CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements concerning the Corporation's expectations, plans, objectives, future financial performance and other statements that are not historical facts. These statements may constitute "forward-looking statements" as defined by federal securities laws. These statements may address issues that involve estimates and assumptions made by management and risks and uncertainties. Actual results could differ materially from historical results or those anticipated by such statements. Factors that could have a material adverse effect on the operations and future prospects of the Corporation include, but are not limited to, changes in:

1) interest rates

2) general business and economic conditions, as well as conditions within the financial markets

3) the legislative/regulatory climate

4) monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board

5) the quality or composition of the loan portfolios and the value of the collateral securing those loans

6) the value of securities held in the Corporation's investment portfolios

7) the level of net charge-offs on loans

8) demand for loan products

9) deposit flows

10) competition from both banks and non-banks

11) demand for financial services in the Corporation's market area

12) technology

13) reliance on third parties for key services

14) the real estate market

15) the Corporation's expansion and technology initiatives and

16) accounting principles, policies and guidelines

A continuation of the recent turbulence in significant portions of the global financial markets, particularly if it worsens, could impact the Corporation's performance, both directly by affecting the Corporation's revenues and the value of its assets and liabilities, and indirectly by affecting the Corporation's counterparties and the economy generally. Concerns about the stability of the financial markets generally have reduced the availability of funding to certain financial institutions, leading to a tightening of credit, reduction of business activity and increased market volatility. The Emergency Economic Stabilization Act of 2008 ("EESA"), which was enacted on October 3, 2008, provides the U.S. Secretary of the Treasury with broad authority to implement certain actions aimed at restoring stability and liquidity to U.S. markets. The EESA includes, among other things, the Treasury Capital Purchase Program, the Troubled Assets Relief Program and the FDIC Temporary Liquidity Guarantee Program. It is not clear at this time what impact these programs, or any additional programs that may be initiated in the future by the U.S. Treasury and other bank regulatory agencies, will have on the financial markets and the financial services industry or the Corporation's business and financial performance. Although the Corporation currently has diverse sources of liquidity and its capital ratios exceed the minimum levels required for well-capitalized status, management is currently evaluating all aspects of programs under the EESA.

In addition, our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships, and we routinely execute transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry generally, could

exacerbate the market-wide liquidity crisis and could lead to losses or defaults by us or by other institutions. There is no assurance that any such losses would not materially adversely affect the Corporation's results of operations.

These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein. We caution readers not to place undue reliance on those statements, which speak only as of the date of this report.

The following discussion supplements and provides information about the major components of the results of operations, financial condition, liquidity and capital resources of the Corporation. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements requires us to make estimates and assumptions. Those accounting policies with the greatest uncertainty and that require our most difficult, subjective or complex judgments affecting the application of these policies, and the likelihood that materially different amounts would be reported under different conditions, or using different assumptions, are described below.

Allowance for Loan Losses: We establish the allowance for loan losses through charges to earnings in the form of a provision for loan losses. Loan losses are charged against the allowance when we believe that the collection of the principal is unlikely. Subsequent recoveries of losses previously charged against the allowance are credited to the allowance. The allowance represents an amount that, in our judgment, will be adequate to absorb any losses on existing loans that may become uncollectible. Our judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans while taking into consideration such factors as trends in delinquencies and charge-offs, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower's ability to repay, overall portfolio quality and specific potential losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available.

Impairment of Loans: We measure impaired loans based on the present value of expected future cash flows discounted at the effective interest rate of the loan (or, as a practical expedient, at the loan's observable market price) or the fair value of the collateral if the loan is collateral dependent. We consider a loan impaired when it is probable that the Corporation will be unable to collect all interest and principal payments as scheduled in the loan agreement. We do not consider a loan impaired during a period of delay in payment if we expect the ultimate collection of all amounts due. We maintain a valuation allowance to the extent that the measure of the impaired loan is less than the recorded investment.

