10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2005

Commission file number 005-62335

Hampton Roads Bankshares, Inc.

(Exact name of registrant as specified in its charter)

Virginia	54-2053718
(State or other jurisdiction of incorporation or organization)	(IRS Employer I.D. No.)

999 Waterside Dr., 2^nd Floor, Norfolk, VA 23510

(Address of principal executive offices)

Registrant’s telephone number, including area code (757) 217-1000

Securities registered pursuant to Section 12(b) of the Act:	None
Securities registered pursuant to Section 12(g) of the Act:	Common Stock, par value $0.625 per share
	(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is a:	Large accelerated filer  ¨
	Accelerated filer  x
	Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company.    Yes  ¨    No  x

The aggregate market value of the 7,130,389 voting shares held by non-affiliates as of June 30, 2005 based on the last sales price of $11.31 as recorded by the Bank of Hampton Roads (Transfer Agent) was $80,644,702.

The number of shares outstanding of the issuer’s common stock as of February 24, 2006 was 8,344,434 shares of Common Stock, par value $0.625 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report for the year ended December 31, 2005 are incorporated by reference into Part II, which Annual Report is filed herewith as Exhibit 13.1.

Portions of the proxy statement for the annual shareholders’ meeting to be held April 25, 2006 are incorporated by reference into Part III.

Hampton Roads, Bankshares, Inc.

Form 10-K Annual Report

For the Year Ended December 31, 2005

Table of Contents

		Page
Part I
Item 1.	Description of Business	3
Item 1A.	Risk Factors	6
Item 1B.	Unresolved Staff Comments	8
Item 2.	Properties	9
Item 3.	Legal Proceedings	9
Item 4.	Submission of Matters to a Vote of Security Holders	9
Part II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	9
Item 6.	Selected Financial Data	11
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	11
Item 8.	Financial Statements and Supplementary Data	12
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	12
Item 9A.	Controls and Procedures	12
Item 9B.	Other Information	13
Part III
Item 10.	Directors and Executive Officers of the Registrant	13
Item 11.	Executive Compensation	13
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	13
Item 13.	Certain Relationships and Related Transactions	13
Item 14.	Principal Accountant Fees and Services	13
Part IV
Item 15.	Exhibits and Financial Statement Schedules	13
	Signatures	15

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PART 1

ITEM 1 - DESCRIPTION OF BUSINESS

A. General Development of Business:

Hampton Roads Bankshares, Inc., a Virginia corporation (the “Company”), was incorporated under the laws of the Commonwealth of Virginia on February 28, 2001, primarily to serve as a holding company for the Bank of Hampton Roads (the “Bank”). On July 1, 2001, all Bank of Hampton Roads common stock, par value $0.625 per share, converted into the common stock of Hampton Roads Bankshares, Inc., par value $0.625 per share, on a share for share exchange basis, making the Bank a wholly owned subsidiary of the Company. We accounted for this reorganization in a manner similar to a pooling of interests. Accordingly, the prior period consolidated financial statements of the Company are identical to the prior period consolidated financial statements of the Bank.

The Bank is a Virginia state-chartered commercial bank with 17 full service offices in the Hampton Roads region of southeastern Virginia. The Bank was organized in March 1987 and commenced operations in December 1987. The Bank’s principal executive office moved during the fourth quarter of 2005 and is now located at 999 Waterside Drive, 2^nd Floor, Norfolk, VA 23510 and its telephone number is (757) 217-1000.

In January 2004, the Company formed Hampton Roads Investments, Inc., a wholly owned subsidiary, to provide securities, brokerage, and investment advisory services. It is a full service investment company handling all aspects of wealth management including stocks, bonds, annuities, mutual funds and financial advice.

B. Financial Information about Industry Segments:

We do not participate in any industry segments outside of the financial services industry.

C. Narrative Description of Business:

Principal Products or Services:

We engage in a general community and commercial banking business, targeting the banking needs of individuals and small to medium sized businesses in our primary service area which includes Chesapeake, Suffolk, Norfolk, and Virginia Beach, Virginia. Our principal business is to attract deposits and to loan or invest those deposits on profitable terms. We offer all traditional loan and deposit banking services as well as newer services, such as telephone banking, internet banking, and debit cards. We accept both commercial and consumer deposits. These deposits are in varied forms of both demand and time accounts including checking accounts, interest checking, money market accounts, savings accounts, certificates of deposit, and IRA accounts.

We are heavily involved in the construction and real estate lending market and actively extend both personal and commercial credit. Our loans consist of varying terms and can be secured or unsecured. Loans to individuals are for personal, household, and family purposes. Loans to businesses are for such purposes as working capital, plant expansion, and equipment purchases. Real estate loans are made for both residential and commercial properties. The breakdown of loans by classification under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 10 of the 2005 Annual Report is incorporated herein by reference.

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Competition:

The financial services industry remains highly competitive and constantly evolving. We experience strong competition in all aspects of our business. In our market area, we compete with large national and regional financial institutions, savings and loans, and other independent community banks, as well as credit unions, consumer finance companies, mortgage companies, loan production offices, and insurance companies. Many of these institutions have substantially greater assets and capital than we do. In many instances, these institutions have greater lending limits than we do. As of December 31, 2005, the Bank’s legal lending limit to one borrower was $6.6 million, unless we could sell participations in such a loan to other financial institutions. Competition for deposits and loans is affected by factors such as interest rates offered, the number and location of branches, types of products offered, and reputation of the institution. We believe that our pricing of products has remained competitive, but our historical success is primarily attributable to high quality service and community involvement.

Supervision and Regulations:

The Bank

The Bank operates as a state bank subject to supervision and regulation by the Bureau of Financial Institutions of the Virginia State Corporation Commission (the “SCC”). The Bureau of Financial Institutions regulates all areas of a Virginia state bank’s commercial banking operations, including reserves, loans, mergers, payment of dividends, establishment of branches and other aspects of operations.

Additionally, the Bank is a member of the Federal Reserve Bank (the “FRB”) system and is subject to the regulations of the FRB. The Bank also is insured by the Federal Deposit Insurance Corporation (the “FDIC”), which insures that member banks pay depositors to the extent provided by law in the event an insured bank is closed without adequately providing for the claims of depositors.

The earnings and growth of the banking industry are affected by the general conditions of the economy and by the fiscal and monetary policies of the federal government and its agencies, including the FRB. The Board of Governors of the FRB regulates money and credit conditions and, as a result, has a strong influence on interest rates and on general economic conditions. The effect of such policies in the future on the business and earnings of the Bank cannot be predicted with certainty.

On October 26, 2001, the USA Patriot Act of 2001 became federal law. This act contains the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the “IMLAFA”). The IMLAFA contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. The IMLAFA requires U.S. financial institutions to adopt new policies and procedures to fight money laundering and grant the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restriction on financial institutions’ operations. The Bank has adopted policies and procedures designed to comply with the IMLAFA.

The Holding Company

General. The Company is registered with the FRB as a financial holding company under the Bank Holding Company Act of 1956 (the “BHCA”), as amended by the Gramm-Leach-Bliley Act and is subject to ongoing regulation, supervision and examination by the FRB. The Company is required to file with the FRB periodic and annual reports and other information concerning its own business operations and those of its subsidiaries. In addition, the BHCA requires a bank holding company to obtain FRB approval before it

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acquires, directly or indirectly, ownership or control of any voting shares of a second or subsequent bank if, after such acquisition, it would own or control more that 5% of such shares, unless it already owns or controls a majority of such voting shares. FRB approval must also be obtained before a bank holding company acquires all or substantially all of the assets of another bank or merges or consolidates with another bank holding company.

A bank holding company may not, without providing prior notice to the FRB, purchase or redeem its own stock if the gross consideration to be paid, when added to the net consideration paid by such company for all purchases or redemptions by the company of its equity securities within the preceding 12 months, will equal 10% or more of the company’s consolidated net worth unless it meets the requirements of a well-capitalized and well-managed organization.

Under certain amendments to the Virginia Financial Institutions Holding Company Act that became effective July 1, 1983, no corporation, partnership or other business entity may acquire, or make any public offer to acquire, more than 5% of the stock of any Virginia financial institution, or any Virginia financial institution holding company, unless it first files an application with the SCC. The SCC is directed by the statute to solicit the views of the affected financial institution, or financial institution holding company, with respect to such stock acquisition, and is empowered to conduct an investigation during the 60 days following receipt of such an application. If the SCC takes no action within the prescribed period, or if during the prescribed period it issues notice of its intent not to disapprove an application, the acquisition may be completed.

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (“SOX”) became federal law. SOX represents a comprehensive revision of laws affecting corporate governance, accounting obligations and corporate reporting. SOX is applicable to all companies with equity or debt securities registered under the Securities Exchange Act of 1934. In particular, SOX establishes: (1) new requirements for audit committees, including independence, expertise, and responsibilities; (2) additional responsibilities regarding financial statements for the Chief Executive Officer and Chief Financial Officer of the reporting company; (3) new standards for auditors and regulation of audits; (4) increased disclosure and reporting obligations for the reporting company and their directors and executive officers; and (5) new increased civil and criminal penalties for violation of the securities laws.

Financial Holding Companies. Effective March 11, 2000, pursuant to authority granted under the Gramm-Leach-Bliley Act, a bank holding company may elect to become a financial holding company and thereby engage in a broader range of financial and other activities than are permissible for traditional bank holding companies. In order to qualify for the election, all of the depository institution subsidiaries of the bank holding company must be well-capitalized and well-managed, as defined by regulation, and all of its depository institution subsidiaries must have achieved a rating of satisfactory or better with respect to meeting community credit needs.

Pursuant to the Gramm-Leach-Bliley Act, financial holding companies are permitted to engage in activities that are “financial in nature” or incidental or complementary thereto, as determined by the FRB. The Gramm-Leach-Bliley Act identifies several activities as “financial in nature,” including, among others, insurance underwriting and agency, investment advisory services, merchant banking and underwriting, and dealing or making a market in securities. Being designated a financial holding company allows insurance companies, securities brokers and other types of financial companies to affiliate with and/or acquire depository institutions. To preserve the flexibility afforded by this new legislation, the Company became a financial holding company on December 1, 2001.

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Employees:

As of December 31, 2005, we employed 175 people, of whom 160 were full time employees, including the Bank’s President and nine Senior Vice Presidents.

Acquisitions:

Neither the Company nor the Bank completed any acquisitions in the three fiscal years ended December 31, 2005.

Other:

We have no patents, trademarks, licenses, franchises or other concessions which are considered to be material to the operation of the business.

We have not invested any funds during the past year that would be considered material for research activities relating to the development of services or improvements to existing services.

No significant part of our business is dependent upon a single customer or a base of a few customers. We do not believe that the loss of any one customer would have a material adverse effect on our business.

We do not consider our business to be seasonal in nature.

We have not made any public announcement of programs regarding new services to be offered that would require the investment of a material amount of assets or that otherwise is material to our business.

D. Financial Information about Geographic Areas:

We operate a community bank with no foreign operations.

E. Available Information:

We maintain an internet website at www.bankofhamptonroads.com. This website contains a link to our filings with the SEC on Form 10-K, Form 10-Q, and Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. You may also read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at (202) 942-8090. Copies of these materials may be obtained at prescribed rates from the SEC at such address. These materials can also be inspected on the SEC’s web site at www.sec.gov.

F. Reports to Security Holders:

We furnish our annual reports to shareholders prior to the annual meetings of our shareholders, and send proxy statements to shareholders prior to any shareholders’ meeting in compliance with the SEC’s proxy rules. These reports contain financial information that has been examined and reported on, with an opinion expressed by an independent registered public accounting firm.

ITEM 1A. – RISK FACTORS

An investment in our common stock involves various risks. You should carefully understand the risks

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described below before you invest in our common stock. If any of the following risks actually occur, our business, financial condition, and results of operations could suffer, in which case the trading price of our common stock could decline. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, including those not presently known to us or that we currently considers immaterial, also may impair our business. You should read this section together with the other information presented in this annual report.

We depend on the services of key personnel. The loss of any of these personnel could disrupt our operations, and our business could suffer. Our success depends substantially on the banking relationships maintained with our customers and the skills and abilities of our executive officers and senior lending officers. We have entered into employment agreements with our President and Chief Executive Officer, Jack W. Gibson, and five other executive officers. The existence of such agreements, however, does not necessarily assure that we will be able to continue to retain their services. They provide valuable services to us and the unexpected loss of one or more of them could have an adverse impact on our business and possibly result in reduced revenues and earnings. We maintain key man life insurance on Mr. Gibson to provide the Company with some financial protection.

Our business success also is dependent upon our ability to continue to attract, hire, motivate, and retain skilled personnel to develop new customer relationships, as well as new financial products and services. Many experienced banking professionals employed by our competitors are covered by agreements not to compete or solicit their existing customers if they were to leave their current employment. These agreements make the recruitment of these professionals more difficult. The market for these people is competitive, and we cannot assure you that we will be successful in attracting, hiring, motivating, or retaining them.

Our future success is dependent on our ability to compete effectively in a highly competitive banking industry. We face vigorous competition from other banks and other financial institutions, including savings and loan associations, finance companies, and credit unions for deposits, loans, and other financial services in our market area. A number of these banks and other financial institutions are significantly larger than we are and have substantially greater access to capital and other resources, as well as larger lending limits and branch networks, and offer a wider array of banking services. In addition, we also compete with other providers of financial services, such as money market mutual funds, consumer finance companies, mortgage companies, insurance companies, and governmental organizations that may offer more favorable financing than we can. Many of our nonbank competitors are not subject to the same extensive regulations that govern us. As a result, these nonbank competitors have advantages over us in providing certain services. The competition may reduce or limit our margins and our market share and may adversely affect our results of operations and financial condition.

We serve a limited market area, and an economic downturn in our market area could adversely affect our business. Our current market area consists primarily of the South Hampton Roads portion of Virginia, which includes the cities of Norfolk, Chesapeake, Virginia Beach, and Suffolk. In the event on an economic downturn in this market, the lack of geographic diversification could adversely affect banking business and, consequently, our results of operations and financial condition. Although the local economy is diverse, the military has a significant presence. In 2005, the federal government considered the possibility of military base closures. Although the government ultimately decided not to close any significant military bases in our market at this time, there is no guarantee that it will not do so in the future. A significant reduction in the military presence in our market, whether due to base closures or large troop deployments out of the area, could have a materially adverse impact on the local economy and potentially on our customers and our business.

Because of our business of lending for construction and land development, a downturn in real estate markets could increase our credit losses and negatively affect our financial results. Our loan

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portfolio includes a substantial amount of loans for construction and land development. If the market for new housing should experience a significant slowdown, it could impact the value of loan collateral, the ability of borrowers to meet required principal and/or interest payments, and, potentially, the volume of loan losses. We are subject to the risk of loan defaults and foreclosures as the result of being in the lending business. In spite of our efforts to limit exposure to credit risk, we cannot eliminate it entirely. As a result, loan losses, whether from construction and land development loans or other loans in our portfolio, are likely to occur in the future and could affect operating results adversely.

If our allowance for loan losses becomes inadequate, our results of operations may be adversely affected. We maintain an allowance for loan losses that we believe is a reasonable estimate of known and inherent losses in our loan portfolio. Through a periodic review and consideration of the loan portfolio, management determines the amount of the allowance for loan losses by considering general market conditions, credit quality of the loan portfolio, the collateral supporting the loans, historical loan loss experience, and both local and national economic conditions and trends. The amount of losses is susceptible to changes in economic, operating, and other conditions, including changes in interest rates, which may be beyond our control, and these losses may exceed our estimates. We cannot predict with certainty the amount of losses that may be sustained or that our allowance for loan losses will be adequate in the future.

Changes in interest rates could negatively impact our results of operations. Our results of operations depend to a large extent on our net interest income, which is the difference between the interest income received on earning assets, such as loans, investment securities, and short-term investments, and interest expense incurred on deposit accounts and borrowings. The amount of net interest income we earn is influenced by market rates of interest, which in turn is influenced by monetary policy and other external factors, including competition. Net interest income also is influenced by our interest rate policies, the volume of our interest bearing assets and liabilities, and changes in the mix of those assets and liabilities, as well as growth in the respective categories. The relationship of interest rate changes to our financial condition and our results of operations is complex. We use various techniques to analyze the effects of changes in interest rates and utilize various strategies intended to mitigate any adverse effects. Due to the fact that most of our assets and liabilities are interest bearing instruments, our financial condition and results of operation are subject to interest rate risk. Although we attempt to manage interest rate risk, we cannot eliminate it.

Governmental and regulatory changes may adversely affect our cost structure. We are subject to extensive regulation by state and federal regulatory authorities. In addition, as a public company we are subject to securities laws and standards imposed by the Sarbanes-Oxley Act. Because we are a relatively small company, the costs of compliance are disproportionate compared with much larger organizations. Continued growth of legal and regulatory compliance mandates could adversely affect our expenses and future results of operations. In addition, the government and regulatory authorities have the power to impose rules or other requirements that could have an adverse impact on our results of operations.

We face a variety of threats from technology based frauds and scams. Financial institutions are a prime target of criminal activities through various channels of information technology. We attempt to mitigate risk from such activities through policies, procedures, and preventative and detective measures. In addition, we maintain insurance coverage designed to provide a level of financial protection to our business. However, risks posed by business interruption, fraud losses, business recovery expenses, and other potential losses or expenses that may be experienced from a significant event are not readily predictable and, therefore, could have an impact on our results of operations.

ITEM 1B. – UNRESOLVED STAFF COMMENTS

There were no unresolved staff comments as of December 31, 2005.

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ITEM 2 - PROPERTIES

Our executive offices moved to 999 Waterside Dr., 2^nd Floor, Norfolk, VA 23510 during the fourth quarter of 2005. We lease these executive offices with an initial lease term of eleven years and two months. We own ten branch offices: six in the City of Chesapeake, one in the City of Norfolk, one in the City of Suffolk, and two in the City of Virginia Beach. We lease the land and buildings in which the remaining seven branches are located. For additional information about leased properties, see Footnote No. 4 in the Notes to the Consolidated Financial Statements included in the Annual Report which is filed as Exhibit 13.1.

ITEM 3 - LEGAL PROCEEDINGS

In the ordinary course of our operations, we may become party to legal proceedings. Currently, we are not party to any material legal proceedings.

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

We did not submit any matters to a vote of shareholders during the fourth quarter of 2005.

PART II

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

A. Market Information

Our common stock trades on the Over-the-Counter Bulletin Board (“OTCBB”), which is maintained by the NASDAQ Stock Market. Our symbol on OTCBB is “HMPR.” The Bank acts as the Company’s transfer agent. To the best of our knowledge, the price ranges for stock trades that took place during 2005 and 2004 are listed below. The information set forth below reflects inter-dealer prices without retail mark-up, mark-down, or commission and may not represent actual transactions.

	2005				2004
	LOW		HIGH		LOW		HIGH
1ST QUARTER	$	11.00	$	11.75	$	11.35	$	12.50
2ND QUARTER		10.25		11.50		11.50		13.50
3RD QUARTER		10.60		11.25		11.01		12.00
4TH QUARTER		10.50		10.86		11.60		12.20

B. Holders of Stock

As of February 24, 2006, we had 8,344,434 shares of common stock outstanding, which were held by 3,967 shareholders of record. In addition, we had approximately 494 beneficial owners who own their shares through brokers.

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C. Dividends

The following table presents the cash dividends we declared during 2005 and 2004.

	2005				2004
	PER SHARE		AMOUNT		PER SHARE		AMOUNT
1ST QUARTER	$	0.18	$	1,452,156	$	0.15	$	1,187,065
2ND QUARTER		—		—		—		—
3RD QUARTER		0.18		1,455,430		0.18		1,435,583
4TH QUARTER		—		—		—		—

We expect to continue our policy of paying regular cash dividends, although we cannot provide assurance as to future dividends because they depend on future earnings, capital requirements, and financial condition.

Bank regulatory agencies place certain restrictions on dividends paid to the Company by the Bank, which in turn limit our ability to pay dividends to our shareholders. The amount of dividends the Bank may pay to the Company, without prior regulatory approval, is limited to current year earnings plus retained net profits for the two preceding years. At December 31, 2005, the amount available was approximately $7.8 million.

