The following discussion is intended to assist readers in understanding and evaluating the financial condition, changes in financial condition and the results of operations of the Company. The Company consists of the parent company and its wholly-owned subsidiaries, The Old Point National Bank of Phoebus (the Bank) and Old Point Trust & Financial Services, N. A. (Trust), collectively referred to as the Company. This discussion should be read in conjunction with the consolidated financial statements and other financial information contained elsewhere in this report.

Caution About Forward-Looking Statements

In addition to historical information, this report may contain forward-looking statements. For this purpose, any statement that is not a statement of historical fact may be deemed to be a forward-looking statement. These forward-looking statements may include statements regarding profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy and financial and other goals. Forward-looking statements often use words such as "believes," "expects," "plans," "may," "will," "should," "projects," "contemplates," "anticipates," "forecasts," "intends" or other words of similar meaning. Forward-looking statements can also be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, and actual results could differ materially from historical results or those anticipated by such statements.

There are many factors that could have a material adverse effect on the operations and future prospects of the Company including, but not limited to, changes in interest rates, general economic conditions, the quality or composition of the loan or investment portfolios, the level of nonperforming assets and charge-offs, the local real estate market, volatility and disruption in national and international financial markets, government intervention in the U.S. financial system, demand for loan products, deposit flows, competition, and accounting principles, policies and guidelines. Monetary and fiscal policies of the U.S. Government could also adversely effect the Company; such policies include the impact of any regulations or programs implemented pursuant to the Emergency Economic Stabilization Act of 2008 (EESA) and other policies of the Office of the Comptroller of the Currency, U.S. Treasury and the Federal Reserve Board.

While the Company has not experienced significant losses during the current economic climate, a continuation of the recent turbulence in significant portions of the global financial markets, particularly if it worsens, could impact the Company's performance, both directly by affecting revenues and the value of the Company's assets and liabilities, and indirectly by affecting the Company's counterparties and the economy generally. Dramatic declines in the housing market in the past year have resulted in significant

write-downs of asset values by financial institutions in the United States. Concerns about the stability of the U.S. 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. It is not clear at this time what impact the EESA or other liquidity and funding initiatives of the Treasury and other bank regulatory agencies that have been announced or any additional programs that may be initiated in the future will have on the financial markets and the financial services industry. The extreme levels of volatility and limited credit availability currently being experienced could continue to affect the U.S. banking industry and the broader U.S. and global economies, which would have an effect on all financial institutions, including the Company.

These risks and uncertainties should be considered in evaluating the forward-looking statements contained herein, and readers are cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made. In addition, past results of operations are not necessarily indicative of future results.

General

The Company is the parent company of the Bank and Trust. The Bank is a locally managed community bank serving the Hampton Roads localities of Hampton, Newport News, Norfolk, Virginia Beach, Chesapeake, Williamsburg/James City County, York County and Isle of Wight County. The Bank currently has 20 branch offices. Trust is a wealth management services provider.

Critical Accounting Policies and Estimates

As of September 30, 2008, there have been no significant changes with regard to the critical accounting policies and estimates disclosed in the Company's 2007 annual report on Form 10-K. That disclosure included a discussion of the accounting policy that requires management's most difficult, subjective or complex judgments: the allowance for loan losses.

Earnings Summary

Net income for the third quarter of 2008 was relatively unchanged at $1.98 million as compared to the third quarter of 2007 even though the provision for loan losses for the quarter increased by 300% or $600 thousand compared to the three months ended September 2007. Basic and diluted earnings per share for the third quarter 2008 and the third quarter 2007 were $0.40. Return on average assets (ROA) for the third quarter of 2008 was 0.92% and 0.97% for the comparable period in 2007. Return on equity (ROE) was 9.56% for the third quarter of 2008 compared with 10.20% for the same period in 2007.

