##### 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 September 30, 2009

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 has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    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   |  |  ̈  (do not check if a smaller reporting company) |  | 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 October 31, 2009.



|                               |  |                  
|------------------------------ |  | -----------------
|Common Stock, $0.625 Par Value |  | 21,868,924 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   
|                                                                                                | 
|September 30, 2009                                                                              |  |     
|December 31, 2008                                                                               |  |     
|                                                                                                | 
|Consolidated Statements of Income                                                               |  | 4   
|                                                                                                | 
|Three months ended September 30, 2009 and 2008                                                  |  |     
|Nine months ended September 30, 2009 and 2008                                                   |  |     
|                                                                                                | 
|Consolidated Statements of Changes in Shareholders Equity                                      |  | 5   
|                                                                                                | 
|Nine months ended September 30, 2009                                                            |  |     
|                                                                                                | 
|Consolidated Statements of Cash Flows                                                           |  | 6   
|                                                                                                | 
|Nine months ended September 30, 2009 and 2008                                                   |  |     
|                                                                                                | 
|Notes to Consolidated Financial Statements                                                      |  | 8   
|                                                                                                | 
|ITEM 
2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 26  
|                                                                                                | 
|ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                             |  | 39  
|                                                                                                | 
|ITEM 4  CONTROLS AND PROCEDURES                                                                |  | 40  
|                                                                                                | 
|PART II  OTHER INFORMATION                                                                     |  |     
|                                                                                                | 
|ITEM 1  LEGAL PROCEEDINGS                                                                      |  | 41  
|                                                                                                | 
|ITEM 1A  RISK FACTORS                                                                          |  | 41  
|                                                                                                | 
|ITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                            |  | 41  
|                                                                                                | 
|ITEM 3  DEFAULTS UPON SENIOR SECURITIES                                                        |  | 41  
|                                                                                                | 
|ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                    |  | 41  
|                                                                                                | 
|ITEM 5  OTHER INFORMATION                                                                      |  | 41  
|                                                                                                | 
|ITEM 6  EXHIBITS                                                                               |  | 41  
|                                                                                                | 
|SIGNATURES                                                                                      |  | 43  



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                                               |  | (Unaudited)        |           |   |                   |  
|(in thousands, except share data)                                                                                                                                              |  | September 30, 2009 |           |   | December 31, 2008 |  
|Assets:                                                                                                                                                                        |  |                    |           |   |                   |   |           |  
|Cash and due from banks                                                                                                                                                        |  | $                  | 70,359    |   |                   | $ | 42,827    |  
|Interest-bearing deposits in other banks                                                                                                                                       |  |                    | 11,437    |   |                   |   | 4,975     |  
|Overnight funds sold                                                                                                                                                           |  |                    | 238       |   |                   |   | 510       |  
|Investment securities available-for-sale, at fair value                                                                                                                        |  |                    | 101,750   |   |                   |   | 149,637   |  
|Restricted equity securities, at cost                                                                                                                                          |  |                    | 29,774    |   |                   |   | 27,795    |  
|                                                                                                                                                                               |  |                   
|Loans                                                                                                                                                                          |  |                    | 2,514,789 |   |                   |   | 2,604,590 |  
|Allowance for loan losses                                                                                                                                                      |  |                    | (99,178   | ) |                   |   | (51,218   | )
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|Net loans                                                                                                                                                                      |  |                    | 2,415,611 |   |                   |   | 2,553,372 |  
|                                                                                                                                                                               |  |                   
|Premises and equipment, net                                                                                                                                                    |  |                    | 99,301    |   |                   |   | 101,335   |  
|Interest receivable                                                                                                                                                            |  |                    | 10,023    |   |                   |   | 12,272    |  
|Other real estate owned                                                                                                                                                        |  |                    | 8,934     |   |                   |   | 5,092     |  
|Deferred tax assets, net                                                                                                                                                       |  |                    | 37,003    |   |                   |   | 32,616    |  
|Intangible assets                                                                                                                                                              |  |                    | 66,033    |   |                   |   | 98,367    |  
|Bank owned life insurance                                                                                                                                                      |  |                    | 47,914    |   |                   |   | 46,603    |  
|Other assets                                                                                                                                                                   |  |                    | 40,617    |   |                   |   | 10,310    |  
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|                                                                                                                                                                               |  |                   
|Total assets                                                                                                                                                                   |  | $                  | 2,938,994 |   |                   | $ | 3,085,711 |  
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|                                                                                                                                                                               |  |                   
|Liabilities and Shareholders Equity:                                                                                                                                          |  |                    |           |   |                   |   |           |  
|Deposits:                                                                                                                                                                      |  |                    |           |   |                   |   |           |  
|Noninterest bearing demand                                                                                                                                                     |  | $                  | 274,688   |   |                   | $ | 240,813   |  
|Interest bearing:                                                                                                                                                              |  |                    |           |   |                   |   |           |  
|Demand                                                                                                                                                                         |  |                    | 571,389   |   |                   |   | 684,009   |  
|Savings                                                                                                                                                                        |  |                    | 109,178   |   |                   |   | 118,001   |  
|Time deposits:                                                                                                                                                                 |  |                    |           |   |                   |   |           |  
|Less than $100                                                                                                                                                                 |  |                    | 966,397   |   |                   |   | 858,787   |  
|$100 or more                                                                                                                                                                   |  |                    | 392,641   |   |                   |   | 394,536   |  
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|Total deposits                                                                                                                                                                 |  |                    | 2,314,293 |   |                   |   | 2,296,146 |  
|                                                                                                                                                                               |  |                   
|Federal Home Loan Bank borrowings                                                                                                                                              |  |                    | 254,073   |   |                   |   | 279,065   |  
|Other borrowings                                                                                                                                                               |  |                    | 49,104    |   |                   |   | 77,223    |  
|Overnight funds purchased                                                                                                                                                      |  |                    | 12,000    |   |                   |   | 73,300    |  
|Interest payable                                                                                                                                                               |  |                    | 4,244     |   |                   |   | 5,814     |  
|Other liabilities                                                                                                                                                              |  |                    | 18,971    |   |                   |   | 9,354     |  
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|                                                                                                                                                                               |  |                   
|Total liabilities                                                                                                                                                              |  |                    | 2,652,685 |   |                   |   | 2,740,902 |  
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|                                                                                                                                                                               |  |                   
|Commitments and contingencies                                                                                                                                                  |  |                    |          |   |                   |   |          |  
|Shareholders equity:                                                                                                                                                          |  |                    |           |   |                   |   |           |  
|Preferred stock - 1,000,000 shares authorized:                                                                                                                                 |  |                    |           |   |                   |   |           |  
|Series A non-convertible, non-cumulative perpetual preferred stock, $1,000 liquidation value, 23,266 shares issued and
outstanding on September 30, 2009 and December 31, 2008 |  |                    | 19,512    |   |                   |   | 18,292    |  
|Series B non-convertible, non-cumulative perpetual preferred stock, $1,000 liquidation value, 37,550 shares issued and
outstanding on September 30, 2009 and December 31, 2008 |  |                    | 40,036    |   |                   |   | 40,953    |  
|Series C fixed rate, cumulative preferred stock, $1,000 liquidation value, 80,347 shares issued and outstanding on
September 30, 2009 and December 31, 2008                    |  |                    | 75,057    |   |                   |   | 74,297    |  
|Common stock, $0.625 par value, 70,000,000 shares authorized; 21,868,956 shares issued and outstanding on September 30, 2009
and 21,777,937 on December 31, 2008               |  |                    | 13,668    |   |                   |   | 13,611    |  
|Capital surplus                                                                                                                                                                |  |                    | 172,345   |   |                   |   | 171,284   |  
|Retained earnings (deficit)                                                                                                                                                    |  |                    | (34,868   | ) |                   |   | 26,482    |  
|Accumulated other comprehensive income (loss), net of tax                                                                                                                      |  |                    | 559       |   |                   |   | (110      | )
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|                                                                                                                                                                               |  |                   
|Total shareholders equity                                                                                                                                                     |  |                    | 286,309   |   |                   |   | 344,809   |  
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  
|                                                                                                                                                                               |  |                   
|Total liabilities and shareholders equity                                                                                                                                     |  | $                  | 2,938,994 |   |                   | $ | 3,085,711 |  
|                                                                                                                                                                               |  |                    |           |   |                   |   |           |  

See accompanying notes to the consolidated financial statements.



3



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



CONSOLIDATED STATEMENTS OF INCOME



|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|------------------------------------------------------------- |  | ------------------ | ---------- | ----------------- | ------------------ | - | ------------------ |  | - | ------------------ | - |  | - | ----------
|(in thousands, except per share data)                         |  | Three Months Ended |            | Nine Months Ended
|(unaudited)                                                   |  | September 30, 2009 |            |                   | September 30, 2008 |   | September 30, 2009 |  |   | September 30, 2008
|                                                              |  |                    |            |                  
|Interest Income:                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Loans, including fees                                         |  | $                  | 35,908     |                   |                    | $ | 11,915             |  | $ | 109,793            |   |  | $ | 29,831    
|Investment securities                                         |  |                    | 1,453      |                   |                    |   | 440                |  |   | 4,794              |   |  |   | 1,347     
|Overnight funds sold                                          |  |                    | 17         |                   |                    |   | 4                  |  |   | 39                 |   |  |   | 50        
|Interest-bearing deposits in other banks                      |  |                    | 10         |                   |                    |   | 11                 |  |   | 21                 |   |  |   | 235       
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Total interest income                                         |  |                    | 37,388     |                   |                    |   | 12,370             |  |   | 114,647            |   |  |   | 31,463    
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Interest Expense:                                             |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Deposits:                                                     |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Demand                                                        |  |                    | 1,474      |                   |                    |   | 392                |  |   | 4,696              |   |  |   | 706       
|Savings                                                       |  |                    | 229        |                   |                    |   | 382                |  |   | 951                |   |  |   | 1,417     
|Time deposits:                                                |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Less than $100                                                |  |                    | 3,197      |                   |                    |   | 1,692              |  |   | 11,914             |   |  |   | 4,663     
|$100 or more                                                  |  |                    | 3,560      |                   |                    |   | 1,222              |  |   | 10,280             |   |  |   | 3,613     
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Interest on deposits                                          |  |                    | 8,460      |                   |                    |   | 3,688              |  |   | 27,841             |   |  |   | 10,399    
|Federal Home Loan Bank borrowings                             |  |                    | 1,622      |                   |                    |   | 916                |  |   | 5,003              |   |  |   | 2,141     
|Other borrowings                                              |  |                    | 789        |                   |                    |   | 238                |  |   | 2,974              |   |  |   | 322       
|Overnight funds purchased                                     |  |                    | 40         |                   |                    |   | 6                  |  |   | 379                |   |  |   | 16        
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Total interest expense                                        |  |                    | 10,911     |                   |                    |   | 4,848              |  |   | 36,197             |   |  |   | 12,878    
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|                                                              |  |                    |            |                  
|Net interest income                                           |  |                    | 26,477     |                   |                    |   | 7,522              |  |   | 78,450             |   |  |   | 18,585    
|Provision for loan losses                                     |  |                    | 33,662     |                   |                    |   | 280                |  |   | 68,557             |   |  |   | 824       
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Net interest income (expense) after provision for loan losses |  |                    | (7,185     | )                 |                    |   | 7,242              |  |   | 9,893              |   |  |   | 17,761    
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Noninterest Income:                                           |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Service charges on deposit accounts                           |  |                    | 2,054      |                   |                    |   | 1,016              |  |   | 6,186              |   |  |   | 2,157     
|Mortgage banking revenue                                      |  |                    | 678        |                   |                    |   |                   |  |   | 3,717              |   |  |   |          
|Gain on sale of investment securities available-for-sale      |  |                    | 2,695      |                   |                    |   |                   |  |   | 2,695              |   |  |   | 457       
|Other than temporary impairment of real estate owned          |  |                    | (572       | )                 |                    |   |                   |  |   | (880               | ) |  |   |          
|Other than temporary impairment of securities                 |  |                    | (211       | )                 |                    |   |                   |  |   | (343               | ) |  |   |          
|Insurance revenue                                             |  |                    | 1,243      |                   |                    |   |                   |  |   | 3,894              |   |  |   |          
|Brokerage revenue                                             |  |                    | 108        |                   |                    |   |                   |  |   | 239                |   |  |   |          
|Income from bank owned life insurance                         |  |                    | 412        |                   |                    |   |                   |  |   | 1,217              |   |  |   |          
|Other                                                         |  |                    | 825        |                   |                    |   | 784                |  |   | 2,602              |   |  |   | 2,031     
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Total noninterest income                                      |  |                    | 7,232      |                   |                    |   | 1,800              |  |   | 19,327             |   |  |   | 4,645     
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Noninterest Expense:                                          |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Salaries and employee benefits                                |  |                    | 10,366     |                   |                    |   | 3,136              |  |   | 32,146             |   |  |   | 8,190     
|Occupancy                                                     |  |                    | 2,232      |                   |                    |   | 937                |  |   | 6,316              |   |  |   | 1,970     
|Data processing                                               |  |                    | 1,472      |                   |                    |   | 427                |  |   | 3,965              |   |  |   | 841       
|Impairment of goodwill                                        |  |                    |           |                   |                    |   |                   |  |   | 27,976             |   |  |   |          
|FDIC insurance                                                |  |                    | 1,328      |                   |                    |   | 79                 |  |   | 4,629              |   |  |   | 163       
|Equipment                                                     |  |                    | 1,215      |                   |                    |   | 97                 |  |   | 3,706              |   |  |   | 165       
|Other                                                         |  |                    | 5,093      |                   |                    |   | 1,864              |  |   | 13,146             |   |  |   | 3,812     
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Total noninterest expense                                     |  |                    | 21,706     |                   |                    |   | 6,540              |  |   | 91,884             |   |  |   | 15,141    
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Income (loss) before provision for income taxes               |  |                    | (21,659    | )                 |                    |   | 2,502              |  |   | (62,664            | ) |  |   | 7,265     
|Provision for income taxes (benefit)                          |  |                    | (8,282     | )                 |                    |   | 806                |  |   | (13,425            | ) |  |   | 2,435     
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Net income (loss)                                             |  |                    | (13,377    | )                 |                    |   | 1,696              |  |   | (49,239            | ) |  |   | 4,830     
|Preferred stock dividend and accretion of discount            |  |                    | 1,360      |                   |                    |   |                   |  |   | 7,319              |   |  |   |          
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Net income (loss) available to common shareholders            |  | $                  | (14,737    | )                 |                    | $ | 1,696              |  | $ | (56,558            | ) |  | $ | 4,830     
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|                                                              |  |                    |            |                  
|Per Share:                                                    |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Cash dividends declared                                       |  | $                  |           |                   |                    | $ | 0.11               |  | $ | 0.22               |   |  | $ | 0.33      
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Basic earnings (loss)                                         |  | $                  | (0.68      | )                 |                    | $ | 0.13               |  | $ | (2.60              | ) |  | $ | 0.42      
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Diluted earnings (loss)                                       |  | $                  | (0.68      | )                 |                    | $ | 0.13               |  | $ | (2.60              | ) |  | $ | 0.41      
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Basic weighted average shares outstanding                     |  |                    | 21,830,851 |                   |                    |   | 13,143,464         |  |   | 21,774,620         |   |  |   | 11,545,825
|Effect of dilutive stock options and non-vested stock         |  |                    |           |                   |                    |   | 179,394            |  |   |                   |   |  |   | 125,008   
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           
|Diluted weighted average shares outstanding                   |  |                    | 21,830,851 |                   |                    |   | 13,322,858         |  |   | 21,774,620         |   |  |   | 11,670,833
|                                                              |  |                    |            |                   |                    |   |                    |  |   |                    |   |  |   |           

See accompanying notes to the consolidated financial statements.



