##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE
ACT OF 1934

For the quarterly period ended March 31, 2008

Commission File Number: 001-32968





HAMPTON ROADS BANKSHARES,
INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Virginia                                                       |  | 54-2053718                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                  |  |           
|------------------------------------------------- |  | ----------
|999 Waterside Drive, Suite 200, Norfolk, Virginia |  | 23510     
|(Address of principal executive offices)          |  | (Zip Code)

(757) 217-1000

(Registrants telephone number, including area code)





Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer   ̈    Accelerated filer  x    Non-accelerated filer   ̈    Smaller reporting company   ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes   ̈    No  x

Indicate the number of shares outstanding of each of the issuers classes of common stock as of April 29, 2008.



|                               |  |                  
|------------------------------ |  | -----------------
|Common Stock, $0.625 Par Value |  | 10,362,893 Shares









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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.

TABLE OF CONTENTS



|                               |  |    |  |                                                                                       |  |     
|------------------------------ |  | -- |  | ------------------------------------------------------------------------------------- |  | ----
|                               |  |    |  |                                                                                       |  | Page
|PART I  FINANCIAL INFORMATION |  |   
|                               |  |    | 
|ITEM 1                         |  |   |  | FINANCIAL STATEMENTS                                                                  |  |     
|                               |  |    | 
|                               |  |    |  | Consolidated Balance Sheets                                                           |  | 3   
|                               |  |    |  | March 31, 2008                                                                        |  |     
|                               |  |    |  | December 31, 2007                                                                     |  |     
|                               |  |    | 
|                               |  |    |  | Consolidated Statements of Income                                                     |  | 4   
|                               |  |    |  | Three months ended March 31, 2008 and 2007                                            |  |     
|                               |  |    | 
|                               |  |    |  | Consolidated Statements of Changes in Shareholders Equity                            |  | 5   
|                               |  |    |  | Three months ended March 31, 2008                                                     |  |     
|                               |  |    |  | Year ended December 31, 2007                                                          |  |     
|                               |  |    | 
|                               |  |    |  | Consolidated Statements of Cash Flows                                                 |  | 6   
|                               |  |    |  | Three months ended March 31, 2008 and 2007                                            |  |     
|                               |  |    | 
|                               |  |    |  | Notes to Consolidated Financial Statements                                            |  | 7   
|                               |  |    | 
|ITEM 2                         |  |   |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 11  
|                               |  |    | 
|ITEM 3                         |  |   |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 17  
|                               |  |    | 
|ITEM 4                         |  |   |  | CONTROLS AND PROCEDURES                                                               |  | 18  
|                               | 
|PART II  OTHER INFORMATION    |  |   
|                               |  |    | 
|ITEM 1                         |  |   |  | LEGAL PROCEEDINGS                                                                     |  | 18  
|                               |  |    | 
|ITEM 1A                        |  |   |  | RISK FACTORS                                                                          |  | 18  
|                               |  |    | 
|ITEM 2                         |  |   |  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           |  | 18  
|                               |  |    | 
|ITEM 3                         |  |   |  | DEFAULTS UPON SENIOR SECURITIES                                                       |  | 19  
|                               |  |    | 
|ITEM 4                         |  |   |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 19  
|                               |  |    | 
|ITEM 5                         |  |   |  | OTHER INFORMATION                                                                     |  | 19  
|                               |  |    | 
|ITEM 6                         |  |   |  | EXHIBITS                                                                              |  | 19  
|                               | 
|SIGNATURES                     |  | 20



2



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##### Table of Contents

PART I  FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS

HAMPTON ROADS BANKSHARES, INC.

Consolidated Balance Sheets



|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                             |  | (Unaudited)March 31, 2008 |             |   | December 31,2007 |  
|Assets:                                                                                                                                      |  |                           |             |   |                  |   |             |  
|Cash and due from banks                                                                                                                      |  | $                         | 13,716,040  |   |                  | $ | 19,757,428  |  
|Overnight funds sold                                                                                                                         |  |                           | 30,114,392  |   |                  |   | 5,623,271   |  
|Interest-bearing deposits in other banks                                                                                                     |  |                           | 8,192,650   |   |                  |   | 182,906     |  
|Investment securities available-for-sale, at fair value                                                                                      |  |                           | 27,670,660  |   |                  |   | 42,377,325  |  
|Federal Home Loan Bank stock                                                                                                                 |  |                           | 3,173,200   |   |                  |   | 3,330,000   |  
|Federal Reserve Bank stock                                                                                                                   |  |                           | 1,375,150   |   |                  |   | 1,374,000   |  
|Loans                                                                                                                                        |  |                           | 484,680,722 |   |                  |   | 477,149,232 |  
|Allowance for loan losses                                                                                                                    |  |                           | (5,320,086  | ) |                  |   | (5,042,583  | )
|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|Net loans                                                                                                                                    |  |                           | 479,360,636 |   |                  |   | 472,106,649 |  
|Premises and equipment, net                                                                                                                  |  |                           | 12,277,478  |   |                  |   | 11,967,151  |  
|Interest receivable                                                                                                                          |  |                           | 2,156,230   |   |                  |   | 2,431,347   |  
|Deferred tax asset, net                                                                                                                      |  |                           | 2,502,964   |   |                  |   | 2,658,404   |  
|Other assets                                                                                                                                 |  |                           | 2,728,493   |   |                  |   | 2,019,647   |  
|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|Total assets                                                                                                                                 |  | $                         | 583,267,893 |   |                  | $ | 563,828,128 |  
|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|                                                                                                                                             |  |                          
|Liabilities and Shareholders Equity:                                                                                                        |  |                           |             |   |                  |   |             |  
|Deposits:                                                                                                                                    |  |                           |             |   |                  |   |             |  
|Noninterest bearing demand                                                                                                                   |  | $                         | 94,932,340  |   |                  | $ | 100,553,404 |  
|Interest bearing:                                                                                                                            |  |                           |             |   |                  |   |             |  
|Demand                                                                                                                                       |  |                           | 40,821,546  |   |                  |   | 40,298,614  |  
|Savings                                                                                                                                      |  |                           | 86,045,463  |   |                  |   | 82,092,848  |  
|Time deposits:                                                                                                                               |  |                           |             |   |                  |   |             |  
|Less than $100,000                                                                                                                           |  |                           | 128,256,445 |   |                  |   | 114,832,724 |  
|$100,000 or more                                                                                                                             |  |                           | 103,095,659 |   |                  |   | 93,679,157  |  
|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|Total deposits                                                                                                                               |  |                           | 453,151,453 |   |                  |   | 431,456,747 |  
|Federal Home Loan Bank borrowings                                                                                                            |  |                           | 48,000,000  |   |                  |   | 53,000,000  |  
|Interest payable                                                                                                                             |  |                           | 1,894,670   |   |                  |   | 1,636,231   |  
|Other liabilities                                                                                                                            |  |                           | 5,590,719   |   |                  |   | 4,075,136   |  
|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|Total liabilities                                                                                                                            |  |                           | 508,636,842 |   |                  |   | 490,168,114 |  
|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|Shareholders equity:                                                                                                                        |  |                           |             |   |                  |   |             |  
|Preferred stock, no par value. Authorized 1,000,000 shares; none issued and outstanding                                                      |  |                           |            |   |                  |   |            |  
|Common stock, $0.625 par value. Authorized 40,000,000 shares; issued and outstanding 10,362,437 shares in 2008 and 10,314,899 shares in 2007 |  |                           | 6,476,523   |   |                  |   | 6,446,812   |  
|Capital surplus                                                                                                                              |  |                           | 42,990,946  |   |                  |   | 42,677,083  |  
|Retained earnings                                                                                                                            |  |                           | 24,812,061  |   |                  |   | 24,486,335  |  
|Accumulated other comprehensive loss, net of tax                                                                                             |  |                           | 351,521     |   |                  |   | 49,784      |  
|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|Total shareholders equity                                                                                                                   |  |                           | 74,631,051  |   |                  |   | 73,660,014  |  
|                                                                                                                                             |  |                           |             |   |                  |   |             |  
|Total liabilities and shareholders equity                                                                                                   |  | $                         | 583,267,893 |   |                  | $ | 563,828,128 |  
|                                                                                                                                             |  |                           |             |   |                  |   |             |  

See accompanying notes to the consolidated financial statements (unaudited).