Impairment of Securities: Impairment of investment securities results in a write-down that must be included in net income when a market decline below cost is other-than-temporary. We regularly review each investment security for impairment based on criteria that include the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer and our ability and intention with regard to holding the security to maturity.

Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new

cost basis. Subsequent to foreclosure, management periodically performs valuations of the foreclosed assets based on updated appraisals, general market conditions, length of time the properties have been held, and our ability and intention with regard to continued ownership of the properties. The Corporation may incur additional write-downs of foreclosed assets to fair value less cost to sell if valuations indicate a further other-than-temporary deterioration in market conditions.

Goodwill: Goodwill is no longer subject to amortization over its estimated useful life, but is subject to at least an annual assessment for impairment using a two-step process that begins with an estimation of the fair value of the reporting unit. In assessing the recoverability of the Corporation's goodwill, all of which was recognized in connection with the Bank's acquisition of C&F Finance Company in September 2002, we must make assumptions in order to determine the fair value of the respective assets. Major assumptions used in determining impairment are increases in future income, sales multiples in determining terminal value and the discount rate applied to future cash flows. As part of the impairment test, we perform sensitivity analysis by increasing the discount rate, lowering sales multiples and reducing increases in future income. We completed the annual test for impairment during the fourth quarter of 2007 and determined there was no impairment to be recognized in 2007. If the underlying estimates and related assumptions change in the future, we may be required to record impairment charges.

Defined Benefit Pension Plan: The Bank maintains a noncontributory, defined benefit pension plan for eligible full-time employees as specified by the plan. Plan assets, which consist primarily of marketable equity securities and corporate and government fixed income securities, are valued using market quotations. The Bank's actuary determines plan obligations and annual pension expense using a number of key assumptions, which include the discount rate, the estimated future return on plan assets and the anticipated rate of future salary increases. Changes in these assumptions in the future, if any, may impact pension assets, liabilities or expense.

Accounting for Income Taxes: Determining the Corporation's effective tax rate requires judgment. In the ordinary course of business, there are transactions and calculations for which the ultimate tax outcomes are uncertain. In addition, the Corporation's tax returns are subject to audit by various tax authorities. Although we believe that the estimates are reasonable, no assurance can be given that the final tax outcome will not be materially different than that which is reflected in the income tax provision and accrual.

For further information concerning accounting policies, refer to Note 1 of the Corporation's Notes to Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2007.

OVERVIEW

Our primary financial goals are to maximize the Corporation's earnings and to deploy capital in profitable growth initiatives that will enhance shareholder value. We track three primary performance measures in order to assess the level of success in achieving these goals: (i) return on average assets ("ROA"),
(ii) return on average equity ("ROE") and (iii) growth in earnings. In addition to these financial performance measures, we track the performance of the Corporation's three principal business activities: retail banking, mortgage banking and consumer finance. We also actively manage our capital through:
growth, stock purchases and dividends.

Financial Performance Measures. For the Corporation, net income decreased to $299,000 for the third quarter of 2008, compared with net income of $2.3 million for the third quarter of 2007. Earnings per share assuming dilution decreased to 10 cents for the third quarter of 2008, compared to 73 cents for the third quarter of 2007. Net income decreased to $3.1 million for the first nine months of 2008, compared with net income of $6.8 million for the first nine months of 2007. Earnings per share assuming dilution decreased to $1.04 for the first nine months of 2008, compared to $2.12 for the first nine months of 2007. Net income for the third quarter and the first nine months of 2008 included a $1.5 million other-than-temporary impairment charge related to the Corporation's investments in perpetual preferred stock of Fannie Mae and Freddie Mac. Excluding this impairment charge, the Corporation's earnings were $1.8 million, or 61 cents per share assuming dilution, for the third quarter of 2008 and $4.7 million, or $1.54 per share assuming dilution, for the first nine months of 2008. Financial results for the third quarter and first nine months of 2008 were primarily affected by (1) a lower net interest margin attributable to the earlier interest rate cuts by the Federal Reserve Bank and the strong competition for deposits resulting from the reduction in liquidity throughout the financial markets and
(2) significantly higher provisions for loan losses at each of the Corporation's core business segments as a result of the overall condition of the housing and economic environment in the United States and our market areas.

