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, 2006

Commission file number 001-32968

Hampton Roads Bankshares, Inc.

(Exact name of registrant as specified in its charter)

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

999 Waterside Dr., 2nd Floor, Norfolk, VA	23510
(Address of principal executive offices)	(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.625 per share	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

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, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  x    Non-accelerated filer  ¨

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

The aggregate market value of the 7,363,492 voting shares held by non-affiliates based on the last sales price of $11.00 as of June 30, 2006 as recorded by the Bank of Hampton Roads (Transfer Agent, at the time) was $80,998,410.

The number of shares outstanding of the issuer’s common stock as of March 14, 2007 was 10,269,030 shares of Common Stock, par value $0.625 per share.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended December 31, 2006 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 May 8, 2007 are incorporated by reference into Part III.

Hampton R oads, Bankshares, Inc.

Form 10-K Annual Report

For the Year Ended December 31, 2006

Table of Contents

		Page
Part I
Item 1.	Business	3
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	10
Item 2.	Properties	10
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
Item 6.	Selected Financial Data	14
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 8.	Financial Statements and Supplementary Data	14
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	15
Item 9A.	Controls and Procedures	15
Item 9B.	Other Information	15
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	15
Item 11.	Executive Compensation	15
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	15
Item 13.	Certain Relationships and Related Transactions, and Director Independence	16
Item 14.	Principal Accounting Fees and Services	16
Part IV
Item 15.	Exhibits and Financial Statement Schedules	16
	Signatures	18

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PART 1

ITEM 1 - 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, including eight offices in the city of Chesapeake, four offices in each of the cities of Norfolk and Virginia Beach, and one office in the city of Suffolk. The Bank was organized in March 1987 and commenced operations in December 1987. 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 our telephone number is (757) 217-1000.

In January 2004, we 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 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.

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Lending Activities:

General. We offer a full range of commercial, real estate and consumer lending products and services, described in further detail below. Commercial, construction, real estate-commercial mortgage, real estate-residential mortgage and installment loans to individuals account for approximately 19%, 31%, 37%, 7%, and 6%, respectively, of our loan portfolio at December 31, 2006. Our primary lending objective is to meet business and consumer needs in our market area while maintaining our standards of profitability and credit quality all while enhancing client relationships. All lending decisions are based upon an evaluation of the financial strength and credit history of the borrower and the quality and value of the collateral securing the loan. With few exceptions, personal guarantees are required on all loans.

Commercial loans. We make commercial loans to qualified businesses in our market area. Commercial loans are loans to businesses which are typically not collateralized by real estate. Generally, the purpose of commercial loans is for the financing of accounts receivable, inventory, or the purchase of equipment and machinery. Commercial loans generally have a higher degree of risk than real estate loans, and therefore have commensurately higher yields. The value of collateral securing real estate loans is more readily ascertainable and generally does not depreciate over time as does the collateral securing commercial loans. Repayment of commercial loans may be more substantially dependent upon the success of the business itself and therefore must be monitored more frequently. In order to reduce our risk, the Bank requires regular updates of the financial condition of the business as well as the guarantors and regularly monitors accounts receivables and payables of such businesses when deemed necessary.

Construction loans. We make construction and development loans to individuals and businesses for the purpose of construction of single family residential properties, multi-family properties and commercial projects as well as the development of residential neighborhoods and commercial office parks. The Bank has been, and continues to be, a leader in Hampton Roads in the construction and development market. Due to the vast years of experience held by senior management and the construction and development lending team at the Bank, this trend should continue for years to come. In order to reduce risk on construction and development loans, the Bank funds these loans on an “as-completed” basis with experienced loan officers inspecting the properties before funding the requested amount. Larger more complicated projects require independent inspections by an architectural or engineering firm approved by the Bank prior to funding. Additionally, risk is reduced in the construction and development portfolio by limiting speculative building of both residential and commercial properties, based upon the borrower’s history with the Bank, financial strength, and the loan-to-value of such speculative property. The Bank rarely exceeds 80% loan-to-value on any construction loan with the average project below 75% loan-to-value. An individual who borrows with the purpose of building a personal residence must provide evidence of a permanent mortgage as well as proof of the ability to build a home or a contract with a builder before the closing of the loan.