3



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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Income (Unaudited)



|                                                      |  |                    |            |                |   |           
|----------------------------------------------------- |  | ------------------ | ---------- | -------------- | - | ----------
|                                                      |  | Three Months Ended
|                                                      |  | March 31, 2008     |            | March 31, 2007
|Interest Income:                                      |  |                    |            |                |   |           
|Loans, including fees                                 |  | $                  | 8,784,561  |                | $ | 8,072,503 
|Investment securities                                 |  |                    | 489,396    |                |   | 614,663   
|Overnight funds sold                                  |  |                    | 6,141      |                |   | 22,728    
|Interest-bearing deposits in other banks              |  |                    | 123,808    |                |   | 33,657    
|                                                      |  |                    |            |                |   |           
|Total interest income                                 |  |                    | 9,403,906  |                |   | 8,743,551 
|                                                      |  |                    |            |                |   |           
|                                                      |  |                   
|Interest Expense:                                     |  |                    |            |                |   |           
|Deposits:                                             |  |                    |            |                |   |           
|Demand                                                |  |                    | 139,122    |                |   | 169,053   
|Savings                                               |  |                    | 613,008    |                |   | 676,385   
|Time deposits:                                        |  |                    |            |                |   |           
|Less than $100,000                                    |  |                    | 1,401,497  |                |   | 885,154   
|$100,000 or more                                      |  |                    | 1,278,911  |                |   | 912,640   
|                                                      |  |                    |            |                |   |           
|Interest on deposits                                  |  |                    | 3,432,538  |                |   | 2,643,232 
|Federal Home Loan Bank borrowings                     |  |                    | 585,029    |                |   | 435,502   
|Overnight funds purchased                             |  |                    |           |                |   | 11,216    
|                                                      |  |                    |            |                |   |           
|Total interest expense                                |  |                    | 4,017,567  |                |   | 3,089,950 
|                                                      |  |                    |            |                |   |           
|Net interest income                                   |  |                    | 5,386,339  |                |   | 5,653,601 
|Provision for loan losses                             |  |                    | 270,000    |                |   | 222,000   
|                                                      |  |                    |            |                |   |           
|Net interest income after provision for loan losses   |  |                    | 5,116,339  |                |   | 5,431,601 
|                                                      |  |                    |            |                |   |           
|                                                      |  |                   
|Noninterest Income:                                   |  |                    |            |                |   |           
|Service charges on deposit accounts                   |  |                    | 450,044    |                |   | 487,628   
|Gain on sale of debt securities                       |  |                    | 349,055    |                |   |          
|Other service charges and fees                        |  |                    | 421,626    |                |   | 436,348   
|                                                      |  |                    |            |                |   |           
|Total noninterest income                              |  |                    | 1,220,725  |                |   | 923,976   
|                                                      |  |                    |            |                |   |           
|                                                      |  |                   
|Noninterest Expense:                                  |  |                    |            |                |   |           
|Salaries and employee benefits                        |  |                    | 2,567,712  |                |   | 2,554,487 
|Occupancy                                             |  |                    | 441,587    |                |   | 413,979   
|Data processing                                       |  |                    | 168,725    |                |   | 158,790   
|Other                                                 |  |                    | 938,251    |                |   | 906,622   
|                                                      |  |                    |            |                |   |           
|Total noninterest expense                             |  |                    | 4,116,275  |                |   | 4,033,878 
|                                                      |  |                    |            |                |   |           
|Income before provision for income taxes              |  |                    | 2,220,789  |                |   | 2,321,699 
|Provision for income taxes                            |  |                    | 759,510    |                |   | 789,377   
|                                                      |  |                    |            |                |   |           
|Net income                                            |  | $                  | 1,461,279  |                | $ | 1,532,322 
|                                                      |  |                    |            |                |   |           
|                                                      |  |                   
|Earnings Per Share:                                   |  |                    |            |                |   |           
|Basic earnings per share                              |  | $                  | 0.14       |                | $ | 0.15      
|                                                      |  |                    |            |                |   |           
|Diluted earnings per share                            |  | $                  | 0.14       |                | $ | 0.15      
|                                                      |  |                    |            |                |   |           
|Basic weighted average shares outstanding             |  |                    | 10,300,317 |                |   | 10,224,600
|Effect of dilutive stock options and non-vested stock |  |                    | 62,169     |                |   | 166,005   
|                                                      |  |                    |            |                |   |           
|Diluted weighted average shares outstanding           |  |                    | 10,362,486 |                |   | 10,390,605
|                                                      |  |                    |            |                |   |           

See accompanying notes to the consolidated financial statements (unaudited).



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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Changes in Shareholders Equity

Three months ended March 31, 2008 and year ended December 31, 2007



|                                                                                                    |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|--------------------------------------------------------------------------------------------------- |  | ------------ | - |  | --------------- | --------- | - | ---------------- | - | ---------- | ---------------------------------------- |  | - | ---------- | - |  | - | -------- | - |  | - | ---------- | -
|                                                                                                    |  | Common Stock |   |  | Capital Surplus |           |   | RetainedEarnings |   |            | AccumulatedOtherComprehensiveGain (Loss) |  |   | Total      |  
|                                                                                                    |  | Shares       |   |  | Amount          |           |   |                  |   |           
|Balance at December 31, 2006                                                                        |  | 10,251,336   |   |  | $               | 6,407,085 |   |                  | $ | 42,105,666 |                                          |  | $ | 22,091,191 |   |  | $ | (441,399 | ) |  | $ | 70,162,543 |  
|Comprehensive income:                                                                               |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|Net income                                                                                          |  |             |   |  |                 |          |   |                  |   |           |                                          |  |   | 6,810,613  |   |  |   |         |   |  |   | 6,810,613  |  
|Change in unrealized gain (loss) on securities available-for-sale, net of taxes of $253,033         |  |             |   |  |                 |          |   |                  |   |           |                                          |  |   |           |   |  |   | 491,183  |   |  |   | 491,183    |  
|                                                                                                    |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|Total comprehensive income                                                                          |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   | 7,301,796  |  
|Shares issued related to:                                                                           |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|401(k) plan                                                                                         |  | 11,020       |   |  |                 | 6,888     |   |                  |   | 130,311    |                                          |  |   |           |   |  |   |         |   |  |   | 137,199    |  
|Executive savings plan                                                                              |  | 11,686       |   |  |                 | 7,304     |   |                  |   | 138,187    |                                          |  |   |           |   |  |   |         |   |  |   | 145,491    |  
|Regional board fees                                                                                 |  | 1,893        |   |  |                 | 1,183     |   |                  |   | 22,807     |                                          |  |   |           |   |  |   |         |   |  |   | 23,990     |  
|Exercise of stock options                                                                           |  | 93,599       |   |  |                 | 58,499    |   |                  |   | 648,108    |                                          |  |   |           |   |  |   |         |   |  |   | 706,607    |  
|Dividend reinvestment                                                                               |  | 165,991      |   |  |                 | 103,744   |   |                  |   | 2,145,935  |                                          |  |   |           |   |  |   |         |   |  |   | 2,249,679  |  
|Stock-based compensation expense                                                                    |  | 11,864       |   |  |                 | 7,415     |   |                  |   | 329,835    |                                          |  |   |           |   |  |   |         |   |  |   | 337,250    |  
|Common stock repurchased                                                                            |  | (232,490     | ) |  |                 | (145,306  | ) |                  |   | (2,961,937 | )                                        |  |   |           |   |  |   |         |   |  |   | (3,107,243 | )
|Tax benefit of stock option exercises                                                               |  |             |   |  |                 |          |   |                  |   | 118,171    |                                          |  |   |           |   |  |   |         |   |  |   | 118,171    |  
|Cash dividends ($0.43 per share)                                                                    |  |             |   |  |                 |          |   |                  |   |           |                                          |  |   | (4,415,469 | ) |  |   |         |   |  |   | (4,415,469 | )
|                                                                                                    |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|Balance at December 31, 2007                                                                        |  | 10,314,899   |   |  | $               | 6,446,812 |   |                  | $ | 42,677,083 |                                          |  | $ | 24,486,335 |   |  | $ | 49,784   |   |  | $ | 73,660,014 |  
|                                                                                                    |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|(Unaudited)                                                                                         |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|Comprehensive income:                                                                               |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|Net income                                                                                          |  |             |   |  |                 |          |   |                  |   |           |                                          |  |   | 1,461,279  |   |  |   |         |   |  |   | 1,461,279  |  
|Change in unrealized gain (loss) on securities available-for-sale, net of taxes of $274,119         |  |             |   |  |                 |          |   |                  |   |           |                                          |  |   |           |   |  |   | 532,113  |   |  |   | 532,113    |  
|Reclassification adjustment for securities gains included in net income, net of taxes of ($118,679) |  |             |   |  |                 |          |   |                  |   |           |                                          |  |   |           |   |  |   | (230,376 | ) |  |   | (230,376   | )
|                                                                                                    |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|Total comprehensive income                                                                          |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   | 1,763,016  |  
|Shares issued related to:                                                                           |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|Executive savings plan                                                                              |  | 11,582       |   |  |                 | 7,239     |   |                  |   | 114,432    |                                          |  |   |           |   |  |   |         |   |  |   | 121,671    |  
|Regional board fees                                                                                 |  | 540          |   |  |                 | 337       |   |                  |   | 5,006      |                                          |  |   |           |   |  |   |         |   |  |   | 5,343      |  
|Exercise of stock options                                                                           |  | 47,948       |   |  |                 | 29,968    |   |                  |   | 280,944    |                                          |  |   |           |   |  |   |         |   |  |   | 310,912    |  
|Dividend reinvestment                                                                               |  | 44,182       |   |  |                 | 27,614    |   |                  |   | 535,482    |                                          |  |   |           |   |  |   |         |   |  |   | 563,096    |  
|Stock-based compensation expense                                                                    |  |             |   |  |                 |          |   |                  |   | 37,041     |                                          |  |   |           |   |  |   |         |   |  |   | 37,041     |  
|Common stock repurchased                                                                            |  | (56,714      | ) |  |                 | (35,447   | ) |                  |   | (659,042   | )                                        |  |   |           |   |  |   |         |   |  |   | (694,489   | )
|Cash dividends ($0.11 per share)                                                                    |  |             |   |  |                 |          |   |                  |   |           |                                          |  |   | (1,135,553 | ) |  |   |         |   |  |   | (1,135,553 | )
|                                                                                                    |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  
|Balance at March 31, 2008                                                                           |  | 10,362,437   |   |  | $               | 6,476,523 |   |                  | $ | 42,990,946 |                                          |  | $ | 24,812,061 |   |  | $ | 351,521  |   |  | $ | 74,631,051 |  
|                                                                                                    |  |              |   |  |                 |           |   |                  |   |            |                                          |  |   |            |   |  |   |          |   |  |   |            |  

See accompanying notes to the consolidated financial statements (unaudited).