D. Securities Authorized for Issuance Under Equity Compensation Plans

A summary of the information related to our existing equity compensation plans as of December 31, 2005, is given below:

Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights	Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans
Equity Compensation Plans Approved by Security Holders	1,024,559	$	7.70	1,474,177
Equity Compensation Plans not approved by Security Holders	—		—	—
Total	1,024,559	$	7.70	1,474,177

We offer our stock as an investment option under our 401(k) plan. The plan purchased 8,952 shares in 2005.

We granted 33,045 shares of restricted stock to our directors and certain key employees during 2005.

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E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We announced an open ended program in 2003 by which we were authorized to repurchase an unlimited number of our own shares of common stock in open market and privately negotiated transactions. During 2005, we repurchased a total of 104,600 shares of our common stock. We did not repurchase any shares of common stock other than through this publicly announced plan. Details for the transactions conducted during the last quarter of 2005 appear below.

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
Month #1 October 1, 2005- October 31, 2005	—	$	—	—	—
Month #2 November 1, 2005- November 30, 2005	312		10.00	312	—
Month #3 December 1, 2005- December 31, 2005	—		—	—	—
Total	312	$	10.00	312	—

ITEM 6 - SELECTED FINANCIAL DATA

The Selected Financial Data on page 4 of the Annual Report for the year ended December 31, 2005 is incorporated herein by reference.

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations on pages 5 through 19 of the Annual Report for the year ended December 31, 2005 is incorporated herein by reference.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information on the Quantitative and Qualitative Disclosures About Market Risk included in the Interest Rate Sensitivity section on pages 14 through 17 of the Annual Report for the year ended December 31, 2005 is incorporated herein by reference.

We had no derivative financial instruments, foreign currency exposure, or trading portfolio as of December 31, 2005 or 2004.

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ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of the Company and the Report of Independent Registered Public Accounting Firm set forth on pages 20 through 43 of the Annual Report for the year ended December 31, 2005 are incorporated herein by reference or as noted and included as part of this form 10-K.

	Page in Annual Report
Management’s Report on Internal Control over Financial Reporting	20
Report of Independent Registered Public Accounting Firm	21
Consolidated Balance Sheets - December 31, 2005 and 2004	22
Consolidated Statements of Income - Years Ended December 31, 2005, 2004, and 2003	23
Consolidated Statements of Changes in Shareholders’ Equity - Years Ended December 31, 2005, 2004, and 2003	24
Consolidated Statements of Cash Flows - Years Ended December 31, 2005, 2004, and 2003	25
Notes to Consolidated Financial Statements - December 31, 2005, 2004, and 2003	26-43

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in or disagreements with accountants on accounting and financial disclosures during 2005.

ITEM 9A - CONTROLS AND PROCEDURES

As of December 31, 2005, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our 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, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to our Company (including its consolidated subsidiaries) required to be included in our Exchange Act filings pursuant to the Securities Exchange Act of 1934. In addition, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the fourth quarter of our fiscal year ended December 31, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm thereon are set forth in Part II, Item 8 of this Form 10-K.

ITEM 9B – OTHER INFORMATION

Not applicable.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning our directors and executive officers in the proxy statement for the annual shareholders meeting to be held April 25, 2006, filed on or about March 15, 2006, is incorporated herein by reference.

ITEM 11 - EXECUTIVE COMPENSATION

Information concerning executive compensation in the proxy statement for the annual shareholders meeting to be held April 25, 2006, filed on or about March 15, 2006, is incorporated herein by reference.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information concerning security ownership of certain beneficial owners and management and related stockholder matters in the proxy statement for the annual shareholders meeting to be held April 25, 2006, filed on or about March 15, 2006, is incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions in the proxy statement for the annual shareholders meeting to be held April 25, 2006, filed on or about March 15, 2006, is incorporated herein by reference.

ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning principal accountant fees and services in the proxy statement for the annual shareholders meeting to be held April 25, 2006, filed on or about March 15, 2006, is incorporated herein by reference.

PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report:

1. The following consolidated financial statements of the Company and the Report of Independent Registered Public Accounting Firm set forth on pages 20 through 43 of the Annual Report for the year ended December 31, 2005 are incorporated herein by reference or as noted and included as part of this Form 10-K.

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	Page in Annual Report
Management’s Report on Internal Control over Financial Reporting	20
Report of Independent Registered Public Accounting Firm	21
Consolidated Balance Sheets - December 31, 2005 and 2004	22
Consolidated Statements of Income - Years Ended December 31, 2005, 2004, and 2003	23
Consolidated Statements of Changes in Shareholders’ Equity - Years Ended December 31, 2005, 2004, and 2003	24
Consolidated Statements of Cash Flows - Years Ended December 31, 2005, 2004, and 2003	25
Notes to Consolidated Financial Statements - December 31, 2005, 2004, and 2003	26-43

2. Financial Statement Schedules - None.

3. The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this Form 10-K and such Exhibit Index is incorporated herein by reference.

(b) Exhibits required by Item 601 of Regulation S-K

The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this Form 10-K and such Exhibit Index is incorporated herein by reference.

(c) Financial Statements excluded from Annual Report pursuant to Rule 14a-3(b)

Not applicable.

14

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

/s/ Jack W. Gibson

Jack W. Gibson. President &

Chief Executive Officer

(3/14/06)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

/s/ Bobby L. Ralph	/s/ Herman A. Hall, III
Bobby L. Ralph, Director	Herman A. Hall, III, Director
(3/14/06)	(3/14/06)
/s/ Robert G. Bagley	/s/ Emil A. Viola
Robert G. Bagley, Senior Vice	Emil A. Viola, Director and
President, Director	Chairman
(3/14/06)	(3/14/06)
/s/ W. Lewis Witt	/s/ Patricia M. Windsor
W. Lewis Witt, Director	Patricia M. Windsor, Director
(3/14/06)	(3/14/06)
/s/ Warren L. Aleck	/s/ Robert H. Powell III
Warren L. Aleck, Director	Robert H. Powell III, Director
(3/14/06)	(3/14/06)
/s/ Durwood S. Curling	/s/ Donald W. Fulton, Jr.
Durwood S. Curling, Director	Donald W. Fulton, Jr., Senior Vice
(3/14/06)	President and Chief Financial Officer
	(3/14/06)
/s/ Jack W. Gibson	/s/ Lorelle L. Fritsch
Jack W. Gibson, President and	Lorelle L. Fritsch, Vice President,
Chief Executive Officer, Director	Chief Accounting Officer and Controller
(3/14/06)	(3/14/06)

15

Exhibit Index

Hampton Roads Bankshares, Inc.

Exhibit 2.1 - Agreement and Plan of Reorganization

The Agreement and Plan of Reorganization dated March 13, 2001 between the Company and Bank of Hampton Roads filed with the Company’s Form 8-K dated July 2, 2001, is incorporated herein by reference.

Exhibit 3.1 - Articles of Incorporation

The Articles of Incorporation of Hampton Roads Bankshares, Inc. filed with the Company’s Form 8-K dated July 2, 2001, is incorporated herein by reference.

Exhibit 3.2 - Amended Bylaws

The Bylaws of Hampton Roads Bankshares, Inc., as amended, filed with the 2002 Form 10-K, dated March 25, 2003, are incorporated herein by reference.

Exhibit 4.1 – Specimen Common Stock Certificate

A specimen common stock certificate is attached as part of this Form 10-K.

Exhibit 10.1 - Employment Contract with Bank Officer

The employment contract with Jack Gibson, filed as Exhibit 7 of the Form F-1 dated March 28, 1988, is incorporated herein by reference.

Exhibit 10.2 - Supplemental Retirement Agreement

The Supplemental Retirement Agreement, filed with the 1993 Form 10-K dated March 31, 1994, is incorporated herein by reference.

Exhibit 10.3 - Non-Qualified Limited Stock Option Plan for Directors and Employees

The Non-Qualified Limited Stock Option Plan for Directors and Employees, filed with the 1993 Form 10-K dated March 31, 1994, is incorporated herein by reference.

Exhibit 10.4 - Agreement and Plan of Share Exchange with Coastal Virginia Bank

The Agreement and Plan of Share Exchange with Coastal Virginia Bank, filed with the 1993 Form 10-K dated March 31, 1994, is incorporated herein by reference.

Exhibit 10.5 - Purchase and Assumption Agreement with the Federal Deposit Insurance Corporation

The Purchase and Assumption Agreement with the Federal Deposit Insurance Corporation, filed with the 1993 Form 10-K dated March 31, 1994, is incorporated herein by reference.

16

Exhibit 10.6 - Employment Agreement with Bank Officer

The Employment Agreement with Renee` McKinney entered into in 1996, filed with the 1996 Form 10-KSB dated March 31, 1997, is incorporated herein by reference.

Exhibit 10.7 - Employment Agreement with Bank Officer

The Employment Agreement with Tiffany Glenn entered into in 1999, filed with the 1999 Form 10-K dated March 27, 2000, is incorporated herein by reference.

Exhibit 10.8 - Tender Offer Agreement

The Tender Offer to purchase the Company’s Common Stock dated December 17, 2001, filed with the Company’s Schedule TO-1, filed December 14, 2001, as amended, is incorporated herein by reference.

Exhibit 10.9 - Dividend Reinvestment and Stock Purchase Plan

The Dividend Reinvestment and Stock Purchase Plan dated March 14, 2002 filed with the Company’s Form S-3 dated March 14, 2002, is incorporated herein by reference.

Exhibit 10.11 - Employment Agreement with Bank Officer

The Employment Agreement with Gregory Marshall entered into in 2001, filed with the 2001 Form 10-K dated March 22, 2002, is incorporated herein by reference.

Exhibit 10.12 - Employment Agreement with Bank Officer

Employment Agreement with Julie Anderson entered into in 2002, filed with the 2002 Form 10-K dated March 25, 2003, is incorporated herein by reference.

Exhibit 10.13-10.19 – Employment Agreement with Bank Officer and Amendments to Employment Agreements with Bank Officers

The Employment Agreement with Donald Fulton, Jr. and Amendments to Employment Agreements with Jack Gibson, Renee’ McKinney, Tiffany Glenn, Gregory Marshall, Julie Anderson, and Donald Fulton, Jr. entered into in 2003, and filed with the 2003 Form 10-K dated March 23, 2004, are incorporated herein by reference.

Exhibit 13.1 - Annual Report to Security Holders

The Annual Report for the year ended December 31, 2005, except to the extent incorporated herein by reference, is being furnished for informational purposes only and is not deemed to be filed as part of the Report on Form 10-K.

Exhibit 14.1 – Code of Ethics

The Company has a Code of Ethics for its senior financial officers and the Chief Executive Officer. Any waivers of, or amendments to, the Code of Ethics will be disclosed through the timely filing of a Form 8-K with the Securities and Exchange Commission. A copy of the Company’s Code of Ethics can be obtained through written communications addressed to Donald W. Fulton, Jr., Chief Financial Officer, Bank of Hampton Roads, 999 Waterside Dr., 2^nd Floor, Norfolk, VA 23510.

17

Exhibit 21.1 - Subsidiaries of the Registrant

The subsidiaries of Hampton Roads Bankshares, Inc. are filed herewith.

Exhibit 23.1 – Consent of Experts

Consent of KPMG LLP is filed herewith.

Exhibit 31.1 – Rule 13a-14(a)/15d-14(a) Certification

The Rule 13a-14(a)/15d-14(a) certification of Jack W. Gibson is filed herewith.

Exhibit 31.2 – Rule 13a-14(a)/15d-14(a) Certification

The Rule 13a-14(a)/15d-14(a) certification of Donald W. Fulton, Jr. is filed herewith.

Exhibit 32.1 – Section 1350 Certifications

The Section 1350 Certifications of Jack W. Gibson and Donald W. Fulton, Jr. are filed herewith.

18

EX-4.1

Exhibit 4.1

CERTIFICATE NUMBER		SHARES
SPECIMEN	Incorporated under the laws of the Commonwealth of Virginia	SPECIMEN
	201 Volvo Parkway • Chesapeake, Virginia 23320
THIS CERTIFIES THAT			SEE REVERSE FOR CERTAIN DEFINITIONS
		IS THE OWNER OF

VOID

FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.625 EACH OF THE COMMON STOCK OF HAMPTON ROADS BANKSHARES, INC., transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. The certificate and the shares represented hereby are issued, and shall be held, subject to all of the provisions of the Articles of Incorporation of the Corporation and the Bylaws of the Corporation, and all amendments to each thereof, to all of which the holder, by the acceptance hereof, assents.

IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its duly authorized officers.

DATED:
CORPORATE SIGNATURE		CORPORATE SIGNATURE

	VOID	SHAREHOLDER
		CERTIFICATE NUMBER
		SHARES
		PLAN NUMBER	DATED

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

TEN COM	—	as tenants in common	UNIF GIFT MIN ACT  —	_______________________________
				(Cust)
TEN ENT	—	as tenants by the entireties		as Custodian for
JT TEN	—	as joint tenants with right		_______________________________
OR		of survivorship and not as		(Minor)
JT TEN WROS		tenants in common		under the _______________________
				(State)
				Uniform Gifts to Minors Act

Additional abbreviations may also be used though not in the above list.

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
	For Value Received _________________ hereby sell, assign, and transfer

unto
	Shares

of the Capital Stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

to transfer the said Stock on the books of the within named Corporation with full power of substitution in the premises.

Dated                                                                , 20    

In presence of:
Witness	Owner
	Owner
	NOTICE: The signature to this assignment must correspond with the name as written upon the face of the certificate in every particular, without alteration or enlargement or any change whatever.

VOID

EX-13.1

Exhibit 13.1

Table of Contents

President’s Message	1
Selected Financial Data	4
Management’s Discussion and Analysis of Financial Condition and Results of Operations	5
Management’s Report on Internal Control over Financial Reporting Report of Independent Registered Public	20
Accounting Firm	21
Consolidated Balance Sheets	22
Consolidated Statements of Income	23
Consolidated Statements of Changes in Shareholders’ Equity	24
Consolidated Statements of Cash Flows	25
Notes to Consolidated Financial Statements	26
Advisory Board Members	44
Shareholder Information	Inside Back Cover

PRESIDENT’S MESSAGE

Dear Shareholder:

2005 was a remarkable year for Hampton Roads Bankshares. In fact, you could say we climbed to a whole new level.

The financial results achieved by our Company in 2005 were the best in our eighteen year history. Net income was a record $5,507,329, an increase of 33% over 2004. On a diluted per share basis, net income was $0.66, an increase of 32% over 2004.

For the last several years, I have taken this opportunity to discuss the importance of net interest margin in our industry and the effect it has on the bank earnings process. Net interest margin is very similar to gross profit margin in the manufacturing industry; it is an indication of the profitability of our earning assets such as loans. In the recent past, I have talked about how the net interest margin has inhibited our earning power due to the ultra-low interest rate environment imposed by the Federal Reserve. For those who may not understand the correlation, changes in the federal funds rate dictate similar changes in the Wall Street Journal Prime Rate, which is the underlying index for most bank loans.

In contrast to recent years, in 2005 the Company benefited from the Federal Reserve’s actions. To help prevent inflation, the Fed began raising interest rates in June 2004 and this positive trend (from a banking perspective) continued throughout 2005. Between February and December, the Federal Reserve increased the federal funds rate eight times for a total of 200 basis points. Consequently, the yields on the Company’s earning assets increased and helped push the net interest margin up to 5.26%, an increase of 55 basis points over 2004. Net interest income for the year totaled $18.7 million, an increase of 32% compared to 2004.

Total assets as of December 31, 2005 were a record $410 million, an increase of 19% over 2004. Contributing substantially to our growth was the introduction of our new Premium Savings account. This unique savings account pays a premium interest rate while providing customers with penalty-free access to their savings. By year-end, the Premium Savings account had attracted more than $65 million in deposits. The Company’s total deposits at December 31, 2005 were $327 million, an increase of 19% over 2004.

We have also been very successful at attracting core deposits through our network of seventeen branch offices. Two new Bank of Hampton Roads offices were opened in 2005: one in the heart of the Great Bridge section of Chesapeake and one in the Dominion Tower in downtown Norfolk, the center of the Hampton Roads’ financial district. We have more full-service branch locations serving Southside Hampton Roads than any other bank headquartered in the area. Also, if you attend an event at Norfolk Scope or Chrysler Hall, you will find Bank of Hampton Roads’ ATMs prominently located in these arenas.

On a figurative basis, Bank of Hampton Roads climbed to a new high in 2005 when our name was affixed to the top of all four sides of the Dominion Tower, Norfolk’s tallest building. Towering twenty-six stories above the city, our logo is visible to everyone driving into or away from downtown Norfolk. The corporate offices for the Bank and the Holding Company were

“Working with Bank of Hampton Roads is like working with friends.”

2005 ANNUAL REPORT 1

“It’s not just a business relationship, it’s a friendly relationship. That makes business a whole lot easier.”

relocated to the building in October, and since then, we have received regulatory approval to officially re-designate the Dominion Tower as our new corporate headquarters. Thus far, the move has proved beneficial for us in terms of new account openings, new business relationships and new opportunities in the formation.

Our recently-renovated Greenbrier Office continues to be our most vibrant location, and now serves as a lending center, state-of-the-art training facility, and banking office. By the time you read this letter, the signage at all of our locations should be displaying our distinctive new logo and several more of our branch offices will have undergone dramatic renovations. If you have not stopped in to see us in a while, I welcome you to do so. You will be proud of the positive changes we have made to many of our offices.

Our new Dominion Tower Office is featured in a television advertising campaign we introduced in December. The advertisements feature testimonials from a cross-section of our customers discussing why they ENJOY BANKING with us. The various quotes you see on these pages are just a few examples of how they chose to describe their banking relationships. Needless to say, I could not have been more pleased when I heard what they had to say about our Bank and our people.

Our Company is comprised of a conscientious and career-oriented staff. Many of them are stockholders like you and I, and they work everyday to protect and nurture the value of our investments. Our employees believe in and follow our simple motto of “Treat others like you want to be treated yourself.” Their doing so is essential to our success and is the only discerning factor that sets us apart from our competition.

I would be remiss if I did not take a moment to recognize an employee and director, who throughout the years, has set the standard for building relationships with customers, businesses, and the community. On December 30, 2005, after eighteen years of service to Bank of Hampton Roads, Senior Vice President Robert G. “Buddy” Bagley retired from his banking career. Along the way, Buddy has mentored many of our employees and helped us to carve our

2 HAMPTON ROADS BANKSHARES, INC.

niche as the area’s premier construction lender. One of Buddy’s favorite motivational sayings is, “There’s no “I” in the word “TEAM.” Buddy, thank you for being a member of the Bank of Hampton Roads team for all these years. We will miss you.

Also leaving the Board this year are Directors Warren L. Aleck, Durwood S. Curling and Robert H. Powell III. They have elected to participate in our Director Emeritus Program, which was designed to reward directors for long-term service and to strategically plan for the future. Many of our directors have been with us since inception, and their guidance and support are appreciated more than they will ever know. I would like to thank these particular gentlemen for being gracious enough to step aside and provide room for others to be a part of our leadership. Although they will no longer be active members of our Board of Directors, they will continue to serve on our Advisory Boards and to act as Bank Ambassadors to our customers and the general public.

There are many layers of corporate governance and regulation applicable to the banking industry, which require our Board of the Directors to be composed of individuals with specific professional talents and expertise. In particular, they must be able to discern laws and regulatory policies such as the Sarbanes-Oxley Act, the Patriot Act, and the Gramm-Leach Bliley Act among many others. As we diversify our Board, candidates will not only be selected based upon their good character and judgment, but also upon their ability to deal with these complex issues.

I am optimistic that 2006 will be a good year for our Company, but I do not want to set unrealistic expectations that we will see an increase in net income similar to that experienced this year. Many economists are predicting the federal funds rate will stabilize in 2006, and therefore, our earnings will most likely not have the benefit of the rapid rate increases we experienced in 2005. Moreover, higher interest rates are associated with lower loan growth. Loan business was steady throughout 2005, but already down from the levels we experienced the previous year due to the increase in rates. Added to these factors, the Company will be adapting to the additional expenses associated with our move to the Dominion Tower and the renovations to some of our existing offices.