Real estate-commercial mortgage. The Bank makes commercial mortgage loans for the purchase and re-financing of owner occupied commercial properties as well as non-owner occupied income producing properties. These loans are secured by various types of commercial real estate including office, retail, warehouse, industrial, storage facilities and other non-residential types of properties. Commercial mortgage loans typically have maturities of one to five years. Underwriting criteria for owner occupied commercial mortgages involves examination of debt service coverage ratios, the borrower’s creditworthiness and past credit history, and personal financial condition. Underwriting for non-owner occupied commercial mortgages also involves examination of the current leases and financial strength of the tenants.

Real estate-residential mortgage. We offer a wide range of residential mortgage loans at both the Bank and our affiliate, Tidewater Home Funding, LLC. Our residential mortgage portfolio held by the Bank includes first and second mortgage loans, home equity lines of credit and other term loans secured by first and second mortgages. Residential mortgage loans are generally the

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lowest risk loans in the Bank’s portfolio due to the ease in which the value of the collateral is ascertained and the marketability of such collateral. First mortgage loans are generally for the purchase of permanent residences, second homes or residential investment property. Second mortgages and home equity loans are generally for personal, family and household purposes such as home improvements, major purchases, education and other personal needs. Mortgages which are secured by a borrower’s primary residence are made on the basis of the borrower’s ability to repay the loan from his or her salary and other regular income as well as the general creditworthiness of the borrower. Mortgages secured by residential investment property are made based upon the same guidelines as well as the borrower’s ability to cover any cash flow shortages during the marketing of such property for rent.

Installment loans to individuals. Installment loans to individuals are made on a regular basis for personal, family, and general household purposes. More specifically, we make automobile loans, home improvement loans, loans for vacations, and debt consolidation loans with the majority of the portfolio made up of automobile loans. Due to low interest rates offered by auto dealership financial programs, this segment of our loan portfolio has decreased in recent years. While automobile financing may entail greater individual risk than real estate financing on a per loan basis, the relatively small principal balances of each loan mitigates the risk associated with this category of the portfolio.

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, 2006, the Bank’s legal lending limit to one borrower was $10.8 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 Regulation:

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, types of investment, and other aspects of operations.

Additionally, the Bank is a member of the Federal Reserve Bank (the “FRB”) system and is subject to its regulations. 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. Various consumer protection laws and regulations also affect the operations of the Bank.

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.

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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. We are 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 are subject to ongoing regulation, supervision and examination by the FRB. We are required to file with the FRB periodic and annual reports and other information concerning our own business operations and those of our subsidiaries. In addition, the BHCA requires a bank holding company to obtain FRB approval before it 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 than 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

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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, we became a financial holding company on December 1, 2001.

Employees:

As of December 31, 2006, we employed 176 people, of whom 159 were full time employees, including the Bank’s President and eleven Senior Vice Presidents.

Acquisitions:

We did not complete any acquisitions in the three fiscal years ended December 31, 2006.

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 in southside Hampton Roads, Virginia, which includes the cities of Virginia Beach, Norfolk, Chesapeake, Suffolk, and Portsmouth. All of our current branches are located in the cities of Virginia Beach, Norfolk, Chesapeake, and Suffolk. We have 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 or furnished pursuant to Section 13(a) or 15(d) of the

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Securities Exchange Act of 1934. The reports are made available on this website as soon as practicable following the filing of the reports with the SEC. The information is free of change and may be reviewed, downloaded and printed from the website at any time. 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 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 key personnel including the following executive officers:

Jack W. Gibson	President and Chief Executive Officer
Donald W. Fulton, Jr.	Senior Vice President and Chief Financial Officer
Julie R. Anderson	Senior Vice President and Chief Credit Officer
Tiffany K. Glenn	Senior Vice President, Marketing Officer and Secretary
Gregory P. Marshall	Senior Vice President and Commercial Loan Officer
Renee’ R. McKinney	Senior Vice President and Branch Administrator

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.