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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Cash Flows

(Unaudited)



|                                                                                  |  |                    |            |   |                |   |             |  
|--------------------------------------------------------------------------------- |  | ------------------ | ---------- | - | -------------- | - | ----------- | -
|                                                                                  |  | Three Months Ended |           
|                                                                                  |  | March 31, 2008     |            |   | March 31, 2007 |  
|Operating Activities:                                                             |  |                    |            |   |                |   |             |  
|Net income                                                                        |  | $                  | 1,461,279  |   |                | $ | 1,532,322   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                    |            |   |                |   |             |  
|Depreciation and amortization                                                     |  |                    | 235,640    |   |                |   | 225,017     |  
|Provision for loan losses                                                         |  |                    | 270,000    |   |                |   | 222,000     |  
|Regional board fees                                                               |  |                    | 5,343      |   |                |   | 11,591      |  
|Stock-based compensation expense                                                  |  |                    | 37,041     |   |                |   | 173,407     |  
|Net amortization of premiums and accretion of discounts on investment securities  |  |                    | (27,460    | ) |                |   | (84         | )
|Loss on sale of premises and equipment                                            |  |                    | 2,273      |   |                |   |            |  
|Gain on sale of debt securities                                                   |  |                    | (349,055   | ) |                |   |            |  
|Changes in:                                                                       |  |                    |            |   |                |   |             |  
|Interest receivable                                                               |  |                    | 275,116    |   |                |   | (205,270    | )
|Other assets                                                                      |  |                    | (708,846   | ) |                |   | (499,501    | )
|Interest payable                                                                  |  |                    | 258,439    |   |                |   | (97,018     | )
|Other liabilities                                                                 |  |                    | 1,515,583  |   |                |   | 1,394,042   |  
|                                                                                  |  |                    |            |   |                |   |             |  
|Net cash provided by operating activities                                         |  |                    | 2,975,353  |   |                |   | 2,756,506   |  
|                                                                                  |  |                    |            |   |                |   |             |  
|                                                                                  |  |                   
|Investing Activities:                                                             |  |                    |            |   |                |   |             |  
|Proceeds from maturities and calls of debt securities available-for-sale          |  |                    | 4,004,199  |   |                |   | 2,004,001   |  
|Proceeds from sale of debt securities                                             |  |                    | 12,349,055 |   |                |   |            |  
|Purchase of equity securities available-for-sale                                  |  |                    | (812,896   | ) |                |   |            |  
|Proceeds from sales of Federal Home Loan Bank stock                               |  |                    | 315,000    |   |                |   |            |  
|Purchase of Federal Home Loan Bank stock                                          |  |                    | (158,200   | ) |                |   | (529,600    | )
|Purchase of Federal Reserve Bank stock                                            |  |                    | (1,150     | ) |                |   |            |  
|Net increase in total loans                                                       |  |                    | (7,523,987 | ) |                |   | (29,333,978 | )
|Purchase of premises and equipment                                                |  |                    | (548,240   | ) |                |   | (43,947     | )
|                                                                                  |  |                    |            |   |                |   |             |  
|Net cash provided by (used in) investing activities                               |  |                    | 7,623,781  |   |                |   | (27,903,524 | )
|                                                                                  |  |                    |            |   |                |   |             |  
|                                                                                  |  |                   
|Financing Activities:                                                             |  |                    |            |   |                |   |             |  
|Net increase in deposits                                                          |  |                    | 21,694,706 |   |                |   | 10,763,163  |  
|Repayments of Federal Home Loan Bank borrowings                                   |  |                    | (5,000,000 | ) |                |   |            |  
|Proceeds from Federal Home Loan Bank borrowings                                   |  |                    |           |   |                |   | 12,500,000  |  
|Common stock repurchased                                                          |  |                    | (694,489   | ) |                |   | (831,923    | )
|Issuance of shares to 401(k) plan                                                 |  |                    |           |   |                |   | 137,200     |  
|Issuance of shares to executive savings plan                                      |  |                    | 121,671    |   |                |   | 145,491     |  
|Proceeds from exercise of stock options                                           |  |                    | 310,912    |   |                |   | 58,902      |  
|Dividends paid, net                                                               |  |                    | (572,457   | ) |                |   | (490,082    | )
|                                                                                  |  |                    |            |   |                |   |             |  
|Net cash provided by financing activities                                         |  |                    | 15,860,343 |   |                |   | 22,282,751  |  
|                                                                                  |  |                    |            |   |                |   |             |  
|Increase (decrease) in cash and cash equivalents                                  |  |                    | 26,459,477 |   |                |   | (2,864,267  | )
|Cash and cash equivalents at beginning of period                                  |  |                    | 25,563,605 |   |                |   | 26,798,551  |  
|                                                                                  |  |                    |            |   |                |   |             |  
|Cash and cash equivalents at end of period                                        |  | $                  | 52,023,082 |   |                | $ | 23,934,284  |  
|                                                                                  |  |                    |            |   |                |   |             |  
|                                                                                  |  |                   
|Supplemental cash flow information:                                               |  |                    |            |   |                |   |             |  
|Cash paid during the period for interest                                          |  | $                  | 3,759,128  |   |                | $ | 3,186,968   |  
|Cash paid during the period for income taxes                                      |  |                    |           |   |                |   |            |  
|                                                                                  |  |                   
|Supplemental noncash information:                                                 |  |                    |            |   |                |   |             |  
|Dividends reinvested                                                              |  | $                  | 563,096    |   |                | $ | 534,925     |  
|Value of shares exchanged in exercise of stock options                            |  |                    |           |   |                |   | 24,323      |  
|Change in unrealized gain(loss) on securities                                     |  |                    | 457,178    |   |                |   | 210,007     |  

See accompanying notes to the consolidated financial statements (unaudited).



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2008

NOTE A  BASIS OF
PRESENTATION

Hampton Roads Bankshares, Inc., a Virginia corporation (the Company), was incorporated under the laws of the
Commonwealth of Virginia on February 28, 2001, primarily to serve as a holding company for the Bank of Hampton Roads (the Bank). On July 1, 2001, all Bank of Hampton Roads common stock, par value $0.625 per share, converted
into the common stock of Hampton Roads Bankshares, Inc., par value $0.625 per share, on a share for share exchange basis, making the Bank a wholly owned subsidiary of the Company.

Our principal executive office is located at 999 Waterside Drive, Suite 200, Norfolk, VA 23510 and our telephone number is (757) 217-1000. Our
common stock trades on the Nasdaq Global Select Market under the symbol HMPR.

The Bank is a Virginia state-chartered
commercial bank with 18 full service offices in the Hampton Roads region of southeastern Virginia, including nine offices in the city of Chesapeake, four offices in each of the cities of Norfolk and Virginia Beach, and one office in the city of
Suffolk. The Bank was organized in March 1987 and commenced operations in December 1987.

In January 2004, we formed Hampton Roads
Investments, Inc. (HR Investments), a wholly owned subsidiary, to provide securities, brokerage, and investment advisory services.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes required by U. S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 2007
(the 2007 Form 10-K). The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year.

NOTE B  SHARE-BASED COMPENSATION

The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123R, Share Based Payment,on January 1, 2006 and, accordingly, uses the fair-value method to account for stock-based compensation. Fair-value of stock options is estimated at the date of grant using
a lattice option pricing model.

Stock-based compensation expense recognized in the consolidated statements of income for the three months
ended March 31, 2008 and March 31, 2007 was $37,041 and $173,407, respectively, with a related tax benefit of $12,668 and $59,305, respectively. During the first three months of 2008 and 2007, stock-based compensation expense was comprised
of $21,178 and $35,497, respectively, related to stock options which vested during the period, and $15,863 and $137,910, respectively, related to share awards.