Despite the challenges we will have to overcome in 2006, our Board of Directors has nonetheless set high expectations for our performance. Economic expansion and growth are prevalent in Hampton Roads, and opportunities abound for our Bank to be a part of these projects whether it is through financing or providing deposit services. You can also help us achieve our goals by always giving us the first opportunity to meet your banking needs as well as referring your friends and business associates to us. You can ENJOY BANKING all while helping your Company grow.

I express my thanks to our Board of Directors, Advisory Board Members, employees, shareholders, and customers for the contributions each of you has made to our extraordinary success. I am very proud of our Company and all of those who consistently make it so successful.

Very truly yours,

Jack W. Gibson

President & Chief Executive Officer

“You’re dealing with people that you know; people that you trust. It’s just a team effort.”

2005 ANNUAL REPORT 3

SELECTED FINANCIAL DATA

Years Ended December 31,

(Dollars in thousands except per share data)	2005			2004			2003			2002			2001
Operating Results:
Interest income	$	24,558		$	18,068		$	17,469		$	17,344		$	16,557
Interest expense		5,869			3,911			4,417			5,413			6,087
Net interest income		18,689			14,157			13,052			11,931			10,470
Provision for loan losses		486			926			370			1,100			334
Noninterest income		3,214			3,791			3,410			3,371			2,499
Noninterest expense		13,040			10,794			9,983			9,207			7,893
Income taxes		2,870			2,140			2,086			1,697			1,612
Income before cumulative effect of change in accounting principle		5,507			4,088			4,023			3,298			3,130
Cumulative effect of change in accounting principle, net		—			46			—			—			—
Net income	$	5,507		$	4,134		$	4,023		$	3,298		$	3,130
Per Share Data:
Basic earnings after change in accounting principle	$	0.68		$	0.52		$	0.52		$	0.43		$	0.42
Diluted earnings after change in accounting principle		0.66			0.50			0.50			0.42			0.41
Book value		5.96			5.41			5.22			5.07			4.74
Basic weighted average shares outstanding		8,137,244			7,973,844			7,805,231			7,606,446			7,509,793
Diluted weighted average shares outstanding		8,407,821			8,236,169			7,994,251			7,782,466			7,698,777
Shares outstanding at year-end		8,242,822			8,059,528			7,908,708			7,707,744			7,518,066
Year-End Balances:
Assets	$	409,517		$	344,969		$	316,473		$	298,714		$	240,080
Overnight funds sold		18,294			7,294			10,038			33,105			18,721
Loans		285,330			275,190			210,775			203,184			189,142
Investment securities		73,826			38,995			72,046			45,055			13,904
Deposits		327,447			275,115			257,433			243,874			198,515
Shareholders’ equity		49,131			43,626			41,314			39,111			35,623
Average Balances:
Assets	$	382,821		$	324,485		$	301,073		$	265,532		$	217,215
Overnight funds sold		7,132			6,509			10,179			10,517			12,320
Loans		287,979			236,082			207,853			194,503			168,912
Investment securities		52,706			57,455			61,705			41,574			18,521
Deposits		302,167			260,110			243,177			218,387			179,709
Shareholders’ equity		44,855			41,960			39,311			36,499			34,057
Ratios:
Return on average assets		1.44	%		1.27	%		1.34	%		1.24	%		1.44	%
Return on average equity		12.28			9.85			10.23			9.04			9.19
Average shareholders’ equity to average assets		11.72			12.93			13.06			13.75			15.68
Loan loss allowance to year-end loans		1.26			1.12			1.40			1.40			1.12
Net interest margin		5.26			4.71			4.65			4.83			5.24
Dividend payout ratio		52.94			63.46			80.77			60.47			59.52

4 HAMPTON ROADS BANKSHARES, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

of Financial Condition and Results of Operations

Introduction and Financial Overview

Hampton Roads Bankshares, Inc. (the “Company”) is a $410 million financial services holding company that provides a variety of commercial banking, investment and mortgage services in the Southeastern portion of Virginia known as South Hampton Roads. The Company’s bank subsidiary is Bank of Hampton Roads (the “Bank”). In 2005, the Company relocated its headquarters from Chesapeake, Virginia to downtown Norfolk, Virginia. The move gives the Company greater visibility and recognition in the region it serves. The former headquarters building remains a primary source of the Company’s commercial and real estate lending activities. In addition to the Bank, the Company owns Hampton Roads Investments, Inc. (“HRI”). This subsidiary provides clients with a variety of securities and insurance products. The Company also has a minority investment in a mortgage company, Tidewater Home Funding, LLC (“THF”).

2005 was another exceptional year for the Company. The Company achieved record net income in 2005 of $5.51 million or $0.66 per diluted share, a 33.41% increase over 2004 earnings of $4.13 million, or $0.50 per diluted share. The record earnings performance extended the Company’s string of record performances to 18 consecutive years. In contrast with many of its peers, the Bank achieved profitability in its first full year of operations and has consistently increased earnings in each subsequent year. Profitability as measured by return on average assets in 2005 was strong at 1.44% compared to 1.27% for 2004 and 1.34% for 2003. Return on average shareholders’ equity rose to 12.28% in 2005 compared to 9.85% in 2004 and 10.23% in 2003.

The earnings increase in 2005 was driven by a 32.01% increase in net interest income. Net interest income is somewhat comparable to the gross profit margin of other companies. It is the difference between interest income and interest expense. Net interest income rose in 2005 because of an increase in average earning assets (loans, securities, and other investments), increases in interest rates, and a more favorable mix of earning assets and funding sources. In addition, fees generated from loans were significantly higher in 2005. In general, net interest income in 2005 benefited from greater volume at higher prices and better margins on the higher volume.

Also contributing to the 2005 increase in earnings was a $440,000 reduction in the provision for loan losses. The primary cause for the reduction was a charge recorded in 2004 in the amount of $500,000 related to a specific credit. In spite of the reduction in the provision for loan losses in 2005, the Company’s allowance for loan losses increased to 1.26% of loans outstanding at the end of 2005 compared with 1.12% at the end of 2004.

The benefits of higher net interest income and a lower provision for loan losses were offset partially by increases in noninterest, or overhead, expenses, which rose 20.80% in 2005. Salaries and employee benefits, occupancy, and other expenses all contributed to that increase.

As previously noted, the Company’s growth played a role in the earnings increase in 2005. Total assets at year-end 2005 were $410 million, or 18.71% higher than at year-end 2004. The growth was fueled by a 19.02% increase in deposits. Although loan growth was vibrant during most of the year, large loan repayments weighed on the year over year growth, which was only 3.68%. In contrast, average loans increased 21.98% in 2005 over 2004. As the loan repayments exceeded loan originations in the second half of the year, the Company increased its investment in U.S. Agency securities and short term investments.

The Company historically has maintained a strong capital position. The Company maintained its well-capitalized position with a total risk-based capital ratio of 16.59% at December 31, 2005, compared to 15.72% at December 31, 2004. At year-end 2005, shareholders’ equity represented 12.00% of total assets. Book value per share has steadily increased in conjunction with the Company’s earnings performance.

The following discussion provides additional information about the important factors affecting the consolidated results of operations, financial condition, capital resources and liquidity of the Company. In addition to identifying trends and material changes that occurred during the reporting periods, this report depicts the consistent success achieved by the organization. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and accompanying notes appearing elsewhere in this report.

2005 ANNUAL REPORT 5

Results of Operations

Net Interest Income

Net interest income, the principal source of income for the Company, represents interest and fees earned from lending and investment activities less the interest paid to fund these activities. The following influences may significantly impact net interest income and net interest margin:

• Variations in the volume and mix of interest earning assets and interest bearing liabilities;

• Changes in the yields earned and rates paid; and

• The level of noninterest bearing liabilities available to support earning assets.

Table 1 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 indicated periods. The variance in interest income and expense caused by differences in average balances and rates is shown in Table 2.

Net interest income increased 32.01% in 2005 to $18.69 million, or $4.53 million over the 2004 total. Net interest income in 2004 increased $1.11 million, or 8.47%, over the 2003 amount. The increase in net interest income during 2005 was attributable to growth in average interest earning assets, a shift in the mix and higher rates on those assets, and a change in the mix of funding sources experienced during the year. The increase in net interest income during 2004 was attained by strong increases in the average balance of interest earning assets, most notably in average loans, which increased 13.58% in 2004.

Net interest margin, which is calculated by expressing net interest income as a percentage of average interest earning assets, is an indicator of effectiveness in generating income from earning assets. The Company’s net interest margin was 5.26% in 2005, as compared to 4.71% in 2004 and 4.65% in 2003. The net interest margin was affected positively in 2005 by a shift in the mix of interest earning assets. Average loans, the Company’s highest interest earning asset category, increased 21.98% and accounted for 75.23% of average assets in 2005 and 72.76% in 2004. Thus, the lower yielding asset categories of investment securities and overnight funds sold represented a smaller portion of the asset mix in 2005 compared to 2004.

Interest rates also were a factor in net interest income and the net interest margin in 2005. The Federal Reserve increased its Discount rate and targeted Federal Funds rate 25 basis points eight times in 2005 for a cumulative increase of 2.00%. As rates rose in 2005, the yields on all categories of average earning assets rose. Although the costs associated with average interest bearing liabilities increased also, the magnitude of the change was greater for average earning assets. The variance in net interest income attributable to interest rate changes in 2005 over 2004 was $1.51 million.

Interest income from loans, including loan fees, accelerated to $22.34 million for the year 2005, an increase of $5.97 million. Included in the 2005 increase were $2.41 million in loan fees which exceeded the 2004 amount by $1.29 million. The increase in loan fees resulted primarily from contractual fees collected in 2005 that were related primarily to one banking relationship that was paid off during the year. The level of fees collected in 2005 may not be representative of loan fees that may be recorded by the Company in future periods as the nature and circumstances surrounding the loan fees generated in 2005 may not be replicated. During 2005, average loans increased $51.90 million, or 21.98%, while the average interest yield increased 82 basis points. New loan production was strong throughout 2005. However, loan repayments exceeded new loan volume in the second half of the year as several of the Company’s larger credits were repaid. At December 31, 2005, approximately 49.88% of the loan portfolio consisted of variable rate loans, up from 49.27% and 45.57% as of December 31, 2004 and 2003, respectively. Interest on loans increased $982 thousand to $16.38 million in 2004 over the 2003 amount.

Interest income from investment securities increased $104 thousand from 2004 to 2005. This increase is related to an increase in the average yield on investment securities of 45 basis points, which was offset partially by a decrease in average investment securities of $4.75 million. Interest on investment securities decreased $349 thousand from 2003 to 2004. This decrease was caused by both a decrease in average investment securities of $4.25 million from 2003 to 2004 and a decrease in the average yield on investment securities of 37 basis points.

A shift in the mix of funding sources also was a factor in the Company’s net interest income in 2005. Average noninterest bearing demand deposits increased 18.10% to $99.66 million in 2005. In addition, a new, premium rate savings account contributed low cost funding for the Company’s asset growth. The premium rate savings account generated the $37.19 increase in average savings deposits and the 161 basis point increase in the average rate paid on savings accounts. Although the cost of total average interest bearing liabilities increased 50 basis points in 2005 over 2004, it was less than the increase in yields on average earning assets.

Total interest expense in 2005 increased $1.96 million from 2004 due to a 50 basis point increase in the average rate paid on interest bearing liabilities along with a $39.00 million increase in average interest bearing liabilities. Despite an increase of $3.53 million in average interest bearing liabilities in 2004, the Company’s total interest expense decreased $507 thousand from 2003 to 2004. The decrease in expense can be explained by the decline in overall rates paid on liabilities of 30 basis points to 2.01% in 2004.

6 HAMPTON ROADS BANKSHARES, INC.

Table 1: Average Balance Sheet and Net Interest Margin Analysis

	2005							2004							2003
(In thousands)	Average Balance			Interest Income/ Expense		Average Yield/ Rate		Average Balance			Interest Income/ Expense		Average Yield/ Rate		Average Balance			Interest Income/ Expense		Average Yield/ Rate
Assets:
Loans	$	287,979		$	22,342	7.76	%	$	236,082		$	16,375	6.94	%	$	207,853		$	15,393	7.41	%
Investment securities		52,706			1,720	3.26			57,455			1,616	2.81			61,705			1,965	3.18
Interest-bearing deposits in other banks		7,184			246	3.42			521			6	1.15			780			9	1.15
Overnight funds sold		7,132			250	3.51			6,509			71	1.09			10,179			102	1.00
Total interest earning assets		355,001			24,558	6.92			300,567			18,068	6.01			280,517			17,469	6.23
Noninterest earning assets
Cash and due from banks		15,801							13,808							10,802
Premises and equipment		10,432							9,137							8,825
Other assets		4,986							4,249							3,807
Less: Allowance for loan losses		(3,399	)						(3,276	)						(2,878	)
Total assets	$	382,821						$	324,485						$	301,073
Liabilities and Shareholders’ Equity:
Interest bearing liabilities
Interest bearing demand	$	52,268		$	319	0.61	%	$	69,579		$	425	0.61	%	$	59,288		$	445	0.75	%
Savings deposits		52,415			1,156	2.21			15,221			91	0.60			12,504			84	0.67
Time deposits		97,823			3,391	3.47			90,921			2,834	3.12			103,859			3,387	3.26
Other borrowings		30,944			1,003	3.24			18,734			561	2.99			15,270			502	3.29
Total interest bearing liabilities		233,450			5,869	2.51			194,455			3,911	2.01			190,921			4,418	2.31
Noninterest bearing liabilities
Demand deposits		99,661							84,389							67,526
Other liabilities		4,855							3,681							3,315
Shareholders’ equity		44,855							41,960							39,311
Total liabilities and shareholders’ equity	$	382,821						$	324,485						$	301,073
Net interest income				$	18,689						$	14,157						$	13,051
Net interest spread						4.41	%						4.00	%						3.92	%
Net interest margin						5.26	%						4.71	%						4.65	%

Note: Interest income from loans included fees of $2,408,180 in 2005, $1,116,165 in 2004, and $737,101 in 2003. Nonaccrual loans are not material and are included in loans above.

Table 2: Effect of Changes in Rate and Volume on Net Interest Income

	2005 Compared to 2004							2004 Compared to 2003									2003 Compared to 2002
	Interest Income/ Expense Variance		Variance Attributable to					Interest Income/ Expense Variance			Variance Attributable to						Interest Income/ Expense Variance			Variance Attributable to
(In thousands)			Rate		Volume						Rate			Volume						Rate			Volume
Interest Earning Assets:
Loans	$	5,967	$	2,090	$	3,877		$	982		$	(860	)	$	1,842		$	6		$	(72	)	$	78
Investments securities		104		215		(111	)		(349	)		(219	)		(130	)		189			(211	)		400
Interest-bearing deposits in other banks		241		36		205			(3	)		—			(3	)		5			(1	)		6
Overnight funds sold		178		171		7			(31	)		10			(41	)		(75	)		(69	)		(6	)
Total interest earning assets	$	6,490	$	2,512	$	3,978		$	599		$	(1,069	)	$	1,668		$	125		$	(353	)	$	478
Interest Bearing Liabilities:
Deposits	$	1,516	$	957	$	559		$	(566	)	$	(568	)	$	2		$	(1,224	)	$	(1,502	)	$	278
Other borrowings		441		49		392			60			(37	)		97			230			(23	)		253
Total interest bearing liabilities		1,957		1,006		951			(506	)		(605	)		99			(994	)		(1,525	)		531
Net interest income	$	4,533	$	1,506	$	3,027		$	1,105		$	(464	)	$	1,569		$	1,119		$	1,172		$	(53	)

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

2005 ANNUAL REPORT 7

Provision for Loan Losses

The Company’s provision for loan losses in 2005 was $486 thousand compared to $926 thousand in 2004. This decrease was attributable partially to a provision of $500 thousand related to a specific credit recorded in the second quarter of 2004. In addition, the provision was reduced as loan recoveries in 2005 exceeded charge-offs. Although the provision for loan losses was reduced in 2005, it still was sufficient to increase the Company’s allowance for loan losses as a percentage of loans outstanding. The provision for loan losses was $370 thousand in 2003.

Noninterest Income and Expense

As shown in Table 3, the Company reported a decrease in total noninterest income of $577 thousand, or 15.22%, in 2005. In order to improve liquidity and allow for the growth in the loan portfolio, the Company sold investment securities and recognized a gain of $508 thousand in 2004. There were no sales of investment securities in 2005. Noninterest income increased $381 thousand or 11.17% in 2004 and $39 thousand, or 1.16%, in 2003. Noninterest income comprised 11.57% of total revenue in 2005, 17.34% in 2004 and 16.33% in 2003.

Service charges on deposit accounts, the Company’s primary source of noninterest income, increased 0.67% in 2005. In 2004, service charges on deposit accounts decreased 2.47%. This decrease was due to a decline in non sufficient funds (NSF) fees and stop payment fees, despite an increase in monthly service charges.

Another significant component of noninterest income is ATM surcharge income, which decreased by $14 thousand, or 6.39%, in 2005 despite the addition of four new ATM’s. ATM surcharge income increased from 2003 to 2004 by $14 thousand, or 6.83%. In July of 2004, the Company increased the transaction fee from $1.50 to $2.00 for foreign (non-Bank of Hampton Roads customer) ATM transactions at fourteen of our sixteen ATMs.

Other bank service charges and fees decreased $68 thousand or 6.01% in 2005 due primarily to a decrease in loan extension fees. Other bank service charges and fees decreased $92 thousand, or 7.52%, in 2004. The 2004 decrease was due primarily to gains recognized on the sale of foreclosed properties of $65 thousand in 2003.

Table 3: Noninterest Income

December 31, (In thousands)							2005 Compared to 2004					2004 Compared to 2003
	2005		2004		2003		Amount			%		Amount			%
Service charges on deposit accounts	$	1,945	$	1,932	$	1,981	$	13		0.67	%	$	(49	)	(2.47	)%
ATM surcharge fees		205		219		205		(14	)	(6.39	)		14		6.83
Gain on sale of investment securities		—		508		—		(508	)	(100.00	)		508		N/A
Other service charges and fees		1,064		1,132		1,224		(68	)	(6.01	)		(92	)	(7.52	)
Total noninterest income	$	3,214	$	3,791	$	3,410	$	(577	)	(15.22	)%	$	381		11.17	%

Noninterest expense represents the overhead expenses of the Company. One of the core operating principles of management continues to be the careful monitoring and control of these expenses. The ratio of noninterest expense to average total assets was 3.41%, 3.33%, and 3.32%, for the years ended December 31, 2005, 2004, and 2003, respectively. As shown in Table 4, total noninterest expense increased $2.25 million, or 20.80%, for the year ended December 31, 2005 to $13.04 million, compared to $10.79 million in 2004. From 2003 to 2004, the increase in noninterest expense was $812 thousand, or 8.13%.

8 HAMPTON ROADS BANKSHARES, INC.

Table 4: Noninterest Expense

December 31, (In thousands)							2005 Compared to 2004					2004 Compared to 2003
	2005		2004		2003		Amount			%		Amount			%
Salaries and employee benefits	$	7,962	$	6,603	$	6,036	$	1,359		20.58	%	$	567		9.39	%
Occupancy		1,109		912		880		197		21.60			32		3.64
Data processing		560		571		440		(11	)	(1.93	)		131		29.77
Directors’ and advisory board fees		313		254		228		59		23.23			26		11.40
Bank franchise tax		251		230		229		21		9.13			1		0.44
Professional fees		380		184		132		196		106.52			52		39.39
Telephone and postage		282		283		328		(1	)	(0.35	)		(45	)	(13.72	)
ATM and VISA Check Card expense		467		359		309		108		30.08			50		16.18
Advertising and marketing		304		240		288		64		26.67			(48	)	(16.67	)
Other		1,412		1,158		1,113		253		21.83			46		4.13
Total noninterest expense	$	13,040	$	10,794	$	9,983	$	2,245		20.80	%	$	812		8.13	%

Salaries and employee benefits accounted for the largest portion of noninterest expense during each of the years in the three-year period ended December 31, 2005. During 2005, salaries and benefits were $7.96 million, an increase of $1.36 million over 2004. This increase was driven by annual incentive increases, an increase in the number of full-time equivalent employees, and increases in certain employee benefit costs, including stock-based compensation. Likewise, salaries and employee benefits increased $567 thousand to $6.60 million from 2003 to 2004.