The Corporation's ROE and ROA, on an annualized basis, were 1.82 percent and 0.14 percent (11.07 percent and 0.87 percent, adjusted to exclude the effect of the impairment charge), respectively, for the third quarter of 2008, compared with 14.21 percent and 1.21 percent, respectively, for the third quarter of 2007. For the first nine months of 2008, on an annualized basis, the Corporation's ROE was 6.38 percent and its ROA was 0.52 percent (9.47 percent and 0.77 percent, adjusted to exclude the effect of the impairment charge), compared with a 13.82 percent ROE and a 1.22 percent ROA for the first nine months of 2007. The decline in these measures resulted from lower earnings in 2008, coupled with asset growth.

Principal Business Activities. An overview of the financial results for each of the Corporation's principal segments is presented below. A more detailed discussion is included in "Results of Operations."

Retail Banking: Third quarter net income for the Retail Banking segment was $787,000 in 2008, compared to $1.19 million in 2007. Net income for the first nine months of 2008 was $1.58 million, compared to $3.28 million for the first nine months of 2007. The decline in quarterly and year-to-date earnings for 2008 included the effects of (1) net interest margin compression resulting from the reductions in interest rates by the Federal Reserve Bank, competition for loans and competition for deposits, (2) a year-to-date 2008 provision for loan losses of $1.16 million, of which $500,000 was recognized in the third quarter of 2008, attributable to credit issues resulting from the general slow down in the economy, and more specifically two commercial loan relationships, both secured by real estate, that have been placed on nonaccrual status, compared to $120,000 and $160,000 for the third quarter and first nine months of 2007, respectively,
(3) higher assessments for deposit insurance

resulting from the FDIC's implementation of its amended assessment system,
(4) higher expenses associated with the enhancement of our internet banking services, and (5) higher loan expenses and foreclosed properties expenses primarily resulting from the ongoing work-out of one of the commercial relationships previously mentioned. The effects of these factors were offset in part by an increase in earning assets and a lower effective income tax rate resulting from higher tax-exempt income on securities and loans as a percentage of pretax income.

The combination of declining short-term interest rates and increased competition for deposits has resulted in a pricing disparity between loans and deposits. Interest rate cuts made by the Federal Reserve Bank since September 2007 immediately reduced the Bank's yields on variable rate loans without a corresponding reduction in deposit costs. As fixed-rate deposits matured in the third quarter of 2008, the Corporation's funding costs stabilized and began to decline, which relieved some pressure on net interest margin. However, the 50 basis point interest rate cuts by the Federal Reserve on both October 8 and October 29, 2008 will have an immediate effect of reducing the Bank's future net interest margin. The Corporation has access to diverse sources of liquidity, which provides flexibility in managing funds and responding to deposit fluctuations. The increase in the Bank's provision for loan losses was attributable in part to our evaluation of our overall loan portfolio in light of general economic conditions, as well as the two commercial relationships mentioned above. One of these relationships has resulted in $1.86 million in foreclosed properties, which were written down to net realizable value at the time they were transferred to real estate owned. The Bank will incur ongoing maintenance expenses associated with holding these properties, and additional write-downs may be necessary if market conditions deteriorate further.

