiary banks are subject to regulation by the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Virginia Bureau of Financial Institution, and the Board of Governors of the Federal Reserve System. The banks provide general banking services to individuals, small- and medium-size businesses and the professional communities of Powhatan, Goochland, Rockbridge, and Louisa Counties of Virginia and surrounding areas.

On January 1, 2001, the Bank of Powhatan purchased Main Street Mortgage and Investment Corporation (“Main Street”) which became a wholly-owned subsidiary of the bank. Main Street originated commercial and residential real estate loans for investors throughout the state. However, in November of 2006, the Board of Directors voted to discontinue the operations of Main Street.

During 2004, TransCommunity applied for and received authority to offer trust services through each of its national bank subsidiaries. TransCommunity Investment Advisors, Inc., an investment advisory subsidiary, was formed to handle asset management and TransCommunity Investment Services, an insurance agency and investment broker, was established to broaden the scope of financial services available through each of the subsidiary banks. During the fourth quarter of 2005, the Board of Directors directed management to discontinue the operations of these non-bank activities.


NOTE 2	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of financial presentation — The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United States of America (US GAAP) and predominant practices within the banking industry. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. These estimates and assumptions also affect reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The principal estimate that is particularly susceptible to significant change in the near term relates to the allowance for loan losses. The evaluation of the adequacy of the allowance for loan losses includes an analysis of the individual loans and overall risk characteristics and size of the different loan portfolios, and takes into consideration current economic and market conditions, the capability of specific borrowers to pay specific loan obligations, and current loan collateral values.

F-47

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In connection with the determination of the estimated losses on loans, management obtains independent appraisals for significant collateral. Actual losses on specific loans, which also are encompassed in the analysis, may vary from estimated losses.

Principles of consolidation — The consolidated financial statements include the accounts of the Company, which is a bank holding company that owns all of the outstanding common stock of its banking subsidiaries, Bank of Powhatan, Bank of Goochland, Bank of Louisa, Bank of Rockbridge, and Main Street Mortgage and Investment Corporation, Inc., a wholly-owned subsidiary of Bank of Powhatan. All significant inter-company balances and transactions have been eliminated.

Business segments — SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” establishes standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas, and major customers. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The statement also requires that public enterprises report a measure of segment profit or loss, certain specific revenue and expense items and segment assets. It also requires that information be reported about revenues derived from the enterprises’ products or services, or about the countries in which the enterprises earn revenues and hold assets, and about major customers, regardless of whether the information is used in making operating decisions. The accounting policies of the segments are the same as those described in this Note.

Management has determined that the Company has two current reportable segments, “Community Banking and TransCommunity (the holding company).” All of the Company’s subsidiary banks’ activities are interrelated, and each of their activities is dependent and assessed based on how each of the subsidiary bank’s consolidated activities for the Company supports the others. For example, commercial lending is dependent upon the ability of the subsidiary banks to fund themselves with retail deposits and other borrowings and to manage interest rate and credit risk. This situation is also similar for consumer and residential mortgage lending. Accordingly, all significant operating decisions are based upon analysis of the consolidated operations of the subsidiary banks as a consolidated segment. The current operations of the holding company are identified as a segment due to their consolidated support services supplied to the subsidiary banks and the cost related to those support services as an operating unit.

The Company has also reported in the past several operating segments that have been discontinued. These discontinued operating segments within the Company’s operations, although no longer in existence, will be segregated for comparative reasons and to identify the discontinued operations impact on the company’s past operations.

The financial statement information of the parent company is included as a reportable segment. This segment is principally involved with providing managerial support and the operation of the shared services platform for the other reportable segments.

F-48

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following tables present revenues, expenses and net income (loss) for the years 2006 and 2005 and total assets at the respective year-ends for our business segments. All significant inter-segment accounts and transactions have been eliminated.


	For Year Ended December 31, 2006
	Community			Main			Financial		Trans-
	Banking			Street			Services		Community			Eliminations			Consolidated
	(Dollars in thousands)

Net interest income (expense)	$	8,922		$	—		$	—	$	427		$	—		$	9,349
Provision for loan losses		(493	)		—			—		—			—			(493	)
Noninterest income		975			—			—		441			(405	)		1,011
Noninterest expense		(6,174	)		—			—		(3,222	)		463			(8,933	)
Income tax expense		—			—			—		(15	)		—			(15	)
Income (loss) from subsidiaries		(802	)		—			—		2,428			(1,626	)		—

Net income (loss) from continuing operations		2,428			—			—		59			(1,568	)		919
Net loss from discontinued operations		—			(802	)		—		—			—			(802	)

Net income (loss) before taxes	$	2,428		$	(802	)	$	—		59		$	(1,568	)	$	117

Total Assets	$	198,111		$	88		$	—	$	246		$	—		$	198,445


	For Year Ended December 31, 2005
	Community			Main			Financial			Trans-
	Banking			Street			Services			Community			Eliminations			Consolidated
	(Dollars in thousands)

Net interest income (expense)	$	7,305		$	—		$	—		$	155		$	—		$	7,460
Provision for loan losses		(266	)		—			—			—			—			(266	)
Noninterest income		678			—			278			312			(477	)		791
Noninterest expense		(5,909	)		—			(376	)		(3,586	)		537			(9,334	)
Income (loss) from subsidiaries		(84	)		—			—						(1,263	)		—

Net income (loss) from continuing operations		1,724			—			(98	)		(1,772	)		(1,203	)		(1,349	)
Net loss from discontinued operations		—			(84	)		(339	)		—			—			(423	)

Net income (loss)	$	1,724		$	(84	)	$	(437	)		(1,772	)	$	(1,203	)	$	(1,772	)

Total Assets	$	178,963		$	1,219		$	151		$	30,559		$	(20,244	)	$	190,648

F-49

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	For Year Ended December 31, 2004
	Community			Main		Financial			Trans-
	Banking			Street		Services			Community			Eliminations			Consolidated
	(Dollars in thousands)

Net interest income (expense)	$	4,949		$	—	$	—		$	(49	)	$	—		$	4,900
Provision for loan losses		(549	)		—		—			—			—			(549	)
Noninterest income		760			—		8			500			(506	)		762
Noninterest expense		(5,352	)		—		(68	)		(2,555	)		574			(7,401	)
Income (loss) from subsidiaries		10			—		—			(477	)		467			—

Net income (loss) from continuing operations		(182	)		—		(60	)		(2,581	)		535			(2,288	)
Net income (loss) from discontinued operations		—			10		(303	)		—			—			(293	)

Net income (loss)	$	(182	)	$	10	$	(363	)		(2,581	)	$	535		$	(2,581	)

Total Assets	$	150,296		$	1,492	$	—		$	16,472		$	(17,993	)	$	150,267

Investment securities — The Company accounts for its investment securities in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. Investment securities that the Company has the ability and intent to hold to maturity are classified as held-to-maturity and are stated at cost, adjusted for premium amortization and discount accretion. Securities which are held for indefinite periods of time which management intends to use as part of its asset/liability management strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, increased capital requirements or other similar factors, are classified as available-for-sale and are carried at fair market value. Net unrealized gains and losses for such securities, net of income tax effect, are charged/credited directly to accumulated other comprehensive income (loss), a component of shareholders’ equity. Securities transactions are accounted for on a trade date basis. Gains or losses on disposition of investment securities are based on the net proceeds and the adjusted carrying amount of the securities sold using the specific identification method.

As of December 31, 2006 and 2005, the Company did not have any foreign investment securities or securities designated as trading account investments.

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activity, established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 was amended by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. The Company’s adoption of SFAS No. 133, as amended, did not have a material impact on its financial condition or results of operations. The Company did not have any derivatives at December 31, 2006 and 2005.

The Company adopted EITF 03-1, The Meaning of Other than Temporary Impairment and Its Application to Certain Investments, as of December 31, 2003. EITF 03-1 includes certain required quantitative and qualitative disclosures for investment securities accounted for under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date, but an other-than-temporary impairment has not been recognized. In November 2005, the FASB issued Staff Position FSP No. FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. This FSP provides guidance on determining when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. The FSP also provides accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The Company adopted FSP No. FAS 115-1 and FAS 124-1 as of December 31, 2005. The

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

disclosures required under EITF 03-1 and FSP No. FAS 115-1 and FAS 124-1 are included in these consolidated financial statements.