Net income for the nine months ended September 30, 2008 was $5.88 million as compared to $5.92 million for the nine months ended September 30, 2007, a decrease of only 0.70% or $41 thousand even though the provision for loan losses was increased by 100% to $1.40 million compared to the nine months ended September 30, 2007. Basic and diluted earnings per share for the nine months ended September 30, 2008 were $1.20 and $1.19 as compared to $1.19 and $1.18 for the nine months ended September 30, 2007.

Net Interest Income

The principal source of earnings for the Company is net interest income. Net interest income is the difference between interest and fees generated by earning assets and interest expense paid to fund them. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income. The net interest margin is calculated by dividing tax equivalent net interest income by average earning assets. Net interest income, on a fully tax equivalent basis, was $7.30 million in the third quarter of 2008, an increase of $593 thousand from the third quarter of 2007. The net interest margin was 3.78% in the third quarter of 2008 and 3.50% in the third quarter of 2007. The net interest margin has improved 32 basis points from the first quarter's margin of 3.46%. Although loan yields have declined since the first quarter, the Company has been able to reduce its interest-bearing liability costs by more than the decline in the loan yields.

Tax equivalent interest income decreased $746 thousand, or 5.92%, in the third quarter of 2008 compared to the same period of 2007. Average earning assets grew $5.09 million, or 0.66% compared to the third quarter of 2007. The average yield on earning assets decreased in the third quarter of 2008 by 43 basis points as compared to the third quarter of 2007. Interest expense decreased $1.34 million, or 22.73%, and average interest-bearing liabilities decreased by $1.47 million, or 0.23% in the third quarter of 2008 compared to the same period of 2007. The cost of funding interest-bearing liabilities decreased 83 basis points in the third quarter of 2008 compared to the third quarter of 2007.

For the nine months ended September 30, 2008, net interest income, on a fully tax equivalent basis, increased $1.13 million, or 5.73%, over the comparable period in 2007. Comparing the first nine months of 2008 to 2007, average loans increased $32.61 million, or 5.57%, while investment securities decreased $31.61 million, or 18.47%. Average earning assets increased 0.37% and interest income yield decreased from 6.42% in 2007 to 6.13% in 2008, a decrease of 29 basis points. For the nine months ended September 30, 2008, interest expense decreased $2.67 million, or 15.28%, over the same period in 2007. For the nine months ended September 30, 2008, the yield on interest-bearing liabilities decreased 53 basis points as compared to the same period in 2007.

The following table shows an analysis of average earning assets, interest-bearing liabilities and rates and yields. Nonaccrual loans are included in loans outstanding.

            AVERAGE BALANCE SHEETS, NET INTEREST INCOME* AND RATES*



                                                          For the quarter ended September 30,
                                                       2008                                 2007
                                                       Interest                             Interest
                                          Average       Income/    Yield/      Average       Income/    Yield/
                                          Balance       Expense    Rate**      Balance       Expense    Rate**
                                                                    (in thousands)
Loans                                    $ 636,653     $  10,468     6.58 %   $ 586,207     $  10,673     7.28 %
Investment securities:
Taxable                                    111,792         1,021     3.65 %     127,249         1,111     3.49 %
Tax-exempt                                  17,703           332     7.49 %      26,291           463     7.05 %

Total investment securities                129,495         1,353     4.18 %     153,540         1,574     4.10 %
Federal funds sold                           5,815            27     1.86 %      27,125           347     5.12 %

Total earning assets                       771,963     $  11,848     6.14 %     766,872     $  12,594     6.57 %
Reserve for loan losses                     (5,172 )                             (5,167 )
Other nonearning assets                     62,062                               56,913

Total assets                             $ 828,853                            $ 818,618

Time and savings deposits:
Interest-bearing transaction accounts    $  10,518     $       4     0.15 %   $  10,339     $       7     0.27 %
Money market deposit accounts              137,323           222     0.65 %     147,987           574     1.55 %
Savings accounts                            37,901            23     0.24 %      38,792            49     0.51 %
Time deposits, $100,000 or more            122,604         1,087     3.55 %     113,744         1,427     5.02 %
Other time deposits                        199,309         1,973     3.96 %     189,742         2,172     4.58 %