4



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY



|                                                                                                |  |                 |  |              |         |        |            |   |        |          |        |                 |                               |   |          |                    |  |      |         |   |        |   |        |   |  |   |         |  
|----------------------------------------------------------------------------------------------- |  | --------------- |  | ------------ | ------- | ------ | ---------- | - | ------ | -------- | ------ | --------------- | ----------------------------- | - | -------- | ------------------ |  | ---- | ------- | - | ------ | - | ------ | - |  | - | ------- | -
|(in thousands, except share data)                                                               |  | Preferred Stock |  | Common Stock |         |        |            |   |        | Retained |        |                 | AccumulatedOtherComprehensive |   |          | TotalStockholders' | 
|(unaudited)                                                                                     |  | Shares          |  | Amount       |         | Shares |            |   | Amount |          |        | Capital Surplus |                               |   | Earnings |                    |  | Loss |         |   | Equity |  
|                                                                                                |  |                 |  |              |         |        |            |  
|Balance at December 31, 2008                                                                    |  | 141,163         |  | $            | 133,542 |        | 21,777,937 |   |        | $        | 13,611 |                 |                               | $ | 171,284  |                    |  | $    | 26,482  |   |        | $ | (110   | ) |  | $ | 344,809 |  
|                                                                                                |  |                 |  |              |         |        |            |  
|Comprehensive income:                                                                           |  |                 |  |              |         |        |            |   |        |          |        |                 |                               |   |          |                    |  |      |         |   |        |   |        |   |  |   |         |  
|Net loss                                                                                        |  |                |  |              |        |        |           |   |        |          |       |                 |                               |   |         |                    |  |      | (49,239 | ) |        |   |       |   |  |   | (49,239 | )
|Change in unrealized loss on securities available-for-sale, net of taxes of $1,270              |  |                |  |              |        |        |           |   |        |          |       |                 |                               |   |         |                    |  |      |        |   |        |   | 2,284  |   |  |   | 2,284   |  
|Reclassification adjustment for securities gains included in net income, net of taxes of ($869) |  |                |  |              |        |        |           |   |        |          |       |                 |                               |   |         |                    |  |      |        |   |        |   | (1,615 | ) |  |   | (1,615  | )
|                                                                                                |  |                 |  |              |         |        |            |   |        |          |        |                 |                               |   |          |                    |  |      |         |   |        |   |        |   |  |   |         |  
|Total comprehensive income                                                                      |  |                 |  |              |         |        |            |   |        |          |        |                 |                               |   |          |                    |  |      |         |   |        |   |        |   |  |   | (48,570 | )
|Shares issued related to:                                                                       |  |                 |  |              |         |        |            |   |        |          |        |                 |                               |   |          |                    |  |      |         |   |        |   |        |   |  |   |         |  
|Exercise of stock options                                                                       |  |                |  |              |        |        | 86,243     |   |        |          | 54     |                 |                               |   | 559      |                    |  |      |        |   |        |   |       |   |  |   | 613     |  
|Dividend reinvestment                                                                           |  |                |  |              |        |        | 68,748     |   |        |          | 43     |                 |                               |   | 488      |                    |  |      |        |   |        |   |       |   |  |   | 531     |  
|Stock-based compensation expense                                                                |  |                |  |              |        |        | 5,765      |   |        |          | 4      |                 |                               |   | 372      |                    |  |      |        |   |        |   |       |   |  |   | 376     |  
|Common stock repurchased                                                                        |  |                |  |              |        |        | (69,737    | ) |        |          | (44    | )               |                               |   | (500     | )                  |  |      |        |   |        |   |       |   |  |   | (544    | )
|Amortization of fair market value adjustment                                                    |  |                |  |              | 303     |        |           |   |        |          |       |                 |                               |   |         |                    |  |      |        |   |        |   |       |   |  |   | 303     |  
|Tax benefit of stock option exercises                                                           |  |                |  |              |        |        |           |   |        |          |       |                 |                               |   | 142      |                    |  |      |        |   |        |   |       |   |  |   | 142     |  
|Preferred stock dividend declared and amortization of preferred stock discount                  |  |                |  |              | 760     |        |           |   |        |          |       |                 |                               |   |          |                    |  |      | (7,319  | ) |        |   |       |   |  |   | (6,559  | )
|Common stock dividends declared ($0.22 per share)                                               |  |                |  |              |        |        |           |   |        |          |       |                 |                               |   |         |                    |  |      | (4,792  | ) |        |   |       |   |  |   | (4,792  | )
|                                                                                                |  |                 |  |              |         |        |            |   |        |          |        |                 |                               |   |          |                    |  |      |         |   |        |   |        |   |  |   |         |  
|                                                                                                |  |                 |  |              |         |        |            |  
|Balance at September 30, 2009                                                                   |  | 141,163         |  | $            | 134,605 |        | 21,868,956 |   |        | $        | 13,668 |                 |                               | $ | 172,345  |                    |  | $    | (34,868 | ) |        | $ | 559    |   |  | $ | 286,309 |  
|                                                                                                |  |                 |  |              |         |        |            |   |        |          |        |                 |                               |   |          |                    |  |      |         |   |        |   |        |   |  |   |         |  

See accompanying notes to the consolidated financial statements.



5



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



CONSOLIDATED STATEMENTS OF CASH
FLOWS



|                                                                                      |  |                    |          |   |                    |   |         |  
|------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ------------------ | - | ------- | -
|(in thousands)                                                                        |  | Nine Months Ended  |         
|(unaudited)                                                                           |  | September 30, 2009 |          |   | September 30, 2008 |  
|                                                                                      |  |                   
|Operating Activities:                                                                 |  |                    |          |   |                    |   |         |  
|Net income (loss)                                                                     |  | $                  | (49,239  | ) |                    | $ | 4,830   |  
|Adjustments to reconcile net income to net cash provided by operating activities:     |  |                    |          |   |                    |   |         |  
|Depreciation and amortization                                                         |  |                    | 4,237    |   |                    |   | 952     |  
|Amortization of intangible assets                                                     |  |                    | (4,402   | ) |                    |   | 382     |  
|Provision for loan losses                                                             |  |                    | 68,557   |   |                    |   | 824     |  
|Regional board fees                                                                   |  |                    |         |   |                    |   | 110     |  
|Stock-based compensation expense                                                      |  |                    | 376      |   |                    |   | 111     |  
|Net amortization of premiums and accretion of discounts on investment securities      |  |                    | (237     | ) |                    |   | (59     | )
|Gain on sale of premises and equipment                                                |  |                    | (7       | ) |                    |   | (519    | )
|Loss on sale of repossesed assets                                                     |  |                    | 109      |   |                    |   |        |  
|Gain on sale of investment securities available-for-sale                              |  |                    | (2,695   | ) |                    |   | (457    | )
|Other than temporary impairment of repossesed assets                                  |  |                    | 880      |   |                    |   |        |  
|Earnings on bank owned life insurance                                                 |  |                    | (1,217   | ) |                    |   |        |  
|Other than temporary impairment of securities                                         |  |                    | 343      |   |                    |   | 397     |  
|Impairment of goodwill                                                                |  |                    | 27,976   |   |                    |   |        |  
|Deferred income tax benefit                                                           |  |                    |         |   |                    |   | (803    | )
|Changes in:                                                                           |  |                    |          |   |                    |   |         |  
|Deferred taxes                                                                        |  |                    | 6,534    |   |                    |   |        |  
|Interest receivable                                                                   |  |                    | 1,200    |   |                    |   | 288     |  
|Other assets                                                                          |  |                    | (30,940  | ) |                    |   | (455    | )
|Interest payable                                                                      |  |                    | (1,570   | ) |                    |   | (243    | )
|Other liabilities                                                                     |  |                    | (3,842   | ) |                    |   | (2,047  | )
|                                                                                      |  |                    |          |   |                    |   |         |  
|                                                                                      |  |                   
|Net cash provided by operating activities                                             |  |                    | 15,533   |   |                    |   | 3,311   |  
|                                                                                      |  |                    |          |   |                    |   |         |  
|                                                                                      |  |                   
|Investing Activities:                                                                 |  |                    |          |   |                    |   |         |  
|Proceeds from maturities and calls of debt securities available-for-sale              |  |                    | 36,175   |   |                    |   | 9,127   |  
|Proceeds from sale of debt securities available-for-sale                              |  |                    | 23,133   |   |                    |   | 18,457  |  
|Purchase of debt securities available-for-sale                                        |  |                    | (7,515   | ) |                    |   |        |  
|Purchase of equity securities available-for-sale                                      |  |                    |         |   |                    |   | (2,000  | )
|Purchase of (proceeds from) restricted equity securities                              |  |                    | 9,824    |   |                    |   | (813    | )
|Proceeds from sales of restricted equity securities                                   |  |                    | (11,782  | ) |                    |   | (1,436  | )
|Proceeds from the sale of loans                                                       |  |                    | 697      |   |                    |   |        |  
|Net increase (decrease) in loans                                                      |  |                    | 64,439   |   |                    |   | (97,703 | )
|Proceeds from mortgage loans held for sale Proceeds from mortgage loans held for sale |  |                    | 231,494  |   |                    |   |        |  
|Mortgage loan originations held for sale                                              |  |                    | (237,393 | ) |                    |   |        |  
|Purchase of premises and equipment                                                    |  |                    | (2,837   | ) |                    |   | (3,309  | )
|Proceeds from sale of premises and equipment                                          |  |                    | 178      |   |                    |   | 764     |  
|Proceeds from sale of repossesed assets                                               |  |                    | 3,862    |   |                    |   |        |  
|                                                                                      |  |                    |          |   |                    |   |         |  
|Net cash provided by (used in) investing activities                                   |  |                    | 110,275  |   |                    |   | (76,913 | )
|                                                                                      |  |                    |          |   |                    |   |         |  
|                                                                                      |  |                   
|Financing Activities:                                                                 |  |                    |          |   |                    |   |         |  
|Net decrease in deposits                                                              |  |                    | 30,103   |   |                    |   | 35,589  |  
|Proceeds from Federal Home Loan Bank borrowings                                       |  |                    | 49,450   |   |                    |   | 102,847 |  
|Repayments of Federal Home Loan Bank borrowings                                       |  |                    | (71,500  | ) |                    |   | (90,714 | )
|Net decrease in overnight funds borrowed                                              |  |                    | (61,300  | ) |                    |   |        |  
|Net increase (decrease) in other borrowings                                           |  |                    | (28,000  | ) |                    |   | 28,000  |  
|Cash exchanged in merger                                                              |  |                    |         |   |                    |   | (5,880  | )
|Common stock repurchased                                                              |  |                    | (545     | ) |                    |   | (888    | )
|Issuance of shares to executive savings plan                                          |  |                    |         |   |                    |   | 122     |  
|Proceeds from exercise of stock options                                               |  |                    | 613      |   |                    |   | 505     |  
|Excess tax benefit realized from stock options exercised                              |  |                    | 143      |   |                    |   | 22      |  
|Preferred stock dividends paid                                                        |  |                    | (7,319   | ) |                    |   |        |  
|Common stock dividends paid, net of reinvestment                                      |  |                    | (4,261   | ) |                    |   | (2,040  | )
|                                                                                      |  |                    |          |   |                    |   |         |  
|                                                                                      |  |                   
|Net cash provided by (used in) financing activities                                   |  |                    | (92,086  | ) |                    |   | 67,563  |  
|                                                                                      |  |                    |          |   |                    |   |         |  
|                                                                                      |  |                   
|Change in cash and cash equivalents                                                   |  |                    | 33,722   |   |                    |   | (6,039  | )
|Cash and cash equivalents at beginning of period                                      |  |                    | 48,312   |   |                    |   | 25,563  |  
|                                                                                      |  |                    |          |   |                    |   |         |  
|                                                                                      |  |                   
|Cash and cash equivalents at end of period                                            |  | $                  | 82,034   |   |                    | $ | 19,524  |  
|                                                                                      |  |                    |          |   |                    |   |         |  



6



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



CONSOLIDATED STATEMENTS OF CASH
FLOWS



|                                                       |  |                    |        |   |                    |   |         |  
|------------------------------------------------------ |  | ------------------ | ------ | - | ------------------ | - | ------- | -
|(in thousands)                                         |  | Nine Months Ended  |       
|(unaudited)                                            |  | September 30, 2009 |        |   | September 30, 2008 |  
|                                                       |  |                   
|Supplemental cash flow information:                    |  |                    |        |   |                    |   |         |  
|Cash paid for interest                                 |  | $                  | 37,767 |   |                    | $ | 12,470  |  
|Cash paid for income taxes                             |  |                    | 13,714 |   |                    |   | 3,400   |  
|                                                       |  |                   
|Supplemental non-cash information:                     |  |                    |        |   |                    |   |         |  
|Dividends reinvested                                   |  | $                  | 531    |   |                    | $ | 1,685   |  
|Value of shares exchanged in exercise of stock options |  |                    |       |   |                    |   | 8       |  
|Change in unrealized gain on securities                |  |                    | (1,070 | ) |                    |   | (431    | )
|Transfer between loans and other real estate owned     |  |                    | 7,767  |   |                    |   | 1,130   |  
|                                                       |  |                   
|Transactions related to acquisition of subsidiary:     |  |                    |        |   |                    |   |         |  
|Increase in assets and liabilities                     |  |                    |        |   |                    |   |         |  
|Loans                                                  |  |                    |       |   |                    | $ | 220,450 |  
|Securities                                             |  |                    |       |   |                    |   | 18      |  
|Other assets                                           |  |                    |       |   |                    |   | 14      |  
|Non interest bearing deposits                          |  |                    |       |   |                    |   | 33,331  |  
|Interest bearing deposits                              |  |                    |       |   |                    |   | 175,071 |  
|Borrowings                                             |  |                    |       |   |                    |   | 34,228  |  
|Other liabilities                                      |  |                    |       |   |                    |   | 3,221   |  
|                                                       |  |                   
|Issuance of common stock and stock options             |  |                    |       |   |                    |   | 32,369  |  

See accompanying notes to the consolidated financial statements.



7



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

NOTE A  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Hampton Roads Bankshares, Inc. (the Company, we, us, or our) have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) 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 GAAP for
complete financial statements. In the opinion of management, the financial statements reflect all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation. The results of operations for the nine months ended
September 30, 2009 are not necessarily indicative of the results to be expected for the full year. 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, 2008 (the 2008 Form 10-K).

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)) (ASC 805 Business Combinations). The Standard significantly changed the financial accounting and reporting of business combination transactions. SFAS 141(R) establishes
principles for how an acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree; recognizes and measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for acquisition dates on or after the
beginning of an entitys first year that begins after December 15, 2008. The implementation of SFAS 141(R) did not have a material impact on the Companys consolidated financial statements.

In April 2009, the FASB issued FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies (ASC 805 Business Combinations). FSP FAS 141(R)-1 amends and clarifies SFAS 141(R) to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination. The FSP is effective for assets and liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The adoption of FSP FAS 141(R)-1 did not have a material impact on the Companys consolidated financial statements.

In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are
Not Orderly (ASC 820 Fair Value Measurements and Disclosures). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly
decreased. The FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. Earlier
adoption is permitted for periods ending after March 15, 2009. The adoption of FSP FAS 157-4 did not have a material impact on the Companys consolidated financial statements.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments (ASC 825 Financial Instruments and ASC 270 Interim Reporting). FSP FAS 107-1
and APB 28-1 amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual
financial statements. In addition, the FSP amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. The FSP is effective for interim periods
ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on the Companys consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (ASC 320
Investments  Debt and Equity Securities). FSP FAS 115-2 and FAS 124-2 amend other-than-temporary impairment guidance for debt securities to make guidance more operational and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities. The FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual
periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The adoption of FSP FAS 115-2 and FAS 124-2 did not have a material impact on the Companys consolidated financial
statements.



8



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



In April 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 111
(SAB 111). SAB 111 amends and replaces SAB Topic 5.M. in the SAB Series entitled Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities. SAB 111 maintains the SEC Staffs previous views related
to equity securities and amends Topic 5.M. to exclude debt securities from its scope. The implementation of SAB 111 did not have a material impact on the Companys consolidated financial statements.

In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (ASC 855 Subsequent Events). SFAS 165
establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for interim and annual periods ending
after June 15, 2009. The adoption of SFAS 165 did not have a material impact on the Companys consolidated financial statements.

In
June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets  an amendment of FASB Statement No. 140 (ASC 860 Transfers and Servicing). SFAS 166 provides guidance
to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position,
financial performance, and cash flows; and a transferors continuing involvement, if any, in transferred financial assets. SFAS 166 is effective for interim and annual periods beginning after November 15, 2009. The Company does not expect
the adoption of SFAS 166 to have a material impact on its consolidated financial statements.

In June 2009, the FASB issued Statement of
Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (ASC 810 Consolidation). SFAS 167 improves financial reporting by enterprises involved with variable interest entities. SFAS 167 is effective for
interim and annual periods beginning after November 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of SFAS 167 to have a material impact on its consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles  replacement of FASB Statement No. 162 (ASC 105 Generally Accepted Accounting Principles). SFAS 168 establishes the FASB Accounting Standards Codification which will become the source of
authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. SFAS 168 is effective immediately. The adoption of SFAS 168 did not have a material impact on the
Companys consolidated financial statements.

In June 2009, the FASB issued EITF Issue No. 09-1, Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance or Other Financing (ASC 470 Debt). EITF Issue No. 09-1 clarifies how an entity should account for an own-share lending arrangement that is entered into in contemplation of a
convertible debt offering. EITF Issue No. 09-1 is effective for arrangements entered into on or after June 15, 2009. Early adoption is prohibited. The Company does not expect the adoption of EITF Issue No. 09-1 to have a material
impact on its consolidated financial statements.

In June 2009, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 112 (SAB 112). SAB 112 revises or rescinds portions of the interpretative guidance included in the codification of SABs in order to make the interpretive guidance consistent with current U.S. GAAP. The Company does not expect
the adoption of SAB 112 to have a material impact on its consolidated financial statements.



9



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), Fair
Value Measurements and Disclosures (Topic 820)  Measuring Liabilities at Fair Value. ASU 2009-05 amends Subtopic 820-10, Fair Value Measurements and Disclosures  Overall, and provides clarification for the fair value
measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. The adoption of ASU 2009-05 did not have a material impact on the Companys consolidated financial
statements.

In September 2009, the FASB issued Accounting Standards Update No. 2009-12 (ASU 2009-12), Fair Value Measurements and
Disclosures: Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)(Topic 820). ASU 2009-12 provides guidance on estimating the fair value of alternative investments. ASU 2009-12 is effective for interim
and annual periods ending after December 15, 2009. The Company does not expect the adoption of ASU 2009-12 to have a material impact on its consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update No. 2009-15 (ASU 2009-15), Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other
Financing. ASU 2009-15 amends Subtopic 470-20 to expand accounting and reporting guidance for own-share lending arrangements issued in contemplation of convertible debt issuance. ASU 2009-15 is effective for fiscal years beginning on or after
December 15, 2009 and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The Company does not expect the adoption of ASU 2009-15 to have a material impact on its consolidated
financial statements.

NOTE B  STOCK-BASED COMPENSATION

Codification Subtopic 718 (originally issued as Statement of Financial Accounting Standards No. 123R, Share Based Payment) requires the use of the fair-value method to account for stock-based
compensation. It requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award. It
also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. 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 nine months ended September 30, 2009 and
2008 was $376.0 thousand and $111.1 thousand, respectively, with a related tax benefit of $73.1 thousand and $20.8 thousand, respectively. During the first nine months of 2009 and 2008, stock-based compensation expense was comprised of $135.9
thousand and $63.5 thousand, respectively, related to stock options which vested during the period and $240.1 thousand and $47.6 thousand, 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 terms that
range from five to ten years and are either fully vested and exercisable at the date of grant or vest ratably over periods that range from one to ten years.