Loans and allowance for loan losses — Loans that management has the intent and the ability to hold for the foreseeable future or until maturity or payoff are stated at the amount of unpaid principal net of unearned discount, unamortized loan fees and loan origination costs and an allowance for loan losses. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that the collectibility of principal is unlikely. The allowance for loan losses is maintained at a level that management considers adequate to provide for credit losses inherent in the loan portfolios at the reporting date. The level of the allowance is based on management’s evaluation of risk of loss in the loan portfolios after consideration of prevailing and anticipated economic conditions, including estimates and appraisals, among other items, known or anticipated at each reporting date. On a periodic basis during the year, management makes credit reviews of the loan portfolios designed to identify any changes in the loans since initial booking impacting their quality rating. This review is designed to identify potential changes to the loan loss reserve.

Interest income on loans is credited to operations based upon the principal amount outstanding. The net amounts of origination fees, origination costs and commitment fees are deferred and recognized over the lives of the related loans and leases as adjustments of yield. When management believes there is sufficient doubt as to the ultimate collectibility of interest on any loan, the accrual of applicable interest is discontinued. A loan is generally classified as nonaccrual when principal and interest have consistently been in default for a period of 90 days or more or because of deterioration in the financial condition of the borrower, and payment in full of principal or interest is not expected. Loans past due 90 days or more and still accruing interest are loans that are generally well-secured and expected to be restored to a current status in the near future or are in the process of collection. In all cases, loans are placed on nonaccrual or are charged off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

The Company follows SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures. This standard requires that certain impaired loans be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rates, except that as a practical expedient, a creditor may measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent. Regardless of the measurement method, a creditor must measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable.

Premises and equipment — Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the term of the lease or estimated useful life, whichever is shorter.

The Company follows SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 retained the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed of by sale. SFAS No. 144 also changed the requirements relating to reporting the effects of a disposal or discontinuation of a segment of a business.

Transfers of Financial Assets — The Company follows SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of SFAS No. 125” (“Statement 140”). Transfers of financial assets are accounted for as sales when control over the assets has been

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

TransCommunity serves as the lead bank in certain loan transactions where they sell a portion of the loans to other participating banks. For loans participated with other banks, TransCommunity collects payments of principal and interest from the borrowers and distributes the participating bank’s interest to them on a pro rata basis. TransCommunity does not have any servicing agreements related to these participation loans. Accordingly, there are no servicing assets or liabilities recorded. Any retained interests in participation loans are included in total loans in the accompanying consolidated balance sheets and are accounted for consistent with the accounting policies applied to all loans.

Goodwill and intangible assets — SFAS No. 141, Business Combinations, requires that the purchase method of accounting be used for all business combinations.. For purchase acquisitions, the Company is required to record assets acquired, including identifiable intangible assets, and liabilities assumed at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analysis or other valuation techniques. SFAS No. 142, Goodwill and Other Intangible Assets, prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of SFAS No. 142 discontinue the amortization of goodwill and intangible assets with indefinite lives but require at least an annual impairment review, and more frequently if certain impairment indicators are in evidence. The Company adopted SFAS 147, Acquisitions of Certain Financial Institutions, on January 1, 2002 and determined that core deposit intangibles will continue to be amortized over the estimated useful life.

Income taxes — The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that expects to be in effect when these differences reverse. Deferred tax expense is the result of changes in deferred tax assets and liabilities. The principal types of accounts resulting in differences between assets and liabilities for financial statement and tax return purposes are the allowance for loan losses, interest income on nonaccrual loans, depreciation and amortization, difference between book and tax bases of assets acquired and net operating loss carryforwards. The Company and its subsidiaries file a consolidated federal income tax return.

Statements of cash flows — Cash and cash equivalents are defined as the sum of cash on hand, non interest-bearing amounts due from banks and federal funds sold. Generally, federal funds are sold for a one-day period.

Other real estate owned — Other real estate owned is recorded at lower of cost or market value less costs of disposal. When property is acquired, the excess, if any, of the loan balance over fair market value is charged to the allowance for loan losses. Periodically thereafter, the asset is reviewed for subsequent declines in the estimated fair market value. Subsequent declines, if any, holding costs and gains and losses on subsequent sale are included in the consolidated statements of operations. At December 31, 2006 and 2005, the Company held no other real estate owned.

Marketing costs — The Company expenses marketing costs as incurred. Marketing expenses for the years ended December 31, 2006, 2005, and 2004 were approximately $221 thousand, $428 thousand and $373 thousand, respectively.

Earnings per share — Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if stock options or other contracts to issue common stock were exercised and converted into common stock. Stock options for 241,725,

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

256,325 and 317,375 shares of common stock were not considered in computing diluted earnings per share for 2006, 2005 and 2004, respectively, because they were antidilutive.

Stock based compensation — 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. SFAS No. 123R required implementation by the beginning of the first fiscal year that begins after June 15, 2005. On January 1, 2006, TransCommunity implemented SFAS No. 123R using the modified prospective transition method. By implementing SFAS No. 123R, TransCommunity recorded $31 thousand of additional compensation expense during the year ended December 31, 2006, resulting from the application of fair-value-based accounting to its stock-based compensation programs. See Note 16 for more information about TransCommunity’s stock-based compensation programs.

Comprehensive income (loss) — The Company follows the disclosure provisions of SFAS No. 130, Reporting Comprehensive Income. SFAS No. 130 requires the reporting of comprehensive income which includes net income (loss) as well as certain other items that result in a change to shareholders’ equity during the period.

Reclassifications and restatements — Certain reclassifications have been made in the 2004 and 2005 financial statements to conform to the classifications used in 2006. Additionally, certain restatements were made to 2005 and 2004 financial statements as discussed in Note 25.

New Accounting Pronouncements — In May 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the accounting for and reporting of a voluntary change in accounting principle and replaces ABP Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” Under Opinion No. 20, most changes in accounting principle were reported in the income statement of the period of change as a cumulative adjustment. However, under SFAS 154, a voluntary change in accounting principle must be shown retrospectively in the financial statements, if practicable, for all periods presented. In cases where retrospective application is impracticable, an adjustment to the assets, liabilities and a corresponding adjustment to retained earnings can be made as of the beginning of the earliest period for which retrospective application is practicable rather than being reported in the income statement. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years after December 15, 2005. The Company does not anticipate this revision will have a material effect on its financial position or results of operations.

In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — an Amendment of FASB Statements 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 beginning subsequent to September 15, 2006. The Company does not anticipate the adoption of SFAS 155 in January 2007 will have a material effect on its financial position or results of operations.

In March 2006, FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets — an Amendment of FASB Statement No. 140” (“SFAS 156”). SFAS 156 amends FASB Statement No. 140,

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

“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 during which the change occurs. Adoption of SFAS 156 is required as of the beginning of the first fiscal year beginning 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.

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

In June 2006, FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. Earlier application of the provisions of this interpretation is encouraged if the enterprise has not yet issued financial statements, including interim statements, in the period this interpretation is adopted. TransCommunity has evaluated FIN 48 and concluded that the adoption of this interpretation will have no material impact on its financial statements.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities.” This standard permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This Statement is effective as of the beginning of an entity’s first fiscal year beginning after November 15, 2007. Early adoption is permitted as of the beginning of the fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS 157 “Fair Value Measurement.” The Company is currently in the process of evaluating the impact that the adoption will have on its consolidated financial position and results of operations.

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 3	RESTRICTIONS ON CASH AND DUE FROM BANKS:

The Banks are required to maintain average cash balances on hand or with the Federal Reserve Bank. At December 31, 2006, these reserve balances amounted to $190 thousand. At December 31, 2005, these reserve balances amounted to $173 thousand.