Total time and savings deposits            507,655         3,309     2.61 %     500,604         4,229     3.38 %
Federal funds purchased, repurchase
agreements and other borrowings             52,019           207     1.59 %      50,535           490     3.88 %
Federal Home Loan Bank advances             80,000         1,036     5.18 %      90,000         1,172     5.21 %

Total interest-bearing liabilities         639,674         4,552     2.85 %     641,139         5,891     3.68 %
Demand deposits                            102,881                               96,559
Other liabilities                            3,489                                3,248
Stockholders' equity                        82,809                               77,672

Total liabilities and stockholders'
equity                                   $ 828,853                            $ 818,618

Net interest income/yield                              $   7,296     3.78 %                 $   6,703     3.50 %


                                                        For the nine months ended September 30,
                                                       2008                                 2007
                                                       Interest                             Interest
                                          Average       Income/    Yield/      Average       Income/    Yield/
                                          Balance       Expense    Rate**      Balance       Expense    Rate**
                                                                    (in thousands)
Loans                                    $ 618,319     $  30,850     6.65 %   $ 585,707     $  31,419     7.15 %
Investment securities:
Taxable                                    118,842         3,354     3.76 %     143,699         3,707     3.44 %
Tax-exempt                                  20,662         1,120     7.23 %      27,412         1,445     7.03 %

Total investment securities                139,504         4,474     4.28 %     171,111         5,152     4.01 %
Federal funds sold                          18,499           357     2.57 %      16,635           644     5.16 %

Total earning assets                       776,322     $  35,681     6.13 %     773,453     $  37,215     6.42 %
Reserve for loan losses                     (5,117 )                             (5,039 )
Other nonearning assets                     59,681                               55,668

Total assets                             $ 830,886                            $ 824,082

Time and savings deposits:
Interest-bearing transaction accounts    $  10,457     $      12     0.15 %   $  10,855     $      21     0.26 %
Money market deposit accounts              139,284           829     0.79 %     151,890         1,754     1.54 %
Savings accounts                            37,541            81     0.29 %      39,215           148     0.50 %
Time deposits, $100,000 or more            122,620         3,704     4.03 %     108,132         4,041     4.98 %
Other time deposits                        201,649         6,318     4.18 %     186,060         6,213     4.45 %

Total time and savings deposits            511,551        10,944     2.85 %     496,152        12,177     3.27 %
Federal funds purchased, repurchase
agreements and other borrowings             52,657           757     1.92 %      50,237         1,468     3.90 %
Federal Home Loan Bank advances             80,000         3,085     5.14 %     102,040         3,807     4.97 %

Total interest-bearing liabilities         644,208        14,786     3.06 %     648,429        17,452     3.59 %
Demand deposits                            101,386                               96,255
Other liabilities                            3,537                                2,536
Stockholders' equity                        81,755                               76,862

Total liabilities and stockholders'
equity                                   $ 830,886                            $ 824,082

Net interest income/yield                              $  20,895     3.59 %                 $  19,763     3.41 %

* Computed on a fully tax equivalent basis using a 34% rate

** Annualized

Provision for Loan Losses

The provision for loan losses is a charge against earnings necessary to maintain the allowance for loan losses at a level consistent with management's evaluation of the portfolio.

The provision for loan losses was $1.40 million for the first nine months of 2008, and $700 thousand in the comparable period in 2007. Loans charged off (net of recoveries) in the first nine months of 2008 were $949 thousand as compared to $351 thousand in the first nine months of 2007. On an annualized basis, net loan charge-offs were 0.20% of total loans for the first nine months of 2008 compared with 0.08% for the same period in 2007.