Occupancy expense increased $197 thousand for the year ended December 31, 2005 to $1.11 million. This increase related to the addition of the Great Bridge branch on January 31, 2005 and the Dominion Tower branch on August 16, 2005 as well as moving the Company’s headquarters to downtown Norfolk in November 2005. From 2003 to 2004, occupancy expense increased $32 thousand to $912 thousand.

Data processing expense decreased $11 thousand or 1.93% to $560 thousand in 2005. In 2004, the Company upgraded its data processing equipment. This upgrade included the purchase of new computer equipment and the purchase of software licensing. As a result, data processing expense increased $131 thousand or 29.77% from $440 thousand in 2003.

All other expenses increased $700 thousand from 2004 to 2005. A number of expense categories contributed to the increase, the largest of which was professional fees, which includes audit and legal expenses. In 2004, other expenses increased $82 thousand over the amount recorded in 2003.

Income Tax Expense

Income tax expense for 2005, 2004, and 2003 was $2.87 million, $2.14 million, and $2.09 million, respectively. The Company’s effective tax rate for the years ended December 31, 2005, 2004, and 2003 was 34.26%, 34.36%, and 34.15%, respectively, and differed from the statutory rate of 34.00% due primarily to nondeductible expenses.

Financial Condition

Assets

Total average assets, a benchmark used by banks when comparing size, is the strongest indicator of our continuous growth over the past eighteen years. Average assets increased $58.33 million, or 17.98%, to a new high of $382.82 million in 2005, and by $23.41 million, or 7.78%, to $324.49 million in 2004. Total assets at year-end 2005 were $409.52 million, an increase of $64.55 million, or 18.71%, over December 31, 2004 total assets of $344.97 million. As previously noted, loan growth tapered off in the second half of 2005. Consequently, the year over year growth in assets was reflected in totals for investment securities, other short term investments, and, to a lesser extent, in loans. In 2004, loan growth drove the increase in total assets.

Loans

As a community bank, the Company has a primary objective of meeting the business and consumer credit needs within its market where standards of profitability, client relationships and credit quality can be met. As shown in Table 5, the overall loan portfolio grew $10.14 million, or 3.68%, from year-end 2004 to year-end 2005.

2005 ANNUAL REPORT 9

Table 5: Loans by Classification

December 31, (In thousands)	2005					2004					2003				2002				2001
	Balance			%		Balance			%		Balance		%		Balance		%		Balance		%
Loan Classification:
Commercial	$	60,972		21.37	%	$	58,501		21.26	%	$	59,334	28.15	%	$	62,007	30.52	%	$	56,730	29.99	%
Construction		85,205		29.86			73,508		26.71			44,465	21.10			35,970	17.70			28,620	15.13
Real estate -commercial mortgage		104,313		36.56			108,314		39.36			74,865	35.52			62,611	30.81			60,495	31.98
Real estate -residential mortgage		20,011		7.01			17,900		6.50			15,595	7.40			20,341	10.01			23,911	12.65
Installment loans to individuals		15,107		5.30			17,251		6.27			16,493	7.82			22,217	10.94			19,328	10.22
Deferred loan fees and related costs		(278	)	(0.10	)		(284	)	(0.10	)		23	0.01			38	0.02			58	0.03
Total loans	$	285,330		100.00	%	$	275,190		100.00	%	$	210,775	100.00	%	$	203,184	100.00	%	$	189,142	100.00	%

Commercial loans are loans to businesses which typically are not collateralized by real estate. The commercial loan portfolio increased slightly from the 2004 year-end balance of $58.50 million to the 2005 year-end balance of $60.97 million. The commercial loan category remained relatively flat in 2004 compared with 2003.

The largest growth occurred in construction lending, which increased $11.70 million in 2005 and $29.04 million in 2004. Construction is an important part of the Company’s business, and the real estate market has provided opportunities to grow this loan category.

Several large loan payoffs during 2005 in the real estate - commercial mortgage loan category caused a decrease of $4.00 million. This portfolio saw significant growth during 2004 increasing $33.45 million to $108.31 million. New builder relationships were solicited using a pricing philosophy which rewarded excellent credit ratings. The real estate - commercial mortgage loan portfolio benefited from an opportunity to finance many owner occupied properties in 2004.

Real estate - residential mortgage loans increased $2.11 million in 2005 and $2.31 million in 2004. The Company refers a substantial portion of its residential real estate business to its affiliate, THF. Through its partnership with THF, the Company is able to provide its customers with enhanced mortgage products.

The Company’s installment loan portfolio consists primarily of automobile loans. Due to the low interest rates offered by dealership financing programs, the number of customers requiring bank automobile financing has decreased. At December 31, 2005, installment loans to individuals were $15.11 million as compared to $17.25 million at December 31, 2004 and $16.49 million at December 31, 2003.

The Company’s specialization in construction and development lending has resulted in a loan concentration, defined as 10.00% of the total loan portfolio, in loans to real estate developers. As of year-end 2005, the Company had $85.21 million, or 29.86% of total loans, in loans outstanding to finance construction and development speculation properties and contracts. These loans are collateralized by the underlying real estate. No other loan concentrations to borrowers engaged in similar activities existed as of December 31, 2005.

Loan growth will continue to be one of the Company’s primary goals for 2006 and beyond. The long-range objective for growth in the loan portfolio will be achieved through continued community involvement, relationships with existing customers, enhancement of the Company’s image as a community asset, and management’s strengthened efforts to offer competitively-priced products, while offering high quality, personalized service. Furthermore, to balance the emphasis on loan growth, prudent business practices and stringent internal guidelines and underwriting standards will continue to be followed in making lending decisions in order to manage exposure to loan losses.

Table 6 sets forth the maturity or period of re-pricing of the Company’s loan portfolio as of December 31, 2005. Demand loans are reported as due within one year. Adjustable and floating-rate loans are included in the period in which interest rates are next scheduled to adjust rather than in the period in which they contractually mature. Fixed rate loans are included in the period in which the final contractual repayment is due. Since the majority of the Company’s loan portfolio is short-term, the Company can re-price its portfolio more frequently to adjust the portfolio to current market rates.

10 HAMPTON ROADS BANKSHARES, INC.

Table 6: Loan Maturities and Re-Pricing Schedule

December 31, 2005 (In thousands)	Commercial		Construction		R/E Commercial		R/E Residential		Installment		Total
Variable Rate:
Within 1 year	$	25,524	$	81,485	$	19,876	$	10,240	$	5,335	$	142,460
Total variable rate	$	25,524	$	81,485	$	19,876	$	10,240	$	5,335	$	142,460
Fixed Rate:
Within 1 year	$	4,591	$	673	$	7,669	$	1,292	$	2,453	$	16,678
1 to 5 years		30,776		3,047		76,768		8,479		7,272		126,342
After 5 years		81		—		—		—		47		128
Total fixed rate	$	35,448	$	3,720	$	84,437	$	9,771	$	9,772	$	143,148
Total maturities and re-pricing	$	60,972	$	85,205	$	104,313	$	20,011	$	15,107	$	285,608

Non-Performing Assets

Total non-performing assets were $1.82 million or 0.45% of total assets at year-end 2005, as compared to $2.37 million, or 0.69% of total assets at year-end 2004 and $324 thousand, or 0.10% of total assets at year-end 2003. Management classifies non-performing assets as those loans in nonaccrual status, those loans on which payment has been delinquent 90 days or more, but are still accruing interest, and real estate acquired in settlement of loans. Management closely reviews the composition of non-performing assets and related collateral values.

Loans categorized as 90 days or more past due that are deemed collectible and continue to accrue interest decreased to $30 thousand at December 31, 2005, as compared to $469 thousand and $112 thousand at year-end 2004 and 2003, respectively. Management diligently monitors these loans. At December 31, 2005, it is expected that the balance of these loans will be collected without significant losses.

Nonaccrual loans were $1.79 million at December 31, 2005 compared to $1.90 million and $108 thousand at December 31, 2004 and 2003, respectively. Nonaccrual loans at year-end 2005 consisted of three loans, however, one relationship accounted for the majority of the year-end balance. This relationship is being treated as an impaired loan and, accordingly, the balance has been written down to the present value of expected future payments. As a general rule, loans are placed in nonaccrual status when principal or interest is 90 days or more past due, or when management deems collection of all principal and interest doubtful. Had income on nonaccrual loans been recorded under original terms, $136,878, $56,814, and $17,553 of interest income would have been recorded in 2005, 2004 and 2003, respectively. There were no interest payments recorded in 2005 as interest income for nonaccrual loans.

The Company did not have any real estate acquired in settlement of loans at December 31, 2005 and 2004. Real estate acquired in settlement of loans totaled $104 thousand at December 31, 2003.

Allowance for Loan Losses

The Company continuously reviews its loan portfolio and maintains an allowance for loan losses sufficient to absorb losses inherent in the portfolio. In addition to the review of credit quality through ongoing credit review processes, the Company constructs an independent and comprehensive allowance analysis for its loan portfolio at least quarterly. This analysis includes two basic elements: specific allowances for individual loans, and general allowances for loan pools which factor in historical loan loss experience for the Company, loan portfolio growth and trends, and economic conditions.

As part of the loan loss reserve methodology, loans are categorized into one of six pools: commercial, construction, commercial real estate, residential real estate, consumer installment, and credit cards. These categories are further subdivided by assigned asset quality. Loss factors are calculated using the above mentioned qualitative data and then are applied to each of the loan pools to determine a reserve level for each of the six pools of loans. In addition, special allocations may be assigned to nonaccrual or other problem credits.

After considering these factors, the allowance for loan losses was $3.60 million, or 1.26% of total loans at year-end 2005. This compares to an allowance of $3.07 million, or 1.12% of total loans and $2.95 million, or 1.40% of total loans at year-end 2004 and 2003, respectively, as seen in Table 7. The allowance for loan losses as of December 31, 2005 was based primarily on the evaluation of the quality of the loan portfolio and some elevated concern over a potential downturn in real estate markets.

2005 ANNUAL REPORT 11

At present, management believes that the allowance for loan losses is adequate. However, the allowance is subject to regulatory examinations and determination as to adequacy, which may take into account such factors as the methodology used to calculate the allowance and the size of the allowance in comparison to peer banks identified by regulatory agencies. Such agencies may require the Company to recognize additions to the allowance for loan losses based on their judgments about information available at the time of their examinations.

Table 7: Allowance for Loan Losses Analysis

December 31, (In thousands)	2005			2004			2003			2002			2001
Allowance for Loan Losses:
Balance at beginning of year	$	3,071		$	2,948		$	2,843		$	2,121		$	1,969
Charge-offs:
Commercial		(24	)		(845	)		(142	)		(219	)		(185	)
Construction		—			—			—			—			—
Real estate - commercial mortgage		—			—			—			—			—
Real estate - residential mortgage		—			—			—			—			—
Installment loans to individuals		(75	)		(95	)		(157	)		(215	)		(30	)
Total charge-offs		(99	)		(940	)		(299	)		(434	)		(215	)
Recoveries:
Commercial		119			110			16			28			30
Construction		—			—			—			—			—
Real estate - commercial mortgage		—			—			—			—			—
Real estate - residential mortgage		—			—			—			—			—
Installment loans to individuals		20			27			18			28			3
Total recoveries		139			137			34			56			33
Net (charge-offs) recoveries		40			(803	)		(265	)		(378	)		(182	)
Provision for loan losses		486			926			370			1,100			334
Balance at end of year	$	3,597		$	3,071		$	2,948		$	2,843		$	2,121
Allowance for loan losses to year-end loans		1.26	%		1.12	%		1.40	%		1.40	%		1.12	%
Ratio of net (charge-offs) recoveries to average loans		0.01	%		(0.34	)%		(0.13	)%		(0.19	)%		(0.11	)%

The Company has allocated the allowance for loan losses to the categories as shown in Table 8. Notwithstanding these allocations, the entire allowance for loan losses is available to absorb charge-offs in any category of loan.

Table 8: Allocation of Allowance for Loan Losses

December 31, (In thousands)	2005		2004		2003		2002		2001
Commercial	$	1,068	$	1,040	$	1,003	$	977	$	606
Construction		767		588		358		291		215
Real estate - commercial mortgage		978		961		734		716		605
Real estate - residential mortgage		130		118		174		186		161
Installment loans to individuals		307		310		364		434		213
Unallocated		347		54		315		239		321
Total allowance for loan losses	$	3,597	$	3,071	$	2,948	$	2,843	$	2,121

12 HAMPTON ROADS BANKSHARES, INC.

Investment Securities and Overnight Funds Sold

The Company’s investment portfolio primarily consists of available-for-sale U.S. Agency securities. At year-end 2005, the estimated market value of available-for-sale investment securities held by the Company was $71.11 million, up 93.88% from $36.68 million at year-end 2004. This increase was the result of investment purchases made during 2005 to utilize funds available from the rapid growth in deposits, which had not yet been put to use in the form of loans. During 2004, investment securities available-for-sale decreased 47.99% to $36.68 million. This decrease was the result of the sale of investment securities with a par value of $44.16 million and the maturity of investment securities with a par value of $6.00 million, netted against the purchase of investment securities with a par value of $17.66 million and the change in unrealized gains and losses, and unamortized premiums on the remaining securities.

Table 9 displays the contractual maturities and weighted average yields from investment securities at year-end 2005. Actual maturities will differ from contractual maturities because certain issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Table 9: Investment Maturities and Yields

December 31, 2005 (In thousands)	Amortized Cost		Market Value		Weighted Average Yield
Maturities:
U.S. Agency securities:
Within 1 year	$	18,057	$	17,912	3.14	%
After 1 year, but within 5 years		52,939		52,101	4.09
After 5 years, but within 10 years		984		994	5.53
Total U.S. Agency securities		71,980		71,007	3.87
U.S.Treasury securities:
After 1 year, but within 5 years		100		98	2.75
Mortgage-backed securities		9		9	3.58
Total investment securities available-for-sale	$	72,089	$	71,114	3.87	%

The Company’s investment portfolio serves as a source of liquidity to fund future loan growth and to meet the necessary collateral requirements of the State Treasury Department, Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB). As part of the Company’s asset/liability management policy, management has invested in high quality securities with varying maturity dates which provides for a natural hedge against changes in interest rates.

The Company does not use derivatives or other off-balance sheet transactions, such as futures contracts, forward obligations, interest rate swaps, or options.

Overnight funds sold are temporary investments used for daily cash management purposes, as well as management of short-term interest rate opportunities and interest rate risk, and as a result, daily balances vary. Overnight funds are comprised of federal funds sold and high quality money market instruments consisting of short-term debt securities that are U.S. Government issued or guaranteed.

Deposits

Deposits are the most significant source of the Company’s funds for use in lending and general business purposes. The Company’s balance sheet growth is largely determined by the availability of deposits in its markets, the cost of attracting the deposits, and the prospects of profitably utilizing the available deposits by increasing the loan or investment portfolios. In 2005, average deposits increased $42.06 million, or 16.17%, to a new high of $302.17 million. This increase was a continuation of the growth experienced in 2004 of $16.93 million, or 6.96%, to $260.11 million.

See Table 10 for a comparison of year-end deposits by classification for the previous three years. Total deposits at December 31, 2005 increased $52.33 million, or 19.02%, to $327.45 million as compared to year-end 2004 total deposits. Year-end 2004 total deposits grew to $275.12 million as compared to year-end 2003 total deposits of $257.43 million, an increase of 6.87%. Noninterest bearing demand deposits increased 14.12% in 2005 to $104.93 million following a 17.73% increase in 2004. These deposits

2005 ANNUAL REPORT 13

represented 32.05% of total deposits at year-end 2005 and 33.42% at year-end 2004. The increase in noninterest bearing deposits has a positive impact on the Company’s funding costs and, consequently, its net interest margin. Savings deposits, a low cost funding source, also showed strong growth in 2005 due to the introduction of a premium rate savings account in the first quarter of 2005. Interest bearing demand deposits declined 26.32% and 7.96% in 2005 and 2004, respectively. The decrease in 2005 was caused by depositors taking advantage of the premium rate savings account offered. Time deposits with balances less than $100,000 remained relatively stable in 2005 and decreased in 2004. Interest rates on these deposits became less attractive to depositors in the low interest rate environment of 2004. Time deposits with balances of $100,000 or more tend to be more volatile as demonstrated by the sharp increase experienced in 2004 and the reversal that occurred in 2005.

Table 10: Deposits by Classification

December 31, (In thousands)	2005				2004				2003
	Balance		%		Balance		%		Balance		%
Deposit Classifications:
Noninterest bearing demand	$	104,930	32.05	%	$	91,944	33.42	%	$	78,096	30.34	%
Interest bearing demand		47,492	14.50			64,460	23.43			70,034	27.20
Savings		79,514	24.28			15,253	5.54			13,018	5.06
Time deposits less than $100,000		61,117	18.67			61,699	22.43			64,804	25.17
Time deposits $100,000 or more		34,394	10.50			41,759	15.18			31,481	12.23
Total deposits	$	327,447	100.00	%	$	275,115	100.00	%	$	257,433	100.00	%

The Company will continue funding assets with deposit liability accounts and focus on core deposit growth as its primary source of liquidity and stability. Core deposits consist of noninterest bearing demand accounts, interest checking accounts, money market accounts, savings accounts and time deposits of less than $100,000. Core deposits totaled $293.05 million, or 89.50% of total deposits at year-end 2005 compared to $233.36 million, or 84.82% of total deposits at year-end 2004, and $225.95 million, or 87.77% of total deposits at year-end 2003.

Capital

Total shareholders’ equity increased $5.50 million, or 12.62%, to $49.13 million at December 31, 2005. This increase was due to current year net income, stock option exercises, dividend reinvestment, and stock issued as part of the employee 401(k) plan, net of change in unrealized gains and losses on securities available-for-sale, dividends paid and common stock repurchased. In addition, shareholders’ equity increased as the result of a reclassification of a stock option liability account to a component of equity. Information on the reclassification is available in the Other Accounting Matters section of this report.

The Company and the Bank are subject to regulatory risk-based capital guidelines that measure capital relative to risk-weighted assets and off-balance sheet financial instruments. Tier I capital is comprised of shareholders’ equity, net of unrealized gains or losses on available-for-sale securities, less intangible assets, while total risk-based capital adds certain debt instruments and qualifying allowances for loan losses.

Under Federal Reserve Bank rules, the Company and the Bank were considered “well-capitalized,” the highest category of capitalization defined by the regulators, as of December 31, 2005. For more information on the Company’s regulatory capital requirements, see Footnote No. 16 in the accompanying Notes to Consolidated Financial Statements. The Company continually monitors current and projected capital adequacy positions of both the Company and the Bank. Maintaining adequate capital levels is integral to providing stability to the Company, resources to achieve the Company’s growth objectives, and returns to the shareholders in the form of dividends.

During 2005, the Company repurchased 104,649 shares of its common stock in open market and privately negotiated transactions at prices ranging from $10.00 to $11.75. During 2004, the Company repurchased 35,110 shares of its common stock in open market and privately negotiated transactions at prices ranging from $10.50 to $12.25. During 2003, the Company repurchased 71,549 shares of its common stock in open market and privately negotiated transactions at prices ranging from $9.35 to $10.50.

14 HAMPTON ROADS BANKSHARES, INC.

Liquidity

A key goal of asset/liability management is to maintain an adequate degree of liquidity without impairing long-term earnings. Liquidity represents the Company’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. Short-term liquidity is primarily provided by access to the federal funds market through established correspondent banking relationships. Funds can also be obtained through the Bank’s borrowing privileges at the FRB and the FHLB. Additional liquidity is available through loan repayments and maturities or sales from the Company’s investment portfolio. The Company maintains a very liquid portfolio of both assets and liabilities and attempts to mitigate the risk inherent in changing interest rates in this manner. At December 31, 2005, cash and due from banks, overnight funds sold, interest bearing deposits in other banks, and investment securities and loans maturing or re-pricing within one year were $214.51 million, or 52.38% of total assets. Management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. For more information on the Company’s off-balance sheet arrangements, see Footnote No. 8 in the accompanying Notes to Consolidated Financial Statements.

