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. Statements which express "belief," "intention," "expectation," and similar expressions identify forward-looking statements. These forward-looking statements are based on the beliefs of the Corporation's management, as well as assumptions made by, and information currently available to, the Corporation's management. These statements are inherently uncertain, and there can be no assurance that the underlying assumptions will prove to be accurate. Actual results could differ materially from 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:

• general business conditions, as well as conditions within the financial markets

• general economic conditions, including unemployment levels

• the commercial and residential real estate markets

• the legislative/regulatory climate, including policies of the FDIC

• continued increases in FDIC premiums and/or additional FDIC special assessments

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

• interest rates

• demand for loan products

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

• the level of net charge-offs on loans

• the value of securities held in the Corporation's investment portfolios

• deposit flows

• the strength of the Corporation's counterparties

• competition from both banks and non-banks

• demand for financial services in the Corporation's market area

• technology

• reliance on third parties for key services

• the Corporation's expansion and technology initiatives

• accounting principles, policies and guidelines

These risks are exacerbated by the turbulence during 2008 and 2009 in significant portions of the global financial markets, which 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. During 2008 and thus far in 2009, the capital and credit markets have experienced extended volatility and disruption. There can be no assurance that these unprecedented recent developments will not continue to materially and adversely affect our business, financial condition and results of operations, as well as our ability to raise capital for other funding for liquidity and business purposes.

Although the Corporation currently has diverse sources of liquidity and its capital ratios exceed the minimum levels required for well-capitalized status, the Corporation issued and sold its Series A Preferred Stock and Warrant for a $20.0 million investment from Treasury under the Capital Purchase Program on January 9, 2009. The Corporation also elected to participate in the FDIC Temporary Liquidity Guarantee Progam; however, the Corporation currently has no unsecured

borrowings to which this program applies. The Bank is participating in the FDIC Transaction Account Guarantee Program, under which all noninterest-bearing transaction accounts (as defined within the program) are fully guaranteed by the FDIC for the entire amount in the account through June 30, 2010.

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.

Further, there can be no assurance that the actions taken by the federal government and regulatory agencies will stabilize the U.S. financial system or alleviate the industry or economic factors that may adversely affect the Corporation's business and financial performance.

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 unaudited consolidated financial statements.

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 appropriate to absorb any losses on existing loans that may become uncollectible. Our judgment in determining the level 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 and the value of collateral, 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.

Allowance for Indemnifications: The allowance for indemnifications is established through charges to earnings in the form of a provision for indemnifications, which is included in other noninterest expenses. A loss is charged against the allowance for indemnifications under certain conditions when a purchaser of a loan (investor) sold by C&F Mortgage Corporation incurs a loss due to borrower misrepresentation or early default. The allowance represents an amount that, in management's judgment, will be adequate to absorb any losses arising from indemnification requests. Management's judgment in determining the level of the allowance is based on the volume of loans sold, current economic conditions and information provided by investors. This evaluation is inherently subjective, as 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 securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (i) we intend to sell the security or (ii) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis. If, however, we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery, we must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income. For equity securities, impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until a recovery of fair value.
Other-than-temporary impairment of an equity security results in a write-down that must be included in net income. We regularly review each investment security for other-than-temporary 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, our best estimate of the present value of cash flows expected to be collected from debt securities, our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery.

Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of the loan balance or the fair value less costs to sell at the date of foreclosure. 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 costs 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 were 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 performed a 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 2008 and determined there was no impairment to be recognized in 2008. The annual test for impairment for 2009 will be completed in the fourth quarter of 2009. If the underlying estimates and related assumptions change in the future, we may be required to record impairment charges.

Retirement Plan: The Bank maintains a non-contributory, 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. Key assumptions may include the discount rate, the interest crediting 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, or in the method under which benefits are calculated 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 Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2008.

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 common 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 segments: Retail Banking, Mortgage Banking and Consumer Finance. We also manage our capital through growth, dividends, and historically, stock purchases.