On September 30, 2008, nonperforming assets totaled $5.40 million compared with $2.50 million on September 30, 2007. The September 2008 total consisted of $2.07 million in loans still accruing interest but past due 90 days or more, $387 thousand in nonaccrual loans, $165 thousand in a former branch site listed for sale and $2.78 million in foreclosed property. The September 2007 total consisted of $1.32 million in restructured debt, $735 thousand in loans still accruing interest but past due 90 days or more, $282 thousand in nonaccrual loans and $165 thousand in a former branch site listed for sale. The increase of $2.78 million in foreclosed property includes two completed constructed houses, two 1-to-4 family residential properties, one residential lot and two commercial properties.

The allowance for loan losses on September 30, 2008 was $5.58 million, compared with $5.13 million on September 30, 2007. As of September 30, 2008, the allowance for loan losses represented a multiple of 2.27 times nonperforming loans. Nonperforming loans includes nonaccrual loans, loans still accruing interest but past due 90 days or more and restructured debt. The allowance for loan losses was 0.87% of total loans on September 30, 2008 and 2007.

Noninterest Income

For the third quarter of 2008, noninterest income increased $331 thousand, or 10.92%, over the same period in 2007. The $143 thousand increase in service charges on deposits is attributed to higher income from commercial analysis service charges, higher income from non-sufficient funds and overdraft fees and lower write-offs of demand deposit fees. The gain on disposal of premises and equipment is attributed to a $230 thousand gain on the sale of a Bank building that was no longer needed. The reduction in other operating income is attributed to the closing of the Company's in-house brokered mortgage department at the Bank in the fall of 2007.

For the nine months ended September 30, 2008, noninterest income increased $517 thousand or 5.59% over the same period in 2007. In addition to the items discussed in the paragraph above, the increase in other service charges, commissions and fees for the nine months ended September 30, 2008, as compared to the nine months ended September 30, 2007, was also attributed to increases in debit card and ATM interchange fees and from income received in connection with Visa Inc.'s initial public offering.

Noninterest Expense

For the third quarter of 2008, noninterest expense increased $348 thousand, or 5.29%, over the third quarter of 2007. The majority of the third quarter 2008 increase is attributed to salaries and employee benefits, which increased by $223 thousand, or 5.60%, over the third quarter of 2007 as a result of customary yearly salary increases and an increase of sixteen in the Company's full time equivalent positions.

Occupancy and equipment expenses increased $69 thousand, or 7.42%, over the third quarter of 2007. The increase is related to the new branch that was opened in January 2008.

For the nine months ended September 30, 2008, noninterest expense increased $1.07 million or 5.48%, over the nine months ended September 30, 2007. Salaries and employee benefits contributed $570 thousand of this increase and occupancy and equipment expenses contributed $154 thousand. The reasons for these increases are described in the above two paragraphs.

The remaining increase in noninterest expense for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007 is attributed to data processing, marketing, customer development and other costs. The majority of the data processing increase is related to increased debit card and ATM interchange costs and providing key employees with data processing devices that allow them

access to their email when they are not in the office. Most of the increase in marketing and customer development costs can be attributed to the grand opening of the Company's new Virginia Beach office in 2008, initiation of a contract related to ATMs in a chain of drug stores throughout Hampton Roads and higher contributions to non-profit organizations. Other noninterest expense increased $134 thousand for the nine months ended September 30, 2008 as compared to the nine months ended September 30, 2007. Increases in foreclosed property and repossessed asset expense, FDIC insurance costs, courier expense, Federal Reserve costs and director fees account for the majority of the increase.

Balance Sheet Review

At September 30, 2008, the Company had total assets of $831.90 million, an increase of 1.14% from $822.56 million at December 31, 2007. Net loans as of September 30, 2008 were $634.72 million, an increase of 7.21% from $592.01 million at December 31, 2007.

Average assets for the first nine months of 2008 were $830.89 million compared to $824.08 million for the first nine months of 2007. The growth in average assets in 2008 was due primarily to the growth in average loans, which increased 5.57% as compared to the same period in 2007.