NOTE 4	INVESTMENT SECURITIES:

The amortized cost and estimated fair value of securities are as follows:

Securities Available for Sale December 31, 2006


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)

U.S. Agency discount notes	$	7,213	$	—	$	(7	)	$	7,206
U.S. Agency notes		6,424		—		(33	)		6,391

Total Securities Available for Sale	$	13,637	$	—	$	(40	)	$	13,597

Securities Held to Maturity December 31, 2006


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)

U.S. Agency discount notes	$	13,008	$	—	$	(12	)	$	12,996
U.S. Agency notes		8,412		—		(122	)		8,290

Total Securities Held to Maturity	$	21,420	$	—	$	(134	)	$	21,286

Securities Available for Sale December 31, 2005


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)

U.S. Agency notes		5,430		—	$	(75	)		5,355

Total Securities Available for Sale	$	5,430	$	—	$	(75	)	$	5,355

Securities Held to Maturity December 31, 2005


			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)

U.S. Agency discount notes	$	19,482	$	—	$	(11	)	$	19,471
U.S. Agency notes		6,400		—		(149	)		6,251

Total Securities Held to Maturity	$	25,882	$	—	$	(160	)	$	25,722

F-55

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The amortized cost and fair value of investment securities at December 31, 2006, by contractual maturity, are shown in the following schedule. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


					Weighted
	Amortized		Fair		Average
	Cost		Value		Yield
	(Dollars in thousands)

Securities Available for Sale
Due within one year	$	10,329	$	10,317		5.08	%
Due after one year through five years		3,308		3,280		4.56	%
Due after five years through ten years		—		—		—

Total Securities Available for Sale	$	13,637	$	13,597		4.95	%

Securities Held to Maturity
Due within one year	$	15,020	$	15,008		5.10	%
Due after one year through five years		5,400		5,294		3.90	%
Due after five years through ten years		1,000		984		4.73	%

Total Securities Available for Sale	$	21,420	$	21,286		4.79	%

At December 31, 2006 and 2005 gross unrealized losses totaled $174 thousand and $235 thousand, respectively. Securities in an unrealized loss position at December 31, 2006 and 2005 are shown below.

Securities Available for Sale


	Less than 12 Months					12 Months or More					Total
			Unrealized					Unrealized					Unrealized
December 31, 2006	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
	(Dollars in thousands)

Description of securities:
US Agency notes	$	4,990		(4	)	$	1,401	$	(29	)	$	6,391	$	(33	)
US Agency discount notes		7,206		(7	)		—		—			7,206		(7	)

Total	$	12,196	$	(11	)	$	1,401	$	(29	)	$	13,597	$	(40	)

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Securities Held to Maturity


	Less than 12 Months					12 Months or More					Total
			Unrealized					Unrealized					Unrealized
December 31, 2006	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss
	(Dollars in thousands)

Description of securities:
US Agency notes	$	1,999		(1	)	$	6,291	$	(121	)	$	8,290	$	(122	)
US Agency discount notes		12,996		(12	)		—		—			12,996		(12	)

Total	$	14,995	$	(13	)	$	6,291	$	(121	)	$	21,286	$	(134	)

December 31, 2005
Description of securities:
US Agency notes	$	5,066		(59	)	$	6,540	$	(164	)	$	11,606	$	(223	)
US Agency discount notes		19,471		(12	)		—		—			19,471		(12	)

Total	$	24,537	$	(71	)	$	6,540	$	(164	)	$	31,077	$	(235	)

The 2006 unrealized loss is the aggregate of 20 U.S. Agency notes, of which 11 have a continuous loss period of more than 12 months. The 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.

The carrying amount (which approximates fair value) of securities pledged by the banks to secure public deposits amounted to $11.3 million and $11.8 million at December 31, 2006 and 2005, respectively.

TransCommunity’s subsidiary banks are required to hold stock in the Federal Reserve Bank. The investment in Federal Reserve Bank stock is recorded at cost of $831 thousand and $536 thousand as of December 31, 2006 and 2005, respectively. The Company also held $65 thousand in Virginia Bankers Association Title Insurance Company Stock at year end 2006, which are classified as “Other Investments” in the Consolidated Balance Sheet.

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 5	LOANS:

Loans receivable outstanding at December 31, 2006 and 2005 are summarized as follows:


	At December 31,
	2006		2005
	(Dollars in thousands)

Real estate:
Construction	$	21,348	$	16,041
Residential		29,007		25,147
Commercial		60,571		65,470
Commercial, industrial and agricultural		31,284		20,205
Consumer and installment		8,725		7,436
All other		464		631

Total Loans	$	151,399	$	134,930

At December 31, 2006 and 2005, the total recorded investment in loans in nonaccrual status amounted to $920 thousand and $25 thousand, respectively, and the total recorded investment in loans past due 90 days or more and still accruing interest amounted to approximately $41 thousand and $140 thousand, respectively. These nonaccrual and past due loans consist of smaller balance homogenous loans that are collectively evaluated for impairment.

TransCommunity’s banking subsidiaries have entered into transactions with certain directors, executive officers, significant stockholders, and their affiliates. Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features.

The aggregate amount of loans to such related parties at December 31, 2006 and 2005 was as follows:


	2006		2005
	(Dollars in thousands)

Beginning balance	$	7,659	$	4,449
Add: Advances		8,659		6,024
Less: Repayments		8,580		2,814
Ending balance	$	7,738	$	7,659


NOTE 6	ALLOWANCE FOR LOAN LOSSES:

A summary of the changes in the allowance for the loan losses is shown in the following schedule:


	At December 31,
	2006			2005			2004
	(Dollars in thousands)

Allowance for loan losses, January 1	$	1,602		$	1,401		$	870
Provision charged to expense		493			266			549
Net loans charged off		(30	)		(65	)		(18	)

Allowance for loan losses, December 31	$	2,065		$	1,602		$	1,401

Allowance for loan losses to total loans		1.36	%		1.19	%		1.25	%

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 7	PREMISES AND EQUIPMENT:

Premises and equipment at December 31, 2006 and 2005 are summarized as follows:


	At December 31,
	2006			2005
	(Dollars in thousands)

Land and improvements	$	1,722		$	1,722
Buildings		4,243			4,164
Furniture and equipment		2,788			2,559
Construction in progress		37			12
		8,790			8,457

Accumulated depreciation		(2,101	)		(1,616	)

Net premises and equipment	$	6,689		$	6,841

The depreciation expense on premises and equipment for 2006, 2005 and 2004 was $555 thousand, $538 thousand and $418 thousand, respectively.

Construction in progress at December 31, 2006 includes blueprint plans to add on to the current Bank of Powhatan structure.

Construction in progress at December 31, 2005 included leasehold improvements to the Bank of Powhatan which were completed during 2006.


NOTE 8	TIME DEPOSITS:

The aggregate amount of time deposits with a minimum denomination of $100 thousand was $43.7 million and $28.2 million at December 31, 2006 and 2005, respectively.

At December 31, 2006, the scheduled maturities of certificates of deposit were as follows:


	(Dollars in thousands)

2007	$	48,401
2008		21,722
2009		11,486
2010		9,642
2011		5,944

Total	$	97,195


NOTE 9	NOTES PAYABLE AND SECURED BORROWINGS:

Notes Payable — On July 21, 2006, Main Street Mortgage and Financial Corporation entered into a $500 thousand unsecured revolving line of credit fully guaranteed by TransCommunity. This fully drawn line of credit, due upon demand, required monthly interest only payments based on the prime rate as published by the Wall Street Journal, which was 8.25% at December 31, 2006. Interest was paid as agreed by Main Street until year-end 2006, when it discontinued operations and TransCommunity assumed the note. During 2006, interest expense associated with this line of credit was $18 thousand and is included in the results of discontinued operations. Starting January 2007, TransCommunity continued interest payments until March 2007, when the note was paid in full.

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TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Secured Borrowings — Secured borrowings amounted to $12.5 million at December 31, 2005. Pursuant to SFAS Statement 140, certain loan participation agreements did not qualify for sale accounting due to buyback provisions included within the agreement, thus the Company had not surrendered control over the transferred loans and had accounted for the transfers as secured borrowings. During September 2006, the Company amended all participation loan agreements such that as of September 29, 2006, all loan participation agreements became eligible for sale accounting in accordance with Statement 140 and as a result the secured borrowings were short-term in nature.