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,

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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.

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 portfolio includes a substantial amount of loans for construction and land development. At December 31, 2006, we had loans of $116.8 million, or 31.1% of total loans, outstanding to finance 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, may occur in the future and could affect operating results adversely.

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 of 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.

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 are influenced by monetary policy and other external factors, including competition. Net interest income also is influenced by our asset and liability management 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

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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, including requirements that we are unable to anticipate, that could have an adverse impact on our results of operations. Although these regulations impose costs upon us, they are intended to protect depositors, and you should not assume that they protect your interests as a shareholder. The regulations to which we are subject may not always be in the best interests of investors.

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, 2006.

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 as listed below:

201 Volvo Parkway, Chesapeake, VA 23320

852 N. George Washington Highway, Chesapeake, VA 23323

712 Liberty Street, Chesapeake, VA 23324

5472 Indian River Road, Virginia Beach, VA 23464

1100 Dam Neck Road, Virginia Beach, VA 23454

117 Market Street, Suffolk, VA 23434

4108 Portsmouth Boulevard, Chesapeake, VA 23321

4500 E. Princess Anne Road, Norfolk, VA 23502

4720 Battlefield Boulevard S., Chesapeake, VA 23322

239 Battlefield Boulevard S., Chesapeake, VA 23322

We lease the land and/or building on which our remaining seven branches are located as follows:

1500 Mount Pleasant Road, Chesapeake, VA 23320

500 Plume Street, Norfolk, VA 23510

1400 Kempsville Road, Chesapeake, VA 23320

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4037 East Little Creek Road, Norfolk, VA 23518

1316 N. Great Neck Road, Virginia Beach, VA 23454

281 Independence Boulevard, Virginia Beach, VA 23462

999 Waterside Drive, 1^st Floor, Norfolk, VA 23510

All of our properties are in good operating condition and are adequate for our present and anticipated future needs.

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 2006.

PART II

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

A. Market Information

Our common stock began trading on the NASDAQ Capital Market under the symbol HMPR on August 3, 2006. Prior to listing on the NASDAQ Capital Market, our common stock traded on the Over-the-Counter Bulletin Board, a NASDAQ sponsored and operated inter-dealer quotation system for equity securities. Set forth below is high and low trading information for our common stock for each quarter during 2006 and 2005.

	2006				2005
	LOW		HIGH		LOW		HIGH
1ST QUARTER	$	10.50	$	11.75	$	11.00	$	11.75
2ND QUARTER		10.90		11.75		10.25		11.50
3RD QUARTER		10.51		12.50		10.60		11.25
4TH QUARTER		11.50		12.25		10.50		10.86

B. Holders of Stock

As of March 14, 2007, we had shares of common stock outstanding, which were held by 3,842 shareholders of record. In addition, we had approximately 804 beneficial owners who own their shares through brokers.

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C. Dividends

The following table presents the cash dividends we declared during 2006 and 2005.

	2006				2005
	PER SHARE		AMOUNT		PER SHARE		AMOUNT
1ST QUARTER	$	0.20	$	1,672,104	$	0.18	$	1,452,156
2ND QUARTER		—		—		—		—
3RD QUARTER		0.20		2,037,591		0.18		1,455,430
4TH QUARTER		0.10		1,020,745		—		—

We have historically paid cash dividends on a semi-annual basis, however, in the forth quarter of 2006, we paid a quarterly dividend in addition to the semi-annual dividends paid in the first and third quarters of 2006. Our future dividend policy is subject to the discretion of our board of directors and will depend upon a number of factors, including future consolidated earnings, financial condition, liquidity and capital requirements of both us and Bank of Hampton Roads, applicable governmental regulations and policies, and other factors deemed relevant by our board of directors.