10



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



A summary of the Companys stock option activity and related information for the nine months ended
September 30, 2009 is as follows:



|                              |  |                         |  |                                        |      
|----------------------------- |  | ----------------------- |  | -------------------------------------- | -----
|                              |  | StockOptionsOutstanding |  | Per ShareWeightedAverageExercise Price
|                              |  |                        
|Balance at December 31, 2008  |  | 2,096,006               |  | $                                      | 11.96
|Exercised                     |  | 86,243                  |  |                                        | 7.11 
|Expired                       |  | 466,298                 |  |                                        | 10.11
|Forfeited                     |  | 20,834                  |  |                                        | 11.78
|                              |  |                         |  |                                        |      
|                              |  |                        
|Balance at September 30, 2009 |  | 1,522,631               |  | $                                      | 12.82
|                              |  |                         |  |                                        |      

The 1.5 million stock options outstanding at September 30, 2009 had an average remaining
contractual life of 4.49 years and zero aggregate intrinsic value. Of these options, 169.7 thousand were not exercisable. There were no stock options granted during the nine months ended September 30, 2009 and 18.0 thousand granted
for the nine months ended September 30, 2008. The total intrinsic value of stock options exercised during the nine month periods ended September 30, 2009 and 2008 was $31.5 thousand and $617.5 thousand, respectively. Cash received from
stock option exercises for the nine month periods ended September 30, 2009 and 2008 was $613.2 thousand and $504.9 thousand, respectively. The Company may issue new shares to satisfy stock option grants. As of September 30, 2009, there
were 836.6 shares available under the existing stock incentive plan. Shares may be repurchased in the open market or, under certain circumstances, through privately negotiated transactions. As of September 30, 2009, there was $597.1 thousand of
unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 3.89 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 one 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 nine months ended September 30, 2009 is as follows:



|                              |  |                 |  |                                               |     
|----------------------------- |  | --------------- |  | --------------------------------------------- | ----
|                              |  | Number ofShares |  | Per ShareWeighted-AverageGrant-DateFair Value
|                              |  |                
|Balance at December 31, 2008  |  | 49,825          |  | $                                             | 9.49
|Granted                       |  | 10,000          |  |                                               | 8.54
|Vested                        |  | 22,329          |  |                                               | 8.50
|Forfeited                     |  | 4,235           |  |                                               | 9.01
|                              |  |                 |  |                                               |     
|                              |  |                
|Balance at September 30, 2009 |  | 33,261          |  | $                                             | 9.92
|                              |  |                 |  |                                               |     

As of September 30, 2009, there was $254.7 thousand 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 3.02 years.



11



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



NOTE C  INVESTMENT SECURITIES

The amortized cost and estimated fair values of investment securities available for sale as of September 30, 2009 and December 31, 2008 were as follows (in thousands):



|                                             |  |               |         |                      |   |                      |  |                     |       |  |   |        
|-------------------------------------------- |  | ------------- | ------- | -------------------- | - | -------------------- |  | ------------------- | ----- |  | - | -------
|September 30, 2009 Description of Securities |  | AmortizedCost |         | Gross UnrealizedGain |   | Gross UnrealizedLoss |  | EstimatedFair Value
|                                             |  |               |         |                     
|U.S. Agency securities                       |  | $             | 11,556  |                      | $ | 153                  |  | $                   | 2     |  | $ | 11,707 
|Mortgage-backed securities                   |  |               | 79,200  |                      |   | 1,637                |  |                     |      |  |   | 80,837 
|State and municipal securities               |  |               | 5,027   |                      |   | 358                  |  |                     |      |  |   | 5,385  
|Equity securities                            |  |               | 5,084   |                      |   | 9                    |  |                     | 1,272 |  |   | 3,821  
|                                             |  |               |         |                      |   |                      |  |                     |       |  |   |        
|                                             |  |               |         |                     
|Total securities available for sale          |  | $             | 100,867 |                      | $ | 2,157                |  | $                   | 1,274 |  | $ | 101,750
|                                             |  |               |         |                      |   |                      |  |                     |       |  |   |        
|                                             |  |               |         |                     
|December 31, 2008 Description of Securities  |  | AmortizedCost |         | Gross UnrealizedGain |   | Gross UnrealizedLoss |  | EstimatedFair Value
|U.S. Agency securities                       |  | $             | 24,584  |                      | $ | 415                  |  | $                   |      |  | $ | 24,999 
|Mortgage-backed securities                   |  |               | 95,202  |                      |   | 46                   |  |                     |      |  |   | 95,248 
|State and municipal securities               |  |               | 18,186  |                      |   | 39                   |  |                     | 8     |  |   | 18,217 
|Corporate securities                         |  |               | 5,093   |                      |   |                     |  |                     |      |  |   | 5,093  
|Equity securities                            |  |               | 6,747   |                      |   | 19                   |  |                     | 686   |  |   | 6,080  
|                                             |  |               |         |                      |   |                      |  |                     |       |  |   |        
|                                             |  |               |         |                     
|Total securities available for sale          |  | $             | 149,812 |                      | $ | 519                  |  | $                   | 694   |  | $ | 149,637
|                                             |  |               |         |                      |   |                      |  |                     |       |  |   |        

Information pertaining to securities with gross unrealized losses at September 30, 2009,
aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position is as follows (in thousands):



|                                      |  |                     |       |                   |   |                     |  |                |     |                     |   |                |  |   |       |  |   |      
|------------------------------------- |  | ------------------- | ----- | ----------------- | - | ------------------- |  | -------------- | --- | ------------------- | - | -------------- |  | - | ----- |  | - | -----
|September 30, 2009                    |  | Less than 12 Months |       | 12 Months or More |   | Total              
|Description of Securities             |  | EstimatedFair Value |       | UnrealizedLoss    |   | EstimatedFair Value |  | UnrealizedLoss |     | EstimatedFair Value |   | UnrealizedLoss
|U.S. Agency securities                |  | $                   | 1,006 |                   | $ | 2                   |  | $              |    |                     | $ |               |  | $ | 1,006 |  | $ | 2    
|Equity securities                     |  |                     | 1,772 |                   |   | 579                 |  |                | 975 |                     |   | 693            |  |   | 2,747 |  |   | 1,272
|                                      |  |                     |       |                   |   |                     |  |                |     |                     |   |                |  |   |       |  |   |      
|Total temporarily impaired securities |  | $                   | 2,778 |                   | $ | 581                 |  | $              | 975 |                     | $ | 693            |  | $ | 3,753 |  | $ | 1,274
|                                      |  |                     |       |                   |   |                     |  |                |     |                     |   |                |  |   |       |  |   |      
|                                      |  |                     |      
|December 31, 2008                     |  | Less than 12 Months |       | 12 Months or More |   | Total              
|Description of Securities             |  | EstimatedFair Value |       | UnrealizedLoss    |   | EstimatedFair Value |  | UnrealizedLoss |     | EstimatedFair Value |   | UnrealizedLoss
|State and municipal securities        |  | $                   | 2,713 |                   | $ | 8                   |  | $              |    |                     | $ |               |  | $ | 2,713 |  | $ | 8    
|Mortgage backed securities            |  |                     |      |                   |   |                    |  |                | 5   |                     |   |               |  |   | 5     |  |   |     
|Equity securities                     |  |                     | 1,281 |                   |   | 360                 |  |                | 147 |                     |   | 326            |  |   | 1,428 |  |   | 686  
|                                      |  |                     |       |                   |   |                     |  |                |     |                     |   |                |  |   |       |  |   |      
|Total temporarily impaired securities |  | $                   | 3,994 |                   | $ | 368                 |  | $              | 152 |                     | $ | 326            |  | $ | 4,146 |  | $ | 694  
|                                      |  |                     |       |                   |   |                     |  |                |     |                     |   |                |  |   |       |  |   |      



12



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



During the first nine months of 2009, equity securities with an amortized cost of $1.1 million were
determined to be other-than-temporarily impaired. An impairment loss of $342.6 thousand was recognized through noninterest income. An additional $146.8 thousand is included in accumulated other comprehensive loss in the equity section of the balance
sheet. In evaluating the possible impairment of securities, consideration is given to the length of time and to the extent to which the fair value has been less than book value and the financial condition and near-term prospects of the issuer.
Management evaluates securities for other-than-temporary impairments at least on a quarterly basis and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the intent of the Company to sell the
security, (2) whether it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, and (3) whether the Company expects to recover the securities entire amortized cost basis
regardless of the Companys intent to sell the security. Management has evaluated the unrealized losses associated with the remaining equity securities as of September 30, 2009 and, in managements belief, the unrealized losses,
individually or in the aggregate, are temporary.

The unrealized loss positions on debt securities at September 30, 2009 were determined
to be related to interest rate movements as there is minimal credit risk exposure in these investments. Management does not believe that any of these debt securities were other-than-temporarily impaired at September 30, 2009.

The Companys investment in Federal Home Loan Bank of Atlanta (FHLB) stock totaled $19.7 million at September 30, 2009. FHLB stock is
generally viewed as a long term investment and as a restricted investment security is carried at cost as there is no market for the stock other than the FHLB or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is
based on ultimate recoverability of the par value rather than by recognizing temporary declines in value. Despite the FHLBs repurchases of excess capital stock in 2009, the Company does not consider this investment to be other-than-temporarily
impaired at September 30, 2009, and no impairment has been recognized.

NOTE D  ACCOUNTING FOR CERTAIN LOANS ACQUIRED IN A
TRANSFER

In January 2005 Codification Subtopic 310-30 (originally issued as Statement of Position 03-3, Accounting for Certain Loans or
Debt Securities Acquired in a Transfer), was adopted for loan acquisitions. It requires acquired loans to be recorded at fair value and prohibits carrying over valuation allowances in the initial accounting for acquired impaired loans. Loans
carried at fair value, mortgage loans held for sale, and loans to borrowers in good standing under revolving credit agreements are excluded from the scope of this pronouncement. It limits the yield that may be accreted to the excess of the
undiscounted expected cash flows over the investors initial investment in the loan. The excess of the contractual cash flows over expected cash flows may not be recognized as an adjustment of yield. Subsequent increases in cash flows expected
to be collected are recognized prospectively through an adjustment of the loans yield over its remaining life. Decreases in expected cash flows are recognized as impairments.

The Company acquired loans pursuant to the acquisition of Gateway Bank & Trust, Co. (Gateway) in December 2008. The Company reviewed the loan portfolio at acquisition to determine
whether there was evidence of deterioration of credit quality since origination and if it was probable that it will be unable to collect all amounts due according to the loans contractual terms. When both conditions existed, the Company
accounted for each loan individually, considered expected prepayments, and estimated the amount and timing of discounted expected principal, interest, and other cash flows (expected at acquisition) for each loan. The Company determined the excess of
the loans scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted into interest income (non-accretable difference). The remaining amount,
representing the excess of the loans cash flows expected to be collected over the amount paid, is accreted into interest income over the remaining life of the loan (accretable yield).

Over the life of the loan, the Company continues to estimate cash flows expected to be collected. The Company evaluates at the balance sheet date whether
the present value of its loans determined using the effective interest rates has decreased, and if so, the Company establishes a valuation allowance for the loan. Valuation allowances for acquired loans reflect only those losses incurred after
acquisition; that is, the present value of cash flows expected at acquisition that are not expected to be collected. Valuation allowances are established only subsequent to acquisition of the loans. For loans that are not accounted for as debt
securities, the present value of any subsequent increase in the



13



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



loans or pools actual cash flows or cash flows expected to be collected is used first to reverse any existing valuation allowance for that loan. For any remaining increases in cash
flows expected to be collected, the Company adjusts the amount of accretable yield recognized on a prospective basis over the loans remaining life. The Company does not have any such loans that were accounted for as debt securities.

Loans that were acquired in the Gateway acquisition for which there was evidence of deterioration of credit quality since origination and for
which it was probable that all contractually required payments would not be made had an outstanding balance of $116.5 million and a carrying amount of $100.7 million at September 30, 2009. The carrying amount of these loans is included in the
balance sheet amount of loans receivable at September 30, 2009. Of these loans, $78.1 million have experienced further deterioration since the acquisition date and are included in the impaired loan amounts disclosed in Note F. The following
table depicts the accretable yield at the beginning and end of the period (in thousands).



|                            |  |                 |        |  
|--------------------------- |  | --------------- | ------ | -
|                            |  | AccretableYield |       
|Balance, December 31, 2008  |  | $               | 4,167  |  
|Accretion                   |  |                 | (1,891 | )
|Disposals                   |  |                 | (1,838 | )
|Additions                   |  |                 | 5,585  |  
|                            |  |                 |        |  
|Balance, September 30, 2009 |  | $               | 6,023  |  
|                            |  |                 |        |  

NOTE E  LOANS

The major classifications of loans are summarized as follows (in thousands):



|                                     |  |                    |           |   |                   |   |           |  
|------------------------------------ |  | ------------------ | --------- | - | ----------------- | - | --------- | -
|                                     |  | September 30, 2009 |           |   | December 31, 2008 |  
|                                     |  |                   
|Commercial                           |  | $                  | 381,985   |   |                   | $ | 451,426   |  
|Construction                         |  |                    | 806,292   |   |                   |   | 897,288   |  
|Real estate-commercial mortgage      |  |                    | 744,209   |   |                   |   | 673,351   |  
|Real estate-residential mortgage     |  |                    | 534,298   |   |                   |   | 528,760   |  
|Installment loans (to individuals)   |  |                    | 40,207    |   |                   |   | 50,085    |  
|Loans held for sale                  |  |                    | 8,630     |   |                   |   | 5,064     |  
|Deferred loan fees and related costs |  |                    | (832      | ) |                   |   | (1,384    | )
|                                     |  |                    |           |   |                   |   |           |  
|                                     |  |                   
|Total loans                          |  | $                  | 2,514,789 |   |                   | $ | 2,604,590 |  
|                                     |  |                    |           |   |                   |   |           |  

NOTE F  ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS

The purpose of the allowance for loan losses is to provide for potential losses inherent in the loan portfolio. Management considers several factors,
including historical loan loss experience, the size and composition of the portfolio, and the value of collateral agreements, in determining the allowance for loan loss.



14



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Transactions affecting the allowance for loan losses during the nine months ended September 30,
2009 and 2008 were as follows (in thousands):



|                               |  |      |         |   |      |   |       |  
|------------------------------ |  | ---- | ------- | - | ---- | - | ----- | -
|                               |  | 2009 |         |   | 2008 |  
|Balance at beginning of period |  | $    | 51,218  |   |      | $ | 5,043 |  
|Provision for loan losses      |  |      | 68,557  |   |      |   | 824   |  
|Loans charged off              |  |      | (20,977 | ) |      |   | (165  | )
|Recoveries                     |  |      | 380     |   |      |   | 58    |  
|Allowance acquired in merger   |  |      |        |   |      |   | 2,932 |  
|                               |  |      |         |   |      |   |       |  
|Balance at end of period       |  | $    | 99,178  |   |      | $ | 8,692 |  
|                               |  |      |         |   |      |   |       |  

Non-performing assets consist of loans 90 days past due and still accruing interest, non-accrual
loans, and foreclosed real estate. Total non-performing assets were $184.5 million or 6.3% of total assets at September 30, 2009 compared with $41.2 million or 1.3% of total assets at December 31, 2008. Non-performing assets were as
follows (in thousands):



|                                                   |  |                    |         |                   |   |       
|-------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | ------
|                                                   |  | September 30, 2009 |         | December 31, 2008
|Loans 90 days past due and still accruing interest |  | $                  | 172     |                   | $ | 3,219 
|Nonaccrual loans                                   |  |                    | 175,443 |                   |   | 32,885
|Real estate acquired in settlement of loans        |  |                    | 8,934   |                   |   | 5,092 
|                                                   |  |                    |         |                   |   |       
|                                                   |  |                   
|Total non-performing assets                        |  | $                  | 184,549 |                   | $ | 41,196
|                                                   |  |                    |         |                   |   |       

Information on impaired loans was as follows:



|                                                                                 |  |                    |         |                   |   |      
|-------------------------------------------------------------------------------- |  | ------------------ | ------- | ----------------- | - | -----
|                                                                                 |  | September 30, 2009 |         | December 31, 2008
|                                                                                 |  |                   
|Impaired loans for which an allowance has been provided                          |  | $                  | 264,155 |                   |   | 2,161
|Impaired loans for which no allowance has been provided                          |  |                    | 95,579  |                   |   | 2,130
|                                                                                 |  |                    |         |                   |   |      
|                                                                                 |  |                   
|Total impaired loans                                                             |  | $                  | 359,734 |                   | $ | 4,291
|                                                                                 |  |                    |         |                   |   |      
|                                                                                 |  |                   
|Allowance provided for impaired loans, included in the allowance for loan losses |  | $                  | 71,795  |                   | $ | 545  
|                                                                                 |  |                    |         |                   |   |      
|                                                                                 |  |                   
|Average balance in impaired loans                                                |  | $                  | 370,745 |                   | $ | 3,883
|                                                                                 |  |                    |         |                   |   |      
|                                                                                 |  |                   
|Interest income recognized from impaired loans                                   |  | $                  | 8,686   |                   | $ | 131  
|                                                                                 |  |                    |         |                   |   |      

NOTE G  PREMISES AND EQUIPMENT

Premises and equipment consisted of the following (in thousands):



|                                               |  |                    |         |   |                   |   |         |  
|---------------------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------- | -
|                                               |  | September 30, 2009 |         |   | December 31, 2008 |  
|                                               |  |                   
|Land                                           |  | $                  | 29,907  |   |                   | $ | 26,357  |  
|Buildings and improvements                     |  |                    | 58,035  |   |                   |   | 59,731  |  
|Leasehold improvements                         |  |                    | 3,416   |   |                   |   | 3,224   |  
|Equipment, furniture, and fixtures             |  |                    | 15,563  |   |                   |   | 15,101  |  
|Construction in process                        |  |                    | 2,210   |   |                   |   | 2,768   |  
|                                               |  |                    |         |   |                   |   |         |  
|                                               |  |                   
|                                               |  |                    | 109,131 |   |                   |   | 107,181 |  
|Less accumulated depreciation and amortization |  |                    | (9,830  | ) |                   |   | (5,846  | )
|                                               |  |                    |         |   |                   |   |         |  
|                                               |  |                   
|Premises and equipment, net                    |  | $                  | 99,301  |   |                   | $ | 101,335 |  
|                                               |  |                    |         |   |                   |   |         |  



15



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



NOTE H  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 nine months of 2009 and 2008 was $850,000 and $495,000, respectively.