NOTE 10	CAPITAL STOCK:

TransCommunity is authorized to issue up to 25,000,000 shares of common stock, $.01 par value per share, and up to 5,000,000 shares of preferred stock, $.01 par value per share. At December 31, 2006 and December 31, 2005 TransCommunity had 4,581,741 shares of common stock issued and outstanding, respectively. On the same dates no shares of preferred stock were issued or outstanding.

During the period June 2004 to February 2005, TransCommunity sold 225,528 shares of common stock in a non-underwritten public offering, at a purchase price of $15 per share. Additionally, 100 shares of common stock were issued in 2005 in connection with an option exercise by one option holder. These shares were issued at an option exercise price of $10.00 per share. In July 2005, TransCommunity sold 2,300,000 shares of common stock in an underwritten public offering to a limited number of institutional investors at a purchase price of $8.00 per share. The minimum share purchase requirement in the offering was 25,000 shares per investor.

In November 2005, TransCommunity repurchased 11,500 shares of common stock issued in the 2004-2005 non-underwritten offering from one person residing in a jurisdiction in which such shares had not been properly registered for sale. The shares were repurchased at the original issue price at $15 per share.


NOTE 11	DIVIDEND LIMITATIONS:

A principal source of funds for TransCommunity in future years is anticipated to be dividends paid by its subsidiary banks. Dividends paid by the banks are limited by banking regulations. Approval of the Comptroller of the Currency is required if the dividends declared by a national bank, in any year, exceed the sum of (1) net income for the current year and (2) income, net of dividends, for the preceding two years. No dividends were paid to TransCommunity in 2006.

In January of 2007, the Bank of Powhatan and the Bank of Goochland each paid TransCommunity a $300 thousand dividend out of their respective retained earnings.

TransCommunity may not pay a dividend while there is an accumulated deficit.


NOTE 12	INCOME TAXES:

The components of income tax expense are as follows:


	Year Ended December 31,
	2006		2005		2004

Current expense	$	15	$	—	$	—
Deferred expense		—		—		—

Net Income tax expense	$	15	$	—	$	—

F-60

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The components of the deferred tax assets and liabilities at December 31, 2006 and 2005 are as follows:


	At December 31,
	2006			2005
	(Dollars in thousands)

Deferred tax assets:
Allowance for loan loss	$	558		$	533
Organization costs		—			16
Charitable contribution carryover		27			25
Stock compensation award		—			81
Stock based compensation		12			—
Goodwill		81			—
Net operating loss carryforwards		2,904			2,816
Alternative minimum tax credit		15
Unrealized loss on available for sale securities		13			25

Total deferred tax asset		3,610			3,496
Less: Valuation allowance		(3,387	)		(3,203	)

		223			293

Deferred tax liabilities:
Goodwill		—			29
Depreciation		223			264

Net deferred tax asset	$	—		$	—

The following table summarizes the differences between the actual income tax benefit and the amounts computed using the federal statutory tax rates:


	At December 31,
	2006			2005			2004
	(Dollars in thousands)

Income tax expense (benefit) at the applicable federal tax rate	$	45		$	(602	)	$	(878	)
Change in valuation allowance for deferred taxes		184			589			869
True up of prior year net deferred tax assets		(251	)		—			—
Nondeductible expenses		22			13			9
Alternative minimum tax		15			—			—

Income tax expense (benefit)	$	15		$	—		$	—

The true up of prior year net deferred tax assets, totaling $251,000, reflected in the preceding table principally represents a net increase in deferred tax assets associated with the income tax effects of adjustments made to temporary differences related to net operating loss carry forwards and allowances for loan losses.

At December 31, 2006, TransCommunity had total net operating loss carryforwards of $7.5 million which begin to expire after December 31, 2020.

For the year ended December 31, 2006, TransCommunity generated taxable income of $1 million which is fully offset by available net operating losses generated in prior years. However, as a result of a 90% limitation with respect to deducting alternative minimum tax net operating loss carryovers, TransCommunity’s

F-61

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

current expense for income taxes for the year ended December 31, 2006 is $15 thousand in alternative minimum tax. TransCommunity may be subject to the alternative minimum tax in future years.

The net deferred tax assets at December 31, 2006 and 2005, consisted primarily of the tax effect of net operating loss carryforwards incurred in years after December 31, 2000. The net deferred tax assets recognized, at December 31, 2006 and 2005, are fully offset by a valuation allowance since, at this time, there is insufficient evidence to conclude that TransCommunity will produce continuing and sufficient taxable income in the future to utilize its net operating losses and other deductible temporary differences.

The Company issued common stock in 2002 and 2005 resulting in a more than 50% change in ownership. As a result, utilization of certain of the Company’s net operating losses incurred in the periods prior to the changes are limited under Internal Revenue Code § 382 as to the amount that can be used to offset taxable income in subsequent years. In 2005, the Company incurred approximately $656 thousand of net operating loss after the change of control. Taxable income in future years that exceed the annual § 382 limit and the post change of control net operating loss will be taxed at regular corporate tax rates.


NOTE 13	CONCENTRATION OF CREDIT RISK:

Most of the banks’ loans are made to customers in the banks’ trade areas. Accordingly, the ultimate collectibility of the banks’ loan portfolio is susceptible to changes in local economic conditions. The types of loans made by the banks are described in Note 5. Collateral required by the banks is determined on an individual basis depending on the nature of the loan and the financial condition of the borrower. TransCommunity has a concentration of loans secured by real estate. At December 31, 2006, real estate loans represented 73.3% of the loans in the consolidated portfolio. Real estate lending by the banks generally consists of commercial real estate loans, construction and development loans, and residential and home equity loans.

The Company maintains deposits at other high credit quality commercial banks that may, at times, exceed federally insured limits.


NOTE 14	SELECTED FINANCIAL DATA FOR DISCONTINUED OPERATIONS:

Pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the following information and related financial data is provided for operating segments where operations were discontinued during the years ended December 31, 2006 and 2005.

On November 29, 2006, the TransCommunity board of directors directed the Company’s management to close Main Street Mortgage, a mortgage brokerage company, enabling it to better align TransCommunity’s operations with its community banking focus. Main Street Mortgage had operated as a wholly-owned subsidiary of the Bank of Powhatan, a wholly-owed subsidiary of TransCommunity, since 2001.

During the fourth quarter of 2005, the TransCommunity board of directors voted to discontinue offering the trust banking, asset management and insurance and securities brokerage services being offered through TransCommunity’s financial services operating segment.

F-62

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Loss) Gain from discontinued operations


	Years Ended December 31,
	2006			2005			2004
	(In thousand dollars)

Main Street	$	(802	)	$	(84	)	$	10
Financial Services		—			(339	)		(303	)

	$	(802	)	$	(423	)	$	(293	)

Financial data for discontinued operations — Main Street Mortgage


	Years Ended December 31,
	2006			2005			2004
	(In thousand dollars)

Interest Income	$	6		$	16		$	36
Interest Expense		(46	)		(63	)		(61	)

Net Interest Income (Expense)		(40	)		(47	)		(25	)
Provision for Loan Losses		(33	)		(64	)		(105	)

Net Interest Income (Expense) after Provision		(73	)		(111	)		(130	)
Noninterest Income		1,881			3,983			3,351
Salaries and employee benefits		(1,723	)		(3,091	)		(2,544	)
Occupancy expenses		(177	)		(226	)		(182	)
Equipment costs		(107	)		(116	)		(97	)
Other operating expenses		(603	)		(523	)		(388	)

Gain (loss) from discontinued operations	$	(802	)	$	(84	)	$	10

Cash	$	—		$	—		$	—
Loans Receivable		18			69			213
Premises and Equipment		67			164			206
Other Assets		3			602			601