The primary source of funds for dividends paid by us to our shareholders is the dividends received from our subsidiaries. Our bank subsidiary is subject to laws and regulations that limit the amount of dividends that it can pay. Under Virginia law, a bank may not declare a dividend in excess of its undivided profits. In addition, our bank subsidiary may not declare a dividend if the total amount of all dividends, including the proposed dividend, declared by the bank in any calendar year exceeds the total of the bank’s retained net income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the FRB. At December 31, 2006, the amount available was approximately $7.4 million. Our bank subsidiary may not declare or pay any dividend if, after making the dividend, the bank would be “undercapitalized,” as defined in the banking regulations.

The Federal Reserve and the State have the general authority to limit the dividends paid by insured banks if the payment is deemed an unsafe and unsound practice. Both the State and the Federal Reserve have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice.

In addition, we are subject to certain regulatory requirements to maintain capital at or above regulatory minimums. These regulatory requirements regarding capital affect our dividend policies. Banking regulators have indicated that banking organizations should generally pay dividends only if the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition.

D. Performance Graph

The graph below presents five-year cumulative total return comparisons through December 31, 2006, in stock price appreciation and dividends for our common stock, the Standard & Poor’s 500 Total Return Index (“S & P 500”) and the Keefe, Bruyette & Woods 50 Total Return Index (“KBW 50”). Returns assume an initial investment of $100 at the market close on December 31, 2001 and

12

reinvestment of dividends. The KBW 50 is a published industry index providing a market capitalization weighted measure of the total return of 50 money center and major regional U.S. banking companies. Values as of each year-end of the $100 initial investment are shown in the table and graph below.

Index	2001		2002		2003		2004		2005		2006
Hampton Roads Bankshares, Inc.	$	100	$	107	$	161	$	148	$	140	$	165
KBW 50		100		93		125		137		139		166
S&P 500		100		78		100		111		117		135

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 2006, we repurchased a total of 380,613 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 2006 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, 2006- October 31, 2006	—	$	—	—	—
Month #2 November 1, 2006- November 30, 2006	—		—	—	—
Month #3 December 1, 2006- December 31, 2006	45,291		12.00	45,291	—
Total	45,291	$	12.00	45,291	—

13

ITEM 6 - SELECTED FINANCIAL DATA

The Selected Financial Data on page 4 of the Annual Report for the year ended December 31, 2006 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, 2006 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 16 of the Annual Report for the year ended December 31, 2006 is incorporated herein by reference.

We had no derivative financial instruments, foreign currency exposure, or trading portfolio as of December 31, 2006.

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, 2006 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, 2006 and 2005	22
Consolidated Statements of Income - Years Ended December 31, 2006, 2005 and 2004	23
Consolidated Statements of Changes in Shareholders’ Equity - Years Ended December 31, 2006, 2005 and 2004	24
Consolidated Statements of Cash Flows - Years Ended December 31, 2006, 2005 and 2004	25
Notes to Consolidated Financial Statements - December 31, 2006, 2005 and 2004	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.

14

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 2006.

ITEM 9A - CONTROLS AND PROCEDURES

As of December 31, 2006, 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 Exchange Act) occurred during the fourth quarter of our fiscal year ended December 31, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning our directors, executive offices and corporate governance in the proxy statement for the annual shareholders meeting to be held May 8, 2007, filed on or about March 16, 2007, 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 May 8, 2007, filed on or about March 16, 2007, 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 May 8, 2007, filed on or about March 16, 2007, is incorporated herein by reference.

15

A summary of the information related to our existing equity compensation plans as of December 31, 2006, 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	929,970	$9.19	2,323,324
Equity Compensation Plans not Approved by Security Holders	—	—	—
Total	929,970	$9.19	2,323,324

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information concerning certain relationships and related transactions, and director independence in the proxy statement for the annual shareholders meeting to be held May 8, 2007, filed on or about March 16, 2007, is incorporated herein by reference.

ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES

Information concerning principal accountant fees and services in the proxy statement for the annual shareholders meeting to be held May 8, 2007, filed on or about March 16, 2007, 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, 2006 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, 2006 and 2005	22
Consolidated Statements of Income - Years Ended December 31, 2006, 2005 and 2004	23
Consolidated Statements of Changes in Shareholders’ Equity - Years Ended December 31, 2006, 2005 and 2004	24
Consolidated Statements of Cash Flows - Years Ended December 31, 2006, 2005 and 2004	25
Notes to Consolidated Financial Statements - December 31, 2006, 2005 and 2004	26-43

16

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.