NOTE I  GOODWILL AND OTHER INTANGIBLES

Goodwill and other intangible assets with an indefinite life are subject to impairment testing at least annually or more often if events or circumstances suggest potential impairment. Other acquired intangible assets determined to have a
finite life are amortized over their estimated useful life in a manner that best reflects the economic benefits of the intangible asset. Intangible assets with a finite life are periodically reviewed for other-than-temporary impairment. Codification
Subtopic 350 (originally issued as SFAS No. 142, Goodwill and Other Intangible Assets) identifies a two-step impairment test that should be used to test for impairment and measure the amount of the impairment loss to be recognized. The
first step involves comparing the fair value of the reporting unit with the carrying value of the reporting unit. If the carrying value of the reporting unit exceeds fair value of the reporting unit, a potential impairment may exist. The second step
compares the implied fair value of the reporting units goodwill to the carrying amount of that goodwill. The excess of the carrying amount over the fair value is an impairment of goodwill.

During the second quarter of 2009, the Company, in accordance to the Codification, conducted an impairment test on the goodwill from the Shore Financial
Corporation (SFC) acquisition related to Shore Bank. As a result of deterioration in our business climate, managements review of goodwill indicated an impairment of $28.0 million. The non-cash loss on impairment of goodwill was
recorded as a noninterest expense in the statement of income for the quarter ended June 30, 2009. The remaining amount of goodwill is expected to be tested for impairment in the fourth quarter of 2009.

The gross carrying amount and accumulated amortization for the Companys intangible assets follows (in thousands).



|                                                       |  |                    |        |                         |   |                |  |                         |        |  |   |    
|------------------------------------------------------ |  | ------------------ | ------ | ----------------------- | - | -------------- |  | ----------------------- | ------ |  | - | ---
|                                                       |  | September 30, 2009 |        | December 31, 2008      
|                                                       |  | CarryingAmount     |        | AccumulatedAmortization |   | CarryingAmount |  | AccumulatedAmortization
|                                                       |  |                    |        |                        
|Intangible assets subject to the future amortization:  |  |                    |        |                         |   |                |  |                         |        |  |   |    
|                                                       |  |                    |        |                        
|Core deposit intangible                                |  | $                  | 8,104  |                         | $ | 1,363          |  | $                       | 8,105  |  | $ | 347
|Employment contract intangibles                        |  |                    | 1,195  |                         |   | 729            |  |                         | 1,957  |  |   | 19 
|Insurance book of business intangible, gross           |  |                    | 6,450  |                         |   | 322            |  |                         | 6,000  |  |   |   
|                                                       |  |                    |        |                         |   |                |  |                         |        |  |   |    
|                                                       |  |                    |        |                        
|Total intangible assets subject to future amortization |  | $                  | 15,749 |                         | $ | 2,414          |  | $                       | 16,062 |  | $ | 366
|                                                       |  |                    |        |                        
|Intangible assets not subject to future amortization:  |  |                    |        |                         |   |                |  |                         |        |  |   |    
|                                                       |  |                    |        |                        
|Goodwill                                               |  |                    | 52,698 |                         |   |               |  |                         | 82,671 |  |   |   
|                                                       |  |                    |        |                         |   |                |  |                         |        |  |   |    
|                                                       |  |                    |        |                        
|Total intangible assets                                |  | $                  | 68,447 |                         | $ | 2,414          |  | $                       | 98,733 |  | $ | 366
|                                                       |  |                    |        |                         |   |                |  |                         |        |  |   |    



16



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Changes in the carrying amount of goodwill for the nine months ended September 30, 2009 are as
follows (in thousands):



|                            |  |   |         |  
|--------------------------- |  | - | ------- | -
|Balance, December 31, 2008  |  | $ | 82,671  |  
|Impairment losses           |  |   | (27,976 | )
|Adjustments                 |  |   | (1,997  | )
|                            |  |   |         |  
|Balance, September 30, 2009 |  | $ | 52,698  |  
|                            |  |   |         |  

NOTE J  BUSINESS SEGMENT REPORTING

In addition to its banking operations, the Company has three other reportable segments: Mortgage, Investment, and Insurance. The accounting policies of the
reportable segments are the same as those described in the summary of significant accounting policies in the Companys 2008 Form 10-K. Segment profit and loss is measured by net income after tax. Intersegment transactions are recorded at cost
and eliminated as part of the consolidation process. Because of the interrelationships between the segments, the information is not indicative of how the segments would perform if they operated as independent entities.

The following table shows certain financial information at September 30, 2009 for each segment and in total (in thousands).



|                                      |  |       |           |   |             |   |          |         |  |   |           |   |  |            |        |           |  |   |       |  |   |       
|------------------------------------- |  | ----- | --------- | - | ----------- | - | -------- | ------- |  | - | --------- | - |  | ---------- | ------ | --------- |  | - | ----- |  | - | ------
|                                      |  | Total |           |   | Elimination |   |          | Banking |  |   | Mortgage  |   |  | Investment |        | Insurance
|                                      |  |       |           |   |             |  
|Total assets at September 30, 2009    |  | $     | 2,938,994 |   |             | $ | (418,727 | )       |  | $ | 3,336,158 |   |  | $          | 10,064 |           |  | $ | 1,141 |  | $ | 10,358
|                                      |  |       |           |   |             |   |          |         |  |   |           |   |  |            |        |           |  |   |       |  |   |       
|                                      |  |       |           |   |             |  
|Nine Months Ended September 30, 2009  |  | Total |           |   | Elimination |   |          | Banking |  |   | Mortgage  |   |  | Investment |        | Insurance
|                                      |  |       |           |   |             |  
|Net interest income                   |  | $     | 78,450    |   |             | $ |         |         |  | $ | 78,144    |   |  | $          | 294    |           |  | $ |      |  | $ | 12    
|Noninterest income                    |  |       | 19,327    |   |             |   |         |         |  |   | 11,590    |   |  |            | 3,678  |           |  |   | 165   |  |   | 3,894 
|                                      |  |       |           |   |             |   |          |         |  |   |           |   |  |            |        |           |  |   |       |  |   |       
|                                      |  |       |           |   |             |  
|Total income                          |  | $     | 97,777    |   |             | $ |         |         |  | $ | 89,734    |   |  | $          | 3,972  |           |  | $ | 165   |  | $ | 3,906 
|                                      |  |       |           |   |             |   |          |         |  |   |           |   |  |            |        |           |  |   |       |  |   |       
|                                      |  |       |           |   |             |  
|Net income (loss)                     |  | $     | (49,239   | ) |             | $ |         |         |  | $ | (50,818   | ) |  | $          | 1,129  |           |  | $ | 52    |  | $ | 398   
|                                      |  |       |           |   |             |   |          |         |  |   |           |   |  |            |        |           |  |   |       |  |   |       
|                                      |  |       |           |   |             |  
|Three Months Ended September 30, 2009 |  | Total |           |   | Elimination |   |          | Banking |  |   | Mortgage  |   |  | Investment |        | Insurance
|                                      |  |       |           |   |             |  
|Net interest income                   |  | $     | 26,477    |   |             | $ |         |         |  | $ | 26,367    |   |  | $          | 106    |           |  | $ |      |  | $ | 4     
|Noninterest income                    |  |       | 7,232     |   |             |   |         |         |  |   | 5,239     |   |  |            | 678    |           |  |   | 72    |  |   | 1,243 
|                                      |  |       |           |   |             |   |          |         |  |   |           |   |  |            |        |           |  |   |       |  |   |       
|                                      |  |       |           |   |             |  
|Total income                          |  | $     | 33,709    |   |             | $ |         |         |  | $ | 31,606    |   |  | $          | 784    |           |  | $ | 72    |  | $ | 1,247 
|                                      |  |       |           |   |             |   |          |         |  |   |           |   |  |            |        |           |  |   |       |  |   |       
|                                      |  |       |           |   |             |  
|Net income (loss)                     |  | $     | (13,377   | ) |             | $ |         |         |  | $ | (13,505   | ) |  | $          | (14    | )         |  | $ | 34    |  | $ | 108   
|                                      |  |       |           |   |             |   |          |         |  |   |           |   |  |            |        |           |  |   |       |  |   |       

The Company had no reportable business segments at September 30, 2008.



17



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



NOTE K  FAIR VALUE MEASUREMENTS

Codification Subtopic 820 (originally issued as Statement of Financial Accounting Standards No. 157, Fair Value Measurements,and Statement of
Financial Accounting Standards No. 159,The Fair Value Option for Financial Assets and Liabilities) establishes a framework for measuring fair value. It defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. It also permits the measurement of transactions between market participants at the measurement date and the measurement of selected eligible
financial instruments at fair value at specified election dates.

The Company groups our financial assets and liabilities measured at fair
value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The majority of instruments fall into the Level 1 or 2 fair value hierarchy. Valuation
methodologies for the fair value hierarchy are as follows:



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Level 1 |  | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are
traded in an active exchange market, as well as certain U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 
|Level 2 |  | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded
instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S.
Government and agency mortgage-backed debt securities, corporate debt securities, derivative contracts, and residential mortgage loans held-for-sale.
|        | 
|Level 3 |  | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities
include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques as well as instruments for which the determination of fair value requires significant management judgment or
estimation. This category generally includes certain private equity investments, retained residual interests in securitizations, residential mortgage servicing rights, asset-backed securities, and highly structured or long-term derivative contracts.                                                                                                                                                     

Recurring Basis

The Company measures or monitors certain of its assets and liabilities on a fair value basis. Fair value is used on a recurring basis for those assets and
liabilities that were elected as well as for certain assets and liabilities in which fair value is the primary basis of accounting. Below is a description of the valuation methodologies for these assets and liabilities at September 30, 2009 and
December 31, 2008 (in thousands).



|                              |  |                                           |         |                                                            |   |                                            |  |                                        |        |  |   |    
|----------------------------- |  | ----------------------------------------- | ------- | ---------------------------------------------------------- | - | ------------------------------------------ |  | -------------------------------------- | ------ |  | - | ---
|                              |  |                                           |         | Fair Value Measurements atSeptember 30, 2009 Using        
|Description                   |  | Assets / LiabilitiesMeasured atFair Value |         | Quoted Pricesin Active Marketsfor IdenticalAssets(Level 1) |   | Significant OtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|                              |  |                                           |         |                                                           
|Available-for-sale securities |  | $                                         | 101,750 |                                                            | $ | 3,035                                      |  | $                                      | 97,930 |  | $ | 785
|Derivative loan commitments   |  |                                           | 209     |                                                            |   |                                           |  |                                        |       |  |   | 209



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



|                              |  |                                           |         |                                                             |   |                                            |  |                                        |         |  |   |      
|----------------------------- |  | ----------------------------------------- | ------- | ----------------------------------------------------------- | - | ------------------------------------------ |  | -------------------------------------- | ------- |  | - | -----
|                              |  |                                           |         | Fair Value Measurements atDecember 31, 2008 Using          
|Description                   |  | Assets / LiabilitiesMeasured atFair Value |         | Quoted Pricesin Active Marketsfor Identical Assets(Level
1) |   | Significant OtherObservableInputs(Level 2) |  | SignificantUnobservableInputs(Level 3)
|                              |  |                                           |         |                                                            
|Available-for-sale securities |  | $                                         | 149,637 |                                                             | $ | 6,080                                      |  | $                                      | 142,387 |  | $ | 1,170
|Derivative loan commitments   |  |                                           | 173     |                                                             |   |                                           |  |                                        |        |  |   | 173  



|                                           |  |                                                                                                                        |       |   |                           |   |    
|------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------- | ----- | - | ------------------------- | - | ---
|                                           |  | Fair Value Measurements Using Significant Unobservable InputsNine Months Ended September 30(Level 3 measurements only)
|Description                                |  | Investment SecuritiesAvailable-for-Sale                                                                                |       |   | DerivativeLoanCommitments
|                                           |  |                                                                                                                       
|Balance, December 31, 2008                 |  | $                                                                                                                      | 1,170 |   |                           | $ | 173
|Unrealized losses included in:             |  |                                                                                                                        |       |   |                           |   |    
|Earnings                                   |  |                                                                                                                        | (72   | ) |                           |   |   
|Other comprehensive loss                   |  |                                                                                                                        | (423  | ) |                           |   |   
|Purchases, issuances, and settlements, net |  |                                                                                                                        |      |   |                           |   | 36 
|Transfers in and/or out of Level 3, net    |  |                                                                                                                        | 110   |   |                           |   |   
|                                           |  |                                                                                                                        |       |   |                           |   |    
|Balance, September 30, 2009                |  | $                                                                                                                      | 785   |   |                           | $ | 209
|                                           |  |                                                                                                                        |       |   |                           |   |    



|                                           |  |                                                                                                                         |       |   |                           |   |     |  
|------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------- | ----- | - | ------------------------- | - | --- | -
|                                           |  | Fair Value Measurements Using Significant Unobservable InputsThree Months Ended September 30(Level 3 measurements only) |      
|Description                                |  | Investment SecuritiesAvailable-for-Sale                                                                                 |       |   | DerivativeLoanCommitments |  
|                                           |  |                                                                                                                        
|Balance, June 30, 2009                     |  | $                                                                                                                       | 1,208 |   |                           | $ | 271 |  
|Unrealized losses included in:             |  |                                                                                                                         |       |   |                           |   |     |  
|Other comprehensive loss                   |  |                                                                                                                         | (423  | ) |                           |   |    |  
|Purchases, issuances, and settlements, net |  |                                                                                                                         |      |   |                           |   | (62 | )
|                                           |  |                                                                                                                         |       |   |                           |   |     |  
|Balance, September 30, 2009                |  | $                                                                                                                       | 785   |   |                           | $ | 209 |  
|                                           |  |                                                                                                                         |       |   |                           |   |     |  

Non-recurring Basis

Certain assets are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are
subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). The following table presents the assets carried on the balance sheet by caption and by level for which a non-recurring change in fair
value has been recorded during the three and nine months ended September 30, 2009 and December 31, 2008 (in thousands).



19



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



|                                         |  |                                           |                   |                                                    |                  |                      |  |                    |         |  |   |    |  |   |     |  |   |    
|---------------------------------------- |  | ----------------------------------------- | ----------------- | -------------------------------------------------- | ---------------- | -------------------- |  | ------------------ | ------- |  | - | -- |  | - | --- |  | - | ---
|Description                              |  | Assets / LiabilitiesMeasured atFair Value |                   | Fair Value Measurements atSeptember 30, 2009 Using |                  | Total Losses for the
|                                         |  |                                           | Three MonthsEnded |                                                    | Nine MonthsEnded
|                                         |  |                                           |                  
|                                         |  | Level 1                                   |                   | Level 2                                            |                  | Level 3              |  | September 30, 2009
|                                         |  |                                           |                   |                                                    |                  |                     
|Investment securities available-for-sale |  | $                                         | 614               |                                                    | $                | 579                  |  | $                  |        |  | $ | 35 |  | $ | 211 |  | $ | 343
|Other real estate owned                  |  |                                           | 8,934             |                                                    |                  |                     |  |                    | 8,934   |  |   |   |  |   | 572 |  |   | 880
|Impaired loans                           |  |                                           | 192,360           |                                                    |                  |                     |  |                    | 192,360 |  |   |   |  |   |    |  |   |   



|                                         |  |                                           |         |                                                   |         |             |         |   |   |  |   |   |  |   |    
|---------------------------------------- |  | ----------------------------------------- | ------- | ------------------------------------------------- | ------- | ----------- | ------- | - | - |  | - | - |  | - | ---
|                                         |  | Assets / LiabilitiesMeasured atFair Value |         | Fair Value Measurements atDecember 31, 2008 Using |         | TotalLosses
|                                         |  |                                           |        
|Description                              |  |                                           | Level 1 |                                                   | Level 2 |             | Level 3 |  
|                                         |  |                                           |         |                                                   |        
|Investment securities available-for-sale |  | $                                         | 52      |                                                   | $       | 52          |         | $ |  |  | $ |  |  | $ | 561

The Codification requires disclosure of fair value information about financial instruments, whether
or not recognized in the balance sheet, for which it is practical to estimate that value. It excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying fair value of the Company. The following methods and assumptions were used by the Company in estimating fair value for its financial instruments.

(a) Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, overnight funds sold, and interest-bearing deposits in other banks. The carrying amount approximates fair value.

(b) Investment Securities Available-for-Sale

Fair values are based on published market prices where available. 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. Investment securities available-for-sale are carried at their aggregate fair value.

(c) Restricted Equity Securities

The carrying amount approximates fair value.

(d) Loans

For loan receivables with short-term and/or variable characteristics, the carrying value approximates fair value. The fair value of other loans is estimated by discounting the future cash flows using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. The carrying value of loans held for sale is a reasonable estimate of fair value since the loans are expected to be sold within a short period.

(e) Interest Receivable and Interest Payable

The carrying amount approximates fair value.

(f) Bank Owned Life Insurance

The carrying amount approximates fair value.