Total Assets	$	88		$	835		$	1,020

Note Payable	$	—		$	—		$	—
Accrued Expenses and Other Liabilities		10			202			291
Total Equity		78			633			729

Total Liabilities and Equity	$	88		$	835		$	1,020

Summary financial data for discontinued operations — Financial Services


	Years Ended December 31,
	2006		2005			2004
	(In thousand dollars)

Noninterest Income	$	—	$	29		$	11
Salaries and employee benefits		—		(288	)		(212	)
Occupancy expenses		—		(30	)		(43	)
Equipment costs		—		(4	)		(8	)
Other operating expenses		—		(46	)		(51	)

Gain (loss) from discontinued operations	$	—	$	(339	)	$	(303	)

Financial Services reported no assets or liabilities in either 2005 or 2004

F-63

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 15	GOODWILL:

During the second quarter of 2006, TransCommunity completed an impairment test of its goodwill in accordance with the specific requirements of SFAS No. 142 “Goodwill and Other Intangible Assets”. This Statement addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, “Intangible Assets”. It addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Based on second quarter personnel changes and a continued deterioration of the financial condition of Main Street Mortgage, the Company believed the $321 thousand of goodwill reported as other assets associated with the acquisition of Main Street Mortgage should be tested for impairment. The Company used a valuation approach which included comparisons of historical forecasts to actual results and earnings forecasts for the next year to determine if the fair value of the subsidiary exceeded the book value. Because goodwill is defined as the excess of the cost of an acquired entity over the fair value of all identifiable tangible and intangible assets acquired and the liabilities assumed, the Company was required to calculate the fair value of such assets and liabilities for Main Street Mortgage. Through this process, the Company concluded that the entire $321 thousand of goodwill was impaired and this amount was charged to operating expenses during the second quarter of 2006.


NOTE 16	STOCK OPTION PLAN:

Under the Company’s Stock Option Plan (the “Plan”), the Company may grant options to its directors, officers and employees for up to 330,000 of common stock. Annual grants of stock options are limited to 10,000 shares for each employee and 7,500 shares for each director. Both incentive stock options and non-qualified stock options may be granted under the plan. Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which requires that compensation cost relating to share-based payment transactions be recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued.

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 shareholder value. 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. The Plan will expire on May 7, 2011, unless terminated sooner by the Board of Directors.

F-64

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table illustrates the effect on net loss and loss per share as if TransCommunity had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to the stock option plan.


	2005			2004
	(Dollars in thousands)

Net income (loss), as reported	$	(1,772	)	$	(2,581	)
Deduct: total stock-based employee compensation expense determined under fair value based method		(144	)		(346	)

Pro Forma Net Income (Loss)	$	(1,916	)	$	(2,927	)

Earnings (Loss) per Share:
Basic and diluted — as reported	$	(0.53	)	$	(1.22	)

Basic and diluted — pro forma	$	(0.58	)	$	(1.38	)

The fair value of each option granted is estimated on the date of grant using the “Black Scholes Option Pricing” method with the following assumptions:

For the Years Ended

2006

2005

2004

Expected volatility

0.7

N/A

Expected dividend

N/A

Expected term (years)

N/A

Risk free rate

4.4

N/A

The expected volatility is based on historical volatility of comparable peer banks. The risk free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve at the time of the grant. The expected life is based on the historical exercise experience. The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

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


	2006					2005					2004
				Weighted					Weighted					Weighted
				Average					Average					Average
	Number of			Exercise		Number of			Exercise		Number of			Exercise
	Shares			Price		Shares			Price		Shares			Price

Outstanding at beginning of the year		256,325		$	10.00		317,375		$	10.00		318,675		$	10.00
Granted		5,000		$	7.65		—					—
Forfeited		(167	)	$	10.00		—					—
Exercised		—					(100	)	$	10.00		—
Expired		(14,433	)	$	10.00		(60,950	)	$	10.00		(1,300	)	$	10.00

Outstanding at end of the year		246,725		$	9.95		256,325		$	10.00		317,375		$	10.00

Options exercisable at end of year		241,358		$	9.95		245,593		$	10.00		161,275		$	10.00

Weighted-average fair value per option of options granted during the year	$	2.70				$	—				$	—

Weighted average remaining contracted life for outstanding and exercisable shares at December 31		72 months					84 months					96 months

The total intrinsic value of the options outstanding and exercisable as of December 31, 2006, was $7 thousand, which is related solely to options granted in 2006. As of December 31, 2006, there was $5 thousand

F-65

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of total unrecognized compensation expense related to nonvested options, respectively, which will be recognized over a weighted-average period of 3.5 months.

The following table summarizes nonvested restricted shares outstanding as of December 31, 2006 and the related activity during the year:


	Number of		Weighted-Average
Nonvested Shares	Shares		Grant-Date Fair Value

Nonvested at January 1, 2006		15,565	$	10.00
Granted		5,000	$	7.65
Less: Vested		15,031	$	9.22
Forfeited		167	$	10.00
Nonvested at December 31, 2006		5,367	$	10.00

The Board awarded a former executive 25,000 “restricted” shares of TransCommunity stock. The shares became fully vested on December 31, 2005. The compensation cost related to the restricted stock award was expensed over the requisite service period. Deferred compensation expense of $0, $76 thousand, and $95 thousand was recorded for 2006, 2005, and 2004, respectively.


NOTE 17	REGULATORY MATTERS:

Both TransCommunity and its subsidiaries are subject to various regulatory capital requirements administered by the federal banking agencies. If TransCommunity, or its subsidiary banks, fail to meet minimum capital requirements, its primary regulators can initiate certain mandatory and possible additional discretionary actions. If such actions are undertaken, they could have a direct material effect on TransCommunity’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, TransCommunity’s subsidiary banks must meet specific capital guidelines that involve quantitative measures of each bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures are established by bank regulations to ensure capital adequacy. The Banks are required to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined). At December 31, 2006 and 2005, management believes that the Company and the Banks met all capital adequacy requirements to which they are subject.

F-66

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The actual and required capital amounts and ratios for the years ended December 31, 2006 and 2005 for the Company and the Banks are as follows:


											Minimum to be Well Capitalized
											Under Prompt
						Minimum Capital					Corrective Action
	Actual					Requirement					Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)

*As of December 31, 2006:*
Total Capital (to Risk Weighted Assets):
Consolidated	$	32,522		18.32	%	$	14,201		8.00	%	$	N/A
Bank of Powhatan		8,425		12.85	%		5,244		8.00	%		6,555		10.00	%
Bank of Goochland		10,611		13.07	%		6,494		8.00	%		8,117		10.00	%
Bank of Louisa		5,193		18.29	%		2,271		8.00	%		2,839		10.00	%
Bank of Rockbridge		7,919		361.60	%		175		8.00	%		219		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	30,457		17.16	%	$	7,100		4.00	%	$	N/A
Bank of Powhatan		7,595		11.59	%		2,622		4.00	%		3,933		6.00	%
Bank of Goochland		9,722		11.98	%		3,247		4.00	%		4,870		6.00	%
Bank of Louisa		4,922		17.34	%		1,135		4.00	%		1,703		6.00	%
Bank of Rockbridge		7,914		361.37	%		88		4.00	%		131		6.00	%
Tier 1 Capital (to Average Assets):
Consolidated	$	30,457		15.86	%	$	7,677		4.00	%	$	N/A
Bank of Powhatan		7,595		10.77	%		2,821		4.00	%		3,526		5.00	%
Bank of Goochland		9,722		11.31	%		3,437		4.00	%		4,296		5.00	%
Bank of Louisa		4,922		15.97	%		1,232		4.00	%		1,541		5.00	%
Bank of Rockbridge		7,914		92.42	%		343		4.00	%		428		5.00	%
*As of December 31, 2005:*
Total Capital (to Risk Weighted Assets):
Consolidated	$	31,556		19.92	%	$	11,668		8.00	%	$	N/A
Bank of Powhatan		7,523		12.72	%		4,752		8.00	%		5,940		10.00	%
Bank of Goochland		7,204		10.16	%		4,774		8.00	%		5,968		10.00	%
Bank of Louisa		5,059		19.94	%		1,925		8.00	%		2,406		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	29,954		18.91	%	$	5,834		4.00	%	$	N/A
Bank of Powhatan		6,780		11.46	%		2,376		4.00	%		3,564		6.00	%
Bank of Goochland		6,536		9.22	%		2,387		4.00	%		3,581		6.00	%
Bank of Louisa		4,812		18.96	%		962		4.00	%		1,444		6.00	%
Tier 1 Capital (to Average Assets):
Consolidated	$	29,954		17.59	%	$	6,386		4.00	%	$	N/A
Bank of Powhatan		6,780		9.55	%		2,840		4.00	%		3,551		5.00	%
Bank of Goochland		6,536		9.12	%		2,483		4.00	%		3,103		5.00	%
Bank of Louisa		4,812		16.13	%		1,173		4.00	%		1,467		5.00	%

F-67

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of March 31, 2007, the most recent date of notification, the Office of the Comptroller of the Currency categorized all TransCommunity subsidiary national banks as Well Capitalized under the regulatory framework for prompt corrective action. To be categorized as Well Capitalized, an institution must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as shown in the above table. There are no conditions or events since this date that management believes have changed the category of any of its subsidiary banks.