Interest Rate Sensitivity

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

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

The Company’s management, guided by the Asset/Liability Committee (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 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.

Table 11 illustrates the expected effect on net interest income for the twelve months following each of the two year-ends 2005 and 2004 due to a shock in interest rates. Estimated changes set forth below are dependent on material assumptions, such as those previously discussed.

Table 11: Effect on Net Interest Income

December 31, (in thousands)	2005					2004
	Change in Net Interest Income					Change in Net Interest Income
	Amount			%		Amount			%
Change in Interest Rates:
+200 basis points	$	2,738		15.11	%	$	2,010		13.91	%
+ 100 basis points		1,366		7.54			989		6.85
- 100 basis points		(1,366	)	(7.54	)		(835	)	(5.78	)
- 200 basis points		(2,697	)	(14.89	)		(1,554	)	(10.76	)

As indicated in Table 11, a decrease in interest rates would tend to reduce net income, while an increase would tend to enhance net interest income. Thus, the Company’s interest rate sensitivity position is asset-sensitive. 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

2005 ANNUAL REPORT 15

conditions interest rate changes rarely occur in such a uniform manner. Many factors affect the timing and magnitude of interest rate changes on financial instruments. Consequently, variations should be expected from the projections resulting from the controlled conditions of the simulation analysis.

The interest sensitivity gap is defined as the difference between the amount of interest earning assets anticipated, based upon certain assumptions, to mature or re-price within a specific time period and the amount of interest bearing liabilities anticipated, based upon certain assumptions, to mature or re-price within that time period. At December 31, 2005, the Company’s one year “positive gap” (interest earning assets maturing or re-pricing within a defined period exceed interest bearing liabilities maturing or repricing within the same period) was approximately $18.79 million, or 4.59% of total assets. Thus, during periods of rising interest rates, this implies that the Company’s net interest income would be positively affected because the yield of the Company’s interest earning assets is likely to rise more quickly than the cost of its interest bearing liabilities. In periods of falling interest rates, the opposite effect on net interest income is likely to occur. At December 31, 2004, the Company’s one year “positive gap” was $34.91 million, or 10.12% of total assets.

Table 12 sets forth the amounts of interest earning assets and interest bearing liabilities outstanding at December 31, 2005 and 2004 that are subject to re-pricing or that mature in each of the future time periods shown. Loans and securities with call or balloon provisions are included in the period in which they balloon or may first be called. Except as stated above, the amount of assets and liabilities shown that re-price or mature during a particular period were determined in accordance with the contractual terms of the asset or liability.

Table 12: Interest Rate Sensitivity

December 31, 2005 (In thousands)	1 - 90 Days			91 Days -1 Year			1 - 3 Years			3 - 5 Years			Over 5 Years			Total
Interest Earning Assets:
Loans	$	149,263		$	9,597		$	56,039		$	70,303		$	128		$	285,330
Investment securities		2,996			15,911			27,630			24,568			2,721			73,826
Interest-bearing deposits in other banks		933			—			—			—			—			933
Overnight funds sold		18,294			—			—			—			—			18,294
Total	$	171,486		$	25,508		$	83,669		$	94,871		$	2,849		$	378,383
Cummulative totals	$	171,486		$	196,994		$	280,663		$	375,534		$	378,383
Interest Bearing Liabilities:
Interest checking	$	18,457		$	—		$	—		$	—		$	—		$	18,457
Money market		29,035			—			—			—			—			29,035
Savings		79,514			—			—			—			—			79,514
Time deposits		12,814			30,883			31,683			20,127			3			95,510
FHLB borrowings		—			7,500			18,000			5,000			—			30,500
Total	$	139,820		$	38,383		$	49,683		$	25,127		$	3		$	253,016
Cumulative totals	$	139,820		$	178,203		$	227,886		$	253,013		$	253,016
Interest sensitivity gap	$	31,666		$	(12,875	)	$	33,986		$	69,744		$	2,846		$	125,367
Cumulative interest sensitivity gap	$	31,666		$	18,791		$	52,777		$	122,521		$	125,367
Cumulative interest sensitivity gap as a percentage of total assets		7.73	%		4.59	%		12.89	%		29.92	%		30.61	%

16 HAMPTON ROADS BANKSHARES, INC.

December 31, 2004 (In thousands)	1 - 90 Days			91 Days - 1 Year			1 - 3 Years			3 - 5 Years			Over 5 Years			Total
Interest Earning Assets:
Loans	$	144,034		$	8,144		$	52,451		$	70,346		$	215		$	275,190
Investment securities		—			11,448			19,133			6,086			2,328			38,995
Interest-bearing deposits in other banks		378			—			—			—			—			378
Overnight funds sold		7,294			—			—			—			—			7,294
Total	$	151,706		$	19,592		$	71,584		$	76,432		$	2,543		$	321,857
Cumulative totals	$	151,706		$	171,298		$	242,882		$	319,314		$	321,857
Interest Bearing Liabilities:
Interest checking	$	19,863		$	—		$	—		$	—		$	—		$	19,863
Money market		44,597			—			—			—			—			44,597
Savings		15,253			—			—			—			—			15,253
Time deposits		25,010			29,162			30,767			18,517			2			103,458
FHLB borrowings		—			2,500			15,500			5,000			—			23,000
Total	$	104,723		$	31,662		$	46,267		$	23,517		$	2		$	206,171
Cumulative totals	$	104,723		$	136,385		$	182,652		$	206,169		$	206,171
Interest sensitivity gap	$	46,983		$	(12,070	)	$	25,317		$	52,915		$	2,541		$	115,686
Cumulative interest sensitivity gap	$	46,983		$	34,913		$	60,230		$	113,145		$	115,686
Cumulative interest sensitivity gap as a percentage of total assets		13.62	%		10.12	%		17.46	%		32.80	%		33.54	%

Contractual Obligations

The Company’s contractual obligations consist of time deposits, borrowings from the FHLB, and operating lease obligations. Table 13 shows payment detail for these contractual obligations as of December 31, 2005. FHLB borrowings increased to $30.50 million at year-end 2005 compared with the year earlier total of $23.00 million. The increased borrowings were used by the Company to fund a portion of its loan growth during the first quarter of 2005.

Table 13: Contractual Obligations

December 31, 2005 (In thousands)	Less than 1 Year		1 - 3 Years		3 - 5 Years		Over 5 Years		Total
Time deposits	$	43,697	$	31,683	$	20,127	$	3	$	95,510
Long-term debt obligations		7,500		18,000		5,000		—		30,500
Operating lease obligations		367		1,462		1,383		3,983		7,195
Total contractual obligations	$	51,564	$	51,145	$	26,510	$	3,986	$	133,205

Critical Accounting Policies

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the consolidated financial statements. The Company’s single most critical accounting policy relates to the Company’s allowance for loan losses, which reflects the estimated losses resulting from the inability of the Company’s borrowers to make required loan payments. If the financial condition of the Company’s borrowers were to deteriorate, resulting in an impairment of their ability to make payments, the Company’s estimates would be updated, and additional provisions for loan losses may be required. Further discussion of the estimates used in determining the allowance for loan losses is contained in Footnotes No. 1(e), No. 1(f) and No. 3 in the accompanying Notes to Consolidated Financial Statements.

2005 ANNUAL REPORT 17

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision to Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation, SFAS No. 123R, Share-Based Payment. SFAS No. 123R focuses primarily on transactions in which an entity exchanges its equity instruments for employee services and establishes accounting standards for transactions in which an entity obtains goods or services in share-based payment transactions. SFAS No. 123R is effective for the Company’s first quarter of fiscal 2006. The Company will transition to fair-value based accounting for stock-based compensation using the modified prospective application which applies SFAS No. 123R to new awards and to the portion of existing awards that have not completely vested as of January 1, 2006. The Company has no existing awards of stock options that remain unvested as of January 1, 2006, therefore, no additional stock-based compensation expense for existing awards of stock options will be recognized after adopting SFAS No. 123R. Stock-based compensation expense under SFAS No. 123R for grants of awards after January 1, 2006 will depend on the number of stock options granted.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Productive Assets, an Amendment of Accounting Principles Board (APB) Opinion No. 29, Accounting for Nonmonetary Exchanges. Under SFAS No. 153, nonmonetary exchanges are required to be accounted for at fair value, recognizing any gains or losses, if the fair value is determinable within reasonable limits and the transaction has commercial substance. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The adoption of this standard did not have a material effect on financial condition or the results of operations.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, which changes the accounting for and reporting of a change in accounting principle. This statement applies to all voluntary changes in accounting principle and changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. This statement requires retrospective application to prior period financial statements of changes in accounting principle, unless it is impractical to determine either the period-specific or cumulative effects of the change. SFAS No. 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The adoption of this statement is not expected to have a material effect on financial condition or the results of operations.

Other Accounting Matters

In the fourth quarter of 2005, management in consultation with its external auditors, KPMG LLP (“KPMG”) determined that the Company had misapplied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). The misapplication, which was not intentional, previously was undetected by management and KPMG in the Company’s audited Consolidated Financial Statements. The misapplication arose from the Company’s use of independent, third party appraisals to establish the fair value of the Company’s common stock in connection with stock option grants rather than quoted market prices. For a number of reasons, management believed that the independent appraisal of fair value represented a more reliable pricing mechanism for a thinly traded small capitalization stock and that the methodology was an acceptable practice. Although APB No. 25 recognizes that quoted market prices may not always be indicative of fair value, it directs companies to use quoted market prices in the measurement of compensation expense for stock options. Following a thorough analysis of the differences resulting from the misapplication, the Company determined that Consolidated Financial Statements for the years 2003 and 2004 were impacted. The analysis concluded that the amount of the differences was not material to the Consolidated Financial Statements in either year, nor was it material on a cumulative basis in 2005. As a result, the Company in further consultation with KPMG, made adjustments to its Consolidated Financial Statements in the year ended December 31, 2005 to correct the previous misapplication. The adjustment related to 2003 and 2004 Consolidated Financial Statements had the effect of increasing stock-based compensation expense $318 thousand and, thus, decreasing net income $210 thousand after the related tax effect.

In addition to the above matter, management in consultation with KPMG determined that the Company misclassified the accrued compensation expense for unexercised stock options as a liability rather than as a component of shareholders’ equity in prior audited Consolidated Financial Statements. The misclassification, which was not material to the Company’s Consolidated Financial Statements, does not affect the reporting of total assets or the Company’s earnings in any period. An adjustment was made in the Company’s 2005 Consolidated Financial Statements in the amount of $1.20 million, which had the effect of reducing liabilities and increasing shareholders’ equity by that amount. The net effect of the reclassification adjustment and the change in methodology for measuring compensation expense for stock options was an increase in shareholders’ equity of $1.52 million, or $0.18 in book value per share.

18 HAMPTON ROADS BANKSHARES, INC.

Forward-Looking Statements

Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about events or results or otherwise are not statements of historical fact. Although the Company believes that its expectations with respect to certain forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results and trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to, the effects of and changes in: general and/or local economic conditions, the interest rate environment, legislative and regulatory requirements, competitive pressures, new products and delivery systems, and inflation.

2005 ANNUAL REPORT 19

MANGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Hampton Roads Bankshares, Inc. and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. As of the end of the Company’s 2005 fiscal year, management, including the chief executive and chief financial officers, conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2005 is effective.

Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the firm’s assets that could have a material effect on the Company’s financial statements.

KPMG LLP, an independent registered public accounting firm and auditors of the Company’s consolidated financial statements, has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting as of December 31, 2005.

20 HAMPTON ROADS BANKSHARES, INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Hampton Roads Bankshares, Inc.:

We have audited the accompanying consolidated balance sheets of Hampton Roads Bankshares, Inc. and subsidiaries (the Company) as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005. We also have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Hampton Roads Bankshares, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Hampton Roads Bankshares, Inc. and subsidiaries’ management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on these consolidated financial statements, an opinion on management’s assessment, and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hampton Roads Bankshares, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, management’s assessment that Hampton Roads Bankshares, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Furthermore, in our opinion, Hampton Roads Bankshares, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Norfolk, Virginia

March 6, 2006

2005 ANNUAL REPORT 21

CONSOLIDATED BALANCE SHEETS

December 31, 2005 and 2004

	2005			2004
Assets:
Cash and due from banks	$	17,513,955		$	12,102,200
Overnight funds sold		18,294,012			7,293,557
Interest-bearing deposits in other banks		932,688			377,728
Total cash and cash equivalents		36,740,655			19,773,485
Investment securities available-for-sale, at fair value		71,113,959			36,678,835
Federal Home Loan Bank stock		2,057,100			1,667,400
Federal Reserve Bank stock		654,600			648,350
Total investments		73,825,659			38,994,585
Loans		285,329,935			275,190,194
Allowance for loan losses		(3,597,497	)		(3,070,600	)
Net loans		281,732,438			272,119,594
Premises and equipment		11,456,501			9,793,383
Interest receivable		1,761,570			1,253,674
Deferred tax asset		1,951,043			1,294,150
Other assets		2,049,417			1,740,059
Total assets	$	409,517,283		$	344,968,930
Liabilities and Shareholders’ Equity:
Deposits:
Noninterest bearing demand	$	104,930,259		$	91,944,270
Interest bearing:
Demand		47,491,912			64,459,435
Savings		79,514,001			15,253,363
Time deposits:
Less than $100,000		61,116,511			61,699,232
$100,000 or more		34,393,834			41,759,058
Total deposits		327,446,517			275,115,358
Federal Home Loan Bank borrowings		30,500,000			23,000,000
Interest payable		490,182			409,899
Other liabilities		1,950,055			2,818,113
Total liabilities		360,386,754			301,343,370
Shareholders’ equity:
Common stock, $0.625 par value. Authorized 40,000,000 shares; issued and outstanding 8,242,822 shares in 2005 and 8,059,528 shares in 2004		5,151,764			5,037,205
Capital surplus		23,852,040			20,626,500
Retained earnings		20,770,448			18,170,928
Accumulated other comprehensive loss, net of tax		(643,723	)		(209,073	)
Total shareholders’ equity		49,130,529			43,625,560
Total liabilities and shareholders’ equity	$	409,517,283		$	344,968,930

See accompanying notes to the consolidated financial statements.

22 HAMPTON ROADS BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2005, 2004 and 2003

	2005		2004		2003
Interest Income:
Loans, including fees	$	22,342,047	$	16,374,717	$	15,392,774
Investment securities		1,720,177		1,616,074		1,964,910
Overnight funds sold		249,507		71,469		102,461
Interest bearing deposits in other banks		246,380		5,511		8,763
Total interest income		24,558,111		18,067,771		17,468,908
Interest Expense:
Deposits:
Demand		319,376		424,826		445,188
Savings		1,155,739		91,161		83,936
Time deposits:
Less than $100,000		2,169,358		2,049,986		2,501,422
$100,000 or more		1,221,610		783,627		885,881
Interest on deposits		4,866,083		3,349,600		3,916,427
Federal Home Loan Bank borrowings		992,569		560,454		500,579
Overnight funds purchased		10,235		1,156		824
Total interest expense		5,868,887		3,911,210		4,417,830
Net interest income		18,689,224		14,156,561		13,051,078
Provision for loan losses		486,000		926,000		370,000
Net interest income after provision for loan losses		18,203,224		13,230,561		12,681,078
Noninterest Income:
Service charges on deposit accounts		1,945,319		1,932,521		1,980,852
ATM surcharge fees		204,761		219,399		205,540
Gain on sale of investment securities		—		507,500		—
Other service charges and fees		1,064,387		1,131,862		1,224,082
Total noninterest income		3,214,467		3,791,282		3,410,474
Noninterest Expense:
Salaries and employee benefits		7,962,216		6,603,352		6,036,435
Occupancy		1,108,712		911,616		879,672
Data processing		560,298		570,653		439,862
Other		3,409,145		2,708,449		2,626,413
Total noninterest expense		13,040,371		10,794,070		9,982,382
Income before provision for income taxes and cumulative effect of change in accounting principle		8,377,320		6,227,773		6,109,170
Provision for income taxes		2,869,991		2,139,583		2,086,155
Net income before cumulative effect of change in accounting principle		5,507,329		4,088,190		4,023,015
Cumulative effect of change in accounting principle, net of taxes of $23,607		—		45,825		—
Net Income	$	5,507,329	$	4,134,015	$	4,023,015
Basic earnings per share before cumulative effect of change in accounting principle	$	0.68	$	0.51	$	0.52
Cumulative effect of change in accounting principle		—		0.01		—
Basic earnings per share	$	0.68	$	0.52	$	0.52
Diluted earnings per share before cumulative effect of change in accounting principle	$	0.66	$	0.49	$	0.50
Cumulative effect of change in accounting principle		—		0.01		—
Diluted earnings per share	$	0.66	$	0.50	$	0.50
Basic weighted average shares outstanding		8,137,244		7,973,844		7,805,231
Effect of dilutive stock options and restricted stock		270,577		262,325		189,020
Diluted weighted average shares outstanding		8,407,821		8,236,169		7,994,251

See accompanying notes to the consolidated financial statements.

2005 ANNUAL REPORT 23

CONSOLIDATED STATEMENTS OF CHANGES IN

SHAREHOLDERS’ EQUITY

Years ended December 31, 2005, 2004 and 2003

	Common Stock					Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount
Balance at December 31, 2002	7,707,744		$	4,817,340		$	17,788,739		$	15,906,066		$	598,774		$	39,110,919
Comprehensive income:
Net income	—			—			—			4,023,015			—			4,023,015
Change in unrealized gain (loss) on securities available-for-sale, net of taxes of $45,701	—			—			—			—			(88,713	)		(88,713	)
Total comprehensive income																3,934,302
Shares issued related to:
401(k) plan	9,192			5,745			67,791			—			—			73,536
Exercise of stock options	168,000			105,000			746,363			—			—			851,363
Dividend reinvestment	95,422			59,639			860,002			—			—			919,641
Payout of fractional shares	(101	)		(63	)		(966	)		—			—			(1,029	)
Common stock repurchased	(71,549	)		(44,718	)		(642,517	)		—			—			(687,235	)
Tax benefit of stock option exercises	—			—			381,342			—			—			381,342
Cash dividends ($0.42 per share)	—			—			—			(3,268,366	)		—			(3,268,366	)
Balance at December 31, 2003	7,908,708			4,942,943			19,200,754			16,660,715			510,061			41,314,473
Comprehensive income:
Net income	—			—			—			4,134,015			—			4,134,015
Change in unrealized gain (loss) on securities available-for-sale, net of taxes of $370,462	—			—			—			—			(719,134	)		(719,134	)
Total comprehensive income																3,414,881
Shares issued related to:
401(k) plan	9,365			5,853			88,733			—			—			94,586
Exercise of stock options	67,799			42,374			376,822			—			—			419,196
Dividend reinvestment	108,880			68,050			1,197,310			—			—			1,265,360
Payout of fractional shares	(114	)		(72	)		(1,252	)		—			—			(1,324	)
Common stock repurchased	(35,110	)		(21,943	)		(373,863	)		(1,154	)		—			(396,960	)
Tax benefit of stock option exercises	—			—			137,996			—			—			137,996
Cash dividends ($0.33 per share)	—			—			—			(2,622,648	)		—			(2,622,648	)
Balance at December 31, 2004	8,059,528			5,037,205			20,626,500			18,170,928			(209,073	)		43,625,560
Comprehensive income:
Net income	—			—			—			5,507,329			—			5,507,329
Change in unrealized gain (loss) on securities available-for-sale, net of taxes of $223,911	—			—			—			—			(434,650	)		(434,650	)
Total comprehensive income																5,072,679
Shares issued related to:
401(k) plan	8,952			5,595			81,689			—			—			87,284
Exercise of stock options	85,421			53,388			510,480			—			—			563,868
Dividend reinvestment	160,628			100,392			1,699,139			—			—			1,799,531
Restricted stock	33,045			20,653			333,098			—			—			353,751
Payout of fractional shares	(103	)		(64	)		(1,075	)		—			—			(1,139	)
Common stock repurchased	(104,649	)		(65,405	)		(1,026,750	)		(223	)		—			(1,092,378	)
Change in stock-based compensation, net				—			1,507,638			—			—			1,507,638
Tax benefit of stock option exercises	—			—			121,321			—			—			121,321
Cash dividends ($0.36 per share)	—			—			—			(2,907,586	)		—			(2,907,586	)
Balance at December 31, 2005	8,242,822		$	5,151,764		$	23,852,040		$	20,770,448		$	(643,723	)	$	49,130,529

See accompanying notes to the consolidated financial statements.