(g) Deposits

The fair value of noninterest bearing deposits and deposits with no defined maturity is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting the future cash flows using the current
interest rates at which similar deposits would be made.



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



(h) Borrowings

The fair value of borrowings is estimated using discounted cash flow analysis based on the interest rates currently offered for borrowings of
similar remaining maturities and collateral requirements. These include other borrowings, overnight funds purchased, and FHLB borrowings.

(i) Commitments to Extend Credit and Standby Letters of Credit

The only
amounts recorded for commitments to extend credit and standby letters of credit are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant at September 30, 2009, and as such, the
related fair values have not been estimated.

The estimated fair value of the Companys financial instruments required to be disclosed by
the Codification Subtopic 825 at September 30, 2009 and December 31, 2008 were as follows (in thousands):



|                                         |  |                    |           |                   |   |               |  |           |           |  |   |          
|---------------------------------------- |  | ------------------ | --------- | ----------------- | - | ------------- |  | --------- | --------- |  | - | ---------
|                                         |  | September 30, 2009 |           | December 31, 2008
|                                         |  | CarryingValue      |           | FairValue         |   | CarryingValue |  | FairValue
|Assets:                                  |  |                    |           |                   |   |               |  |           |           |  |   |          
|Cash and due from banks                  |  | $                  | 70,359    |                   | $ | 70,359        |  | $         | 42,827    |  | $ | 42,827   
|Interest-bearing deposits in other banks |  |                    | 11,437    |                   |   | 11,437        |  |           | 4,975     |  |   | 4,975    
|Overnight funds sold                     |  |                    | 238       |                   |   | 238           |  |           | 510       |  |   | 510      
|Investment securities available-for-sale |  |                    | 101,750   |                   |   | 101,750       |  |           | 149,637   |  |   | 149,637  
|Restricted equity securities             |  |                    | 29,774    |                   |   | 29,774        |  |           | 27,795    |  |   | 27,795   
|Loans, net                               |  |                    | 2,415,611 |                   |   | 2,438,680     |  |           | 2,553,372 |  |   | 2,555,082
|Interest receivable                      |  |                    | 10,023    |                   |   | 10,023        |  |           | 12,272    |  |   | 12,272   
|Bank owned life insurance                |  |                    | 47,914    |                   |   | 47,914        |  |           | 46,603    |  |   | 46,603   
|                                         |  |                    |           |                  
|Liabilities:                             |  |                    |           |                   |   |               |  |           |           |  |   |          
|Deposits                                 |  |                    | 2,314,293 |                   |   | 1,864,674     |  |           | 2,296,146 |  |   | 2,299,179
|FHLB borrowings                          |  |                    | 254,073   |                   |   | 255,445       |  |           | 279,065   |  |   | 282,005  
|Other borrowings                         |  |                    | 49,104    |                   |   | 49,659        |  |           | 77,223    |  |   | 77,223   
|Overnight funds purchased                |  |                    | 12,000    |                   |   | 12,000        |  |           | 73,300    |  |   | 73,300   
|Interest payable                         |  |                    | 4,244     |                   |   | 4,244         |  |           | 5,814     |  |   | 5,814    

NOTE L  ACQUISITIONS

Gateway Financial Holdings, Inc.

On December 31, 2008, the Company acquired Gateway Financial Holdings, Inc. (GFH). GFH was the parent company of Gateway Bank and Trust, Co., which operated 36 full-service banking
facilities serving the Hampton Roads and Richmond areas of Virginia and Outer Banks and Raleigh regions of North Carolina. The aggregate purchase price was approximately $161.2 million, including common stock valued at $94.2 million, preferred stock
valued at $59.3 million, GFH stock held by the Company as an investment of $0.2 million, stock options exchanged valued at $1.4 million, and direct costs of the merger of $6.1 million.



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Net assets acquired, based on fair value adjustments, are shown in the table below (in thousands).



|                              |  |   |          
|----------------------------- |  | - | ---------
|Securities available for sale |  | $ | 117,706  
|Loans, net                    |  |   | 1,752,793
|Goodwill                      |  |   | 52,702   
|Core deposit intangible       |  |   | 3,282    
|Other intangibles             |  |   | 7,485    
|Other assets                  |  |   | 210,146  
|                              |  |   |          
|                              | 
|Total assets acquired         |  |   | 2,144,114
|                              | 
|Deposits                      |  |   | 1,688,473
|Borrowings                    |  |   | 289,497  
|Other liabilities             |  |   | 4,950    
|                              |  |   |          
|                              | 
|Total liabilities assumed     |  |   | 1,982,920
|                              | 
|                              |  |   |          
|Net assets acquired           |  | $ | 161,194  
|                              |  |   |          

The Company acquired all of the outstanding shares of GFH. The shareholders of GFH received, for each
share of GFH common stock that they owned immediately prior to the effective date of the merger, 0.67 shares of Company common stock. Each of GFHs preferred shares outstanding immediately prior to the effective date of the merger converted
into new preferred shares of the Company that have substantially identical rights. In addition, at the effective date of the merger, each outstanding option to purchase shares of GFHs common stock under any stock plans were converted into an
option to acquire the number of shares of the Companys common stock equal to the number of shares of GFH common stock underlying the option. The exercise price of each option was adjusted accordingly.

The merger was accounted for under the purchase method of accounting and is intended to qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code. The merger resulted in the recording of $52.7 million of estimated goodwill and $3.3 million of core deposit intangible assets. The estimated goodwill is subject to possible adjustments during the one year period from the
date of the merger. During the third quarter of 2009, there were no other material changes to estimated goodwill. Goodwill related to the GFH acquisition is expected to be tested for impairment in the fourth quarter of 2009. The core deposit
intangible asset was based on an independent valuation and will be amortized over the estimated life of the core deposits of 4.5 years based on undiscounted cash flows.

Shore Financial Corporation

On June 1, 2008, the Company acquired SFC. SFC was
the parent company of Shore Bank, which operated 8 full-service banking facilities serving the Eastern Shore of Maryland and Virginia. The aggregate purchase price was approximately $58.1 million, including common stock valued at $31.2 million, SFC
stock held by the Company as an investment of $0.8 million, stock options exchanged valued at $1.2 million, cash of $21.0 million, and direct costs of the merger of $3.9 million.



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



Net assets acquired, based on preliminary fair value adjustments, are shown in the table below (in
thousands).



|                                |  |   |        
|------------------------------- |  | - | -------
|Securities available for sale   |  | $ | 16,250 
|Loans, net                      |  |   | 220,450
|Goodwill                        |  |   | 27,976 
|Core deposit intangible         |  |   | 4,755  
|Employment agreement intangible |  |   | 160    
|Other assets                    |  |   | 33,587 
|                                |  |   |        
|                                | 
|Total assets acquired           |  |   | 303,178
|                                | 
|Deposits                        |  |   | 208,402
|Borrowings                      |  |   | 34,228 
|Other liabilities               |  |   | 2,409  
|                                |  |   |        
|                                | 
|Total liabilities assumed       |  |   | 245,039
|                                | 
|                                |  |   |        
|Net assets acquired             |  | $ | 58,139 
|                                |  |   |        

The Company acquired all of the outstanding shares of SFC. The shareholders of SFC received, for each
share of SFC common stock that they owned immediately prior to the effective date of the merger, either $22 per share in cash or 1.8 shares of Company common stock. In addition, at the effective date of the merger, each outstanding option to
purchase shares of SFCs common stock under any stock plans vested pursuant to its terms were 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 was adjusted accordingly.

The merger was accounted for under the
purchase method of accounting and was intended to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code. The merger resulted in the recording of $28.0 million of goodwill and $4.8 million of core deposit
intangible assets. During the second quarter of 2009, goodwill related to the SFC acquisition was determined to be impaired, and an impairment expense of $28.0 million was recorded. For further discussion of goodwill impairment, refer to Note I. The
core deposit intangible asset was based on an independent valuation and will be amortized over the estimated life of the core deposits of eight years based on undiscounted cash flows. In order to finance the merger, the Company borrowed $23 million,
which was completely paid off during the second quarter of 2009.

Pro Forma Financial Information

The Companys consolidated financial statements include the results of operations of Gateway Bank & Trust and Shore Bank only from the date of
the acquisitions. Pro forma condensed consolidated income statements for the three and nine months ended September 30, 2009 and 2008 are shown as if the mergers occurred at the beginning of each period.



23



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



|                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|----------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                          |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|                                          |  | 2009                            |         |   | 2008                           |   |         | 2009 |  |   | 2008    |  
|Interest income                           |  | $                               | 37,388  |   |                                | $ | 42,875  |      |  | $ | 114,647 |   |  | $ | 127,002 |  
|Interest expense                          |  |                                 | 10,911  |   |                                |   | 17,407  |      |  |   | 36,197  |   |  |   | 55,584  |  
|                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net interest income                       |  |                                 | 26,477  |   |                                |   | 25,468  |      |  |   | 78,450  |   |  |   | 71,418  |  
|                                          |  |                                 |         |  
|Provision for loan losses                 |  |                                 | 33,662  |   |                                |   | 5,680   |      |  |   | 68,557  |   |  |   | 10,279  |  
|Noninterest income (loss)                 |  |                                 | 7,232   |   |                                |   | (30,555 | )    |  |   | 19,327  |   |  |   | (14,576 | )
|Noninterest expense                       |  |                                 | 21,706  |   |                                |   | 23,014  |      |  |   | 91,884  |   |  |   | 64,289  |  
|                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|                                          |  |                                 |         |  
|Loss before provision for income taxes    |  |                                 | (21,659 | ) |                                |   | (33,781 | )    |  |   | (62,664 | ) |  |   | (17,726 | )
|Provision for income taxes (benefit)      |  |                                 | (8,282  | ) |                                |   | 612     |      |  |   | (13,425 | ) |  |   | 6,408   |  
|                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net loss                                  |  |                                 | (13,377 | ) |                                |   | (34,393 | )    |  |   | (49,239 | ) |  |   | (24,134 | )
|Dividend on preferred stock               |  |                                 | 1,360   |   |                                |   | 512     |      |  |   | 7,319   |   |  |   | 1,524   |  
|                                          |  |                                 |         |  
|                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|Net loss available to common shareholders |  | $                               | (14,737 | ) |                                | $ | (34,905 | )    |  | $ | (56,558 | ) |  | $ | (25,658 | )
|                                          |  |                                 |         |   |                                |   |         |      |  |   |         |   |  |   |         |  
|                                          |  |                                 |         |  
|Basis loss per share                      |  | $                               | (0.68   | ) |                                | $ | (1.56   | )    |  | $ | (2.60   | ) |  | $ | (1.17   | )
|Diluted loss per share                    |  | $                               | (0.68   | ) |                                | $ | (1.56   | )    |  | $ | (2.60   | ) |  | $ | (1.17   | )

NOTE M  TROUBLED ASSET RELIEF PROGRAM (TARP)

On December 31, 2008, the Company entered in a Letter Agreement and Securities Purchase Agreement (collectively, the Purchase Agreement)
with the U.S. Treasury, pursuant to which the Company sold 80,347 shares of the Companys Fixed Rate Cumulative Perpetual Preferred Stock, Series C, no par value per share, having a liquidation preference of $1,000 per share (the Series C
Preferred Stock) and a warrant (the Warrant) to purchase 1,325,858 shares of the Companys common stock, $0.625 par value per share (the Common Stock), at an initial exercise price of $9.09 per share, subject to
certain anti-dilution and other adjustments, for an aggregate purchase price of $80.347 million in cash. This preferred stock is redeemable at par plus accrued and unpaid dividends subject to the approval of the Companys primary banking
regulators.

The Warrant is immediately exercisable. The Warrant provides for the adjustment of the exercise price and the number of shares of
Common Stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of Common Stock, and upon certain issues of Common Stock at or below a specified
price relative to the then-current market price of Common Stock. The Warrant expires ten years from the issuance date. Pursuant to the Purchase Agreement, the Treasury has agreed not to exercise voting power with respect to any shares of Common
Stock issued upon exercise of the Warrant.

The American Recovery and Reinvestment Act of 2009 (ARRA), enacted on
February 17, 2009, imposes certain new executive compensation and corporate governance obligations on all current and future TARP recipients until the institution has redeemed the preferred stock. This Act restricts golden parachute payments to
senior executive officers and the next five most highly compensated employees during the period of time any obligations arising from financial assistance provided under the TARP remains outstanding. It also prohibits paying and accruing bonuses for
certain senior executive officers and employees, requires that TARP participants provide the recovery of any bonus or incentive compensation paid to senior executive officers and the next 20 most highly compensated employees based on statements of
earnings, revenues, gains, or other criteria later found to be materially inaccurate, and requires a review by the Secretary of all bonuses and other compensation paid by TARP participants to senior executive employees and the next 20 most highly
compensated employees before the date of enactment of the ARRA to determine whether such payments were inconsistent with the purposes of the Act.



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



NOTE N  SUBSEQUENT EVENTS

The Company has evaluated subsequent events for potential recognition and/or disclosure through November 9, 2009, the date the consolidated financial statements included in this Quarterly Report on
Form 10-Q were issued.

On Oct. 30, 2009, the Company announced plans to exchange series A and B preferred stock for common stock and to
suspend its series A and B preferred dividend.



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



PART I. FINANCIAL
INFORMATION



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Hampton Roads Bankshares, Inc. was incorporated under the laws of the Commonwealth of Virginia and serves as a holding company for Bank of Hampton Roads and
Shore Bank. In addition to our retail and commercial banking services, we offer insurance, title, mortgage, and investment services.

Our
Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist readers in understanding and evaluating our consolidated results of operations and financial condition. The
following should be read in conjunction with our 2008 audited Consolidated Financial Statements and our 2008 Annual Report on Form 10-K.

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 involve various risks and uncertainties.

When or if used in this quarterly report
or any Securities and Exchange Commission filings, 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.

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. Our risks include, without limitation, the following:



| |  |  | We may continue to incur significant losses in the future, and we can make no assurances as to when we will be profitable;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | Our estimate for losses in our loan portfolio may be inadequate;
| | - |  | ----------------------------------------------------------------



| |  |  | We have had and may continue to have difficulties managing our problem loans and our loan administration;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | We did not undergo a stress test under the Federal Reserves Supervisory Capital Assessment Program; our self-administered stress test
differed from the Supervisory Capital Assessment Program and the results of our test may be inaccurate;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have recently had a significant turnover in our senior management team;
| | - |  | --------------------------------------------------------------------------



| |  |  | Governmental regulation and regulatory actions against us may impair our operations or restrict our growth;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | If the value of real estate in our core market areas were to decline materially, a significant portion of our loan portfolio could become
under-collateralized;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our construction and land development, commercial real estate, and equity line lending may expose us to a greater risk of loss and hurt our earnings
and profitability;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our lending on vacant land may expose us to a greater risk of loss and may have an adverse effect on operations;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Difficult market conditions have adversely affected our industry;
| | - |  | -----------------------------------------------------------------



| |  |  | A significant part of GFHs loan portfolio is unseasoned;
| | - |  | ---------------------------------------------------------



| |  |  | Our ability to maintain adequate sources of funding may be negatively impacted by the current economic environment which may, among other things,
impact our ability to pay dividends or satisfy our obligations;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to maintain adequate sources of liquidity may be negatively impacted by the current economic environment which may, among other things,
impact our ability to pay dividends or satisfy our obligations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to maintain required capital levels may be negatively impacted by the current economic environment which may, among other things, impact
our ability to pay dividends or satisfy our obligations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We may incur additional losses if we are unable to successfully manage interest rate risk;
| | - |  | ------------------------------------------------------------------------------------------



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Analysis of Financial Condition and Results of Operations



| |  |  | Certain built-in losses could be limited if we experience an ownership change as defined in the Internal Revenue Code;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | We may not be able to successfully maintain our capital;
| | - |  | --------------------------------------------------------



| |  |  | We may fail to realize the potential benefits of the mergers with SFC and GFH;
| | - |  | ------------------------------------------------------------------------------



| |  |  | The decline in the fair market value of various investment securities available-for-sale could result in future impairment losses;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | A substantial decline in the value of our common stock investments including our Federal Home Loan Bank common stock may result in an
other-than-temporary impairment charge;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our future success is dependent on our ability to compete effectively in the highly competitive banking industry;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | Our operations and customers might be affected by the occurrence of a natural disaster or other catastrophic event in our market area;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We face a variety of threats from technology based frauds and scams;
| | - |  | --------------------------------------------------------------------



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



| |  |  | Our directors and officers have significant voting power.
| | - |  | ---------------------------------------------------------

Our forward-looking statements could be incorrect 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. We have no obligation to publicly update or revise our forward-looking statements after the date of this quarterly report and you should not expect us to do so.

Overview

Our primary
source of revenue is from net interest income earned by our bank subsidiaries. Net interest income represents interest and fees earned from lending and investment activities less the interest paid on deposits and borrowings. Net interest income may
be impacted by variations in the volume and mix of interest earning assets and interest bearing liabilities, changes in the yields earned and the rates paid, level of non-performing interest earning assets, and the level of noninterest bearing
liabilities available to support earning assets. Our net interest income continues to be decreased by increasing levels of non-performing loans.

In addition to net interest income, noninterest income is another important source of our revenue. With the acquisition of GFH in December 2008, the Company acquired sustainable and growth-oriented, non-banking sources of noninterest
income. As a result, the Company has four non-banking subsidiaries: Gateway Insurance Services, Inc., which sells insurance products to businesses and individuals; Gateway Investment Services, Inc., which assists customers with their securities
brokerage activities through an arrangement with an unaffiliated broker-dealer; Gateway Bank Mortgage, Inc., which provides mortgage banking services with products which are primarily sold on the secondary market; and Gateway Title Agency, Inc.,
which engages in title insurance and settlement services for real estate transactions.