NOTE 18	FAIR VALUE OF FINANCIAL INSTRUMENTS:

Statement of Financial Accounting Standards No. 107 (SFAS 107) “Disclosures About the Fair Value of Financial Statements” defines the fair value of a financial instrument as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation sale. As the majority of the Banks’ financial instruments lack an available trading market, significant estimates, assumptions and present value calculations are required to determine estimated fair value.

Changes in the assumptions or methodologies used to estimate fair values may materially affect the estimated amounts. Also, management is concerned that there may not be reasonable comparability between the Company and other financial institutions due to the wide range of permitted assumptions and methodologies in the absence of active markets. This lack of uniformity gives rise to a high degree of subjectivity in estimating financial instrument fair values.

TransCommunity has determined estimated fair values using the best available data and an estimation methodology suitable for each category of financial instruments. The estimation methodology used, the estimated fair values and the recorded carrying value of financial instruments at December 31, 2006 and 2005 are as follows:


	December 31,				December 31,
	2006				2005
	Estimated		Carrying		Estimated		Carrying
	Fair Value		Value		Fair Value		Value
	(Dollars in thousands)				(Dollars in thousands)

Financial assets:
Cash and due from banks	$	3,669	$	3,669	$	4,132	$	4,132
Federal funds sold		1,422		1,422		12,684		12,684
Investment securities		34,883		35,017		31,077		31,237
Other Investments		896		896		536		536
Loans, net		149,233		149,334		134,693		133,328
Accrued interest receivable		874		874		808		808
Financial liabilities:
Demand deposits:
Noninterest bearing	$	20,450	$	20,450	$	17,253	$	17,253
Interest bearing		37,850		37,850		46,144		46,144
Savings deposits		9,478		9,478		9,471		9,471
Time deposits		95,128		97,195		74,999		73,735
Federal funds purchased		1,517		1,517		272		272
Secured borrowings		—		—		12,515		12,515
Notes payable		500		500		—		—
Accrued interest payable		540		540		302		302

F-68

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The estimated fair values of investment securities are based on quoted market prices if available or on the quoted market prices of comparable instruments if quoted market prices are not available. The gross loan portfolio and time deposits are valued using a present value discounted cash flow method where market prices are not available. The discount rate used in these calculations is the estimated current market rate adjusted for credit risk. All other financial instruments have fair values that approximate the carrying value.

The fair value of commitments to extend credit and standby letters of credit are considered immaterial.


NOTE 19	FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:

In the normal course of business, the banks have outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not included in the accompanying consolidated financial statements. The banks’ exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The banks use the same credit policies in making such commitments as it does for instruments that are included in the consolidated balance sheets.

Financial instruments whose contract amounts represent credit risk were as follows (dollars in thousands):


	December 31,
	2006		2005

Commitments to extend credit	$	48,263	$	34,532
Standby letters of credit		5,026		4,370

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The banks evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the banks upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable, inventory, property and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the banks to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The banks’ policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.


NOTE 20	COMMITMENTS AND CONTINGENT LIABILITIES:

TransCommunity has entered into a master agreement with a third party to provide data processing services to the Company and its subsidiary banks. This agreement is for an initial period of 48 months. Unless written notice of non-renewal is provided by either party at least 180 days before expiration of any term, the agreement shall automatically renew for a period of 4 years. The current monthly expense associated with these agreements is approximately $53 thousand and is based principally on the level of accounts at each subsidiary bank.

The Company and its subsidiaries lease banking facilities and other office space under operating leases that expire at various dates through 2014 and that contain certain renewal options. Total rent expense for office and equipment for the years ended December 31, 2006, 2005, and 2004 amounted to $496 thousand, $623 thousand, and $531 thousand respectively.

F-69

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Pursuant to the terms of non-cancelable lease agreements in effect at December 31, 2006, pertaining to premises, future minimum rent commitments under various operating leases are as follows:


	Dollars in thousands

2007	$	478
2008		448
2009		452
2010		409
2011		284
Thereafter		677

	$	2,748


NOTE 21	OTHER OPERATING EXPENSES:


	2006		2005		2004
	(Dollars in thousands)

Other Operating Expenses
Charitable contributions	$	14	$	14	$	13
Consulting fees		134		170		40
Legal and Accounting Fees		815		917		427
Data Processing Fees		699		362		334
OCC and FDIC assessment		97		88		73
Other insurance		62		44		25
Subscriptions and membership dues		42		47		36
Training and personnel development		38		76		56
Travel, meals and entertainment		93		115		91
Other		939		1,173		1,252

Total	$	2,933	$	3,006	$	2,347

F-70

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 22	PARENT CORPORATION ONLY FINANCIAL STATEMENTS:

TRANSCOMMUNITY FINANCIAL CORPORATION
PARENT COMPANY ONLY

BALANCE SHEETS
DECEMBER 31, 2006 AND 2005


	2006			2005
	(Dollars in thousands)

ASSETS
Cash and due from banks	$	393		$	178
Federal funds sold		12			11,639

Total cash and cash equivalents		405			11,817
Property and equipment, net		295			375
Investment in subsidiaries		30,477			17,376
Due from subsidiaries		6			931
Other assets		92			61

Total assets	$	31,275		$	30,560


LIABILITIES
Note payable	$	500		$	—
Accounts payable		—			180
Accrued expenses and other liabilities		222			10

Total liabilities		722			190


STOCKHOLDERS’ EQUITY
Common stock (25,000,000 shares authorized $.01 par value) 4,581,741 shares issued and outstanding at December 31, 2006 and 2005, respectively		46			46
Additional paid in capital		39,809			39,778
Accumulated deficit		(9,262	)		(9,379	)
Accumulated other comprehensive loss		(40	)		(75	)

Total stockholders’ equity		30,553			30,370

Total liabilities and stockholders’ equity	$	31,275		$	30,560

F-71

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

TRANSCOMMUNITY FINANCIAL CORPORATION
PARENT COMPANY ONLY

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004


	For the Years Ended December 31,
	2006			2005			2004
	(Dollars in thousands)

Income
Interest income	$	429		$	207		$	18
Dividends from subsidiaries		—			770			560
Bank administration fee income		405			312			195
Recovery of start-up costs from subsidiary		3			—			230
Other		32			—			75

Total income		869			1,289			1,078
Expenses
Salaries and employee benefits		1,614			1,978			1,381
Consulting fees		75			113			128
Legal and accounting fees		679			614			237
Equipment expenses		164			137			177
Rent		330			341			173
Advertising and public relations		88			91			80
Other operating expenses		274			363			379

Total expense		3,224			3,637			2,555
Net loss before income taxes		(2,355	)		(2,348	)		(1,477	)
Income tax expense		(15	)		—			—