The Company has granted stock options to its directors and employees under stock compensation plans that have been approved by the Companys shareholders. All outstanding options have 10-year terms and are either
fully vested and exercisable at the date of grant or vest ratably over periods that range from 1 year to 10 years. A summary of the Companys stock option activity and related information for the three months ended March 31, 2008 is as
follows:



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##### Table of Contents

|                             |  |                         |  |                               |      |                                     |      |                         |   |          
|---------------------------- |  | ----------------------- |  | ----------------------------- | ---- | ----------------------------------- | ---- | ----------------------- | - | ---------
|                             |  | StockOptionsOutstanding |  | WeightedAverageExercise Price |      | RemainingContractual Life(in years) |      | AggregateIntrinsicValue
|Balance at December 31, 2007 |  | 858,156                 |  | $                             | 9.48 |                                     | N/A  |                         |   | N/A      
|Exercised                    |  | 47,948                  |  |                               | 6.48 |                                     | N/A  |                         |   | N/A      
|Expired                      |  | 597                     |  |                               | 9.84 |                                     | N/A  |                         |   | N/A      
|                             |  |                         |  |                               |      |                                     |      |                         |   |          
|Balance at March 31, 2008    |  | 809,611                 |  | $                             | 9.66 |                                     | 5.77 |                         | $ | 2,098,068
|                             |  |                         |  |                               |      |                                     |      |                         |   |          

No stock options were granted during the first three months of 2008. The weighted-average
grant-date fair value of stock options granted during the three months ended March 31, 2007 was $1.24. The total intrinsic value of stock options exercised during the three month periods ended March 31, 2008 and 2007 was $164,218 and
$27,730, respectively. Cash received from stock option exercises for the three month periods ended March 31, 2008 and 2007 was $310,911 and $58,902, respectively. The Company may issue new shares to satisfy stock option grants and as of
March 31, 2008 there were 2,288,741 shares available under the existing stock incentive plan that was approved by shareholders. However, shares may be repurchased in open market or privately negotiated transactions under certain circumstances.
As of March 31, 2008, there was $306,564 of unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 3.84 years.

The Company has granted non-vested shares of common stock to certain directors and employees as part of incentive programs and to those directors who
elected to use deferred directors fees to purchase non-vested shares of common stock. Non-vested shares of common stock awarded to employees and directors as part of incentive programs have vesting schedules that range from four to nine years
and are expensed over the same schedules. Non-vested shares of common stock issued to directors as a method of deferring their directors fees are expensed at the time the fees are earned by the director. A summary of the Companys
non-vested share activity and related information for the three months ended March 31, 2008 is as follows:



|                             |  |                 |  |                                      |      
|---------------------------- |  | --------------- |  | ------------------------------------ | -----
|                             |  | Number ofShares |  | Weighted-AverageGrant-DateFair Value
|Balance at December 31, 2007 |  | 54,540          |  | $                                    | 11.23
|Granted                      |  |                |  |                                      |     
|Vested                       |  |                |  |                                      |     
|                             |  |                 |  |                                      |      
|Balance at March 31, 2008    |  | 54,540          |  | $                                    | 11.23
|                             |  |                 |  |                                      |      

As of March 31, 2008, there was $215,467 of total unrecognized compensation cost related to
non-vested shares of common stock. That cost is expected to be recognized over a weighted-average period of 4.32 years.

NOTE C  INVESTMENT
SECURITIES

The amortized cost and estimated fair values of investment securities available-for-sale were:



|                                    |  |                |            |                     |   |               |  |                     |            |  |   |           
|----------------------------------- |  | -------------- | ---------- | ------------------- | - | ------------- |  | ------------------- | ---------- |  | - | ----------
|                                    |  | March 31, 2008 |            | December 31, 2007  
|                                    |  | AmortizedCost  |            | EstimatedFair Value |   | AmortizedCost |  | EstimatedFair Value
|U.S. Agency securities              |  | $              | 24,970,584 |                     | $ | 25,619,531    |  | $                   | 40,943,608 |  | $ | 41,272,656
|Mortgage-backed securities          |  |                | 637,852    |                     |   | 649,327       |  |                     | 641,785    |  |   | 641,174   
|State and Municipal securities      |  |                | 244,219    |                     |   | 254,205       |  |                     | 244,001    |  |   | 249,995   
|Equity securities                   |  |                | 1,285,396  |                     |   | 1,147,597     |  |                     | 472,500    |  |   | 213,500   
|                                    |  |                |            |                     |   |               |  |                     |            |  |   |           
|Total securities available-for-sale |  | $              | 27,138,051 |                     | $ | 27,670,660    |  | $                   | 42,301,894 |  | $ | 42,377,325
|                                    |  |                |            |                     |   |               |  |                     |            |  |   |           



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##### Table of Contents

NOTE DLOANS

Major classifications of loans are summarized as follows:



|                                     |  |                |             |   |                   |   |             |  
|------------------------------------ |  | -------------- | ----------- | - | ----------------- | - | ----------- | -
|                                     |  | March 31, 2008 |             |   | December 31, 2007 |  
|Commercial                           |  | $              | 108,756,559 |   |                   | $ | 109,782,739 |  
|Construction                         |  |                | 164,834,354 |   |                   |   | 165,468,776 |  
|Real estate-commercial mortgage      |  |                | 159,298,064 |   |                   |   | 151,600,649 |  
|Real estate-residential mortgage     |  |                | 41,372,420  |   |                   |   | 38,523,593  |  
|Installment loans (to individuals)   |  |                | 10,555,451  |   |                   |   | 11,976,075  |  
|Deferred loan fees and related costs |  |                | (136,126    | ) |                   |   | (202,600    | )
|                                     |  |                |             |   |                   |   |             |  
|Total loans                          |  | $              | 484,680,722 |   |                   | $ | 477,149,232 |  
|                                     |  |                |             |   |                   |   |             |  

Non-performing assets were as follows:



|                                                   |  |                |           |                   |   |          
|-------------------------------------------------- |  | -------------- | --------- | ----------------- | - | ---------
|                                                   |  | March 31, 2008 |           | December 31, 2007
|Loans 90 days past due and still accruing interest |  | $              | 389,518   |                   | $ | 851,846  
|Nonaccrual loans                                   |  |                | 1,454,363 |                   |   | 1,792,758
|Real estate aquired in settlement of loans         |  |                |          |                   |   |         
|                                                   |  |                |           |                   |   |          
|Total non-performing assets                        |  | $              | 1,843,881 |                   | $ | 2,644,604
|                                                   |  |                |           |                   |   |          

Information on impaired loans was as follows:



|                                                                                 |  |                |           |                   |   |          
|-------------------------------------------------------------------------------- |  | -------------- | --------- | ----------------- | - | ---------
|                                                                                 |  | March 31, 2008 |           | December 31, 2007
|Impaired loans for which an allowance has been provided                          |  | $              | 2,263,718 |                   | $ | 1,697,758
|Impaired loans for which no allowance has been provided                          |  |                |          |                   |   |         
|                                                                                 |  |                |           |                   |   |          
|Total impaired loans                                                             |  | $              | 2,263,718 |                   | $ | 1,697,758
|                                                                                 |  |                |           |                   |   |          
|Allowance provided for impaired loans, included in the allowance for loan losses |  | $              | 588,842   |                   | $ | 405,552  
|                                                                                 |  |                |           |                   |   |          
|Average balance in impaired loans                                                |  | $              | 2,281,316 |                   | $ | 1,782,143
|                                                                                 |  |                |           |                   |   |          
|Interest income recognized from impaired loans                                   |  | $              | 15,588    |                   | $ | 19,952   
|                                                                                 |  |                |           |                   |   |          

NOTE E  ALLOWANCE FOR LOAN LOSSES

Transactions affecting the allowance for loan losses during the three months ended March 31, 2008 and 2007 were as follows:



|                               |  |      |           |      |   |          
|------------------------------ |  | ---- | --------- | ---- | - | ---------
|                               |  | 2008 |           | 2007
|Balance at beginning of period |  | $    | 5,042,583 |      | $ | 3,910,943
|Provision for loan losses      |  |      | 270,000   |      |   | 222,000  
|Loans charged off              |  |      |          |      |   |         
|Recoveries                     |  |      | 7,503     |      |   | 759      
|                               |  |      |           |      |   |          
|Balance at end of period       |  | $    | 5,320,086 |      | $ | 4,133,702
|                               |  |      |           |      |   |          



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NOTE F  PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:



|                                               |  |                |            |   |                   |   |            |  
|---------------------------------------------- |  | -------------- | ---------- | - | ----------------- | - | ---------- | -
|                                               |  | March 31, 2008 |            |   | December 31, 2007 |  
|Land                                           |  | $              | 4,321,466  |   |                   | $ | 4,321,467  |  
|Buildings and improvements                     |  |                | 6,386,140  |   |                   |   | 6,145,170  |  
|Leasehold improvements                         |  |                | 862,375    |   |                   |   | 847,453    |  
|Equipment, furniture and fixtures              |  |                | 5,903,016  |   |                   |   | 5,619,191  |  
|                                               |  |                |            |   |                   |   |            |  
|                                               |  |                | 17,472,997 |   |                   |   | 16,933,281 |  
|Less accumulated depreciation and amortization |  |                | (5,195,519 | ) |                   |   | (4,966,130 | )
|                                               |  |                |            |   |                   |   |            |  
|Premises and equipment, net                    |  | $              | 12,277,478 |   |                   | $ | 11,967,151 |  
|                                               |  |                |            |   |                   |   |            |  

NOTE G  SUPPLEMENTAL RETIREMENT AGREEMENTS

The Company has entered into supplemental retirement agreements with several key officers and recognizes expense each year related to these agreements
based on the present value of the benefits expected to be provided to the employees and any beneficiaries. The expense recognized during the first three months of 2008 and 2007 was $165,000 and $128,096, respectively.

NOTE H  FAIR VALUE MEASUREMENTS

SFAS
No. 157, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair
value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follow:



|  |  |         |  |                                                                                                                                                                                                                                                                       
|- |  | ------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1 |  | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.                                                                                                                                             
|  |  |        
| |  | Level 2 |  | inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or
indirectly, for substantially the full term of the financial instrument.
|  |  |        
| |  | Level 3 |  | inputs to the valuation methodology are unobservable and significant to the fair value measurement.                                                                                                                                                                   

Following is a description of the valuation methodologies used for instruments measured at fair
value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities

Where quoted prices are available in an active market, securities are classified within level 1 of the valuation hierarchy. Level 1
securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar
characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In
certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within level 3 of the valuation hierarchy. Currently, all of the Companys securities are considered to be Level 2
securities.