Other factors that impact net income are the provision
for loan losses and noninterest expense, including the impairment of goodwill and the assessment related to FDIC insurance. The goodwill resulting from the SFC acquisition has become impaired and some or all of the goodwill resulting from the GFH
acquisition may become impaired in the fourth quarter.

The following is a summary of our condition and financial performance as of
September 30, 2009 and for the three and nine month periods then ended:



| |  |  | Assets were $2.9 billion at September 30, 2009. They decreased by $146.7 million or 4.75% for the first nine months of 2009 from December 31,
2008. The decrease in assets was primarily associated with an $89.8 million decrease in loans, a $48.0 million increase in our allowance for loan losses, and a $32.3 million decrease in goodwill and other intangible assets, offset by an increase of
$34.0 million in cash and interest-bearing deposits in other banks.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Analysis of Financial Condition and Results of Operations



| |  |  | Investment securities available for sale decreased $47.9 million to $101.7 million for the first nine months of 2009. The decrease was the result of
our intention to use investment maturities and prepayments to pay down wholesale funds and to increase regulatory capital by selling risk-weighted bonds and reinvesting the proceeds into securities that would favor our regulatory capital. During the
third quarter, we concentrated on selling securities and intend on purchasing securities in the fourth quarter.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loans decreased by $89.8 million or 3.45% and deposits increased by $18.1 million or 0.79% for the first nine months of 2009 from December 31,
2008. The decrease in loans was attributed to natural pay downs and maturities of loans that exceeded new loans originated during 2009. Additionally, new loan activity was low during this period due to economic conditions. The increase in deposits
was attributed to an increase in noninterest bearing demand deposits and time deposits under $100 thousand.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net loss available to common shareholders for the quarter ended September 30, 2009 was $14.7 million or $0.68 per common diluted share as compared
with net income available to common shareholders of $1.7 million or $0.13 per common diluted share for the quarter ended September 30, 2008. Net loss available to common shareholders was $56.6 million or $2.60 per common diluted share for the
nine months ended September 30, 2009 as compared to net income available to common shareholders of $4.8 million or $0.41 per common diluted share for the nine months ended September 30, 2008. There were two primary reasons for the loss in
the third quarter of 2009 and for the nine months ended September 30, 2009: (1) we increased our allowance for loan loss reserves by $33.7 million for the three months and $68.6 million for the nine months ended September 30, 2009
because we determined that additional reserves were necessary for resolving problem credits as loan quality has deteriorated due to the slow economy and declining real estate values in some markets and (2) we incurred a goodwill impairment
charge of $28.0 million in the second quarter of 2009 related to the SFC acquisition.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Net interest income increased $19.0 million and $60.0 million for the three and nine months, respectively, ended September 30, 2009 as compared to
the same period 2008. The increase was due primarily to the increase of net interest income from loans acquired in the SFC and GFH acquisitions in 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Noninterest income for the three and nine months ended September 30, 2009 was $7.2 million and $19.3 million, a 302% and 316%, respectively,
increase over comparative 2008. This was largely due to the addition of the non-banking subsidiaries through our acquisition of GFH as well as the increase in service charges and fees that resulted from the SFC and GFH acquisitions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Noninterest expense was $21.7 million and $91.9 million for the three and nine months, respectively, ended September 30, 2009, which was an
increase of $15.2 million or 232% and $76.7 million or 507%, respectively, over the comparable periods for 2008. The increase in the three months figures was attributable primarily to the increase in salaries, occupancy, and data processing expenses
incurred from the GFH acquisition. The increase in the nine months figures was attributed to the addition of noninterest expenses resulting from the SFC and GFH acquisitions, a goodwill impairment charge of $28.0 million that incurred in the second
quarter of 2009, and an increase in FDIC insurance premiums including a one-time special FDIC insurance assessment that all banks were assessed in the second quarter of 2009.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our effective tax rate increased to 38.2% in the third quarter of 2009 compared to 32.2% for comparative 2008. For the fourth quarter 2008, our
effective tax rate was 34.3%. For the first nine months of 2009, our effective tax rate decreased to 21.4% compared to 33.5% for the same period in 2008. The decrease in the effective tax rate for the first nine months of 2009 was primarily due to
the fact that the $28.0 million impairment of goodwill charge is not deductible for income tax purposes.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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HAMPTON ROADS BANKSHARES, INC.



Managements Discussion and
Analysis of Financial Condition and Results of Operations



Critical Accounting Policies

GAAP is complex and requires 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. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial
statements and the accompanying footnotes. Actual results, in fact, could differ from those estimates. We consider our policies on allowance for loan losses and goodwill and other intangible assets to be critical accounting policies. Refer to our
2008 Form 10-K for further discussion of these policies.

Material Trends

The global and U.S. economies continue to experience a protracted slowdown in business activity as a result of disruptions, including a lack of confidence in
the worldwide credit markets and in the financial system. Currently, the U.S. economy remains in the midst of one of its longest economic recessions in recent history. It is not clear at this time what impact U.S. Government programs such as the
TARP Capital Purchase Program and other liquidity and funding initiatives of the Federal Reserve System will have on the financial markets, the U.S. banking and financial industries, the broader U.S. and global economies, and, more importantly, the
local economies in the markets that we serve.

Partially as a result of the economy, we incurred a net loss available to common shareholders
of $14.7 million for the third quarter of 2009, primarily due to a $33.7 million expense for the provision for loan losses. In light of the current economic environment, significant additional provisions for loan losses may be necessary to
supplement the allowance for loan losses in the future. As a result, we may incur significant credit costs throughout the remainder of 2009 and into 2010, which would continue to adversely impact our financial condition and results of operations and
the value of our common stock.

In addition, we are required to conduct an impairment analysis of our goodwill, which was approximately $52.7
million at September 30, 2009, associated with the acquisition of GFH in the fourth quarter of 2009. The amount of goodwill from our merger with GFH could become impaired, in whole or in part, by the fourth quarter of 2009. Additional loan
losses or impairment charges could cause us to continue to incur future net losses and adversely affect the price of, and market for, our common stock.

ANALYSIS OF FINANCIAL CONDITION

Investments and Loans Overview. Total assets were $2.9 billion at September 30, 2009, a decrease of $146.7 million or 4.7% over December 31, 2008 total assets. This decrease was primarily associated with an $89.8
million decrease in loans, a $48.0 million increase in our allowance for loan losses, and a $32.3 million decrease in goodwill and other intangible assets (the majority of which was a $28.0 million goodwill impairment charge related to the SFC
acquisition). Our loan portfolio was $2.5 billion at September 30, 2009 and comprised 85.6% of our total assets.

Average earning assets
increased $1.9 billion or 292% from $650.3 million for the first nine months of 2008 to $2.5 billion for the first nine months of 2009. This growth was primarily attributed to the $2.0 billion of earning assets acquired from Gateway. Compared to the
second quarter of 2009, average earning assets decreased $276.5 thousand or 9.9%.

Average total deposits were $1.9 billion for first nine
months of 2009, a growth of $1.4 billion or 340% compared to the first nine months of 2008. This growth is attributable to the $1.69 billion of deposits acquired from Gateway. Compared with the second quarter of 2009, average deposits increased
$145.2 thousand or 7.2%.

Interest Bearing Deposits in Other Banks.Interest bearing deposits in other banks and federal
funds sold are used for daily cash management purposes, management of short-term interest rate opportunities, and liquidity. Interest bearing deposits as of September 30, 2009 were $11.4 million and consisted mainly of deposits with the Federal
Home Loan Bank of Atlanta (FHLB) and the Federal Reserve Bank (FRB). These deposits increased $6.4 million at



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Analysis of Financial Condition and Results of Operations



September 30, 2009 compared from $5.0 million at December 31, 2008. This equated to 0.45% of average total earning assets at September 30, 2009 and 0.71% at December 31, 2008.
This increase was due primarily to the increase in requirements due to the much larger size of the Company.

Securities.Our
investment portfolio consists primarily of U.S. Agency securities, mortgage-backed securities, state and municipal securities, and equity securities. Our available-for-sale securities are reported at fair value. They are used primarily for
liquidity, pledging, earnings, and asset/liability management purposes and are reviewed quarterly for possible impairment.

At
September 30, 2009, the fair value of our investment securities was $101.8 million, down $47.9 million or 32.0% from $149.6 million at December 31, 2008. The decrease was primarily the result of using investment securities and prepayments
to pay down wholesale funds and selling of securities. Our intention is to increase regulatory capital ratios by selling risk-weighted bonds and reinvesting the proceeds into securities that would favor our regulatory capital. During the third
quarter of 2009, we concentrated on selling securities and intend on purchasing securities in the fourth quarter. The average balance for the third quarter of 2009 was $129.8 million compared with $41.7 million at December 31, 2008. The
increase in average balances was the result of acquiring $117.7 million of investment securities as part of the GFH acquisition.

Loan
Portfolio. Our loan portfolio is comprised of commercial, construction, real estate-commercial mortgage, real estate-residential mortgage, and installment loans to individuals. All lending decisions are based upon an evaluation of the
financial strength and credit history of the borrower and the quality and value of the collateral securing each loan. With few exceptions, personal guarantees are required on loans. Our loan portfolio decreased $89.8 million or 3.45% to $2.5 billion
as of September 30, 2009 compared to December 31, 2008. Real estate commercial mortgages increased 10.5% to $744.2 million at September 30, 2009 compared to $673.4 million at December 31, 2008. Real estate residential mortgages
increased 1.0% to $534.3 million at September 30, 2009 as compared with $528.8 million at December 31, 2008. Commercial loans decreased 15.4% to $382.0 million at September 30, 2009 compared with $451.4 million at December 31,
2008. Installment loans to individuals decreased 19.7% to $40.2 million at September 30, 2009 compared with $50.1 million at December 31, 2008. Construction loans also decreased 10.1% to $806.3 million at September 30, 2009 as
compared with $897.3 million at December 31, 2008, thus lowering the concentration of construction loans to 32.1% of the total loan portfolio at September 30, 2009 compared with 34.5% at December 31, 2008. Our construction loans
included $109.8 million of interest reserve loans. The interest on these loans is paid out of an interest reserve, which is a special savings account funded out of the proceeds of the construction loan. In the future, management intends to reduce
the construction and development portion of the portfolio and increase the commercial portion in order to reduce its exposure to construction and development lending and to capitalize on commercial lending opportunities available in our markets.

We have a high concentration of construction and real estate, both commercial and residential, loans. Construction loans are made to
individuals and businesses for the purpose of construction of single family residential properties, multi-family properties, and commercial projects such as the development of residential neighborhoods and commercial office parks. Risk is reduced on
these loans by limiting lending for speculative building of both residential and commercial properties based upon the borrowers history with us, financial strength, and the loan-to-value ratio of such speculative property. We generally require
new and renewed variable rate commercial loans to have interest rate floor rates. Residential loans represent smaller dollar loans to more customers, and therefore, have lower credit risk than other types of loans. The majority of our fixed rate
mortgage loans, which represent increased interest rate risk, are sold in the secondary market, as well as some variable rate mortgage loans. The remainder of the variable rate mortgage loans and a small number of fixed rate mortgage loans are
retained.

Allowance for Loan Losses.The purpose of the allowance for loan losses is to provide for potential losses inherent
in our loan portfolio. Management regularly reviews our loan portfolio to determine whether adjustments are necessary to maintain an allowance for loan losses sufficient to absorb losses inherent in the portfolio. Our review takes into consideration
changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and review of current economic conditions that may affect the borrowers ability to repay. In addition to the review of credit
quality through ongoing credit review processes, we periodically conduct an independent analysis of our loan portfolio. During the second quarter of 2009, we engaged an independent credit consulting firm to



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Analysis of Financial Condition and Results of Operations



conduct an analysis of our loan portfolio. Based on recommendations from the consulting firm, we made several changes to risk grades and impairment calculations. These changes resulted in a
significant increase to our allowance for loan losses.

Since risks to the loan portfolio include general economic trends as well as
conditions affecting individual borrowers, the allowance is an estimate. The allowance for loan losses was $99.2 million or 3.94% of outstanding loans as of September 30, 2009 compared with $51.2 million or 1.97% of outstanding loans as of
December 31, 2008. We increased the allowance for loan losses $48.0 million (net of charge-offs and recoveries) during the first nine months of 2009 as a result of deterioration in our loan credit quality, continued softening in the economy,
decreases in real estate values in several of our markets, increases in charge-offs and non-performing assets, and the results of the independent review of the portfolio. Pooled loan allocations decreased $12.3 million to $27.3 million at
September 30, 2009 from $39.6 million at December 31, 2008. Specific loan allocations increased $60.3 million to $71.9 million at September 30, 2009 from $11.6 million at December 31, 2008.

A loan is considered impaired when management believes the principal is uncollectible. Subsequent recoveries, if any, are credited to the allowance.
Impairment is evaluated in the aggregate for smaller balance loans of similar nature and on an individual loan basis for other loans. If a loan is considered impaired, it is measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or at the loans observable market price or the fair value of the collateral if the loan is collateral dependent. Total impaired loans were $359.7 million at September 30, 2009, an
increase of $355.4 million or 82.8% over December 31, 2008. Of these loans, $175.4 million were on nonaccrual status at September 30, 2009.

Non-performing Assets.Non-performing assets as a percentage of total assets increased to 6.28% at September 30, 2009 from 4.95% at June 30, 2009 as non-accrual loans increased $32.7 million. Total non-accrual loans
aggregated $175.5 million at September 30, 2009 as compared with $142.8 million at June 30, 2009 and $32.9 million at December 31, 2008. Net charge-offs were $19.0 million for the quarter ended September 30, 2009 as compared with
$1.6 million for the quarter ended June 30, 2009.

The following chart indicates our non-accrual loans by loan type as of
September 30, 2009 and December 31, 2008 (in thousands).



|                                   |  |                    |         |                   |   |       
|---------------------------------- |  | ------------------ | ------- | ----------------- | - | ------
|                                   |  | September 30, 2009 |         | December 31, 2008
|Commercial                         |  | $                  | 19,076  |                   | $ | 2,465 
|Construction                       |  |                    | 109,204 |                   |   | 19,103
|Real estate-commercial mortgage    |  |                    | 31,416  |                   |   | 6,298 
|Real estate-residential mortgage   |  |                    | 15,698  |                   |   | 5,008 
|Installment loans (to individuals) |  |                    | 49      |                   |   | 11    
|                                   |  |                    |         |                   |   |       
|Total non-accrual loans            |  | $                  | 175,443 |                   | $ | 32,885
|                                   |  |                    |         |                   |   |       

Deposits.Deposits are the primary source of our funds for use in lending and
general business purposes. Our balance sheet growth is largely determined by the availability of deposits in our 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 September 30, 2009 increased $18.1 million or 0.79% to $2.3 billion as compared with December 31, 2008. Total brokered deposits were $480.2 million or 20.7% of deposits at September 30, 2009,
which was an increase of $74.6 million from the total brokered deposits of $405.6 million at December 31, 2008.

Changes in the deposit
categories include an increase of $33.9 million or 14.07% in noninterest bearing demand deposits, a decrease of $112.6 million or 16.46% in interest bearing demand deposits, and a decrease of $8.8 million or 7.48% in savings accounts from
December 31, 2008 to September 30, 2009. Interest bearing demand deposits included $97.7 million of brokered money market funds at September 30, 2009, which was $147.6 million lower than the balance of brokered money market funds of
$245.3 million outstanding at December 31, 2008. Therefore, core bank interest bearing demand deposits increased by $35.0 million over the last nine months. Of this increase $19.1



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Analysis of Financial Condition and Results of Operations



million was related to an increase in our business sweep account, which is somewhat seasonal in our coastal regions. Additionally, core money market accounts increased $17.1 million since
December 31, 2008. Total time deposits under $100 thousand increased $107.6 million from $858.8 million at December 31, 2008 to $966.4 million at September 30, 2009. Brokered CDs represented $382.5 million or 16.5% of the
September 30, 2009 total deposits, which was an increase of $144.0 million over the $238.5 million of brokered CDs outstanding at December 31, 2008. Therefore, core bank CDs decreased $36.4 million over the last nine months. Jumbo time
deposits over $100 thousand decreased $1.9 million from $394.5 million at December 31, 2008 to $392.6 million at September 30, 2009. Going forward, management intends to emphasize growth in demand and savings deposits.

Borrowings. We use short-term and long-term borrowings from various sources including the FRB discount window, FHLB, funds purchased from
correspondent banks, reserve repurchase accounts, and trust preferred securities. Our FHLB borrowings on September 30, 2009 were $254.1 million compared to $279.1 million at December 31, 2008. Borrowings from the FRB discount window
totaled $12.0 million at September 30, 2009. We also maintain additional sources of liquidity through a variety of borrowing arrangements including federal funds lines with large regional and national banking institutions.

Liquidity. 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 September 30, 2009, cash and due from banks, overnight funds sold, interest-bearing deposits in other banks, and investment securities were
$183.8 million or 6.25% of total assets. At December 31, 2008, cash and due from banks, overnight funds sold, interest-bearing deposits in other banks, and investment securities were $197.9 million or 6.4% of total assets. Additionally, the
Bank had $265.3 million of borrowing availability under its various credit arrangements with FHLB, FRB, and correspondent banks, as well as access to the brokered deposit market through several broker-dealers. As a result of the management of our
liquid assets and the ability to generate liquidity through liability funding, management believes we maintain overall liquidity sufficient to satisfy our depositors requirements and to meet our customers credit needs.

Capital Resources. Total shareholders equity decreased $58.5 million or 16.97% to $286.3 million at September 30,
2009 compared to $344.8 million at December 31, 2008. The decrease in shareholders equity was a result of the $49.2 million net loss for the nine months ended September 30, 2009 and common and preferred dividends of approximately
$7.3 million. As of September 30, 2009, the Companys consolidated regulatory current capital ratios are Tier 1 Leverage Ratio of 8.08%, Tier 1 Risk-Based Capital Ratio of 9.37%, and Total Risk-Based Capital of 10.66%. As of
September 30, 2009, management believes that the Company and the banks were well-capitalized, the highest category of capitalization defined by the FRB. We continually monitor our current and projected capital adequacy positions.
Maintaining adequate capital levels is integral to providing stability and to achieving our growth objectives.