Loss before undistributed earnings (loss) of subsidiaries		(2,370	)		(2,348	)		(1,477	)
Undistributed earnings (loss) of subsidiaries — continuing operations		3,289			999			(811	)
Undistributed earnings (loss) of subsidiaries — discontinued operations		(802	)		(423	)		(293	)

Net Income (Loss)	$	117		$	(1,772	)	$	(2,581	)

F-72

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

TRANSCOMMUNITY FINANCIAL CORPORATION
PARENT COMPANY ONLY

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004


	For the Years Ended December 31,
	2006			2005			2004
	(Dollars in thousands)

Operating activities:
Net loss	$	117		$	(1,772	)	$	(2,581	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		100			81			61
Undistributed (earnings) loss of subsidiaries — continuing operations		(3,289	)		(999	)		811
Undistributed (earnings) loss of subsidiaries — discontinued operations		802			423			293
Deferred compensation expense		—			76			95
Stock Based compensation		31			—			—
Loss (Gain) on disposition of property		9			—			—
Net change in:
Other assets		(31	)		(23	)		40
Accounts payable		(180	)		97			5
Accrued expenses and other liabilities		212			8			(3	)

Net cash used in operating activities		(2,229	)		(2,109	)		(1,279	)

Investing activities:
Investment in subsidiaries		(10,578	)		(2,000	)		(5,500	)
Decrease in due from subsidiaries		925			(575	)		(376	)
Proceeds from sales of securities available for sale		—			3,000			—
Proceeds from maturities of securities available for sale		—			3,000			—
Purchases of securities available for sale		—			(6,000	)		—
Proceeds from the sale of premises and equipment		1			—			35
Payments for the purchase of premises and equipment		(31	)		(78	)		(265	)

Net cash provided by investing activities		(9,683	)		(2,653	)		(6,106	)

Financing activities:
Proceeds from offering of common stock, net		—			17,330			2,557
Proceeds from line of credit		500			—			450
Repayment of line of credit		—			(1,450	)		—
Common stock repurchase		—			(172	)		—

Net cash provided by financing activities		500			15,708			3,007

Net (decrease) increase in cash and cash equivalents		(11,412	)		10,946			(4,378	)
Cash and cash equivalents:
Beginning of the period		11,817			871			5,249

End of the period	$	405		$	11,817		$	871

Supplemental disclosures of cash flow information:
Interest paid	$	2		$	51		$	67

F-73

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


NOTE 23	DEFINED CONTRIBUTION PENSION PLAN:

TransCommunity has a defined contribution pension plan in the form of a 401(k) plan (the “401(k) Plan”) covering substantially all of its employees. Under the 401(k) Plan, employees can contribute pretax salary dollars subject to Internal Revenue Service ceilings. TransCommunity matches the up to 4% of salaries contributed by their employees and additionally contributes 5% of compensation regardless of what the employee contributes. Total expenses for the 401(k) Plan for the years ended December 31, 2006, 2005, and 2004 was $410 thousand, $554 thousand, and $370 thousand, respectively.


NOTE 24	SUBSEQUENT EVENTS

On January 30, 2007, the holding company received an annual dividend of $300 thousand each from Bank of Powhatan and Bank of Goochland from each bank’s reported 2006 net profits.


NOTE 25	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 SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of SFAS No. 125”. The Company had previously not reflected the participated balances of loans subject to these agreements on its balance sheet as required by SFAS No. 140.

On January 22, 2007, the Company filed an amended Annual Report on Form 10-KSB/A for the year ended December 31, 2005.

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


	As Previously
	Reported		Correction		As Amended
	(Dollars in thousands)

For the year ended December 31, 2005:
Loans	$	122,415	$	12,515	$	134,930
Secured borrowings		—		12,515		12,515
Interest on loans, including fees	$	9,133	$	550	$	9,683
Interest on secured borrowings		—		550		550
For the year ended December 31, 2004:
Interest on loans, including fees	$	6,257	$	112	$	6,369
Interest on secured borrowings		—		112		112


NOTE 26	LITIGATION:

On June 14, 2006, an individual and a company controlled by the individual (Dean H. Gould and Cal-Flo Investments, LLC) filed a lawsuit against Main Street Mortgage & Investment Corporation (“Main Street”), a wholly-owned subsidiary of Bank of Powhatan, and five other defendants that are not affiliated with Main Street in the General Court of Justice, Superior Court Division, in Wake County, North Carolina. The lawsuit

F-74

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

arises from three properties on which Main Street originated mortgage loans. The loans at issue were made by third-party lenders, and neither the Company nor any of its subsidiary banks hold any of the loans for its own account. The plaintiffs allege that the defendants developed a fraudulent scheme to originate these mortgage loans through Main Street employing, with Main Street’s knowledge, inflated appraisals and other devices that resulted in damages to the plaintiffs in the aggregate amount of $100,000 to $150,000. The plaintiffs have requested both compensatory and punitive damages.

Main Street filed an answer to the lawsuit and denies any liability. There has been no further activity in the lawsuit from any other party, and Main Street has ceased its business operations and filed for dissolution under applicable Virginia law.

At the present time, the case is in the early stages, there has been no discovery, and accordingly, the Company, with advice from its legal counsel, cannot conclude on the outcome or estimate any potential loss.

On November 2, 2006, James L. Minter filed a lawsuit against the Company and William C. Wiley, the former Chief Executive Officer and Chairman of the Board of Directors of the Company, in the Circuit Court of the County of Powhatan in Virginia. Mr. Minter was a director of Bank of Powhatan, a subsidiary of the Company (the “Bank”) until January 12, 2007, when he was removed by the Company. He was a former director of the Company until his resignation on March 29, 2006. Mr. Wiley resigned as the Company’s Chief Executive Officer and from its board of directors in December 2005.

The suit arises out of the Bank’s purchase of Main Street Mortgage and Investment Corporation in early 2001. Mr. Minter alleges that in late 2000 Wiley withheld information concerning the value of Main Street Mortgage from the Bank’s board of directors and that the Bank would not have acquired Main Street Mortgage if the valuation had been provided to the bank’s board. The Company acquired the stock of the Bank in August 2001, several months after the Bank acquired Main Street Mortgage. Mr. Minter’s suit claims that the Company aided and abetted and conspired with Wiley in his misrepresentation of Main Street Mortgage’s value.

In 2004 a committee of the Company’s board of directors investigated the Bank’s acquisition of Main Street Mortgage and concluded that Wiley had not defrauded the Bank’s board and that any further action would not be in the Company’s best interests. The committee reported its findings and recommendations to the boards of the Company and the Bank.

Mr. Minter’s suit also alleges that the December 2005 separation agreement between the Company and William Wiley improperly released claims the Company had against Wiley arising out of Wiley’s alleged concealment of the Main Street Mortgage valuation from the Bank’s board in late 2000. The Company believes that it never had a claim against Wiley in connection with the Bank’s acquisition of Main Street Mortgage and that the separation agreement did not release any claim the Bank may have had against Wiley.

Against Wiley, Minter alleges that (a) Wiley conspired to and engaged in a fraud on Minter by concealing and misrepresenting valuations regarding Main Street, (b) Wiley fraudulently induced Minter to invest in an entity unaffiliated with the Company and has engaged in conversion of certain of Minter’s funds, and (c) Wiley breached his fiduciary duty to Minter, the Bank and the Company by concealing and misrepresenting valuations regarding Main Street. In the same proceeding, Minter has sued Wiley over a loss on an investment Minter made in 1999 in a business Wiley owned or controlled. The Company has had no interest in that business.

Minter seeks unspecified recessionary and compensatory damages, unspecified treble damages and punitive damages of $350,000 against each defendant, jointly and severally and with interest. Minter also seeks to recover his attorneys’ fees.

The Company believes, with advice from its legal counsel, insofar as it concerns the Company, Mr. Minter’s suit is without merit.

F-75

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Company has moved for a dismissal; has brought claims against Mr. Minter for breach of fiduciary duty related to his use of confidential Company information for personal gain; and has removed him from the board of the Bank.


NOTE 27	SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

A summary of unaudited selected quarterly financial data for the two years ended December 31, 2006 and 2005 is presented below.