Impaired loans

SFAS No. 157 applies to loans measured for impairment using the practical expedients permitted by SFAS No. 114, Accounting by Creditors for Impairment of a Loan, including impaired loans measured at an observable market
price (if available), or at the fair value of the loans collateral (if the loan is collateral dependent). Fair value of the loans collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation
which is then adjusted for the cost related to liquidation of the collateral.



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##### Table of Contents

Other Real Estate Owned

Certain assets such as other real estate owned are measured at fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of SFAS No. 157.

NOTE I  ACQUISITION OF SHORE FINANCIAL

On
January 8, 2008 the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Shore Financial Corporation (SFC). The Merger Agreement sets forth the terms and conditions of the Companys
acquisition of SFC through the merger of SFC with and into the Company (the Merger). Under the terms of the Merger Agreement, the Company will acquire all of the outstanding shares of SFC. The shareholders of SFC will receive, for each
share of SFC common stock that they own immediately prior to the effective time of the Merger, either $22 per share in cash or 1.8 shares of common stock of the Company. Pursuant to the terms of the Merger Agreement, shareholders of SFC will have
the opportunity to elect to receive cash, shares of common stock of the Company, or a combination of both, subject to allocation and proration procedures ensuring that no less than 25% and no more than 45% of the total merger consideration will be
cash and the remainder will be common stock of the Company. In addition, at the effective time of the Merger, each outstanding option to purchase shares of SFCs common stock under any stock plans shall vest pursuant to its terms and shall be
converted into an option to acquire the number of shares of the Companys common stock equal to the number of shares of SFC common stock underlying the option multiplied by 1.8. The exercise price of each option will be adjusted accordingly.

SFC is the parent company of Shore Bank, which operates 8 full-service banking facilities serving the Eastern Shore of Maryland and
Virginia. SFC reported assets of $267 million at December 31, 2007.

Consummation of the Merger is subject to a number of customary
conditions including the approval of the Merger by the Companys and SFCs shareholders and the receipt of all required regulatory approvals. The Merger is expected to be completed in the second quarter of 2008.

ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information about the important factors affecting the consolidated results of operations, financial condition, capital resources and liquidity of the Company. This report identifies trends and material
changes that occurred during the reporting periods and should be read in conjunction with the 2007 Form 10-K.

The Companys primary
source of revenue is from net interest income earned by the Bank. Net interest income represents interest and fees earned from lending and investment activities less the interest paid to fund these activities. Variations in the volume and mix of
interest earning assets and interest bearing liabilities, changes in the yields earned and the rates paid, and the level of noninterest bearing liabilities available to support earning assets, all impact net interest income. In addition to net
interest income, noninterest income is another important source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits and fees earned from bank services. Other factors that impact net income are the
provision for loan losses and noninterest expense.

Financial Condition

Total average assets, a benchmark used by banks when comparing size, are the strongest indicator of our continuous growth. Average assets increased $89.1
million, or 18.4%, to a new high of $573.6 million for the three months ended March 31, 2008 compared to the three months ended March 31, 2007. Total assets at March 31, 2008 were $583.3 million, an increase of $19.4 million, or 3.5%,
over December 31, 2007 total assets of $563.8 million.

As a community bank, the Company has a primary objective of meeting the
business and consumer credit needs within its market where standards of profitability, client relationships and credit quality can be met. The loan portfolio grew $7.5 million, or 1.6%, to $484.7 million as of March 31, 2008 compared to
December 31, 2007. Real estate commercial mortgages increased 5.1% to $159.3 million at March 31, 2008 compared to $151.6 million at December 31, 2007. Real estate residential mortgages increased 7.4% to $41.4 million at
March 31, 2008 compared with $38.5 million at December 31, 2007. Commercial loans decreased $1.0 million or 0.9% to $108.8 million at March 31, 2008 compared with $109.8 million at December 31, 2007. Installment loans to
individuals decreased 11.9% to $10.6 million at March 31, 2008 compared with $12.0 million at December 31, 2007. Construction loans also decreased slightly to $164.8 million at March 31, 2008 compared with $165.5 million at
December 31, 2007, thus lowering the concentration of construction loans to 34.0% of the total loan portfolio at March 31, 2008 compared with 34.7% at December 31, 2007.



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##### Table of Contents

The Company continuously reviews its loan portfolio and maintains an allowance for loan losses sufficient
to absorb losses inherent in the portfolio. In addition to the review of credit quality through ongoing credit review processes, the Company conducts an independent and comprehensive allowance analysis of its loan portfolio at least quarterly. The
allowance for loan losses was $5.3 million, or 1.10% of outstanding loans, as of March 31, 2008 compared with $5.0 million, or 1.06% of outstanding loans, as of December 31, 2007. The allowance increased due to growth in the loan portfolio
and uncertain economic conditions. Management considers the allowance for loan losses to be adequate. Management classifies as non-performing those loans in nonaccrual status, those loans on which payment has been delinquent for 90 days or more, and
real estate acquired in the settlement of loans. Total non-performing assets were $1.8 million or 0.32% of total assets at March 31, 2008 compared with $2.6 million or 0.47% of total assets at December 31, 2007. Nonaccrual loans at
March 31, 2008 were $1.5 million and consisted of one commercial loan. Loans past due 90 days or more at March 31, 2008 were $390 thousand and consisted of one real estate loan and one commercial loan.

The Companys investment portfolio consists primarily of available-for-sale U.S. Agency, mortgage-backed securities, and equity securities. At
March 31, 2008, the estimated market value of investment securities held by the Company was $27.7 million, down $14.7 million, or 34.7%, from $42.4 million at December 31, 2007. The decrease was the result of maturities of investment
securities with a par value of $4.0 million netted against the purchase of investment securities with a par value of $813 thousand along with the change in unrealized gains or losses on available-for-sale investment securities and
amortization/accretion of premiums/discounts on the remaining investment securities. Additionally, in the first quarter of 2008, the Company sold investment securities with a par value of $12.0 million and recorded a pre-tax gain on the sale of
those investments of $349 thousand.

Deposits are the primary source of the Companys funds for use in lending and general business
purposes. The Companys balance sheet growth is largely determined by the availability of deposits in its market, the cost of attracting the deposits, and the prospects of profitably utilizing the available deposits by increasing the loan or
investment portfolios. Total deposits at March 31, 2008 increased $21.7 million, or 5.0%, to $453.2 million compared to $431.5 million at December 31, 2007. Changes in the deposit categories include a decrease of $5.6 million or 5.6% in
noninterest bearing demand deposits, an increase of $523 thousand or 1.3% in interest bearing demand deposits and an increase of $4.0 million or 4.8% in savings accounts from December 31, 2007 to March 31, 2008. Total time deposits
increased $22.8 million, or 11.0%, from December 31, 2007 to March 31, 2008. The increase in time deposits was a result of competitive rates offered on time deposits within the local market and an increase in national certificates of
deposits.

Federal Home Loan Bank borrowings decreased $5.0 million or 9.4% to $48.0 million at March 31, 2008 compared to $53.0
million at December 31, 2007.

Results of Operations

During the first three months of 2008, the Company had net income of $1.46 million, a decrease of 4.6% over net income of $1.53 million in the first three months of 2007. The decrease in net income in the first three
months of 2008 resulted primarily from the effects of the declining interest rate environment. Diluted earnings per share decreased to $0.14 per share for the first three months of 2008 compared with $0.15 per share for the three months ending
March 31, 2007. Return on average total assets for the first three months of 2008 decreased to 1.02% from 1.28% for the first three months of 2007. Return on average shareholders equity decreased in the first three months of 2008 to 7.93%
from 8.82% for the first three months of 2007.

Net interest income for the first three months of 2008 was $5.4 million, a decrease of $267
thousand or 4.7% compared with the first three months of 2007. The net interest margin, which is calculated by expressing net interest income as a percentage of average interest earning assets, is an indicator of effectiveness in generating income
from earning assets. The Companys net interest margin decreased from 5.06% during the first three months of 2007 to 3.98% for the same period in 2008. During the period beginning September 18, 2007 and ending March 18, 2008, the
Federal Open Market Committee reduced the target federal funds rate by 300 basis points. This reduction in rates is expected to have an adverse effect on the net interest margin throughout 2008.

The Companys interest earning assets consist primarily of loans, investment securities, interest-bearing deposits in other banks, and overnight
funds sold. Interest income on loans, including fees, increased $712 thousand to $8.8 million for the three months ended March 31, 2008 compared to the same time period during 2007. This increase resulted from the $90.2 million increase in
average loans and was partially offset by a 104 basis point decrease experienced in the average interest yield. Interest income on



12



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##### Table of Contents

investment securities decreased $125 thousand to $489 thousand for the three months ended March 31, 2008 compared to the same time period during 2007.
The $13.1 million decrease in the average investment securities balance netted against a 7 basis point increase in the average interest yield produced this decrease. Interest income on interest-bearing deposits in other banks increased $90 thousand
for the three months ended March 31, 2008 compared to the same time period during 2007. This increase was the result of the $14.4 million increase in average interest-bearing deposits and was offset by a 213 basis point decrease in the average
interest yield. Interest income on overnight funds sold decreased $17 thousand to $6 thousand for the three months ended March 31, 2008 compared to the same time period during 2007. This decrease was due to the $859 thousand decrease in average
overnight funds sold along with the 246 basis point decrease experienced in the average interest yield.