Financial Performance Measures. Net income for the Corporation was $1.7 million for the third quarter of 2009, compared with $299,000 for the third quarter of 2008 ($1.8 million, adjusted to exclude the impairment charge taken in the third quarter of 2008 related to the Corporation's investments in perpetual preferred stock of the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac")). Net income available to common shareholders for the third quarter of 2009 was $1.4 million, or 45 cents per common share assuming

dilution, compared with $299,000, or 10 cents per common share assuming dilution, ($1.8 million, or 60 cents per common share assuming dilution, adjusted to exclude the effect of the impairment charge) for the third quarter of 2008. The Corporation's net income was $4.9 million for the first nine months of 2009, compared with $3.1 million for the first nine months of 2008 ($4.7 million, adjusted to exclude the effect of the impairment charge). Net income available to common shareholders for the first nine months of 2009 was $4.1 million, or $1.34 per common share assuming dilution, compared with $3.1 million, or $1.03 per common share assuming dilution ($4.7 million, or $1.52 per common share assuming dilution, adjusted to exclude the effect of the impairment charge), for the first nine months of 2008 The difference between reported net income and net income available to common shareholders in 2009 is a result of the Series A Preferred Stock dividends and amortization of the Warrant related to the Corporation's participation in the Capital Purchase Program. The Series A Preferred Stock and Warrant were issued in the first quarter of 2009 and, therefore, did not affect net income available to common shareholders for 2008. Financial results for the third quarter and first nine months of 2009 were affected by the positive effects of the lower interest rate environment on loan production at our Mortgage Banking segment and on the net interest margin at our Consumer Finance segment. The favorable performance of these segments in 2009 offset the quarterly and year-to-date 2009 losses at our Retail Banking segment, which principally resulted from the effect of nonperforming loans on interest income, lower overdraft charges on deposit accounts, higher expenses associated with nonaccrual loans and foreclosed properties for which loan loss provisions or write downs to fair market value were necessary, and higher assessments for FDIC deposit insurance, including the special assessment recognized in the second quarter of 2009 to help replenish the Deposit Insurance Fund.

For the third quarter of 2009, the Corporation's ROE and ROA, on an annualized basis, were 8.14 percent and 0.63 percent, respectively, compared to 1.82 percent and 0.14 percent (11.07 percent and 0.87 percent, adjusted to exclude the effect of the impairment charge) for the third quarter of 2008. For the first nine months of 2009, the Corporation's ROE and ROA, on an annualized basis, were 8.21 percent and 0.62 percent, respectively, compared to 6.38 percent and 0.52 percent (9.47 percent and 0.77 percent, adjusted to exclude the effect of the impairment charge) for the first nine months of 2008. In 2009, these ratios reflect the effects of Series A Preferred Stock dividends and amortization of the Warrant on net income available to common shareholders, as well as asset growth since the end of the third quarter of 2008.

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

Retail Banking: The Retail Banking segment, which consists of the Bank, reported a net loss of $347,000 for the third quarter of 2009, compared to net income of $787,000 for the third quarter of 2008. The Bank's net loss was $655,000 for the first nine months of 2009, compared to net income of $1.6 million for the first nine months of 2008. The decline in 2009 earnings included the effects of
(1) margin compression and competition for loans and deposits on net interest income, (2) a higher provision for loan losses attributable to the continued slow down in the economy and an increase in nonperforming assets, (3) lower overdraft charges on deposit accounts, (4) higher assessments for deposit insurance resulting from the FDIC's special assessment in the second quarter of 2009 to help restore the Deposit Insurance Fund, coupled with the effects of its amended risk-based assessment system and (5) higher nonaccrual loan and foreclosed properties expenses primarily resulting from the work-out of several commercial relationships. The Bank's net interest margin began compressing as a result of the combination of rapidly declining short-term interest rates and increased competition for deposits during 2008. With interest rates stabilizing more recently, deposit repricing in the lower interest rate environment and the implementation of interest rate floors on adjustable rate loans at the Bank upon origination or renewal have begun to mitigate the effects of the lower interest rate environment, and margins at the Bank have begun to improve and rebound from their lows.

General economic trends, particularly the economic recession that we are experiencing in the Bank's markets, can affect the quality of the loan portfolio and, therefore, our provision for loan losses, as well as the level of our nonperforming assets. Managing the risks inherent in our loan portfolio and expenses associated with nonperforming assets will influence the Bank's performance during the remainder of 2009 and in future periods. In addition, increases in FDIC insurance premiums, if any, and special assessments will continue to affect the Bank's noninterest expenses in future periods.