Mortgage Banking: Third quarter net income for the Mortgage Banking segment, which consists of C&F Mortgage Corporation (the "Mortgage Company"), was $401,000 in 2008 compared to $484,000 in 2007. Net income for the first nine months of 2008 was $1.14 million compared to $1.44 million for the first nine months of 2007. The decline in 2008 earnings included the effects of (1) the downturn in the housing market on loan origination volume, which declined 4.2 percent and 10.4 percent for the third quarter and first nine months of 2008, respectively, (2) a year-to-date 2008 provision for loan losses of $587,000, of which $75,000 was recognized in the third quarter of 2008, in connection with loan repurchases, compared to no provision for loan losses in the comparable periods of 2007, (3) a year-to-date 2008 write-down of $137,000 in the carrying value of OREO to fair value less cost to sell, of which $7,000 was expensed in the third quarter of 2008, and (4) a year-to-date 2008 provision for estimated indemnification losses of $775,000, of which $401,000 was recognized in the third quarter of 2008, compared to $93,000 and $56,000 for the first nine months and the third quarter of 2007, respectively. While we mitigate the risk of repurchase liability by underwriting to the purchasers' guidelines, we cannot eliminate the possibility that a prolonged period of payment defaults and foreclosures will result in an increase in requests for repurchases and the need for additional provisions in the future.

While the mortgage banking industry has experienced significant operational problems and losses over the past year, our Mortgage Banking segment has continued to contribute to the Corporation's net income. For the third quarter of 2008, the amount of loan originations at the Mortgage Company resulting from refinancings was $37.6 million compared to $55.7 million for the third quarter of 2007. Loans originated for new and resale home purchases for these two periods were $160.4 million and $150.9 million, respectively. For the first nine months of 2008, the amount of loan originations at the Mortgage Company resulting from refinancings was $155.3 million compared to $178.1 million for the first nine months of 2007. Loans originated for new and resale home purchases for these two time periods were $434.9 million and $480.5 million, respectively. Despite the overall decline in 2008 origination volume, gains on sales of loans during 2008 were higher than 2007 due to higher profit margins on the types of products available to borrowers in the current economic

environment. The decline in housing market values, coupled with the availability of fewer mortgage loan products and tighter underwriting guidelines, is expected to temper demand for the foreseeable future. However, as a result of the consolidation within the mortgage banking industry, the Mortgage Company has attracted new mortgage origination talent and we believe that these additions provide the potential for increased loan production in the long term.

Consumer Finance: Third quarter net income for the Consumer Finance segment, which consists of C&F Finance Company (the "Finance Company"), was $826,000 compared to $642,000 in 2007. Net income for the first nine months of 2008 was $2.5 million, compared with $2.1 million for the first nine months of 2007. The earnings improvement in 2008 resulted from an approximate 18.0 percent increase in average consumer finance loans outstanding and an increase in net interest margin. The Finance Company has benefited from strong loan demand and the decline in short-term interest rates in 2008. Its fixed-rate loan portfolio is partially funded by a line of credit indexed to LIBOR. Therefore, its cost of funds has declined and its margins have increased during 2008. However, the recent upward trend in LIBOR could negatively affect the Finance Company's future net interest margin. The Finance Company has experienced higher loan charge-offs in 2008 compared to 2007, which, in combination with loan growth, has resulted in a higher provision for loan losses in 2008. Controlling charge-offs within the Finance Company's loan portfolio will be the significant factor in realizing improved earnings in the future. If the current economic slowdown intensifies in the Finance Company's markets, we would expect more delinquencies and repossessions. Depending on the severity of any further downturn in the economy, decreased consumer demand for automobiles and declining values of automobiles securing outstanding loans could result, which would weaken collateral coverage and increase the amount of losses in the event of default.

Other: The third quarter net loss of this segment was $1.71 million in 2008 compared to a net loss of $46,000 in the third quarter of 2007. The net loss for the first nine months of 2008 was $2.03 million, compared to a net loss of $119,000 for the first nine months of 2007. The net loss in 2008 included an increase in interest expense associated with the holding company's issuance of additional trust preferred capital in December 2007. It also included the $1.5 million impairment charge related to the holding company's investments in perpetual preferred stock of Fannie Mae and Freddie Mac, as previously described. Because this charge was designated as a capital loss for income tax purposes, no income tax benefit was recognized in the third quarter of 2008. The EESA provides tax relief to banking organizations that have suffered losses on preferred holdings of Fannie Mae and Freddie Mac by changing the character of these losses from capital to ordinary for federal income tax purposes. Therefore, the Corporation will record approximately $578,000 of deferred income tax benefit in the fourth quarter of 2008, the period of enactment of the new law.