The Companys interest
bearing liabilities consist of deposit accounts and other borrowings. Interest expense from deposits increased $789 thousand to $3.4 million for the three months ended March 31, 2008 compared to the same time period during 2007. This increase
resulted from the $78.3 million increase in average interest bearing deposits. The average interest rate on interest bearing deposits remained unchanged at 3.94%. Interest expense from other borrowings, which consists of FHLB borrowings and
overnight funds purchased, increased $138 thousand to $585 thousand for the three months ended March 31, 2008 compared to the same time period during 2007. The $7.9 million increase in average other borrowings and the 40 basis point increase in
the average interest rate on other borrowings produced this result.

During the first three months of 2008, the Company recorded loan
recoveries of $8 thousand and a provision for loan losses in the amount of $270 thousand. The provision for loan losses increased due to an increase in total loans and an increase in non-performing loans of $185 thousand in the first three months of
2008 compared with the same period in 2007. During the first three months of 2007, the Company recorded a provision for loan losses of $222 thousand.

The Company reported an increase in total noninterest income of $297 thousand, or 32.1%, for the first three months of 2008 compared to the same period in 2007. Service charges on deposit accounts, the Companys
primary source of noninterest income, decreased $38 thousand or 7.7% to $450 thousand for the first three months of 2008 compared to the same period in 2007. Other service charges and fees decreased $15 thousand, or 3.4%, for the first three months
of 2008 compared to the first three months of 2007. During the first quarter of 2008, the Company recorded a pre-tax gain on the sale of investment securities of $349 thousand resulting from the sale of investment securities with a par value of $12
million. Noninterest income comprised 11.5% of total revenue in the first three months of 2008 compared to 9.6% in the first three months of 2007.

Noninterest expense represents the overhead expenses of the Company. Total noninterest expense increased $82 thousand, or 2.0%, for the first three months of 2008 compared to the first three months of 2007. This increase was attributable
primarily to a 6.7% increase in occupancy expense related to the opening of the Companys eighteenth branch location in the Edinburgh section of Chesapeake. Salaries and employee benefits remained unchanged at $2.6 million in the first three
months on 2008 and 2007. Data processing expense, another category of noninterest expense, posted an increase of 6.3% for the first three months of 2008 compared to the first three months of 2007, resulting from an upgrade to imaged file capture
cash letter processing. Other noninterest expenses posted an increase of 3.5% to $938 thousand for the first three months of 2008 compared to the same time period during 2007. The ratio of annualized noninterest expense to average total assets was
2.89% for the first three months of 2008 compared to 3.38% for the first three months of 2007.

Income tax expense for the first three
months of 2008 and 2007 was $760 thousand and $789 thousand, respectively. The Companys effective tax rate was 34.2% and 34.0% in 2008 and 2007, respectively, and differed in 2008 from the statutory rate of 34.0% due primarily to nondeductible
expenses.

Average Balance Sheet and Net Interest Margin Analysis

The table below presents the average interest earning assets and average interest bearing liabilities, the average yields earned on such assets and rates paid on such liabilities, and the net interest margin for the
three months ended March 31, 2008 and 2007.



13



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##### Table of Contents

|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|------------------------------------------ |  | --------------------- | ------- | - | ---------------------- | - | ----------------- |  | ---- | -------------- |  | - | ---------------------- | - | ----------------- | - | ------ |  | ---- | -
|                                           |  | March 2008 Annualized |         |   | March 2007 Annualized  |  
|(In thousands)                             |  | AverageBalance        |         |   | InterestIncome/Expense |   | AverageYield/Rate |  |      | AverageBalance |  |   | InterestIncome/Expense |   | AverageYield/Rate |  
|Assets                                     |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Interest Earning Assets                    |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Loans                                      |  | $                     | 480,646 |   |                        | $ | 35,331            |  | 7.35 | %              |  | $ | 390,410                |   |                   | $ | 32,739 |  | 8.39 | %
|Investment Securities                      |  |                       | 45,571  |   |                        |   | 1,968             |  | 4.32 | %              |  |   | 58,630                 |   |                   |   | 2,493  |  | 4.25 | %
|Interest Bearing Deposits with Banks       |  |                       | 17,111  |   |                        |   | 498               |  | 2.91 | %              |  |   | 2,698                  |   |                   |   | 136    |  | 5.04 | %
|Overnight Funds Sold                       |  |                       | 911     |   |                        |   | 25                |  | 2.74 | %              |  |   | 1,770                  |   |                   |   | 92     |  | 5.20 | %
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Total Interest Earning Assets              |  |                       | 544,239 |   |                        |   | 37,822            |  | 6.95 | %              |  |   | 453,508                |   |                   |   | 35,460 |  | 7.82 | %
|                                           |  |                       |         |   |                        |  
|Noninterest Earning Assets                 |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Cash and Due from Banks                    |  |                       | 15,301  |   |                        |   |                   |  |      |                |  |   | 16,178                 |   |                   |   |        |  |      |  
|Premises and Equipment                     |  |                       | 12,133  |   |                        |   |                   |  |      |                |  |   | 12,128                 |   |                   |   |        |  |      |  
|Other Assets                               |  |                       | 7,158   |   |                        |   |                   |  |      |                |  |   | 6,764                  |   |                   |   |        |  |      |  
|Less: Allowance for Loan Losses            |  |                       | (5,220  | ) |                        |   |                   |  |      |                |  |   | (4,035                 | ) |                   |   |        |  |      |  
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Total Assets                               |  | $                     | 573,611 |   |                        |   |                   |  |      |                |  | $ | 484,543                |   |                   |   |        |  |      |  
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Liabilities and Shareholders Equity       |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Interest Bearing Liabilities               |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Interest Bearing Demand Deposits           |  | $                     | 40,433  |   |                        | $ | 559               |  | 1.38 | %              |  | $ | 41,343                 |   |                   | $ | 686    |  | 1.66 | %
|Savings Deposits                           |  |                       | 83,159  |   |                        |   | 2,466             |  | 2.97 | %              |  |   | 76,677                 |   |                   |   | 2,743  |  | 3.58 | %
|Time Deposits                              |  |                       | 226,978 |   |                        |   | 10,781            |  | 4.75 | %              |  |   | 154,206                |   |                   |   | 7,291  |  | 4.73 | %
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Total Interest Bearing Deposits            |  |                       | 350,570 |   |                        |   | 13,806            |  | 3.94 | %              |  |   | 272,226                |   |                   |   | 10,720 |  | 3.94 | %
|                                           |  |                       |         |   |                        |  
|Other Borrowings                           |  |                       | 49,483  |   |                        |   | 2,353             |  | 4.76 | %              |  |   | 41,567                 |   |                   |   | 1,812  |  | 4.36 | %
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Total Interest Bearing Liabilities         |  |                       | 400,053 |   |                        |   | 16,159            |  | 4.04 | %              |  |   | 313,793                |   |                   |   | 12,532 |  | 3.99 | %
|                                           |  |                       |         |   |                        |  
|Noninterest Bearing Liabilities            |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Demand Deposits                            |  |                       | 92,243  |   |                        |   |                   |  |      |                |  |   | 94,268                 |   |                   |   |        |  |      |  
|Other Liabilities                          |  |                       | 7,207   |   |                        |   |                   |  |      |                |  |   | 6,060                  |   |                   |   |        |  |      |  
|Shareholders Equity                       |  |                       | 74,108  |   |                        |   |                   |  |      |                |  |   | 70,422                 |   |                   |   |        |  |      |  
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Total Liabilities and Shareholders Equity |  | $                     | 573,611 |   |                        |   |                   |  |      |                |  | $ | 484,543                |   |                   |   |        |  |      |  
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Net Interest Income                        |  |                       |         |   |                        | $ | 21,663            |  |      |                |  |   |                        |   |                   | $ | 22,928 |  |      |  
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Net Interest Spread                        |  |                       |         |   |                        |   |                   |  | 2.91 | %              |  |   |                        |   |                   |   |        |  | 3.83 | %
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  
|Net Interest Margin                        |  |                       |         |   |                        |   |                   |  | 3.98 | %              |  |   |                        |   |                   |   |        |  | 5.06 | %
|                                           |  |                       |         |   |                        |   |                   |  |      |                |  |   |                        |   |                   |   |        |  |      |  



|Note: | Annualized interest income from loans included annualized fees of $1,241,496 in 2008 and $1,340,621 in 2007. Nonaccrual loans are not material and are included in loans above.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Effect of Changes in Rate and Volume on Net Interest Income