	For the Quarters Ended
	March 31, 2006			June 30, 2006			September 30, 2006			December 31, 2006
	(Dollars in thousands)

Summary results of operations data:
Interest income	$	3,225		$	3,436		$	3,778		$	3,868
Interest expense		1,096			1,107			1,353			1,402

Net interest income		2,129			2,329			2,425			2,466
Provision for loan losses		52			92			167			182

Net interest income after provision for loan losses		2,077			2,237			2,258			2,284
Noninterest income		238			299			232			242
Noninterest expense		2,280			2,172			2,233			2,248

Income — continuing operations		35			364			257			278
Income tax expense		—			—			—			15

Net income (loss) — continuing operations		35			364			257			263
Net loss — discontinued operations		(158	)		(334	)		(159	)		(151	)

Net (loss) income	$	(123	)	$	30		$	98		$	112

(Loss) earnings per share	$	(0.03	)	$	0.01		$	0.02		$	0.03

F-76

TRANSCOMMUNITY FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	For the Quarters Ended
	March 31, 2005			June 30, 2005			September 30, 2005			December 31, 2005
	(Dollars in thousands)

Summary results of operations data:
Interest income	$	2,250		$	2,535		$	2,927		$	3,245
Interest expense		706			833			893			1,065

Net interest income		1,544			1,702			2,034			2,180
Provision for loan losses		49			58			88			71

Net interest income after provision for loan losses		1,495			1,644			1,946			2,109
Noninterest income		128			145			124			394
Noninterest expense		1,981			2,307			2,104			2,942
Net loss — continuing operations		(358	)		(518	)		(34	)		(439	)
Net loss — discontinued operations		(115	)		(84	)		(38	)		(186	)

Net loss	$	(473	)	$	(602	)	$	(72	)	$	(625	)

(Loss) per share	$	(0.21	)	$	(0.26	)	$	(0.02	)	$	(0.04	)

The table shown above presents the effects of discontinued operations of Main Street and Financial Services that were not previously reported in Form 10-QSB for 2005, and the effects of discontinued operations of Main Street reported on Form 10-Q in 2006.

F-77

BOE FINANCIAL SERVICES OF VIRGINIA, INC. CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

F-78

CONSOLIDATED BALANCE SHEETS


	September 30,			December 31,			September 30,
	2007			2006			2006
	(Unaudited)			(Audited)			(Unaudited)
	(Dollars in thousands, except per share amounts)

ASSETS
Cash and due from banks	$	4,619		$	5,520		$	5,265
Federal funds sold		966			—			6,016
Securities available for sale, at fair value		49,382			55,963			53,937
Securities held to maturity, fair value of $2,949, $2,949 and $2,852		3,000			3,000			3,000
Equity securities, restricted at cost		1,761			1,553			1,553
Loans, net of allowance for loan losses of $2,672, $2,400 and $2,366		213,500			194,491			187,354
Bank premises and equipment, net		10,577			10,454			10,760
Accrued interest receivable		1,526			1,363			1,422
Intangible assets, net		430			524			556
Other assets		9,006			8,510			8,225

Total assets	$	294,767		$	281,378		$	278,088


LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits:
Noninterest-bearing	$	28,968		$	27,809		$	29,807
Interest-bearing		212,022			203,056			202,284

Total deposits	$	240,990		$	230,865		$	232,091

Federal funds purchased		—			3,207			—
Federal Home Loan Bank advances		17,000			12,000			12,000
Trust preferred capital notes		4,124			4,124			4,124
Accrued interest payable		911			851			883
Other liabilities		2,394			2,284			889

Total liabilities	$	265,419		$	253,331		$	249,987

Commitments and Contingent Liabilities
Stockholders’ Equity
Preferred stock $5 par value, authorized 1,000,000 shares; no shares issued and outstanding	$	—		$	—		$	—
Common stock, $5 par value, authorized 10,000,000 shares; issued and outstanding, 1,211,267 shares, 1,208,109 shares, and 1,203,857 shares, respectively		6,056			6,041			6,019
Additional paid-in capital		5,551			5,477			5,386
Retained earnings		18,542			17,256			16,814
Accumulated other comprehensive loss, net		(801	)		(727	)		(118	)

Total stockholders’ equity	$	29,348		$	28,047		$	28,101

Total liabilities and stockholders’ equity	$	294,767		$	281,378		$	278,088

See accompanying notes to consolidated financial statements.

F-79

CONSOLIDATED STATEMENTS OF INCOME


	Nine Months Ended
	September 30
	2007			2006
	(Unaudited)
	(Dollars in thousands, except per share amounts)
Interest and Dividend Income
Interest and fees on loans	$	11,980		$	10,536
Interest and dividends on securities:
U.S. Treasury		12			31
U.S. Government agencies		575			472
State and political subdivisions, nontaxable		1,017			1,025
State and political subdivisions, taxable		84			104
Other securities		134			139
Interest on federal funds sold		45			41

Total interest and dividend income		13,847			12,348

Interest Expense
Interest on deposits		5,579			4,264
Interest on borrowings		838			682

Total interest expense		6,417			4,946

Net interest income		7,430			7,402
Provision for Loan Losses		—			125

Net interest income after provision for loan losses		7,430			7,277

Noninterest income
Service charge income		797			779
Net security gains (losses)		(42	)		(19	)
Net gains on sales of loans		21			45
Net (losses) on sale of premises and equipment		—			(10	)
Other income		647			494

Total noninterest income		1,423			1,289

Noninterest expenses
Salaries		2,717			2,408
Employee benefits and costs		818			731
Occupancy expenses		373			309
Furniture and equipment related expenses		340			330
Data processing		453			415
Stationery and printing		135			120
Postage		140			135
Bank franchise tax		183			178
Other operating expenses		1,219			1,058

Total noninterest expenses		6,378			5,684

Net income before income taxes		2,475			2,882
Income taxes		463			672

Net income	$	2,012		$	2,210

Earnings Per Share, basic	$	1.66		$	1.84
Earnings Per Share, diluted	$	1.66		$	1.83

See accompanying notes to consolidated financial statements.

F-80

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30, 2007 and 2006


	September 30,			September 30,
	2007			2006
	(Unaudited)
	(In thousands)

Cash Flows from Operating Activities
Net income	$	2,012		$	2,210
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		505			449
Origination of loans held for sale		(3,347	)		(5,351	)
Proceeds from sale of loans held for sale		3,347			5,335
Provision for loan losses		—			125
Net amortization on securities		102			141
Net (gain)/loss on sale of securities		42			19
(Gain) on sale of loans		(21	)		(80	)
Net loss on disposal of equipment		5			10
(Increase) decrease in accrued interest receivable and other assets		659			(171	)
Increase in accrued expenses and other liabilities		170			23

Net cash provided by operating activities	$	3,474		$	2,710

Cash Flows from Investing Activities
Proceeds from sale of securities available-for-sale	$	12,597		$	3,089
Proceeds from maturities and calls of		5,052			2,844
securities available-for-sale		(12,496	)		(7,695	)
Purchase of securities available-for-sale		(208	)		(365	)
Purchase of restricted securities		(19,282	)		(7,272	)
Net (increase) in loans to customers		(966	)		(6,016	)
Increase in federal funds sold		—			—
Capital expenditures		(353	)		(3,239	)

Net cash (used in) investing activities	$	(15,656	)	$	(18,654	)

Cash Flows from Financing Activities
Net increase in deposits	$	10,125		$	8,959
Issuance of Common Stock		89			151
Decrease in federal funds purchased		(3,207	)		(1,810	)
Increase in FHLB Advances		5,000			7,000
Dividends paid		(726	)		(456	)

Net cash provided by financing activities	$	11,281		$	13,844

Net increase (decrease) in cash and cash equivalents	$	(901	)	$	(2,100	)
Cash and Cash Equivalents
Beginning of period		5,520			7,365

End of period	$	4,619		$	5,265

Supplemental disclosure of cash flow information
Cash paid during the year
Interest	$	6,357		$	4,582
Income Taxes		490			685

See accompanying notes to consolidated financial statements.

F-81