Total investment securities at September 30, 2008 were $96.67 million, a decrease of 26.74% from $131.96 million at December 31, 2007. The Company's goal is to provide maximum return on the investment portfolio within the framework of its asset/liability objectives. The objectives include managing interest sensitivity, liquidity and pledging requirements.

At September 30, 2008, the Company had $39.48 million in cash and due from banks as compared to $16.37 million at December 31, 2007. During the second quarter of 2008, the Bank began investing excess funds in the "Certificate of Deposit Account Registry Service" (CDARS) program. As of September 30, 2008, the Company had $23.50 million invested in CDARS. During the second and third quarters of 2008, the Company was able to obtain higher yields in the CDARS program than the yields being paid in federal funds sold or like term investment securities.

At September 30, 2008, total deposits increased $12.55 million, up 2.10% from $596.16 million at December 31, 2007. The majority of this growth occurred in the noninterest-bearing and time deposits.

Federal funds purchased, repurchase agreements and other borrowings decreased to $57.28 million at September 30, 2008, a decrease of 10.81% from $64.23 million at December 31, 2007.

Capital Resources

Under applicable banking regulations, Total Capital is comprised of core capital (Tier 1) and supplemental capital (Tier 2). Tier 1 capital consists of common stockholders' equity and retained earnings less goodwill. Tier 2 capital consists of certain qualifying debt and a qualifying portion of the allowance for loan losses. The following is a summary of the Company's capital ratios at September 30, 2008. As shown below, these ratios were all well above the regulatory minimum levels.

                                      2008
                                   Regulatory
                                    Minimums    September 30, 2008
                 Tier 1              4.00%            12.41%
                 Total Capital       8.00%            13.25%
                 Tier 1 Leverage     3.00%            10.02%

Third quarter-end book value per share was $16.90 in 2008 and $15.91 in 2007. Cash dividends were $2.40 million or $0.49 per share in the nine months ended September 30, 2008 and $2.23 million or $0.45 per share for the nine months ended September 30, 2007. The common stock of the Company has not been extensively traded. The 2007 per share data have been adjusted to reflect a 5 for 4 stock split in the form of a dividend declared on August 16, 2007 and paid October 1, 2007.

Liquidity

Liquidity is the ability of the Company 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, investments in securities and loans maturing within one year.

In addition, secondary sources are available through the use of borrowed funds if the need should arise. The Company's sources of funds include a large stable deposit base and secured advances from the Federal Home Loan Bank of Atlanta (FHLB). As of the end of the third quarter of 2008, the Company had $168.05 million in FHLB borrowing availability. The Company has available short-term unsecured borrowed funds in the form of federal funds with correspondent banks. As of the end of the third quarter of 2008, the Company had $40.00 million available in federal funds to handle any short-term borrowing needs.

Management is aware of the current market and institutional trends, events and uncertainties. However, management does not expect the trends, events and uncertainties to have a material effect on the liquidity, capital resources or operations of the Company. Management is not aware of any current recommendations by regulatory authorities that would have a material effect on liquidity, capital resources or operations. The Company's internal sources of such liquidity are deposits, loan and investment repayments and securities available for sale. The Company's primary external source of liquidity is advances from the FHLB.

As a result of the Company's management of liquid assets, the availability of borrowed funds and the ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and to meet its customers' future borrowing needs.

Contractual Obligations

In the normal course of business there are various outstanding contractual obligations of the Company that will require future cash outflows. In addition, there are commitments and contingent liabilities, such as commitments to extend credit, that may or may not require cash outflows.

The Company purchased property for a future branch site in 2006. This property was purchased outright, not financed. The Company intends to open the branch in 2009.

As of September 30, 2008, there have been no material changes outside the ordinary course of business in the Company's contractual obligations disclosed in the Company's 2007 annual report on Form 10-K.

Off-Balance Sheet Arrangements

As of September 30, 2008, there were no material changes in the Company's off-balance sheet arrangements disclosed in the Company's 2007 annual report on Form 10-K.