24 HAMPTON ROADS BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 2005, 2004 and 2003

	2005			2004			2003
Operating Activities:
Net income	$	5,507,329		$	4,134,015		$	4,023,015
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		637,576			563,700			537,306
Provision for loan losses		486,000			926,000			370,000
Stock-based compensation expense		704,300			145,582			163,920
Net amortization of premiums and accretion of discounts on investment securities		477,583			256,100			(296,631	)
(Gain) loss on sale of other real estate owned		—			3,575			(64,986	)
(Gain) loss on sale of premises and equipment		129,839			(19,731	)		(8,002	)
Gain on sale of investment securities available-for-sale		—			(507,500	)		—
Deferred income tax expense (benefit)		(432,982	)		26,926			57,523
Changes in:
Interest receivable		(507,896	)		134,145			(108,968	)
Other assets		(309,358	)		(195,670	)		(446,845	)
Interest payable		80,283			(3,947	)		(121,965	)
Other liabilities		564,629			543,146			686,023
Net cash provided by operating activities		7,337,303			6,006,341			4,790,390
Investing Activities:
Proceeds from maturities and calls of investment securities available-for-sale		11,428,732			6,002,253			25,174,418
Proceeds from sales of investment securities available-for-sale		—			44,667,500			—
Purchase of investment securities available-for-sale		(47,000,000	)		(17,660,000	)		(51,800,000	)
Proceeds from sales of Federal Home Loan Bank stock		112,500			—			—
Purchase of Federal Home Loan Bank stock		(502,200	)		(792,400	)		(190,000	)
Purchase of Federal Reserve Bank stock		(6,250	)		(3,950	)		(13,300	)
Net increase in total loans		(10,098,844	)		(65,218,741	)		(7,436,243	)
Purchase of premises and equipment		(2,430,533	)		(1,280,555	)		(1,144,423	)
Proceeds from sale of premises and equipment		—			22,075			13,650
Cash paid for development of other real estate owned		—			—			(937	)
Proceeds from sale of other real estate owned		—			100,239			—
Net cash used in investing activities		(48,496,595	)		(34,163,579	)		(35,396,835	)
Financing Activities:
Net increase in deposits		52,331,159			17,682,027			13,559,589
Net decrease in other borrowed funds		—			—			(2,992,853	)
Proceeds from Federal Home Loan Bank borrowings		10,000,000			10,500,000			10,000,000
Repayments of Federal Home Loan Bank borrowings		(2,500,000	)		(2,500,000	)		(5,000,000	)
Common stock repurchased		(1,092,378	)		(396,960	)		(687,235	)
Dividends reinvested		1,799,531			1,265,360			919,641
Issuance of shares to 401(k) plan		87,284			94,586			73,536
Proceeds from exercise of stock options		408,452			373,675			492,236
Dividends paid		(2,907,586	)		(2,622,648	)		(3,268,366	)
Net cash provided by financing activities		58,126,462			24,396,040			13,096,548
Increase (decrease) in cash and cash equivalents		16,967,170			(3,761,198	)		(17,509,897	)
Cash and cash equivalents at beginning of year		19,773,485			23,534,683			41,044,580
Cash and cash equivalents at end of year	$	36,740,655		$	19,773,485		$	23,534,683
Supplemental cash flow information:
Cash paid during the year for interest	$	5,788,604		$	3,916,687		$	4,541,313
Cash paid during the year for income taxes		2,862,000			2,132,876			1,776,322
Supplemental noncash information:
Transfer between loans and other real estate owned	$	—		$	—		$	419,954

See accompanying notes to the consolidated financial statements.

2005 ANNUAL REPORT 25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2005, 2004 and 2003

(1) Summary of Significant Accounting Policies

Hampton Roads Bankshares, Inc., a Virginia Corporation (the “Company”), was incorporated under the laws of the Commonwealth of Virginia on February 28, 2001, primarily to serve as a holding company for Bank of Hampton Roads (the “Bank”).

Bank of Hampton Roads was organized and commenced banking operations in 1987. The Bank engages in a general community and commercial banking business, emphasizing the needs of individuals, as well as small and medium sized businesses in its primary service area of Chesapeake, Suffolk, Norfolk, and Virginia Beach, Virginia.

In January 2004, the Company formed Hampton Roads Investments, Inc., a wholly owned subsidiary, to provide securities, brokerage, and investment advisory services. It is a full service investment company handling all aspects of wealth management including stocks, bonds, annuities, mutual funds and financial advice.

The consolidated financial statements of the Company are prepared in conformity with U.S. generally accepted accounting principles and prevailing practices of the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

(a) Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Bank of Hampton Roads and Hampton Roads Investments, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Restrictions on Cash and Due from Bank Accounts

The Company is required to maintain average reserve balances in cash with the Federal Reserve Bank (FRB). Required reserves were $2,578,000 and $3,377,000 at December 31, 2005 and 2004, respectively.

(c) Investment Securities

Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost. The Company has no securities in this category.

Securities classified as available-for-sale are those debt and equity securities that management intends to hold for an indefinite period of time, including securities used as part of the Company’s asset/liability strategy, and that may be sold in response to changes in interest rates, liquidity needs, or other similar factors. Securities in this classification are reported at fair value, with unrealized gains and losses excluded from earnings and reported as other comprehensive income, a separate component of shareholders’ equity.

Securities classified as held for trading are those debt and equity securities that are bought and held principally for the purpose of selling them in the near term and reported at fair value, with unrealized gains and losses included in earnings. The Company has no securities in this category.

Gains and losses on sales of securities are computed based on specific identification of the adjusted cost of each security and included in other income. Amortization of premiums and accretion of discounts are computed by the effective yield method and included in interest income.

(d) Federal Reserve Bank Stock and Federal Home Loan Bank Stock

The Company, as a member of the Federal Home Loan Bank (FHLB) of Atlanta, is required to hold shares of capital stock in the FHLB in an amount equal to 0.20% of total assets plus 4.50% of borrowings from the FHLB.

As a member of the FRB, the Company is required to hold shares of FRB capital stock, $100 par value, in an amount equal to 6% of the Bank’s total common stock and capital surplus.

FRB stock and FHLB stock are carried at cost.

26 HAMPTON ROADS BANKSHARES, INC.

(e) Loans

Loans are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method. Net fees related to standby letters of credit are recognized over the commitment period. As a general rule, loans are placed in nonaccrual status when principal or interest is 90 days or more past due, or when management deems collection of all principal and interest doubtful after an evaluation of the collateral pledged and the financial strength of the borrower. The delinquency status of the loan is determined by the contractual terms of the loan.

All interest accrued but not collected for loans that are placed on nonaccrual status or charged-off is reversed against interest income. Cash payments received on loans in nonaccrual status are generally applied to reduce the outstanding principal balance. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A loan is deemed impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Impaired loans are measured at the present value of their expected future cash flows by discounting those cash flows at the loan’s effective interest rate, or at the loan’s observable market price or the fair value of collateral if the loan is collateral dependent. The difference between this discounted amount and the loan balance is recorded as an allowance for loan losses. Impairment is measured on a loan by loan basis. Interest on impaired loans is accrued and recorded as income based upon the principal amount outstanding, except for nonaccrual loans, for which interest is not accrued.

(f) Allowance for Loan Losses

The allowance for loan losses is a valuation allowance consisting of the cumulative effect of the provision for loan losses, minus loans charged off, plus any amounts recovered on loans previously charged off. The provision for loan losses charged to operating expenses is the amount necessary in management’s judgment to maintain the allowance for loan losses at a level it believes sufficient to cover losses in the collection of the Company’s loans. Loans are charged against the allowance when, in management’s opinion, they are deemed uncollectible, although the Company continues to aggressively pursue collection.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical loss experience, risk characteristics of the various categories of loans, adverse situations affecting individual credits, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired, doubtful, substandard, or special mention. The general component covers all other loans and is based on historical loss experience adjusted for qualitative factors such as current economic conditions.

(g) Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation of buildings and improvements and equipment, furniture and fixtures is computed by the straight-line method over the estimated useful lives of the assets. Amortization of leasehold improvements is computed using the straight-line method over the estimated useful lives of the improvements or the lease term, whichever is shorter. Useful lives range from 9 to 15 years for leasehold improvements, from 10 to 50 years for buildings and improvements, and from 3 to 15 years for substantially all equipment, furniture and fixtures.

The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During 2005, the Company exchanged certain ATM’s and data processing equipment with carrying amounts greater than their fair value, as determined by prices for similar assets. In addition, the Company identified a building and a trailer whose carrying amounts are not expected to be recoverable. These assets were written down as a result of this determination during 2005. Losses on the exchanges and impairments amounted to $129,839 and were recognized as part of other noninterest income. No other long-lived assets were deemed to be impaired as of December 31, 2005.

2005 ANNUAL REPORT 27

(h) Other Real Estate Owned

Real estate acquired in settlement of loans is stated at the lower of the recorded loan balance or fair market value, based on appraised value, less estimated disposal costs. Development and improvement costs relating to property are capitalized. Estimated losses that result from the ongoing periodic evaluation of these properties are charged to current earnings with a provision for losses on foreclosed property in the period in which they are identified. Net operating income or expenses of such properties are included in other expenses.

(i) Income Taxes

The Company files a consolidated tax return. The provision for income taxes reflects tax expense incurred as a consolidated group. The expense is allocated among the members of the consolidated group in accordance with an intercompany agreement for tax expense.

The Company uses the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities that will result in future taxable or deductible amounts. The effect on deferred taxes of a change in tax rates is recognized in the year including the enactment date and is measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Management does not believe a valuation allowance is necessary at December 31, 2005 or 2004 as it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets.

(j) Per Share Data

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the dilutive effect of stock options and restricted stock using the treasury stock method.

(k) Advertising Costs

Advertising costs are expensed as incurred.

(l) Stock-Based Compensation

The Company adopted the disclosure only provision of SFAS No. 123, Accounting for Stock-Based Compensation and SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure. These statements allow an entity to continue to measure compensation cost for these plans using the intrinsic-value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company has elected to follow APB No. 25 and related interpretations in accounting for its employee stock options.

28 HAMPTON ROADS BANKSHARES, INC.

Pro forma information regarding net income and earnings per share as required by SFAS No. 123 and SFAS No. 148 has been determined as if the Company had accounted for its employee stock options under the fair-value method. The fair value of 2005 options was estimated at the date of the grant using a lattice option pricing model. The 2004 and 2003 information was calculated using the Black-Scholes option pricing model. Pro forma results and a summary of the assumptions used for 2005, 2004 and 2003 are as follows:

Years Ended December 31,	2005			2004			2003
Reported net income after change in accounting principle	$	5,507,329		$	4,134,015		$	4,023,015
Stock-based compensation expense (net of tax):
Actual expense based on APB No. 25		365,706			96,084			108,187
Pro forma expense based on SFAS No. 123		(378,359	)		(125,851	)		(145,602	)
Pro forma net income after change in accounting principle	$	5,494,676		$	4,104,248		$	3,985,600
Net income per share after change in accounting principle:
Basic-as reported	$	0.68		$	0.52		$	0.52
Basic-pro forma		0.68			0.51			0.51
Diluted-as reported		0.66			0.50			0.50
Diluted-pro forma		0.65			0.50			0.50
Assumptions:
Risk-free interest rate		4.32	%		3.94	%		3.25	%
Volatility		10.08	%		21.62	%		21.62	%
Dividend yield		3.38	%		2.86	%		3.62	%
Expected option life (in years)		8.60			7.75			7.75
Weighted average grant date fair value of options	$	1.41		$	1.52		$	1.64

The table above includes the effect of a 2005 fourth quarter adjustment to stock-based compensation expense. For more information on this adjustment, please see Note No. 21 contained in this annual report.

Option valuation models require the input of highly subjective assumptions. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a representative single measure of the fair value at which transactions may occur.

(m) Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates. Material estimates that are particularly susceptible to changes in the near term are the allowance for loan losses, the valuation of deferred tax assets, and the estimated fair value of financial instruments.

(n) Cash and Cash Equivalents

For the purpose of presentation in the consolidated statements of cash flows, the Company considers cash and due from banks, overnight funds sold and interest-bearing deposits in other banks as cash and cash equivalents. Generally, overnight funds sold include federal funds sold and high quality money market instruments, which hold short-term debt securities that are U.S. Government issued or guaranteed.

2005 ANNUAL REPORT 29

(o) Comprehensive Income (Loss)

Comprehensive income (loss) represents all changes in equity that result from recognized transactions and other economic events of the period. Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. generally accepted accounting principles are included in comprehensive income but excluded from net income, such as unrealized gains and losses on investment securities available-for-sale.

(p) Cumulative Effect of Change in Accounting Principle

In accordance with EITF 03-16, Accounting for Investments in Limited Liability Companies, which was effective for reporting periods beginning after June 15, 2004, the Company began accounting for its investment in Tidewater Home Funding, LLC (THF) under the equity method during the third quarter of 2004. The change from the cost method to the equity method caused an adjustment of $45,835, net of income tax, which was accounted for as a cumulative effect of change in accounting principle.

(q) Concentrations of Credit Risk

Construction and mortgage loans represent $209.5 million and $199.7 million of the total loan portfolio at December 31, 2005 and 2004, respectively. Substantially all such loans are collateralized by real property or other assets. These loans are expected to be repaid from the proceeds received by the borrowers from the sales or rentals of these properties to third parties.

At times the Company may have cash and cash equivalents at a financial institution in excess of insured limits. The Company places its cash and cash equivalents with high credit quality financial institutions whose credit rating is monitored by management to minimize credit risk.

(r) Reclassification

Certain 2004 and 2003 amounts have been reclassified to conform to the 2005 presentation.

(2) Investment Securities

The amortized cost and estimated fair values of investment securities available-for-sale at December 31, 2005 and 2004 were as follows:

	2005
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment Securities Available-for-Sale:
U.S. Treasury securities	$	100,000	$	—	$	2,543	$	97,457
U.S. Agency securities		71,979,985		28,912		1,001,710		71,007,187
Mortgage backed securities		9,311		4		—		9,315
Total investment securities available-for-sale	$	72,089,296	$	28,916	$	1,004,253	$	71,113,959
	2004
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment Securities Available-for-Sale:
U.S. Treasury securities	$	100,000	$	—	$	1,074	$	98,926
U.S. Agency securities		36,882,534		3,560		319,206		36,566,888
Mortgage backed securities		13,077		—		56		13,021
Total investment securities available-for-sale	$	36,995,611	$	3,560	$	320,336	$	36,678,835

30 HAMPTON ROADS BANKSHARES, INC.

Investment securities available-for-sale in an unrealized loss position and temporarily impaired at December 31, 2005 and 2004 were as follows:

	2005
	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
U.S. Treasury securities	$	—	$	—	$	97,457	$	2,543	$	97,457	$	2,543
U.S. Agency securities		40,358,750		481,809		22,649,062		519,901		63,007,812		1,001,710
	$	40,358,750	$	481,809	$	22,746,519	$	522,444	$	63,105,269	$	1,004,253
	2004
	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss		Estimated Fair Value		Unrealized Loss
U.S. Treasury securities	$	98,926	$	1,074	$	—	$	—	$	98,926	$	1,074
U.S. Agency securities		27,116,177		241,789		5,978,125		77,417		33,094,302		319,206
Mortgage backed securities		13,021		56		—		—		13,021		56
	$	27,228,124	$	242,919	$	5,978,125	$	77,417	$	33,206,249	$	320,336

The unrealized loss positions at December 31, 2005 were directly related to interest rate movements as there is minimal credit risk exposure in these investments. Investment securities with unrealized losses have interest rates that are less than the current interest rate environment and not a result of credit impairment. All securities are AAA rated investments. Bonds with unrealized loss positions at 2005 year-end included 1 U.S. Treasury security and 43 U.S. Agency securities.

During 2004, investment securities available-for-sale with a total estimated fair value of $44,964,674 were sold, and a gain of $507,500 was recognized. There were no sales of securities in 2005 or 2003.

The amortized cost and estimated fair value of investment securities available-for-sale at December 31, 2005 by contractual maturity were as follows.

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	18,057,493	$	17,911,875
Due after one year through five years		53,038,821		52,198,395
Due after five years through ten years		983,671		994,374
Due after ten years		9,311		9,315
	$	72,089,296	$	71,113,959

Investment securities that were pledged to secure deposits, outstanding borrowings, or available to secure future borrowings at December 31, 2005 and 2004 were as follows:

	2005		2004
Public deposits	$	9,769,876	$	7,961,932
Treasury, tax and loan deposits		1,442,344		1,426,336
FHLB borrowings		12,889,688		15,650,313
FRB borrowings		2,947,812		3,006,875
Debtor in possession deposit		97,457		98,926
	$	27,147,177	$	28,144,382

(3) Loans and Allowance for Loan Losses

The Company grants commercial, construction, real estate, and consumer loans to customers throughout its lending area. A substantial portion of debtors’ abilities to honor their contracts is dependent upon the real estate and general economic environment of the lending area.

2005 ANNUAL REPORT 31

Major classifications of loans at December 31, 2005 and 2004 were as follows:

	2005			2004
Commercial	$	60,972,016		$	58,500,942
Construction		85,205,034			73,507,730
Real estate - commercial mortgage		104,313,449			108,314,059
Real estate - residential mortgage		20,010,503			17,900,146
Installment loans to individuals		15,107,168			17,250,885
Deferred loan fees and related costs		(278,235	)		(283,568	)
	$	285,329,935		$	275,190,194

Non-performing assets at December 31, 2005 and 2004 were as follows:

	2005		2004
Loans 90 days past due and still accruing interest	$	30,112	$	469,146
Nonaccrual loans, including impaired loans		1,790,869		1,904,430
Real estate acquired in settlement of loans		—		—
	$	1,820,981	$	2,373,576

If interest on nonaccrual loans had been accrued, such income would have approximated $136,878, $56,814 and 17,553 in 2005, 2004 and 2003, respectively, none of which was recognized in income.

Information on impaired loans at December 31, 2005, 2004 and 2003 was:

	2005		2004		2003
Impaired loans for which an allowance has been provided	$	1,770,656	$	1,887,542	$	—
Impaired loans for which no allowance has been provided		—		—		—
Total impaired loans	$	1,770,656	$	1,887,542	$	—
Allowance provided for impaired loans, included in the allowance for loan losses	$	354,131	$	377,508	$	—
Average balance in impaired loans	$	1,777,615	$	1,911,411	$	—
Interest income recognized from impaired loans	$	—	$	—	$	—

Transactions affecting the allowance for loan losses for the years ended December 31, 2005, 2004 and 2003 were as follows:

	2005			2004			2003
Balance at beginning of year	$	3,070,600		$	2,948,011		$	2,842,855
Provision for loan losses		486,000			926,000			370,000
Loans charged off		(98,737	)		(940,555	)		(298,629	)
Recoveries		139,634			137,144			33,785
Balance at end of year	$	3,597,497		$	3,070,600		$	2,948,011

(4) Premises, Equipment and Leases

Premises and equipment at December 31, 2005 and 2004 are summarized as follows:

	2005			2004
Land	$	3,580,313		$	3,580,313
Buildings and improvements		5,805,407			5,675,485
Leasehold improvements		812,650			369,654
Equipment, furniture and fixtures		4,526,455			3,858,818
		14,724,825			13,484,270
Less accumulated depreciation and amortization		(3,268,324	)		(3,690,887	)
	$	11,456,501		$	9,793,383

32 HAMPTON ROADS BANKSHARES, INC.

The Company leases the land upon which one of its branch offices is located. In addition, the Company also leases the buildings in which five branch offices are located. The lease terms range from three to eleven years and most include renewal options.