Capital Management. Total shareholders' equity decreased $839,000 to $64.4 million at September 30, 2008, compared to $65.2 million at December 31, 2007. This decrease was primarily attributable to dividends to shareholders of $2.8 million and unrealized holding losses on securities of $1.6 million, which were offset in part by net income of $3.1 million.

On July 24, 2008, the Corporation's board of directors authorized the repurchase of up to 100,000 shares of the Corporation's common stock over the next twelve months. The stock may be repurchased in the open market or through privately-negotiated transactions as management and the board of directors deem prudent. The amount and timing of any stock repurchases will depend on various factors, such as management's assessment of the Corporation's capital structure and liquidity, the market price of the Corporation's common stock compared to management's assessment of the stock's underlying value, and applicable regulatory, legal and accounting factors. The Corporation's previous authorization for the repurchase of up to 150,000 shares expired on July 16, 2008 with 55,400 shares having been repurchased.

RESULTS OF OPERATIONS

Net Interest Income

Selected Average Balance Sheet Data and Net Interest Margin



                                                                 Three Months Ended
                                                    September 30, 2008        September 30, 2007
                                                     Average      Yield/       Average      Yield/
(in 000's)                                           Balance       Cost        Balance       Cost
Securities                                         $     94,282     6.23 %   $     76,713     6.48 %
Loans held for sale                                      29,129     6.14           33,054     6.73
Loans                                                   654,523     9.10          581,878    10.49
Interest-bearing deposits in other banks                    673     1.76            1,046     5.35
Federal funds sold                                          696     1.77              166     4.82

Total earning assets                               $    779,303     8.63 %   $    692,857     9.85 %

Time and savings deposits                          $    463,413     2.80 %   $    451,219     3.45 %
Borrowings                                              206,402     4.03          136,498     6.43

Total interest-bearing liabilities                 $    669,815     3.18 %   $    587,717     4.14 %

Net interest margin                                                 5.90 %                    6.34 %




                                                                  Nine Months Ended
                                                    September 30, 2008        September 30, 2007
                                                     Average      Yield/       Average      Yield/
(in 000's)                                           Balance       Cost        Balance       Cost
Securities                                         $     91,482     6.35 %   $     72,139     6.59 %
Loans held for sale                                      30,843     5.88           36,881     6.71
Loans                                                   627,734     9.29          553,523    10.43
Interest-bearing deposits in other banks                    770     2.47           10,737     5.25
Federal funds sold                                          636     2.24               56     4.76

Total earning assets                               $    751,465     8.78 %   $    673,336     9.73 %

Time and savings deposits                          $    457,684     2.98 %   $    448,134     3.32 %
Borrowings                                              188,960     4.35          126,382     6.37

Total interest-bearing liabilities                 $    646,644     3.38 %   $    574,516     3.99 %

Net interest margin                                                 5.88 %                    6.32 %

Interest income and expense are affected by fluctuations in interest rates, by changes in the volume of earning assets and interest-bearing liabilities, and by the interaction of rate and volume factors. The following tables show the direct causes of the changes in the components of net interest income on a taxable-equivalent basis from the third quarter of 2007 to the third quarter of 2008 and from the first nine months of 2007 to the first nine months of 2008. Rate/volume variances, the third element in the calculation, are not shown separately in the tables, but are allocated to the rate and volume variances in proportion to the relationship of the absolute dollar amounts of the change in each. Loans include nonaccrual loans.

. . .