During 2009, we paid two
quarterly cash dividends of $0.11 per share on our common stock to shareholders of record as of February 27, 2009 and May 15, 2009. Dividends paid are limited by the requirement to meet capital guidelines issued by regulatory authorities,
and future declarations are subject to financial performance and regulatory requirements. Due to net losses incurred in 2009, on July 30, 2009 the Board of Directors voted to suspend the quarterly dividend on the Companys common stock to
preserve capital. Our ability to distribute cash dividends in the future may be limited by regulatory restrictions and the need to maintain sufficient consolidated capital.

On Oct. 30, 2009, the Company announced plans to exchange series A and B preferred stock for common stock and to suspend its series A and B preferred dividend in order to preserve capital.

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet
our customers financing needs. For more information on our off-balance sheet arrangements, see Note 12, Financial Instruments with Off Balance Sheet Risk, of the Notes to Consolidated Financial Statements contained in the 2008 Form
10-K.



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Analysis of Financial Condition and Results of Operations



Contractual Obligations.Our contractual obligations consist of time deposits,
borrowings, and operating lease obligations. There have not been any significant changes in our contractual obligations from those disclosed in the 2008 Form 10-K.

ANALYSIS OF RESULTS OF OPERATIONS

Overview.During the first nine months of 2009, we incurred a net loss available to common shareholders of $56.6 million, a decrease of $61.4 million from the net income available to common
shareholders of $4.8 million for the first nine months of 2008. Our net loss available to common shareholders for the three months ended September 30, 2009 was $14.7 million as compared with net income available to common shareholders of $1.7
million for the three months ended September 30, 2008. There were two primary reasons for the loss for the nine months ended September 30, 2009: (1) we added $68.6 million to our allowance for loan losses during the nine months ended
September 30, 2009 because we determined that additional reserves were necessary to help quickly resolve problem credits as loan quality has deteriorated due to the slow economy and declining real estate values and (2) we incurred a
goodwill impairment charge of $28.0 million in the second quarter related to the SFC acquisition.

Diluted loss per common share was $0.68 and
$2.60 for the three and nine months, respectively, ended September 30, 2009, a decrease of $0.81 and $3.01 over the diluted earnings per common share of $0.13 and $0.41 for the three months and nine months ended September 30, 2008,
respectively.

Net Interest Income.Net interest income for the three months ended September 30, 2009 was $26.5 million,
an increase of $19.0 million over the three months ended September 30, 2008 and $579.0 thousand over the three months ended June 30, 2009. The net interest margin, which is calculated by expressing annualized net interest income as a percentage of
average interest earning assets, is an indicator of effectiveness in generating income from earning assets. The net interest margin was 3.80% for the three months ended September 30, 2009 compared to 3.82% and 3.71% for the three months ended
September 30, 2008 and June 30, 2009, respectively.

Net interest income for the first nine months of 2009 was $78.5 million, an increase of
$59.9 million or 322% compared with the first nine months of 2008. The increase in net interest income was primarily the result of an increase in average loans of $2.0 billion from September 30, 2008 to September 30, 2009, the result of the $2.0
billion of earning assets acquired with the GFH acquisition. Our net interest margin decreased from 3.82% during the first nine months of 2008 to 3.75% for the same period in 2009.

Our interest earning assets consist primarily of loans, investment securities, interest-bearing deposits in other banks, and overnight funds sold. Interest income on loans decreased $242.0 thousand for
the three months ended September 30, 2009 compared to the three months ended June 30, 2009 as a result of a $52.8 million decrease in average loan balances. Interest income on loans, including fees, increased $24.0 million to $35.9 million for the
three months ended September 30, 2009 as compared to the same time period during 2008. Interest income on investment securities increased $1.0 million for the three months ended September 30, 2009 compared to the same time period during 2008. It
decreased $108.0 thousand for the three months ended June 30, 2009. Interest income on interest-bearing deposits in other banks decreased $1.0 thousand for the three month period ended September 30, 2009 compared to the same time period during 2008.
Interest income on overnight funds sold increased $13.0 thousand for the three months ended September 30, 2009 compared to the same time period during 2008.

Interest income on loans, including fees, increased $80.0 million to $109.8 million for the nine months ended September 30, 2009 as compared to the same time period during 2008. This increase resulted
from a $2.0 billion increase in average loans from the nine months ended September 30, 2008 to the nine months ended September 30, 2009 and was partially offset by a 103 basis point decrease experienced in the average interest yield. Interest income
on investment securities increased $3.4 million for the nine months ended September 30, 2009 compared to the same time periods during 2008. The $119.3 million increase in the average investment securities balance, of which $117.7 million was
acquired with the GFH acquisition, netted against a 30 basis point decrease in the average interest yield contributed to this increase. Interest income on interest-bearing deposits in other banks decreased $214.0 thousand for the nine months ended
September 30, 2009 compared to the same time period during 2008. This decrease was the result of the $3.7 million decrease in average interest-bearing deposits along with a 238 basis point decrease in the average interest yield. Interest income on
overnight funds sold decreased $11 thousand for the nine months ended September 30, 2009 compared to the same time period during 2008. This decrease was due to the 205 basis point decrease experienced in the average interest yield of average
overnight funds sold.



33



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



Managements Discussion and
Analysis of Financial Condition and Results of Operations



Our interest bearing liabilities consist of deposit accounts and borrowings. Interest expense from
deposits increased $4.8 million to $8.5 million for the three months ended September 30, 2009 compared to the same period in 2008 and decreased $597.0 thousand for the three months ended September 30, 2009 compared to June 30, 2009. As the Federal
Open Market Committee reduced interest rates throughout 2008 and the early part of 2009, we were able to reduce rates on interest-bearing deposit accounts. The average interest rate on interest bearing deposits decreased 17 basis points from 1.79%
for the three months ended June 30, 2009 to 1.62% for the three months ended September 30, 2009. This decrease in our average rates resulted from continuing to renew certificates of deposits (CDs) at lower rates during the third quarter
which reduced our average rate from 2.28% in the second quarter of 2009 to 1.99% for the third quarter of 2009. Additionally, our markets have allowed further reduction of rates on the majority of our savings and money market accounts.

Interest expense from deposits increased $17.4 million to $27.8 million for the nine months ended September 30, 2009 compared to the same time period
during 2008. This increase resulted from the $1.6 billion increase in average interest bearing deposits of which $1.5 billion was acquired with the GFH acquisition. The average rate of interest-bearing deposits decreased 147 basis points to 1.83%
for the nine month period in 2009 as compared with the same period in 2008. This decrease in our average rates resulted from continuing to renew CDs at lower rates during the first nine months of 2009 which reduced our average rate from 4.24% in for
the nine months ended September 30, 2008 to 2.31% for the nine months ended September 30, 2009.

Interest expense from borrowings, which
consists of FHLB borrowings, overnight funds purchased, and other borrowings, was $2.5 million for the three months ended September 30, 2009. This represented a $1.3 million increase from the three months ended September 30, 2008. This increase was
the result of an increase in the average rate on borrowings from 2.56% for the three month period ended June 30, 2009 to 2.86% for the three month period ended September 30, 2009. Average interest expense from borrowings for the three months ended
September 30, 2009 decreased $1.4 million from June 30, 2009 as a result of a decrease of $93.8 million in average borrowings.

Interest
expense from borrowings, which consists of FHLB borrowings, overnight funds purchased, and other borrowings, was $8.4 million for the nine months ended September 30, 2009. This represented a $5.9 million increase from the nine months ended September
30, 2008. This increase was the result of an increase in the average balances of borrowings of $354.5 million for the nine month period of 2009 as compared with the same period in 2008, which was primarily attributed to the acquisition of GFH. Due
to declines in market rates of interest, the average rate on borrowings decreased from 4.35% for the nine month period in 2008 to 2.59% for the nine month period in 2009.



34



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



Managements Discussion and
Analysis of Financial Condition and Results of Operations



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 September 30, 2009 and June 30, 2009 and nine months ended September 30, 2009 and 2008.



|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|------------------------------------------ |  | ------------------------------------- | --------- | -------------------------------- | -------------------------------- | ----------------- |  | ------------------------------ | -------------- |  | -------------------------------- | --------- | ----------------- | - | ------- | -------------------------- | ----------------------- | - |  | - | ------ | - |  | - | ------ | - |  | - | ------ | -
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         | September Compared to June |                        
|                                           |  | Three Months Ended September 30, 2009 |           |                                  | Three Months Ended June 30, 2009 |                   |  | InterestIncome/ExpenseVariance |                |  |                                  |           |                   |   |        
|                                           |  | AverageBalance                        |           | AnnualizedInterestIncome/Expense |                                  | AverageYield/Rate |  |                                | AverageBalance |  | AnnualizedInterestIncome/Expense |           | AverageYield/Rate |   |         |                            | VarianceAttributable to |  
|(in thousands)                             |  |                                       |           |                                  |                                  |                   |  |                                | Rate           |  |                                  | Volume    |                  
|Assets                                     |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Interest earning assets                    |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Loans                                      |  | $                                     | 2,557,046 |                                  | $                                | 142,461           |  | 5.57                           | %              |  | $                                | 2,609,810 |                   | $ | 144,999 |                            | 5.56                    | % |  | $ | (2,538 | ) |  | $ | 285    |   |  | $ | (2,823 | )
|Investment securities                      |  |                                       | 148,518   |                                  |                                  | 5,761             |  | 3.88                           | %              |  |                                  | 159,740   |                   |   | 6,260   |                            | 3.92                    | % |  |   | (499   | ) |  |   | (64    | ) |  |   | (435   | )
|Interest bearing deposits with banks       |  |                                       | 12,050    |                                  |                                  | 40                |  | 0.33                           | %              |  |                                  | 11,229    |                   |   | 20      |                            | 0.18                    | % |  |   | 20     |   |  |   | 18     |   |  |   | 2      |  
|Overnight funds sold                       |  |                                       | 48,084    |                                  |                                  | 67                |  | 0.14                           | %              |  |                                  | 21,790    |                   |   | 48      |                            | 0.22                    | % |  |   | 19     |   |  |   | (10    | ) |  |   | 29     |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Total interest earning assets              |  |                                       | 2,765,698 |                                  |                                  | 148,329           |  | 5.36                           | %              |  |                                  | 2,802,569 |                   |   | 151,327 |                            | 5.40                    | % |  | $ | (2,998 | ) |  | $ | 229    |   |  | $ | (3,227 | )
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Noninterest earning assets                 |  |                                       | 214,243   |                                  |                                  |                   |  |                                |                |  |                                  | 284,323   |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Total assets                               |  | $                                     | 2,979,941 |                                  |                                  |                   |  |                                |                |  | $                                | 3,086,892 |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Liabilities and Shareholders Equity       |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Interest bearing liabilities               |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Interest bearing demand deposits           |  | $                                     | 609,497   |                                  | $                                | 5,848             |  | 0.96                           | %              |  | $                                | 642,179   |                   | $ | 6,245   |                            | 0.97                    | % |  |   | (397   | ) |  |   | (69    | ) |  |   | (328   | )
|Savings deposits                           |  |                                       | 110,196   |                                  |                                  | 909               |  | 0.83                           | %              |  |                                  | 118,979   |                   |   | 1,181   |                            | 0.99                    | % |  |   | (272   | ) |  |   | (189   | ) |  |   | (83    | )
|Time deposits                              |  |                                       | 1,349,920 |                                  |                                  | 26,808            |  | 1.99                           | %              |  |                                  | 1,268,661 |                   |   | 28,900  |                            | 2.28                    | % |  |   | (2,092 | ) |  |   | (4,155 | ) |  |   | 2,063  |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Total interest bearing deposits            |  |                                       | 2,069,613 |                                  |                                  | 33,564            |  | 1.62                           | %              |  |                                  | 2,029,819 |                   |   | 36,326  |                            | 1.79                    | % |  | $ | (2,761 | ) |  | $ | (4,413 | ) |  | $ | 1,652  |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Borrowings                                 |  |                                       | 340,363   |                                  |                                  | 9,720             |  | 2.86                           | %              |  |                                  | 434,208   |                   |   | 11,120  |                            | 2.56                    | % |  |   | (1,400 | ) |  |   | 1,608  |   |  |   | (3,008 | )
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Total interest bearing liabilities         |  |                                       | 2,409,976 |                                  |                                  | 43,284            |  | 1.80                           | %              |  |                                  | 2,464,027 |                   |   | 47,446  |                            | 1.93                    | % |  | $ | (4,161 | ) |  | $ | (2,805 | ) |  | $ | (1,356 | )
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Noninterest bearing liabilities            |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Demand deposits                            |  |                                       | 245,193   |                                  |                                  |                   |  |                                |                |  |                                  | 259,754   |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Other liabilities                          |  |                                       | 25,176    |                                  |                                  |                   |  |                                |                |  |                                  | 32,804    |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Total noninterest bearing liabilities      |  |                                       | 270,369   |                                  |                                  |                   |  |                                |                |  |                                  | 292,558   |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Total liabilities                          |  |                                       | 2,680,345 |                                  |                                  |                   |  |                                |                |  |                                  | 2,756,585 |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Shareholders equity                       |  |                                       | 299,596   |                                  |                                  |                   |  |                                |                |  |                                  | 330,307   |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Total liabilities and shareholders equity |  | $                                     | 2,979,941 |                                  |                                  |                   |  |                                |                |  | $                                | 3,086,892 |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Net interest income                        |  |                                       |           |                                  | $                                | 105,045           |  |                                |                |  |                                  |           |                   | $ | 103,881 |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |               
|Net interest spread                        |  |                                       |           |                                  |                                  |                   |  | 3.57                           | %              |  |                                  |           |                   |   |         |                            | 3.47                    | % |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  
|Net interest margin                        |  |                                       |           |                                  |                                  |                   |  | 3.80                           | %              |  |                                  |           |                   |   |         |                            | 3.71                    | % |  |   |        |   |  |   |        |   |  |   |        |  
|                                           |  |                                       |           |                                  |                                  |                   |  |                                |                |  |                                  |           |                   |   |         |                            |                         |   |  |   |        |   |  |   |        |   |  |   |        |  

Note: Annualized interest income from loans included annualized fees of $1,324 for the three months
ended September 30, 2009 and $1,456 for the three months ended June 30, 2009. Nonaccrual loans are included in loans above.



35



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



Managements Discussion and
Analysis of Financial Condition and Results of Operations



|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------ |  | ------------------------------------ | --------- | -------------------------------- | ------------------------------------ | ----------------- |  | ------------------------------ | -------------- |  | -------------------------------- | ------- | ----------------- | --------------------- | ------ |  | ----------------------- | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   | 2009 Compared to 2008 |       
|                                           |  | Nine Months Ended September 30, 2009 |           |                                  | Nine Months Ended September 30, 2008 |                   |  | InterestIncome/ExpenseVariance |                |  |                                  |         |                   |                       |       
|                                           |  | AverageBalance                       |           | AnnualizedInterestIncome/Expense |                                      | AverageYield/Rate |  |                                | AverageBalance |  | AnnualizedInterestIncome/Expense |         | AverageYield/Rate |                       |        |  | VarianceAttributable to |  
|(in thousands)                             |  |                                      |           |                                  |                                      |                   |  |                                | Rate           |  |                                  | Volume  |                  
|Assets                                     |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Interest earning assets                    |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Loans                                      |  | $                                    | 2,586,189 |                                  | $                                    | 146,257           |  | 5.68                           | %              |  | $                                | 593,658 |                   | $                     | 39,848 |  | 6.71                    | % |  | $ | 106,409 |   |  | $ | (5,124 | ) |  | $ | 111,533 |  
|Investment securities                      |  |                                      | 161,462   |                                  |                                      | 6,385             |  | 3.97                           | %              |  |                                  | 42,173  |                   |                       | 1,799  |  | 4.27                    | % |  |   | 4,586   |   |  |   | (115   | ) |  |   | 4,701   |  
|Interest bearing deposits with banks       |  |                                      | 7,749     |                                  |                                      | 28                |  | 0.36                           | %              |  |                                  | 11,413  |                   |                       | 313    |  | 2.74                    | % |  |   | (285    | ) |  |   | (208   | ) |  |   | (77     | )
|Overnight funds sold                       |  |                                      | 38,351    |                                  |                                      | 52                |  | 0.14                           | %              |  |                                  | 3,055   |                   |                       | 67     |  | 2.19                    | % |  |   | (15     | ) |  |   | 1      |   |  |   | (16     | )
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total interest earning assets              |  |                                      | 2,793,751 |                                  |                                      | 152,722           |  | 5.49                           | %              |  |                                  | 650,299 |                   |                       | 42,027 |  | 6.46                    | % |  | $ | 110,695 |   |  | $ | (5,446 | ) |  | $ | 116,141 |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |               
|Noninterest earning assets                 |  |                                      | 280,324   |                                  |                                      |                   |  |                                |                |  |                                  | 50,960  |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total assets                               |  | $                                    | 3,074,075 |                                  |                                      |                   |  |                                |                |  | $                                | 701,259 |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |               
|Liabilities and Shareholders Equity       |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Interest bearing liabilities               |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Interest bearing demand deposits           |  | $                                    | 629,092   |                                  | $                                    | 6,256             |  | 1.00                           | %              |  | $                                | 70,975  |                   | $                     | 943    |  | 1.33                    | % |  | $ | 5,313   |   |  |   | (171   | ) |  |   | 5,484   |  
|Savings deposits                           |  |                                      | 117,479   |                                  |                                      | 1,267             |  | 1.08                           | %              |  |                                  | 89,795  |                   |                       | 1,893  |  | 2.11                    | % |  |   | (626    | ) |  |   | (1,695 | ) |  |   | 1,069   |  
|Time deposits                              |  |                                      | 1,284,089 |                                  |                                      | 29,565            |  | 2.31                           | %              |  |                                  | 260,656 |                   |                       | 11,055 |  | 4.24                    | % |  |   | 18,510  |   |  |   | (2,424 | ) |  |   | 20,934  |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total interest bearing deposits            |  |                                      | 2,030,660 |                                  |                                      | 37,087            |  | 1.83                           | %              |  |                                  | 421,426 |                   |                       | 13,891 |  | 3.30                    | % |  | $ | 23,196  |   |  | $ | (4,290 | ) |  | $ | 27,487  |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |               
|Borrowings                                 |  |                                      | 430,611   |                                  |                                      | 11,130            |  | 2.59                           | %              |  |                                  | 76,154  |                   |                       | 3,311  |  | 4.35                    | % |  |   | 7,819   |   |  |   | (742   | ) |  |   | 8,561   |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total interest bearing liabilities         |  |                                      | 2,461,271 |                                  |                                      | 48,217            |  | 1.97                           | %              |  |                                  | 497,580 |                   |                       | 17,202 |  | 3.46                    | % |  | $ | 31,015  |   |  | $ | (5,032 | ) |  | $ | 36,048  |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |               
|Noninterest bearing liabilities            |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Demand deposits                            |  |                                      | 249,069   |                                  |                                      |                   |  |                                |                |  |                                  | 106,514 |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Other liabilities                          |  |                                      | 35,548    |                                  |                                      |                   |  |                                |                |  |                                  | 8,368   |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total noninterest bearing liabilities      |  |                                      | 284,617   |                                  |                                      |                   |  |                                |                |  |                                  | 114,882 |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Total liabilities                          |  |                                      | 2,745,888 |                                  |                                      |                   |  |                                |                |  |                                  | 612,462 |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |               
|Shareholders equity                       |  |                                      | 328,187   |                                  |                                      |                   |  |                                |                |  |                                  | 88,797  |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |               
|Total liabilities and shareholders equity |  | $                                    | 3,074,075 |                                  |                                      |                   |  |                                |                |  | $                                | 701,259 |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |               
|Net interest income                        |  |                                      |           |                                  | $                                    | 104,505           |  |                                |                |  |                                  |         |                   | $                     | 24,825 |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |               
|Net interest spread                        |  |                                      |           |                                  |                                      |                   |  | 3.52                           | %              |  |                                  |         |                   |                       |        |  | 3.01                    | % |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net interest margin                        |  |                                      |           |                                  |                                      |                   |  | 3.75                           | %              |  |                                  |         |                   |                       |        |  | 3.82                    | % |  |   |         |   |  |   |        |   |  |   |         |  
|                                           |  |                                      |           |                                  |                                      |                   |  |                                |                |  |                                  |         |                   |                       |        |  |                         |   |  |   |         |   |  |   |        |   |  |   |         |  