|                                           |  |                                |        |   |                         |   |        |                                |      |   |                         |        |  |   |       |   |  |   |        |   |  |   |       |  
|------------------------------------------ |  | ------------------------------ | ------ | - | ----------------------- | - | ------ | ------------------------------ | ---- | - | ----------------------- | ------ |  | - | ----- | - |  | - | ------ | - |  | - | ----- | -
|                                           |  | 2008 Compared to 2007          |        |   | 2007 Compared to 2006   |  
|(In thousands)                             |  | InterestIncome/ExpenseVariance |        |   | VarianceAttributable to |   |        | InterestIncome/ExpenseVariance |      |   | VarianceAttributable to |       
|                                           |  | Rate                           |        |   | Volume                  |   |        |                                | Rate |   |                         | Volume | 
|Interest Earning Assets                    |  |                                |        |   |                         |   |        |                                |      |   |                         |        |  |   |       |   |  |   |        |   |  |   |       |  
|Loans                                      |  | $                              | 2,592  |   |                         | $ | (2,971 | )                              |      | $ | 5,563                   |        |  | $ | 9,514 |   |  | $ | 1,264  |   |  | $ | 8,250 |  
|Investment Securities                      |  |                                | (525   | ) |                         |   | 40     |                                |      |   | (565                    | )      |  |   | (478  | ) |  |   | 255    |   |  |   | (733  | )
|Interest-Bearing Deposits with Other Banks |  |                                | 362    |   |                         |   | (31    | )                              |      |   | 393                     |        |  |   | 66    |   |  |   | 15     |   |  |   | 51    |  
|Overnight Funds Sold                       |  |                                | (67    | ) |                         |   | (33    | )                              |      |   | (34                     | )      |  |   | (69   | ) |  |   | 33     |   |  |   | (102  | )
|                                           |  |                                |        |   |                         |   |        |                                |      |   |                         |        |  |   |       |   |  |   |        |   |  |   |       |  
|Total Interest Earning Assets              |  |                                | 2,362  |   |                         |   | (2,995 | )                              |      |   | 5,357                   |        |  |   | 9,033 |   |  |   | 1,567  |   |  |   | 7,466 |  
|                                           |  |                                |        |   |                         |   |        |                                |      |   |                         |        |  |   |       |   |  |   |        |   |  |   |       |  
|Interest Bearing Liabilities               |  |                                |        |   |                         |   |        |                                |      |   |                         |        |  |   |       |   |  |   |        |   |  |   |       |  
|Deposits                                   |  |                                | 3,086  |   |                         |   | 1      |                                |      |   | 3,085                   |        |  |   | 4,842 |   |  |   | 3,213  |   |  |   | 1,629 |  
|Other Borrowings                           |  |                                | 541    |   |                         |   | 175    |                                |      |   | 366                     |        |  |   | 735   |   |  |   | 385    |   |  |   | 350   |  
|                                           |  |                                |        |   |                         |   |        |                                |      |   |                         |        |  |   |       |   |  |   |        |   |  |   |       |  
|Total Interest Bearing Liabilities         |  |                                | 3,627  |   |                         |   | 176    |                                |      |   | 3,451                   |        |  |   | 5,577 |   |  |   | 3,598  |   |  |   | 1,979 |  
|                                           |  |                                |        |   |                         |   |        |                                |      |   |                         |        |  |   |       |   |  |   |        |   |  |   |       |  
|Net Interest Income                        |  | $                              | (1,265 | ) |                         | $ | (3,171 | )                              |      | $ | 1,906                   |        |  | $ | 3,456 |   |  | $ | (2,031 | ) |  | $ | 5,487 |  
|                                           |  |                                |        |   |                         |   |        |                                |      |   |                         |        |  |   |       |   |  |   |        |   |  |   |       |  

Note: The change in interest due to both rate and volume has been allocated to variance attributable to rate and
variance attributable to volume in proportion to the relationship for the absolute dollar amounts of the change in each.



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##### Table of Contents

Capital Resources and Liquidity

Total shareholders equity increased $971 thousand, or 1.3%, to $74.6 million at March 31, 2008 compared to $73.7 million at December 31, 2007. As of March 31, 2008, the Company and the Bank were
considered well-capitalized, the highest category of capitalization defined by the Federal Reserve Bank. The Company continually monitors current and projected capital adequacy positions of both the Company and the Bank. Maintaining
adequate capital levels is integral to providing stability to the Company, resources to achieve the Companys growth objectives, and returns to the shareholders in the form of dividends.

Liquidity represents an institution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. At March 31, 2008, cash and due from banks, overnight funds sold, interest-bearing deposits in other banks, and investment securities and loans maturing within one year
were $366.1 million, or 62.8% of total assets. As a result of the Companys management of liquid assets and the ability to generate liquidity through liability funding, management believes the Company maintains overall liquidity sufficient to
satisfy its depositors requirements and meet its customers credit needs.

The Company also maintains additional sources of
liquidity through a variety of borrowing arrangements including federal funds lines with large regional and national banking institutions. These available lines total approximately $17 million, none of which were outstanding at March 31, 2008
or December 31, 2007. No Federal funds were purchased during the first three months of 2008, however, Federal funds purchased during the first three months of 2007 averaged $581 thousand.

The Bank has a credit line in the amount of $168.9 million at Federal Home Loan Bank (FHLB). This line may be utilized for short and/or long
term borrowing. The Bank utilized the credit line for overnight funding during the first three months of 2007 with an average balances of $209 thousand, but did not utilized the credit line for overnight funding during the first three months of
2008. Long-term FHLB borrowings were $48.0 million and $53.0 million at March 31, 2008 and December 31, 2007, respectively.

Off-Balance Sheet
Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. For more information on the Companys off-balance sheet arrangements, see Note 8 of the Notes to Consolidated Financial Statements contained in the 2007 Form 10-K.

Contractual Obligations

The Companys
contractual obligations consist of FHLB borrowings, time deposits, and operating lease obligations. There have been no material changes to the contractual obligations disclosed in the 2007 Form 10-K.

Critical Accounting Policies

U.S. generally accepted
accounting principles are complex and require management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise
measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such judgments, assumptions and estimates may have a significant
impact on the consolidated financial statements. Actual results, in fact, could differ from those estimates.

Our only critical accounting
policy relates to our allowance for loan losses, which reflects the estimated losses resulting from the inability of our borrowers to make required loan payments. 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 collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as
probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectibility of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, credit concentrations, trends in historical loss experience, review of specific problem loans, and current economic conditions.



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##### Table of Contents

The allowance consists of specific, general, and unallocated components. The specific component relates
to loans that are classified as impaired, doubtful, substandard or special mention. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained
to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.

A loan is impaired when it is probable the creditor will be unable to collect all
contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the present value of payments expected to be received, using the historical effective loan rate as the discount
rate. Alternatively, measurement also may be based on observable market prices or, for loans that are solely dependent on the collateral for repayment, measurement may be based on the fair value of the collateral. The Company does not aggregate
loans for risk classification. Loans that are to be foreclosed are measured based on the fair value of the collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is established as a
component of the allowance for loan losses. Changes in the allowance for loan losses relating to impaired loans are charged or credited to the provision for loan losses.

Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 141(R), Business Combinations (SFAS 141(R)). The Standard will significantly change the financial accounting and reporting of business combination
transactions. SFAS 141(R) establishes the criteria for how an acquiring entity in a business combination recognizes the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement
objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination.
Acquisition related costs including finder's fees, advisory, legal, accounting valuation and other professional and consulting fees are required to be expensed as incurred. SFAS 141(R) is effective for fiscal years beginning after December 15,
2008 and early implementation is not permitted. The Company does not expect the implementation to have a material impact on its consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No.160, Noncontrolling Interests in Consolidated Financial Statements(SFAS 160). SFAS 160 requires Company to establish
accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company does not expect the implementation of SFAS 160 to have a material impact on its consolidated financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging
Activities  an amendment of FASB Statement No. 133(SFAS 161). SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related
hedged items affect an entitys financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. The Company does not
expect the implementation of SFAS 161 to have a material impact on its consolidated financial statements.

Forward-Looking Statements

Where appropriate, statements in this report may contain the insights of management into known events and trends that have or may be expected to have a
material effect on our operations and financial condition. The information presented may also contain certain forward-looking statements regarding future financial performance, which are not historical facts and which involve various risks and
uncertainties.

When or if used in this quarterly report or any Securities and Exchange Commission filings, or other public or shareholder
communications, or in oral statements made with the approval of an authorized executive officer, the words or phrases anticipate, would be, will allow, intends to, will likely result,
are expected to, will continue, is anticipated, is estimated, is projected, or similar expressions are intended to identify forward-looking statements.