Total rent expense was $428,500 in 2005, $304,598 in 2004 and $322,581 in 2003. On May 26, 2005, the Company entered into a lease agreement for a portion of the first floor and the entire second floor of the Dominion Tower building located in downtown Norfolk, Virginia. The Company opened a branch office in the leased space on the first floor and relocated the executive offices to the second floor during the fourth quarter of 2005. Rent is payable in monthly installments of $42,962 beginning 425 days after the commencement date and will be increased annually by 3%.

Future minimum lease payments, by year and in the aggregate, under noncancelable operating leases with initial or remaining terms of one year or more at December 31, 2005 were as follows:

2006	$	366,765
2007		721,589
2008		740,545
2009		707,109
2010		676,334
2011 - 2014		3,983,259
	$	7,195,601

The Company has entered into a contract as lessor for excess office space. Future minimum lease payments receivable under noncancelable leasing arrangements at December 31, 2005 were as follows:

2006	$	84,443
2007		84,443
2008		84,443
2009		28,148
	$	281,477

(5) Deposits

The maturities of time deposits at December 31, 2005 and 2004 were as follows:

	2005				2004
	Time Deposits Less than $100,000		Time Deposits $100,000 or More		Time Deposits Less than $100,000		Time Deposits $100,000 or More
Maturity of:
3 months or less	$	8,404,562	$	4,331,946	$	9,288,832	$	15,557,772
Over 3 months - 6 months		5,603,594		8,817,057		6,597,320		1,737,366
Over 6 months - 12 months		10,425,598		6,070,549		11,133,816		9,782,153
1 year - 2 years		14,402,170		5,468,777		11,303,017		5,049,233
2 years - 3 years		8,358,404		3,533,581		10,515,432		3,955,081
3 years - 4 years		6,741,940		2,285,090		8,084,136		3,147,615
4 years - 5 years		7,180,243		3,886,834		4,776,679		2,529,838
	$	61,116,511	$	34,393,834	$	61,699,232	$	41,759,058

(6) Federal Home Loan Bank Borrowings

At December 31, 2005 and 2004, the Company had borrowings from the FHLB system totaling $30,500,000 and $23,000,000, respectively. Interest only is payable on a monthly basis until maturity. Maturities of FHLB borrowings at December 31, 2005 were as follows:

	Interest Rate		Balance
Maturity Date:
April 2006	2.57	%	$	5,000,000
May 2006	2.25			2,500,000
May 2007	2.74			2,500,000
September 2007	3.40			5,500,000
January 2008	3.92			5,000,000
May 2008	2.83			5,000,000
January 2009	4.18			5,000,000
			$	30,500,000

2005 ANNUAL REPORT 33

The borrowings were collateralized by a blanket lien on the Company’s 1-4 family residential real estate loans, with carrying values of $13,471,104 and $14,204,935 as of December 31, 2005 and 2004, respectively, commercial real estate loans with a carrying value of $11,992,348 as of December 31, 2005, and investment securities with carrying values of $12,889,688 and $15,650,313 as of December 31, 2005 and 2004, respectively.

(7) Income Taxes

Total income tax was allocated for the years ended December 31, 2005, 2004 and 2003 as follows:

	December 31,
	2005			2004			2003
Provision for income taxes before cumulative effect of change in accounting principle	$	2,869,991		$	2,139,583		$	2,086,155
Tax effect of change in accounting principle		—			23,607			—
Shareholders’ equity for unrealized gain on securities available-for-sale		(223,911	)		(370,462	)		(45,701	)
Shareholders’ equity for tax benefit for excess of fair value above cost of stock option plans		(121,321	)		(137,996	)		(381,342	)
	$	2,524,759		$	1,654,732		$	1,659,112

Income tax expense (benefit) applicable to income before taxes and before cumulative effect of change in accounting principle consists of:

	December 31,
	2005			2004		2003
Current	$	3,302,973		$	2,112,657	$	2,028,632
Deferred		(432,982	)		26,926		57,523
	$	2,869,991		$	2,139,583	$	2,086,155

The significant components of deferred income tax expense (benefit) were as follows:

	December 31,
	2005			2004			2003
Deferred income tax expense (benefit)	$	(469,565	)	$	(9,656	)	$	20,941
NOL carryforward		36,583			36,582			36,582
	$	(432,982	)	$	26,926		$	57,523

The provisions for income taxes for the years ended December 31, 2005, 2004 and 2003 differ from the amount computed by applying the statutory federal income tax rate of 34% to income before taxes. The differences were as follows:

	2005		2004		2003
Income taxes at statutory rates	$	2,848,289	$	2,117,443	$	2,077,118
Increase resulting from:
Nondeductible expenses		20,382		20,242		8,167
Other		1,320		1,898		870
Income tax expense before cumulative effect of change in accounting principle	$	2,869,991	$	2,139,583	$	2,086,155

34 HAMPTON ROADS BANKSHARES, INC.

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2005 and 2004 were as follows:

	2005		2004
Deferred tax assets:
Allowance for loan losses	$	1,152,063	$	863,068
Unrealized loss on securities available-for-sale		331,615		107,704
Deferred directors’ fees		69,523		62,771
Nonqualified deferred compensation		982,241		741,617
Net operating loss carryforward		36,582		73,165
Total deferred tax assets		2,572,024		1,848,325
Defered tax liabilities:
Depreciation		567,838		552,138
Other		53,143		2,037
Total deferred tax liabilities		620,981		554,175
Net deferred tax asset	$	1,951,043	$	1,294,150

At December 31, 2005, the Company had net operating loss carryforwards of $107,595 for income tax purposes that expire in 2006, resulting from a 1992 acquisition. The amount of net operating loss carryforward utilization is limited to $107,595 per year.

(8) Financial Instruments with Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk which have not been recognized in the consolidated balance sheets. The contract amount of these instruments reflects the extent of the Company’s involvement or “credit risk.”

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Unless noted otherwise, the Company requires collateral or other security to support financial instruments with credit risk. Contractual amounts at December 31, 2005 and 2004 were:

	2005		2004
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	66,622,791	$	78,083,508
Standby letters of credit		13,459,838		11,853,606
	$	80,082,629	$	89,937,114

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counter party. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, income-producing commercial properties, and real estate.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of the contractual obligator by a customer to a third party. The majority of these guarantees extend until satisfactory completion of the customer’s contractual obligation. Management does not anticipate any material losses will arise from additional funding of the aforementioned commitments or letters of credit.

(9) Profit Sharing Plan

The Company has a defined contribution 401(k) plan. All employees who are 21 years of age and have completed one year of service are eligible to participate. During 2005, employees were able to contribute the lesser of $14,000, or 20% of their annual salary, and the Company contributed 25% of the employees’ contributions up to 10% of salary. The Company may also make an additional discretionary contribution. Company contributions will not exceed the maximum amount deductible annually for income tax

2005 ANNUAL REPORT 35

purposes. The Company made discretionary contributions of $196,000, $161,000 and $152,250 for the years ended December 31, 2005, 2004 and 2003, respectively. The Company also made matching contributions of $53,430, $48,913 and $46,397 for the years ended December 31, 2005, 2004 and 2003, respectively. The Company offers its stock as an investment option under the 401(k) plan. The plan purchased 8,952, 9,365, and 9,192 shares at prices of $9.75, $10.10, and $8.00 per share in 2005, 2004 and 2003, respectively. The Bank is the plan’s trustee.

(10) Supplemental Retirement Agreements

The Company has entered into supplemental retirement agreements with several key officers. Under these agreements, all but one of the officers are each eligible to receive an annual benefit payable in fifteen installments each equal to $50,000 following the attainment of their Plan Retirement Date. The other officer is eligible to receive an annual benefit payable in fifteen installments equal to 50% of his Benefit Computation Base following the attainment of his Plan Retirement Date. The Benefit Computation Base is calculated as the average compensation including bonuses from the Company over the three consecutive completed calendar years just prior to the year of retirement or termination. In connection with these agreements, the Company has purchased life insurance policies which name the Company as beneficiary. The total cash surrender value for these life insurance policies at December 31, 2005 was $566,448. The Company 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 change in benefit obligation and funded status for the years ended December 31, 2005, 2004 and 2003 is as follows:

	2005			2004			2003
Benefit obligation at beginning of year	$	857,867		$	672,785		$	511,405
Service cost		224,495			151,443			135,810
Interest cost		42,273			33,639			25,570
Benefit obligation at end of year		1,124,635			857,867			672,785
Fair value of plan assets		—			—			—
Funded status	$	(1,124,635	)	$	(857,867	)	$	(672,785	)

The amounts recognized in the consolidated balance sheets as of December 31, 2005 and 2004 consist of:

	2005			2004
Accrued benefit cost included in other liabilities	$	(1,124,635	)	$	(857,867	)

The components of net periodic benefit cost for the years ended December 31, 2005, 2004, and 2003 consist of:

	2005		2004		2003
Service cost	$	224,495	$	151,443	$	135,810
Interest cost		42,273		33,639		25,570
Net periodic benefit cost	$	266,768	$	185,082	$	161,380

The weighted-average assumptions used to determine benefit obligations at December 31, 2005 and 2004, and to determine net periodic benefit cost for the years ended December 31, 2005, 2004 and 2003 are as follows:

	2005		2004		2003
Discount rate	7.00	%	7.00	%	7.00	%
Rate of compensation increase	3.00	%	3.00	%	3.00	%

The rate of compensation increase only applies to the one officer agreement with a Benefit Computation Base.

The Company does not expect to make contributions to fund the supplemental retirement agreements in 2006. As of December 31, 2005, the following benefit payments are expected to be paid over the next ten years:

2006	$	—
2007		—
2008		—
2009		—
2010		230,067
Years 2011 – 2015		1,150,335
	$	1,380,402

36 HAMPTON ROADS BANKSHARES, INC.

(11) Dividend Reinvestment and Optional Cash Purchase Plan

The Company has a Dividend Reinvestment and Optional Cash Purchase Plan. The plan enables shareholders to receive cash payment or reinvest their dividends. Through the first quarter of 2003, the plan also enabled shareholders to purchase up to $1,000 per quarter of additional common stock. The stock purchased through the plan directly from the Company, is valued at the weighted average sales price of the Company’s common stock in transactions occurring during the 60 calendar days immediately prior to the purchase date. The purchase price of shares purchased on the open market is the actual current market price of the shares purchased on the applicable purchase date. In 2005, $1,799,531 of the $2,907,586 total dividend declared was reinvested. In 2004, $1,265,360 of the $2,622,648 total dividend declared was reinvested. In 2003, $919,641 of the $3,268,366 total dividend declared was reinvested. Under the Optional Cash Purchase Plan, 10,905 shares were purchased at prices ranging from $10.22 to $9.50 per share during 2003.

(12) Director and Employee Stock Compensation Plans

The Company has a Stock Option Plan under which the Company may grant options to its directors and employees for shares of common stock. During 2005 and 2004, the Company authorized the grant of options to employees and directors for 108,808 and 106,385 shares, respectively, of the Company’s common stock under the plan.

The Company has a Directors’ Deferred Compensation Agreement through which directors previously could elect to defer board fees and receive reductions in stock option exercise prices. The Company issued 19,318 stock options under this agreement in 2004. The agreement was modified in 2005 to comply with changes in tax rules pertaining to deferred compensation. In 2005, directors were granted 26,288 stock options and received grants of restricted stock as deferred compensation.

The Company’s shareholders have approved both of the above-mentioned plans.

All options, when granted, have 10-year terms and are fully vested and exercisable at the date of grant. A summary of the Company’s stock option activity and related information is as follows:

	Options Outstanding		Weighted Average Exercise Price
Balance at December 31, 2002	1,030,199		$	6.14
Granted	134,304			8.45
Exercised	(211,785	)		7.43
Balance at December 31, 2003	952,718			6.90
Granted	125,703			8.65
Exercised	(67,799	)		5.51
Expired	(15,836	)		10.40
Balance at December 31, 2004	994,786			7.15
Granted	135,096			10.47
Exercised	(97,828	)		5.63
Expired	(7,495	)		11.23
Balance at December 31, 2005	1,024,559		$	7.70

In 2005 and 2003, 97,828 and 211,785 options were exercised, respectively; however, only 85,421 and 168,000 new shares, respectively, were issued since 12,407 and 43,785 shares, respectively, of previously acquired stock were used to exercise some of the options.

Information pertaining to options outstanding and exercisable as of December 31, 2005 was as follows:

Range of Exercise Prices	Number of Options	Remaining Contractual Life (in years)	Weighted Average Exercise Price
$ 2.925 - $ 4.000	141,423	3.09	$	3.44
4.665 - 5.970	168,119	2.59		5.28
6.530 - 8.770	378,646	6.13		7.95
9.710 - 11.800	336,371	7.83		10.43
$ 2.925 - $ 11.800	1,024,559	5.69	$	7.70

2005 ANNUAL REPORT 37

In 2005, the Company granted directors 12,128 shares of restricted stock under the Directors Deferred Compensation Agreement. The restricted stock will begin vesting five years from the date of grant and will be fully vested ten years from the date of grant. The Company will record compensation expense for these restricted shares ratably over the vesting period.

During 2005, the Company granted restricted stock to the directors as part of an incentive award program. Restricted stock granted under this award totaled 5,917 shares for 2005. The restricted stock will begin vesting five years from the date of grant and will be fully vested ten years from the date of grant. Compensation expense related to these restricted shares will be recognized ratably over the vesting period.

During 2005, the Company granted restricted stock to several key employees as part of an incentive award program. Restricted stock granted under this award totaled 15,000 shares for 2005. This restricted stock began vesting upon grant date and will continue to vest in 20% increments over the next four years. The Company recognized 20% of the compensation expense in 2005 and will recognize the remaining 80% of the compensation expense ratably over the vesting period. Compensation expense was calculated using the market value of common stock at the date of grant multiplied by the number of restricted shares granted.

Total compensation expense related to grants of restricted stock during 2005 was $31,950. The weighted average fair value of all restricted stock at the date of grant during 2005 was $10.97 per share.

(13) Employment Agreements

The Company has employment agreements with six officers. Two of the agreements expire in 2006, two expire in 2007, one expires in 2008 and one expires in 2009. Unless the officer is notified in writing prior to the last day of the 48th consecutive month, the agreement will automatically renew for an additional period of 60 months. Among other things, the agreements provide for severance benefits payable to the officers upon termination of employment following a change of control in the Company.

(14) Other Expenses

A summary of other expenses for the years ended December 31, 2005, 2004 and 2003 is as follows:

	2005		2004		2003
Stationery and office supplies	$	213,558	$	158,806	$	170,277
Advertising and marketing		304,089		240,128		287,700
Telephone and postage		281,548		283,075		328,319
Professional		379,853		184,125		131,678
Bank franchise tax		251,332		230,115		228,594
Equipment		205,437		181,386		149,730
ATM and VISA Check Card expense		466,605		359,108		309,444
Directors’ and advisory board fees		313,299		254,450		228,525
Other		993,424		817,256		792,146
	$	3,409,145	$	2,708,449	$	2,626,413

(15) Restrictions on Loans and Dividends from Subsidiaries

Regulatory agencies place certain restrictions on dividends paid and loans or advances made by the Bank to the Company. The amount of dividends the Bank may pay to the Company, without prior approval, is limited to current year earnings plus retained net profits for the two preceding years. At December 31, 2005, the amount available was approximately $7.8 million. Loans and advances are limited to 10% of the Bank’s shareholders’ equity. As of December 31, 2005, funds available for loans or advances by the Bank to the Company were approximately $4.4 million.

(16) Regulatory Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements of the FRB. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Management believes that, as of December 31, 2005, the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2005, the most recent notification from the FRB categorized the Company and the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, minimum amounts and ratios, as set forth in the table that follows, must be maintained. There are no conditions or events since that notification that management believes have changed the Company’s or Bank’s category.

38 HAMPTON ROADS BANKSHARES, INC.

A summary of the Company’s and the Bank’s required and actual capital components follows:

	Actual				For Capital Adequacy Purposes				To Be Well-Capitalized Under Prompt Action Provisions
(in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2005
Tier 1 Capital:
Consolidated Company	$	49,774	15.47	%	$	12,867	4.00	%	$	19,301	6.00	%
Bank		44,126	13.79			12,804	4.00			19,205	6.00
Total Risk-Based Capital:
Consolidated Company		53,371	16.59			25,734	8.00			32,168	10.00
Bank		47,723	14.91			25,607	8.00			32,009	10.00
Leverage Ratio:
Consolidated Company		49,774	12.37			16,100	4.00			20,124	5.00
Bank		44,126	11.00			16,041	4.00			20,052	5.00
As of December 31, 2004
Tier 1 Capital:
Consolidated Company	$	43,835	14.69	%	$	11,937	4.00	%	$	17,905	6.00	%
Bank		39,812	13.46			11,829	4.00			17,744	6.00
Total Risk-Based Capital:
Consolidated Company		46,906	15.72			23,874	8.00			29,842	10.00
Bank		42,883	14.50			23,659	8.00			29,573	10.00
Leverage Ratio:
Consolidated Company		43,835	13.13			13,350	4.00			16,688	5.00
Bank		39,812	12.02			13,244	4.00			16,555	5.00

(17) Disclosures About Fair Value of Financial Instruments

SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily 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, as defined by SFAS No. 107:

(a) Cash and Cash Equivalents

The carrying amount approximates fair value.

(b) Investment Securities Available-for-Sale

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

(c) Federal Home Loan Bank Stock and Federal Reserve Bank Stock

The carrying amount approximates fair value.

2005 ANNUAL REPORT 39

(d) Loans

For credit card and other 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.

(e) Interest Receivable and Interest Payable

The carrying amount approximates fair value.

(f) Deposits

The fair value of noninterest bearing deposits and deposits with no defined maturity, by SFAS No. 107 definition, 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 rates at which similar deposits would be made.

(g) FHLB Borrowings

The fair value of FHLB borrowings is estimated using discounted cash flow analysis based on the rates currently offered for borrowings of similar remaining maturities.

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

The fair value of commercial lending related letters of credit and commitments is estimated as the amount of fees currently charged to enter into similar agreements, taking into account the present creditworthiness of the counter parties. The carrying amount and estimated fair value of these instruments were immaterial at December 31, 2005, and 2004.

The estimated fair value of the Company’s financial instruments required to be disclosed under SFAS No. 107 at December 31, 2005 and 2004 were:

	2005				2004
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets:
Cash and due from banks	$	17,513,955	$	17,513,955	$	12,102,200	$	12,102,200
Overnight funds sold		18,294,012		18,294,012		7,293,557		7,293,557
Interest-bearing deposits in other banks		932,688		932,688		377,728		377,728
Federal Home Loan Bank stock		2,057,100		2,057,100		1,667,400		1,667,400
Federal Reserve Bank stock		654,600		654,600		648,350		648,350
Investment securities available-for-sale		71,113,959		71,113,959		36,678,835		36,678,835
Loans		285,329,935		282,923,035		275,190,194		272,715,985
Interest receivable		1,761,570		1,761,570		1,253,674		1,253,674
Liabilities:
Deposits		327,446,517		328,960,581		275,115,358		276,249,203
Interest payable		490,182		490,182		409,899		409,899
FHLB borrowings		30,500,000		29,808,700		23,000,000		22,706,768

(18) Subsequent Events

On January 10, 2006, the Company declared a cash dividend of $0.20 per share payable March 15, 2006, to shareholders of record on February 15, 2006.

40 HAMPTON ROADS BANKSHARES, INC.

(19) Condensed Parent Company Only Financial Statements

The condensed financial position as of December 31, 2005 and 2004 and the condensed results of operations and cash flows for each of the years in the three-year period ended December 31, 2005, of Hampton Roads Bankshares, Inc., parent company only, are presented below.