Mortgage Banking: Third quarter net income for the Mortgage Banking segment, which consists of C&F Mortgage Corporation (the "Mortgage Company"), was $755,000 in 2009, compared to $401,000 in the third quarter of 2008. Net income for the first nine months of 2009 was $2.8 million, compared to $1.1 million for the first nine months of 2008. Earnings in 2009 included the effects of lower interest rates on loan origination volume, which increased 8.4 percent and 46.9 percent for the third quarter and first nine months of 2009, respectively. For the third quarter of 2009, the amount of loan originations at the Mortgage Company for refinancings was $51.5 million compared to $37.6 million for the third quarter of 2008. Loan originations for home purchases for these two periods were $163.1 million and $160.4 million, respectively. For the first nine months of 2009, the amount of loan originations at the Mortgage Company for refinancings was $442.9 million compared to $155.3 million for the first nine months of 2008. Loan originations for home purchases for these two time periods were $424.0 million and $434.9 million, respectively. Higher loan production in 2009 resulted in gains on sales of loans of $5.5 million and $19.4 million for the three months and nine months ended September 30, 2009, respectively, compared to $4.5 million and $12.9 million for the three months and nine months ended September 30, 2008, respectively. This increase in revenue was offset in part by (1) increases of $224,000 and $1.1 million in the combined provisions for indemnification and foreclosed property losses in the third quarter and first nine months of 2009, respectively, and (2) increases of $406,000 and $4.0 million in personnel costs in the third quarter and first nine months of 2009, respectively, resulting principally from higher variable compensation associated with the increase in loan production and net income. The increases in the provisions for indemnification and foreclosed property losses resulted from increased nonperforming loans due to recourse resulting from borrower fraud and the continued deterioration of the U.S. economy, especially in the housing markets, together with higher unemployment. While we mitigate the risk of loan repurchase and indemnification 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 or indemnifications and the need for additional indemnification and foreclosed property loss provisions in the future.

Consumer Finance: Third quarter net income for the Consumer Finance segment, which consists of C&F Finance Company (the "Finance Company"), was $1.4 million in 2009, compared to $826,000 in 2008. Net income was $3.2 million for the first nine months of 2009, compared to $2.5 million for the first nine months of 2008. The Finance Company has benefited from growth in average consumer finance loans outstanding since the end of the third quarter of 2008, as well as the decline in its costs of borrowings throughout 2009 compared to 2008. Its fixed-rate loan portfolio is partially funded by a variable-rate line of credit indexed to LIBOR, which has resulted in an increase in its net interest margin during 2009 as short term interest rates fell throughout 2008. However, the Finance Company has experienced higher loan charge-offs in 2009 compared to 2008, which, in combination with loan growth, has resulted in increases in the provision for loan losses of $330,000 in the third quarter of 2009 and $1.8 million in the first nine months of 2009, compared to the same periods in 2008. We expect the ongoing effects of the economic recession will result in more delinquencies and

repossessions at the Finance Company. 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. This could weaken collateral coverage and increase the amount of loss in the event of default.

Capital Management. Total shareholders' equity increased $24.7 million to $89.5 million at September 30, 2009, compared to $64.9 million at December 31, 2008. This increase primarily occurred in connection with the Corporation's participation in the Treasury's Capital Purchase Program, as previously described. One means by which we manage our capital is through dividends. The Corporation maintained its quarterly dividend for the third quarter of 2009 at 25 cents per common share, which resulted in a common dividend payout ratio of 56 percent based on net income available to common shareholders for the third quarter of 2009. The board of directors will continue to evaluate the Corporation's dividends in light of changes in economic conditions, the Corporation's capital levels and its future levels of earnings. Another means by which we historically have managed our capital is through purchases of the Corporation's Common Stock. However, as a participant in the Capital Purchase Program there are limitations on the Corporation's ability to repurchase Common Stock prior to the earlier of January 9, 2012 or the date on which Treasury no longer holds any of the Corporation's Series A Preferred Stock.

RESULTS OF OPERATIONS

Net Interest Income



Selected Average Balance Sheet Data and Net
Interest Margin
(in 000's)
                                                                Three Months Ended
                                                  September 30, 2009           September 30, 2008
                                                  Average       Yield/         Average       Yield/
                                                  Balance        Cost          Balance        Cost
Securities                                      $    117,678      6.16 %     $     94,282      6.23 %
Loans, net                                           683,167      9.01            683,652      8.98
Interest-earning deposits in other banks               2,345      0.22                673      1.76
Federal funds sold                                        -         -                 696      1.77

Total earning assets                            $    803,190      8.57 %     $    779,303      8.63 %


Time and savings deposits                       $    488,761      2.03 %     $    463,413      2.80 %
Borrowings                                           182,432      2.74            206,402      4.03

Total interest-bearing liabilities              $    671,193      2.22 %     $    669,815      3.18 %


Net interest margin                                               6.71 %                       5.90 %

                                                                 Nine Months Ended
                                                  September 30, 2009           September 30, 2008
                                                  Average       Yield/         Average       Yield/
. . .