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##### Table of Contents

For a discussion of the risks, uncertainties and assumptions that could affect these statements and our
future events, developments or results, you should carefully review the risk factors summarized below and the more detailed discussions in the Risk Factors and Business sections in the 2007 Form 10-K. The Companys risks
include, without limitation, the following:



| |  |  | The dependence on key personnel;
| | - |  | --------------------------------



| |  |  | The high level of competition within the banking industry;
| | - |  | ----------------------------------------------------------



| |  |  | Dependence on construction and land development loans that could be negatively affected by a downturn in the real estate market;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company serves a limited market area, and an economic downturn in its market area could adversely affect its business;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | The adequacy of the estimate for known and inherent losses in the Companys loan portfolio;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | Changes in interest rate;
| | - |  | -------------------------



| |  |  | Ability to manage growth;
| | - |  | -------------------------



| |  |  | Governmental and regulatory changes that may adversely affect the Companys expenses and cost structure;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | The threat from technology based frauds and scams;
| | - |  | --------------------------------------------------



| |  |  | If the Company needs capital in the future to continue its growth, it may not be able to obtain capital on terms that are favorable and capital transactions may be
dilutive to existing shareholders;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Banking regulators have broad enforcement power, but regulations are meant to protect depositors, and not investors;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Trading in the Companys common stock has been sporadic and volume has been light so shareholders may not be able to quickly and easily sell their common
stock;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Virginia law and the provisions of the Companys articles of incorporation and bylaws could deter or prevent takeover attempts by a potential purchaser of the
Companys common stock that would be willing to pay you a premium for your shares;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Directors and officers have significant voting power;
| | - |  | -----------------------------------------------------



| |  |  | Merger expenses have been incurred even if the Merger is not completed;
| | - |  | -----------------------------------------------------------------------



| |  |  | The Merger may distract management from its other responsibilities;
| | - |  | -------------------------------------------------------------------



| |  |  | The Merger might be delayed or changed by regulatory agencies; and
| | - |  | ------------------------------------------------------------------



| |  |  | The Company may not be able to realize all of the anticipated benefits of the Merger.
| | - |  | -------------------------------------------------------------------------------------

The Companys forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions. The future events,
developments or results described in this report could turn out to be materially different. The Company has no obligation to publicly update or revise its forward-looking statements after the date of this quarterly report and you should not expect
it to do so.

ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Companys primary market
risk is exposure to interest rate volatility. Fluctuations in interest rates will impact both the level of interest income and interest expense and the market value of the Companys interest earning assets and interest bearing liabilities.

The primary goal of the Companys asset/liability management strategy is to optimize net interest income while limiting exposure to
fluctuations caused by changes in the interest rate environment. The Companys ability to manage its interest rate risk depends generally on the Companys ability to match the maturities and re-pricing characteristics of its assets and
liabilities while taking into account the separate goals of maintaining asset quality and liquidity and achieving the desired level of net interest income.

The Companys management, guided by the Asset/Liability Committee, determines the overall magnitude of interest sensitivity risk and then formulates policies governing asset generation and pricing, funding
sources and pricing, and off-balance sheet commitments. These decisions are based on managements expectations regarding future interest rate movements, the state of the national and regional economy, and other financial and business risk
factors.

The primary method that the Company uses to quantify and manage interest rate risk is simulation analysis, which is used to model
net interest income from assets and liabilities over a specified time period under various interest rate scenarios and balance sheet structures. This analysis measures the sensitivity of net interest income over a relatively short time horizon. Key
assumptions in the simulation analysis relate to the behavior of interest rates and spreads, the changes in product balances and the behavior of loan and deposit customers in different rate environments.



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The expected effect on net interest income for the twelve months following March 31, 2008 and
December 31, 2007 due to a shock in interest rates is shown below. These estimates are dependent on material assumptions, such as those previously discussed.



|                          |  |                                             |        |   |                                                |        |   |        |   |        |   |  |        |  
|------------------------- |  | ------------------------------------------- | ------ | - | ---------------------------------------------- | ------ | - | ------ | - | ------ | - |  | ------ | -
|(in thousands)            |  | March 31, 2008Change in Net Interest Income |        |   | December 31, 2007Change in Net Interest Income |       
|                          |  | Amount                                      |        |   | %                                              |        |   | Amount |   |        | % | 
|Change in Interest Rates: |  |                                             |        |   |                                                |        |   |        |   |        |   |  |        |  
|+200 basis points         |  | $                                           | 4,878  |   |                                                | 23.15  | % |        | $ | 4,494  |   |  | 19.39  | %
|+ 100 basis points        |  |                                             | 2,341  |   |                                                | 11.11  |   |        |   | 2,249  |   |  | 9.70   |  
|- 100 basis points        |  |                                             | (2,052 | ) |                                                | (9.74  | ) |        |   | (2,230 | ) |  | (9.62  | )
|- 200 basis points        |  |                                             | (4,530 | ) |                                                | (21.49 | ) |        |   | (4,333 | ) |  | (18.69 | )
|                          |  |                                             |        |   |                                                |        |   |        |   |        |   |  |        |  

A decrease in interest rates would tend to reduce the Companys net interest income, while an
increase would tend to increase the Companys net interest income. Thus, the Companys interest rate sensitivity position is asset-sensitive. In the current declining interest rate environment and absent any mitigating factors, the Company
could experience a substantial reduction in net interest income. It should be noted, however, that the simulation analysis is based upon equivalent changes in interest rates for all categories of assets and liabilities. In normal operating
conditions interest rate changes rarely occur in such a uniform manner. Many factors affect the timing and magnitude of interest rate changes on financial instruments. Consequently, variations should be expected from the projections resulting from
the controlled conditions of the simulation analysis.

The Company had no derivative financial instruments, foreign currency exposure, or
trading portfolio as of March 31, 2008.

ITEM 4  CONTROLS AND PROCEDURES

As of March 31, 2008, the Company carried out an evaluation,
under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure
controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the
Companys disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Companys Exchange Act filings
pursuant to the Securities Exchange Act of 1934. In addition, no change in its internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended March 31, 2008 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II  OTHER INFORMATION

ITEM 1  LEGAL PROCEEDINGS

In the ordinary course of operations, the Company may become a party to
legal proceedings. Currently, the Company is not party to any material legal proceedings.

ITEM 1A  RISK FACTORS

There have been no material changes from the risk factors as previously
disclosed in the 2007 Form 10-K.

ITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company announced an open
ended program on August 13, 2003 by which management was authorized to repurchase an unlimited number of shares of the Companys common stock in open market and privately negotiated transactions. During the first three months of 2008, the
Company repurchased 56,714 shares of its common stock. The Company did not repurchase any shares of common stock other than through this publicly announced plan. Detail for the share repurchase transactions conducted during the first quarter of 2008
appears below.



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|                                     |  |                               |  |                             |       |                                                                              |        |                                                                            |  
|------------------------------------ |  | ----------------------------- |  | --------------------------- | ----- | ---------------------------------------------------------------------------- | ------ | -------------------------------------------------------------------------- | -
|Period                               |  | Total NumberofSharesPurchased |  | Average Price PaidPer Share |       | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms |        | Maximum Numberof Shares that MayYet be PurchasedUnder the Plans orPrograms
|January 1, 2008 - January 31, 2008   |  | 404                           |  | $                           | 10.98 |                                                                              | 404    |                                                                            | 
|February 1, 2008 - February 29, 2008 |  | 12,128                        |  |                             | 10.48 |                                                                              | 12,128 |                                                                            | 
|March 1, 2008 - March 31, 2008       |  | 44,182                        |  |                             | 12.74 |                                                                              | 44,182 |                                                                            | 
|Total                                |  | 56,714                        |  | $                           | 12.26 |                                                                              | 56,714 |                                                                            | 

ITEM 3  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5- OTHER INFORMATION

None.

ITEM 6- EXHIBITS



|     |  |                                                                                                                                                                                                                                                                 
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Agreement and Plan of Merger between Hampton Roads Bankshares, Inc. and Shore Financial Corporation dated as of January 8, 2008, attached as Exhibit 2.1 to the registrants Current
Report on Form 8-K dated January 9, 2008, incorporated herein by reference.
|     | 
|3.1  |  | Articles of Incorporation of Hampton Roads Bankshares, Inc., attached as Exhibit 3.1 to the Registrants Current Report on Form 8-K dated July 2, 2001, incorporated herein by
reference.                                                                       
|     | 
|3.2  |  | Bylaws of Hampton Roads Bankshares, Inc., as amended, attached as Exhibit 3.2 to the Registrants Quarterly Report of Form 10-Q for the period ended September 30, 2007, incorporated herein
by reference.                                                      
|     | 
|4.1  |  | Specimen of Common Stock Certificate, attached as Exhibit 4.1 to the Registrants Annual Report on Form 10-K for the year ended December 31, 2005, incorporated herein by
reference.                                                                            
|     | 
|10.1 |  | Director Retirement Plan, dated as of November 28, 2006, attached as Exhibit 10.28 to the Registrants Annual Report on Form 10-K dated March 11, 2008, incorporated herein by reference.                                                                       
|     | 
|10.2 |  | Employment Agreement, dated as of November 1, 2007, between the registrant and Douglas J. Glenn, attached as Exhibit 10.29 to the Registrants Annual Report on Form 10-K dated March 11,
2008, incorporated herein by reference.                               
|     | 
|31.1 |  | The Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer is filed herewith.                                                                                                                                                                        
|     | 
|31.2 |  | The Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer is filed herewith.                                                                                                                                                                        
|     | 
|32.1 |  | Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, is filed herewith.                                                                                                                                         



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SIGNATURES

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



|                  |  |  |  |                                                                                                                   
|----------------- |  |  |  | ------------------------------------------------------------------------------------------------------------------
|                  |  |  |  | HAMPTON ROADS BANKSHARES, INC.                                                                                    
|                  |  |  |  | (Registrant)                                                                                                      
|                  |  | 
|DATE: May 9, 2008 |  |  |  | /s/ Donald W. Fulton, Jr.                                                                                         
|                  |  |  |  | Donald W. Fulton, Jr.                                                                                             
|                  |  |  |  | Senior Vice President and Chief Financial Officer (On
behalf of the Registrant and as principal financial officer)



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