Condensed Balance Sheets

December 31,	2005		2004
Assets:
Cash on deposit with Bank	$	4,038,464	$	1,357,471
Receivable from Bank		—		1,303,864
Investment in subsidiaries		43,524,284		39,616,517
Investment in affiliates		782,748		686,690
Loans		800,000		5,799,375
Interest receivable		2,707		16,390
Other assets		—		20
Total assets	$	49,148,203	$	48,780,327
Liabilities and Shareholders’ Equity:
Borrowing from Bank	$	—	$	3,800,000
Interest payable		—		11,061
Other liabilities		17,674		1,343,706
Shareholders’ equity		49,130,529		43,625,560
Total liabilities and shareholders’ equity	$	49,148,203	$	48,780,327

Condensed Statements of Income

Years Ended December 31,	2005			2004			2003
Income:
Dividends from Bank	$	2,907,586		$	1,435,583		$	1,171,890
Income from affiliates		77,906			165,207			140,700
Interest income		241,457			98,207			56,446
Total income		3,226,949			1,698,997			1,369,036
Expenses:
Interest expense		139,325			29,801			36,254
Other expense		40,890			56,206			40,014
Total expense		180,215			86,007			76,268
Income before income taxes and equity in undistributed earnings of subsidiaries		3,046,734			1,612,990			1,292,768
Provision for income taxes		(49,312	)		(63,193	)		(41,101	)
Equity in undistributed earnings of subsidiaries		2,509,907			2,584,218			2,771,348
Net income	$	5,507,329		$	4,134,015		$	4,023,015

2005 ANNUAL REPORT 41

Condensed Statements of Cash Flows

Years Ended December 31,	2005			2004			2003
Operating Activities:
Net income	$	5,507,329		$	4,134,015		$	4,023,015
Adjustments:
Equity in undistributed earnings of subsidiaries		(2,509,907	)		(2,584,218	)		(2,771,348	)
Stock-based compensation expense		704,300			—			—
Depreciation and amortization		—			22,138			7,690
Change in other assets		(514,943	)		(236,007	)		227,979
Change in other liabilities		95,595			267,850			196,014
Net cash provided by operations		3,282,374			1,603,778			1,683,350
Investing Activities:
Net (increase) decrease in loans		4,999,375			(5,799,375	)		2,992,853
Investment in affiliates		(96,058	)		(421,690	)		—
Net cash provided by (used in) investing activities		4,903,317			(6,221,065	)		2,992,853
Financing Activities:
Net increase (decrease) in borrowings		(3,800,000	)		3,800,000			(2,992,853	)
Common stock repurchased		(1,092,379	)		(396,960	)		(687,235	)
Dividends paid		(2,907,586	)		(2,622,648	)		(3,268,366	)
Dividends reinvested		1,799,531			1,265,360			919,641
Proceeds from exercise of stock options		408,452			373,675			492,236
Issuance of shares to 401(k) plan		87,284			94,586			73,536
Net cash provided by (used in) financing activities		(5,504,698	)		2,514,013			(5,463,041	)
Increase (decrease) in cash and cash equivalents		2,680,993			(2,103,274	)		(786,838	)
Cash and cash equivalents at beginning of year		1,357,471			3,460,745			4,247,583
Cash and cash equivalents at end of year	$	4,038,464		$	1,357,471		$	3,460,745

(20) Related Party Transactions

The Company has a 19% interest in THF. The Company accounts for this investment under the equity method. On December 19, 2001, the Bank established a warehouse credit facility for THF for up to $5,194,950. As of December 31, 2005 and 2004, THF had drawn $1,953,267 and $1,756,259 on this warehouse line of credit, at a variable rate of 7.25% and 5.75%, respectively.

The Company has an 8% ownership in Davenport Financial Fund, LLC. This investment is accounted for under the equity method.

The Company has a 4% ownership in Bankers Investment Group, LLC in order to facilitate the sale of securities-related products and services to its customers and the general public. The Company accounts for this investment under the cost method.

Loans are made to the Company’s executive officers and directors and their associates during the ordinary course of business. In management’s opinion, these loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with other persons and do not involve more than normal risk of collectibility or present other unfavorable features. At December 31, 2005 and 2004, loans to executive officers, directors and their associates amounted to $9,321,517 and $9,677,121, respectively. During 2005, additional loans and repayments of loans by executive officers, directors and their associates were $5,767,323 and $6,122,927, respectively.

During the fourth quarter of 2004, the Company established a loan from the Bank with a one-year term. Interest only payments were made monthly at a variable interest rate. As of December 31, 2004 the outstanding balance was $3,800,000 at an interest rate of 6.25%. The loan was paid off during the third quarter of 2005.

(21) Significant Fourth Quarter Adjustments

In the fourth quarter of 2005, management in consultation with its external auditors, KPMG LLP (“KPMG”) determined that the Company had misapplied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”). The misapplication, which was not intentional, previously was undetected by management and KPMG in the Company’s audited

42 HAMPTON ROADS BANKSHARES, INC.

Consolidated Financial Statements. The misapplication arose from the Company’s use of independent, third party appraisals to establish the fair value of the Company’s common stock in connection with stock option grants rather than quoted market prices. For a number of reasons, management believed that the independent appraisal of fair value represented a more reliable pricing mechanism for a thinly traded small capitalization stock and that the methodology was an acceptable practice. Although APB No. 25 recognizes that quoted market prices may not always be indicative of fair value, it directs companies to use quoted market prices in the measurement of compensation expense for stock options. Following a thorough analysis of the differences resulting from the misapplication, the Company determined that Consolidated Financial Statements for the years 2003 and 2004 were impacted. The analysis concluded that the amount of the differences was not material to the Consolidated Financial Statements in either year, nor was it material on a cumulative basis in 2005. As a result, the Company in further consultation with KPMG, made adjustments to its Consolidated Financial Statements in the year ended December 31, 2005 to correct the previous misapplication. The adjustment related to 2003 and 2004 Consolidated Financial Statements had the effect of increasing stock-based compensation expense $318 thousand and, thus, decreasing net income $210 thousand after the related tax effect.

In addition to the above matter, management in consultation with KPMG determined that the Company misclassified the accrued compensation expense for unexercised stock options as a liability rather than as a component of shareholders’ equity in prior audited Consolidated Financial Statements. The misclassification, which was not material to the Company’s Consolidated Financial Statements, does not affect the reporting of total assets or the Company’s earnings in any period. An adjustment was made in the Company’s 2005 Consolidated Financial Statements in the amount of $1.20 million, which had the effect of reducing liabilities and increasing shareholders’ equity by that amount. The net effect of the reclassification adjustment and the change in methodology for measuring compensation expense for stock options was an increase in shareholders’ equity of $1.52 million, or $0.18 in book value per share.

(22) Quarterly Financial Data (Unaudited)

Summarized unaudited quarterly financial data for the years ended December 31, 2005 and 2004 is as follows:

	2005
	Fourth		Third		Second		First
Interest income	$	7,097,244	$	6,246,555	$	5,902,209	$	5,312,103
Interest expense		1,641,748		1,530,180		1,432,015		1,264,944
Net interest income		5,455,496		4,716,375		4,470,194		4,047,159
Provision for loan losses		—		177,000		162,000		147,000
Noninterest income		683,966		849,560		770,588		910,353
Noninterest expense		3,866,504		3,106,447		3,086,284		2,981,136
Income before provision for income taxes		2,272,958		2,282,488		1,992,498		1,829,376
Provision for income taxes		777,521		779,777		687,566		625,127
Net income	$	1,495,437	$	1,502,711	$	1,304,932	$	1,204,249
Basic earnings per share	$	0.18	$	0.19	$	0.16	$	0.15
Diluted earnings per share	$	0.18	$	0.18	$	0.16	$	0.14
	2004
	Fourth		Third		Second		First
Interest income	$	4,906,171	$	4,629,212	$	4,321,230	$	4,211,158
Interest expense		1,035,062		939,251		944,327		992,570
Net interest income		3,871,109		3,689,961		3,376,903		3,218,588
Provision for loan losses		129,000		114,000		599,000		84,000
Noninterest income		822,911		805,036		910,435		1,252,900
Noninterest expense		2,864,321		2,669,900		2,626,673		2,633,176
Income before provision for income taxes		1,700,699		1,711,097		1,061,665		1,754,312
Provision for income taxes		586,316		582,700		374,101		596,466
Cumulative effect of change in accounting principle, net of tax		—		45,825		—		—
Net income	$	1,114,383	$	1,174,222	$	687,564	$	1,157,846
Basic earnings per share	$	0.13	$	0.15	$	0.09	$	0.15
Diluted earnings per share	$	0.13	$	0.14	$	0.09	$	0.14

2005 ANNUAL REPORT 43

ADVISORY BOARD MEMBERS

Deep Creek

Emil A. Viola

Chairman

Jack W. Gibson

Bank of Hampton Roads

Patricia S. Lawrence

Lawrence Pharmacy, Inc.

Davis R. Mellott

Southeastern Equipment Corp.

Rod L. Pierce, Sr.

Retired, Bank of Hampton Roads

Willard F. Robins, III, C.P.A.

Willard F. Robins, III, P.C.

R. Curtis Saunders, Jr.

Vico Construction Corporation

Constantine L. Zinovis

Restauranteur

Crossroads

Herman A. Hall, III

Chairman

Jack W. Gibson

Bank of Hampton Roads

The Honorable Harry B. Blevins

State Senator

Ralph L. Frost

Retired Farmer

Douglas R. Jewell

EMS Industrial, Inc.

H. Lynn Keffer

Crossroads Fuel, Inc.

Philip V. Miller

Virginia Door, Inc.

Jeffrey P. Powell, M.D., D.D.S.

Chesapeake Ear, Nose & Throat Associates, P.C.

South Norfolk

Durwood S. Curling

Chairman

Jack W. Gibson

Bank of Hampton Roads

James A. Alexander, Jr.

Service Electric Corp. of Va.

Robert G. Bagley

Retired, Bank of Hampton Roads

James S. Creekmore

Creekmore Hardware

Charles G. Hackworth, Sr.

Hackworth Reprographics, Inc.

James W. McNeil

Civic Leader

Richard G. Pretlow

Pretlow & Sons Funeral Home

Elizabeth F. St. John

Supervisor, 1st District Court, City of Chesapeake

Indian River

Warren L. Aleck

Chairman

Jack W. Gibson

Bank of Hampton Roads

Eric C. Anderson

Lakeside Construction Corporation

Stuart H. Buxbaum

S & E Builders

Leigh Anne Folkes

Hassell & Folkes, P.C.

Izaak D. Glasser

Glasser & Macon, P.C.

Michael A. Leanzo

Mid-Atlantic Coatings, Inc.

Corporate Landing

Patricia M. Windsor

Chairman

Jack W. Gibson

Bank of Hampton Roads

John E. Freese

Lewis and Freese Advertising

David E. Kellam

Kellam and Eaton, Inc.

James W. Lam

Attorney & Counselor at Law

Norris W. Shirley

Retired Farmer

Cynthia W. Snyman

Slip-Free Systems of Virginia

MacArthur Center

Robert H. Powell III

Chairman

Jack W. Gibson

Bank of Hampton Roads

Robert G. Bagley

Retired, Bank of Hampton Roads

Jonathan L. Thornton

Pierce & Thornton

William F. Whitlow

Whitlow Baker

Michael P. Zarpas

Global Real Estate Investment

Market Street

Bobby L. Ralph

Chairman

Jack W. Gibson

Bank of Hampton Roads

Mickey Garcia

Garcia Development, LLC

Adrian T. Robertson

Allied Concrete

James R. Rountree

Rountree Construction Co., Inc.

James F. Russell

Supreme Petroleum, Inc.

J. Wayne Scott

Frank E. Sheffer & Co.

Robert B. Speight

N & S Limited

Gayle F. Upchurch

The Shoetique

Orchard Square

Richard H. Matthews

Chairman

Jack W. Gibson

Bank of Hampton Roads

William B. Cross

Ashdon Builders, Inc.

Clay Robertson

Nationwide Insurance

Robert L. Samuel, Jr.

Williams Mullen

Jeffrey A. Valentine

The Frieden Agency, Inc.

Portsmouth Boulevard

Hugo A. Owens, Jr.

Chairman

Jack W. Gibson

Bank of Hampton Roads

Phil L. Black

Century 21

Thomas F. May

Vexon Chemicals, Inc.

JoAnn H. Nesson

John C. Holland Enterprises

Judson H. Rodman

Rodman’s Bar-B-Que

Pat E. Viola

Vico Construction Corporation

Princess Anne

L. Steve Gossett

Chairman

Jack W. Gibson

Bank of Hampton Roads

George Ray Bunch, Jr.

Budget Rent A Car

Donald M. Koble

Steve’s Auto Sales

Donald Stakes

Discount Plumbing, Inc.

Yale Nesson

AARD Screenprinters & Embroidery

Neal S. Windley

Goodwill Industries of Hampton Roads, Inc.

Little Creek

W. Lewis Witt

Chairman

Jack W. Gibson

Bank of Hampton Roads

Elaine Czohara

Adams Outdoor Advertising

Edward A. Fiorella

Norfolk Sheriff’s Office

Robert J. McCabe

Sheriff, City of Norfolk

George Stenke

Investor

W. Randy Wright

Randy Wright’s Printing

Robert L. Young

Cottage Toll Exxon

Moyock

Rodney L. Foster

Chairman

Jack W. Gibson

Bank of Hampton Roads

Christopher H. Falk

Attorney at Law

Martin W. Holton

Forrest Septic Tank Contractors, Inc.

Robert C. Rhoads

Hoffman Industries, Inc.

Richard C. Webb, II

East Coast Abatement Co., Inc.

Great Neck

S.G. Folkes

Chairman

Jack W. Gibson

Bank of Hampton Roads

E. Lee Boyce, III

Boyce-Widener, Ltd.

William N. Dozier

Enginuity

James D. Marx

Broadbay Cotton

Townsend Oast

Retired Past President of Virginia Bankers Association

Kenneth R. Sims

Custom Stone Company, Inc.

Kevin R. Sims

Custom Stone Company, Inc.

Leo Thomas

Ron Zoby Tours

Jeffrey M. Tourault

Atlantic Foundations, Inc.

Pembroke

Douglas J. Glenn

Chairman

Jack W. Gibson

Bank of Hampton Roads

B. G. Campbell

Community Group, Inc.

John Katsias

Katsias Company

Pete O. Kotarides

The Kotarides Companies

Robert A. Widener

Ainslie Widener, Inc.

Benjamin J. Willis, III

Willis Furniture Company, Inc.

Great Bridge

Robert G. MacDonald

Chairman

Jack W. Gibson

Bank of Hampton Roads

Erik P. Gordon

Attorney At Law

Herbert Mitchell, Jr.

Mitchell’s Complete Upholstery

John R. Newhart

Sheriff, City of Chesapeake

Suzanne Rose

Rose and Womble Realty

David L. Schloff

Great Bridge Servicecenter, LLC

Patricia C. Whitehurst

Civic Leader

Gilbert J. Wirth, Jr.

Prentis, LLC

44 HAMPTON ROADS BANKSHARES, INC.

SHAREHOLDER INFORMATION

BOARD OF DIRECTORS

Emil A. Viola

Chairman of the Board

Treasurer, Vico Construction

Corporation

Jack W. Gibson

President and Chief Executive

Officer, Hampton Roads

Bankshares, Inc.

Warren L. Aleck

Retired President,

Great Bridge Foods, Inc.

t/a Earle’s Markets

Robert G. Bagley

Retired Senior Vice President,

Bank of Hampton Roads

Durwood S. Curling

Retired Executive Director,

Southeastern Public Service

Authority

Douglas J. Glenn

Attorney at Law,

Pender & Coward, P.C.;

General Counsel and Secretary,

Geeks on Call America, Inc.

Herman A. Hall, III

Secretary-Treasurer,

Hall Farms, Inc.

Robert H. Powell III

Attorney at Law,

Kaufman & Canoles, P.C.

Bobby L. Ralph

Mayor,

City of Suffolk

Roland Carroll Smith, Sr.

President and Chief Executive Officer,

Hearndon Construction Corporation

Patricia M. Windsor

Secretary-Treasurer,

Lakeside Construction

Corporation

W. Lewis Witt

Owner,

Inner-View, Ltd.

EXECUTIVE OFFICERS

Jack W. Gibson

President and

Chief Executive Officer

Julie R. Anderson

Senior Vice President,

Area Loan Executive and

Commercial Loan Officer

Donald W. Fulton, Jr.

Senior Vice President and

Chief Financial Officer

Tiffany K. Glenn

Senior Vice President,

Marketing Officer and

Corporate Secretary

Gregory P. Marshall

Senior Vice President,

Area Loan Executive and

Commercial Loan Officer

Reneé R. McKinney

Senior Vice President and

Branch Administrator

FINANCIAL INFORMATION

Shareholders, analysts and investors seeking financial information about the Company, including copies of Form 10-K filed with the Securities and Exchange Commission, may contact:

Donald W. Fulton, Jr.

Senior Vice President and Chief

Financial Officer

Hampton Roads Bankshares, Inc.

999 Waterside Drive, Suite 200

Norfolk, VA 23510

(757) 217-1000

STOCK INFORMATION

The Bank serves as the transfer agent. The Company’s common stock trades under the symbol “HMPR” on the NASDAQ Over-the-Counter Bulletin Board. Stock inquiries should be directed to:

Tiffany K. Glenn

Senior Vice President and

Marketing Officer

Stock Transfer Department

Hampton Roads Bankshares, Inc.

999 Waterside Drive, Suite 200

Norfolk, VA 23510

(757) 217-1000

MARKET MAKERS

Davenport & Company LLC

Hill Thompson Magid & Co., Inc.

Knight Equity Markets, L.P.

McKinnon & Company, Inc.

Monroe Securities, Inc.

Ryan Beck & Co.

Scott & Stringfellow, Inc.

UBS Capital Markets, L.P.

Hudson Securities, Inc.

Pershing Advisor Solutions, LLC

UBS Securities LLC

WEB SITE ADDRESS

www.bankofhamptonroads.com

999 Waterside Drive, Suite 200 • Norfolk, Virginia 23510 • 757.217.1000

www.bankofhamptonroads.com

EX-21.1

Exhibit 21.1

Subsidiaries of the Registrant

Bank of Hampton Roads, a Virginia corporation, is a wholly owned subsidiary of Hampton Roads Bankshares, Inc.

(1) Bank of Hampton Roads Service Corporation, a Virginia corporation, is a wholly owned subsidiary of Bank of Hampton Roads.

Hampton Roads Investments, Inc., a Virginia corporation, is a wholly owned subsidiary of Hampton Roads Bankshares, Inc.

Hampton Roads Bankshares, Inc. owns a 19% interest in Tidewater Home Funding, LLC which was organized in Virginia.

Hampton Roads Bankshares, Inc. owns an 8% interest in Davenport Financial Fund, LLC which was organized in Virginia.

Hampton Roads Bankshares, Inc. owns a 4% interest in Bankers Investment Group, LLC which was organized in Virginia.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors

Hampton Roads Bankshares, Inc.:

We consent to the incorporation by reference in the Registration Statements (No. 333-84304 and No. 333-64346) on Forms S-3 and S-8, respectively, of Hampton Roads Bankshares, Inc. of our report dated March 6, 2006, with respect to the consolidated balance sheets of Hampton Roads Bankshares, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005, and the effectiveness of internal control over financial reporting as of December 31, 2005, which report appears in the December 31, 2005 annual report on Form 10-K of Hampton Roads Bankshares, Inc.

/s/ KPMG LLP

Norfolk, Virginia

March 14, 2006

EX-31.1

Exhibit 31.1

Certifications under Section 302 of the Sarbanes-Oxley Act of 2002

Certification of Chief Executive Officer

I, Jack W. Gibson, certify that:

1. I have reviewed this report on Form 10-K of Hampton Roads Bankshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 14, 2006	/s/ Jack W. Gibson
	Jack W. Gibson
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Donald W. Fulton, Jr., certify that:

1. I have reviewed this report on Form 10-K of Hampton Roads Bankshares, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial data; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: March 14, 2006	/s/ Donald W. Fulton, Jr.
	Donald W. Fulton, Jr.
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification under Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Hampton Roads Bankshares, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Jack W. Gibson, Chief Executive Officer, and Donald W. Fulton, Jr., Chief Financial Officer, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(a) This Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jack W. Gibson

Jack W. Gibson

Chief Executive Officer

Date: March 14, 2006

/s/ Donald W. Fulton, Jr.

Donald W. Fulton, Jr.

Chief Financial Officer

Date: March 14, 2006