Note: Annualized interest income from loans included annualized fees of $1,747 for the nine months
ended September 30, 2009 and $622 for the nine months ended September 30, 2008. Nonaccrual loans are included in loans above.

Noninterest Income.For the quarter ended September 30, 2009, total noninterest income was $7.2 million, an increase of $5.4 million or 302% as compared to third quarter 2008 and an increase of $1.6 million or
27.9% compared to second quarter 2009. Service charges on deposit accounts increased $1.0 million or 102% to $2.1 million for the third quarter of 2009 compared to the same period in 2008. The increase was primarily attributed to service charges on
the accounts acquired with the GFH merger. Additionally, as part of the GFH merger, we acquired mortgage, insurance, and brokerage subsidiaries. Revenue from these operations was $678 million, $1.2 million, and $108 thousand, respectively, during
the first three months of 2009. We had no such income in 2008.



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HAMPTON ROADS BANKSHARES, INC.



Managements Discussion and
Analysis of Financial Condition and Results of Operations



We reported an increase in total noninterest income of $14.7 million or 316% for the first nine months
of 2009 compared to the same period in 2008. Service charges on deposit accounts, our primary source of noninterest income, increased $4.0 million or 187% to $6.2 million for the first nine months of 2009 compared to the same period in 2008. The
increase was primarily attributed to service charges on the accounts acquired with the GFH and SFC mergers. Additionally, as part of the GFH merger, we acquired mortgage, insurance, and brokerage subsidiaries. Revenue from these operations was $3.7
million, $3.9 million, and $239 thousand, respectively, during the first nine months of 2009. We had no such income in 2008. Noninterest income comprised 19.8% of total revenue in the first nine months of 2009 compared to 20.0% in the first nine
months of 2008.

Our noninterest income primarily consists of service charges on deposit accounts and fee income produced by our reportable
segments. The following tables provide an analysis of noninterest income (dollars in thousands).



|                                                      |  |                                 |       |                                |      |   |       |  |   |        |   |  |   |      
|----------------------------------------------------- |  | ------------------------------- | ----- | ------------------------------ | ---- | - | ----- |  | - | ------ | - |  | - | -----
|                                                      |  | Three Months EndedSeptember 30, |       | Nine Months EndedSeptember 30,
|                                                      |  | 2009                            |       |                                | 2008 |   | 2009  |  |   | 2008  
|Service charges on deposit accounts                   |  | $                               | 2,054 |                                |      | $ | 1,016 |  | $ | 6,186  |   |  | $ | 2,157
|Mortgage banking revenue                              |  |                                 | 678   |                                |      |   |      |  |   | 3,717  |   |  |   |     
|Other than temporary impairment of real estate owned  |  |                                 | (572  | )                              |      |   |      |  |   | (880   | ) |  |   |     
|Other than temporary impairment of securities         |  |                                 | (211  | )                              |      |   |      |  |   | (343   | ) |  |   |     
|Insurance revenue                                     |  |                                 | 1,243 |                                |      |   |      |  |   | 3,894  |   |  |   |     
|Brokerage revenue                                     |  |                                 | 108   |                                |      |   |      |  |   | 239    |   |  |   |     
|Income from bank owned life insurance                 |  |                                 | 412   |                                |      |   |      |  |   | 1,217  |   |  |   |     
|Visa check card income                                |  |                                 | 472   |                                |      |   | 176   |  |   | 1,333  |   |  |   | 541  
|ATM surcharge fee                                     |  |                                 | 111   |                                |      |   | 121   |  |   | 311    |   |  |   | 441  
|Wire fees                                             |  |                                 | 42    |                                |      |   | 23    |  |   | 130    |   |  |   | 81   
|Rental income                                         |  |                                 | 40    |                                |      |   | 19    |  |   | 152    |   |  |   | 96   
|Other                                                 |  |                                 | 160   |                                |      |   | 445   |  |   | 676    |   |  |   | 872  
|                                                      |  |                                 |       |                                |      |   |       |  |   |        |   |  |   |      
|Subtotal before gain on sale of investment securities |  |                                 | 4,537 |                                |      |   | 1,800 |  |   | 16,632 |   |  |   | 4,188
|Gain on sale of investment securities                 |  |                                 | 2,695 |                                |      |   |      |  |   | 2,695  |   |  |   | 457  
|                                                      |  |                                 |       |                                |      |   |       |  |   |        |   |  |   |      
|Total noninterest income                              |  | $                               | 7,232 |                                |      | $ | 1,800 |  | $ | 19,327 |   |  | $ | 4,645
|                                                      |  |                                 |       |                                |      |   |       |  |   |        |   |  |   |      

Noninterest Expense.For the quarter ended September 30, 2009, noninterest
expense was $21.7 million, an increase of $15.2 million over the third quarter of 2008 and a decrease of $28.6 million over second quarter 2009. As discussed above, the second quarter of 2009 included a goodwill impairment charge of $28.0 million,
accounting for the majority of the increase over the third quarter of 2008. Additionally, salaries and employee benefits increased $7.2 million for the quarter ended September 30, 2009 over the comparative 2008 quarter; occupancy expense
increased $1.3 million to $2.2 million for the three months ended September 30, 2009 as compared with the same period in 2008; equipment expenses were $1.2 million for the third quarter of 2009 compared to $97.0 thousand for the third quarter
of 2008; and data processing expense increased $1.0 million for the third quarter of 2009 over the comparative 2008 quarter. All of these increases were directly associated with the acquisitions of GFH and SFC as discussed above. FDIC insurance also
increased $1.2 million for the three months ended September 30, 2009 compared to the same period in 2008. This increase was directly a result of the increase in required insurance due to the larger amount of deposits that resulted from the
acquisitions and FDIC insurance rates approximately doubling in 2009 as compared with 2008.

Total noninterest expense increased $76.7 million
or 507% for the first nine months of 2009 compared to the first nine months of 2008. Of this increase, $28.0 million was attributed to a non-cash goodwill impairment charge incurred during the second quarter of 2009. The impairment charge was
associated with the goodwill created from the SFC acquisition, and the subsequent drop in market valuation of SFC. Excluding the goodwill impairment charge, the



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HAMPTON ROADS BANKSHARES, INC.



Managements Discussion and
Analysis of Financial Condition and Results of Operations



increase in noninterest expense was attributable primarily to salaries and employee benefits, which increased 293% to $32.1 million in the first nine months of 2009 over comparative 2008. The
increase was a direct result of the mergers with GFH and SFC. Our number of full-time employees increased from 265 on September 30, 2008 to 696 on September 30, 2009. We experienced a 221% increase in occupancy expense related to the
increased number of properties obtained as a result of the acquisitions. Data processing expense, another category of noninterest expense, posted an increase of $3.1 million for the first nine months of 2009 compared to the first nine months of
2008, resulting from the cost of Shore Banks and Gateways outsourced data processing functions. FDIC insurance was $4.6 million for the nine months ended September 30, 2009 as compared with $163 thousand for the same period in 2008.
This was directly a result of the increase in required insurance due to the larger amount of deposits that resulted from the acquisitions, FDIC insurance rates approximately doubling in 2009 as compared with 2008, and a special FDIC insurance
assessment incurred during the second quarter that resulted in an approximate one-time cost of $1.4 million. For the nine months ended September 30, 2009, equipment expenses were $3.7 million compared to $165 thousand for comparative 2008. This
increase was related to the acquisitions of GFH and SFC.

The following table provides an analysis of quarterly total noninterest expense by
line item (dollars in thousands).



|                                   |  |                                 |        |                                |   |       |  |      |        |  |   |       
|---------------------------------- |  | ------------------------------- | ------ | ------------------------------ | - | ----- |  | ---- | ------ |  | - | ------
|                                   |  | Three Months EndedSeptember 30, |        | Nine Months EndedSeptember 30,
|                                   |  | 2009                            |        | 2008                           |   | 2009  |  | 2008
|Salaries and employee benefits     |  | $                               | 10,366 |                                | $ | 3,136 |  | $    | 32,146 |  | $ | 8,190 
|Occupancy                          |  |                                 | 2,232  |                                |   | 937   |  |      | 6,316  |  |   | 1,970 
|Data processing                    |  |                                 | 1,472  |                                |   | 427   |  |      | 3,965  |  |   | 841   
|Impairment of goodwill             |  |                                 |       |                                |   |      |  |      | 27,976 |  |   |      
|FDIC insurance                     |  |                                 | 1,328  |                                |   | 79    |  |      | 4,629  |  |   | 163   
|Equipment                          |  |                                 | 1,215  |                                |   | 97    |  |      | 3,706  |  |   | 165   
|Telephone and postage              |  |                                 | 332    |                                |   | 133   |  |      | 1,168  |  |   | 326   
|Advertising and marketing          |  |                                 | 186    |                                |   | 127   |  |      | 377    |  |   | 298   
|Directors and regional board fees |  |                                 | 184    |                                |   | 131   |  |      | 849    |  |   | 308   
|Bank franchise tax                 |  |                                 | 177    |                                |   | 173   |  |      | 532    |  |   | 448   
|Professional fees                  |  |                                 | 167    |                                |   | 88    |  |      | 505    |  |   | 168   
|VISA check card                    |  |                                 | 38     |                                |   | 85    |  |      | 114    |  |   | 183   
|Other                              |  |                                 | 4,009  |                                |   | 1,127 |  |      | 9,601  |  |   | 2,081 
|                                   |  |                                 |        |                                |   |       |  |      |        |  |   |       
|Total noninterest expense          |  | $                               | 21,706 |                                | $ | 6,540 |  | $    | 91,884 |  | $ | 15,141
|                                   |  |                                 |        |                                |   |       |  |      |        |  |   |       

Income Tax Provision.We recorded a provision for income
tax benefit of $8.3 million, representing an effective tax rate of 36.7%, for the third quarter of 2009. Income tax benefit for the first nine months of 2009 was $13.4 million. Our effective tax rate was 21.4% and 33.5% in the first nine months of
2009 and 2008, respectively. The effective tax rate related to the 2009 income tax benefit was much lower than the effective rates related to income tax expense in 2008 because the goodwill impairment charge recorded in the second quarter of 2009 is
not deductable for income tax purposes, thus lowering the overall tax benefit as a percentage of the pre-tax loss. The 2008 effective tax rates are more representative of future expected tax rates.



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HAMPTON ROADS BANKSHARES, INC.



PART I. FINANCIAL INFORMATION



|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. An increase in interest rates would tend to decrease the Companys net interest income, while a decrease would tend to increase the Companys net interest income.
Thus, the Companys interest rate sensitivity position is liability-sensitive.

The Companys management, guided by the
Asset/Liability Committee (ALCO), 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 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 manage 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
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.

The expected effect on net interest income for the
twelve months following September 30, 2009 and December 31, 2008 due to a shock in interest rates is shown below. These estimates are dependent on material assumptions, such as those previously discussed.



|                          |  |                                                 |        |   |                                                |       |    |        |   |        |   |  |       |   
|------------------------- |  | ----------------------------------------------- | ------ | - | ---------------------------------------------- | ----- | -- | ------ | - | ------ | - |  | ----- | --
|(in thousands)            |  | September 30, 2009Change in Net Interest Income |        |   | December 31, 2008Change in Net Interest Income |      
|                          |  | Amount                                          |        |   | %                                              |       |    | Amount |   |        | % | 
|Change in Interest Rates: |  |                                                 |        |   |                                                |       |    |        |   |        |   |  |       |   
|+200 basis points         |  | $                                               | (5,445 | ) |                                                | (5.70 | )% |        | $ | (4,338 | ) |  | (4.08 | )%
|+100 basis points         |  |                                                 | (2,173 | ) |                                                | (0.02 | )% |        |   | (2,382 | ) |  | (2.14 | ) 
|-100 basis points         |  |                                                 | N/A    |   |                                                | N/A   |    |        |   | N/A    |   |  | N/A   |   
|-200 basis points         |  |                                                 | N/A    |   |                                                | N/A   |    |        |   | N/A    |   |  | N/A   |   

If interest rates should begin to increase 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.



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##### Table of Contents

HAMPTON ROADS BANKSHARES, INC.



PART I. FINANCIAL INFORMATION



|Item 4. | Controls and Procedures
|------- | -----------------------

As of
September 30, 2009, 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 September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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HAMPTON ROADS BANKSHARES, INC.



PART II. OTHER INFORMATION

ITEM 1  LEGAL PROCEEDINGS

In the ordinary course of operations, the Company may become a party to legal proceedings. Based upon information currently available, management believes that such legal proceedings, in the aggregate,
will not have a material adverse effect on our business, financial conditions, or results of operations.

ITEM 1A  RISK FACTORS

Except as discussed below, there have been no material changes to
the risk factors disclosed in our Form 10-Q for the fiscal quarter ended June 30, 2009, which previously updated the risk factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2008.

The goodwill resulting from our acquisition of GFH may become impaired in the fourth quarter.

We are required to conduct an impairment analysis of the amount of goodwill, which is approximately $53.6 million, associated with the acquisition of GFH in
the fourth quarter of 2009. At the present time, we are unsure whether the goodwill from our merger with GFH is impaired, but we could determine that some or all of this goodwill has become impaired by end of the fourth quarter of 2009. If such
goodwill is impaired, it could cause us to incur additional future net losses and adversely affect the price of, and market for, our common stock.

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 the open market and through privately negotiated transactions. During the first nine
months of 2009, the Company repurchased 69,737 shares of its common stock. The Company did not repurchase any shares of common stock other than through this publicly announced plan. There were no share repurchase transactions conducted during the
third quarter of 2009.

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



|     |  |                                                                                                                                                                                                                              
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Amended and Restated Articles of Incorporation of Hampton Roads Bankshares, Inc. incorporated by reference from the Registrants Form 8-K, filed July 30,
2009.                                                              
|     | 
|3.2  |  | Bylaws of Hampton Roads Bankshares, Inc., as amended, incorporated by reference from the Registrants Form 8-K, filed September 24, 2009.                                                                                    
|     | 
|4.1  |  | Specimen of Common Stock Certificate, incorporated by reference from the Registrants Annual Report on Form 10-K for the year ended December 31, 2005.                                                                       
|     | 
|10.1 |  | Employment Agreement by and between Hampton Roads Bankshares, Inc. and John A.B. Davies, Jr., dated July 30, 2009, attached as Exhibit 10.1 to the Registrants Current Report
on Form 8-K, incorporated herein by reference.
|     | 
|31.1 |  | The Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer is filed herewith.                                                                                                                                     



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HAMPTON ROADS BANKSHARES, INC.



PART II. OTHER INFORMATION



|     |  |                                                                                                                       
|---- |  | ----------------------------------------------------------------------------------------------------------------------
|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: November 9, 2009 |  | /S/    NEAL A.
PETROVICH                                                                                                               
|                       |  | Neal A. Petrovich Executive Vice President and Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer)



43