17

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
	(3/15/07)
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
(3/15/07)	(3/15/07)
/s/ Douglas J. Glenn	/s/ Emil A. Viola
Douglas J. Glenn, Director	Emil A. Viola, Director and Chairman
(3/15/07)	(3/15/07)
/s/ Robert R. Kinser	/s/ Roland Carroll Smith, Sr.
Robert R. Kinser, Director	Roland Carroll Smith, Sr., Director
(3/15/07)	(3/15/07)
/s/ W. Lewis Witt	/s/ Patricia M. Windsor
W. Lewis Witt, Director	Patricia M. Windsor, Director
(3/15/07)	(3/15/07)
/s/ Jordan E. Slone	/s/ Jack W. Gibson
Jordan E. Slone, Director	Jack W. Gibson, President and
(3/15/07)	Chief Executive Officer, Director
	(3/15/07)
/s/ Lorelle L. Fritsch	/s/ Donald W. Fulton, Jr.
Lorelle L. Fritsch, Vice President,	Donald W. Fulton, Jr., Senior Vice
Chief Accounting Officer and Controller	President and Chief Financial Officer
(3/15/07)	(3/15/07)

18

Exhibit Index

Hampton Roads Bankshares, Inc.

3.1	Articles of Incorporation of Hampton Roads Bankshares, Inc., attached as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated July 2, 2001, incorporated herein by reference.
3.2	Bylaws of Hampton Roads Bankshares, Inc., as amended, attached as Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, incorporated herein by reference.
3.3	Amendment to Bylaws of Hampton Roads Bankshares, Inc., attached as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated July 25, 2006, incorporated herein by reference.
4.1	Specimen of Common Stock Certificate, attached as Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005, incorporated herein by reference.
10.1	Employment Agreement, dated as of March 28, 1988, between the Registrant and Jack Gibson, attached as Exhibit 7 of the Form F-1, incorporated herein by reference.
10.2	Supplemental Retirement Agreement, dated as of March 31, 1994, attached as Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1993, incorporated herein by reference.
10.3	Non-Qualified Limited Stock Option Plan for Directors and Employees, dated March 31, 1994, attached as Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994, incorporated herein by reference.
10.4	Employment Agreement, dated as of December 18, 1996, between the Registrant and Renee` McKinney, attached as Exhibit 10.10 to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 1996, incorporated herein by reference.
10.5	First Amendment to Employment Agreement, dated as of February 1, 1997, between the Registrant and Jack Gibson, attached as Exhibit 10.11 to the Registrant’s Annual Report on Form 10-KSB, incorporated herein by reference.
10.6	First Amendment to Employment Agreement, dated as of February 1, 1997, between the Registrant and Renee McKinney, attached as Exhibit 10.12 to the Registrant’s Annual Report on Form 10-KSB, incorporated herein by reference.
10.7	Employment Agreement, dated as of March 9, 1999, between the Registrant and Tiffany Glenn, attached as Exhibit 10.15 to the Registrant’s Annual Report on Form 10-KSB for the year ended December 31, 1999, incorporated herein by reference.
10.8	Dividend Reinvestment and Stock Purchase Plan, dated as of March 14, 2002, attached as Exhibit 99.1 to the Registrant’s Registration Statement on Form S-3 dated March 14, 2002, incorporated herein by reference.
10.9	Employment Agreement, dated as of October 11, 2001, between the Registrant and Gregory Marshall, attached as Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, incorporated herein by reference.

19

10.10	Employment Agreement, dated as of December 31, 2002, between the Registrant and Julie Anderson, attached as Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, incorporated herein by reference.
10.11	First Amendment to Employment Agreement, dated as of December 31, 2002, between the Registrant and Julie Anderson, attached as Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, incorporated herein by reference.
10.12	Second Amendment to Employment Agreement, dated as of December 31, 2002, between the Registrant and Julie Anderson, attached as Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002, incorporated herein by reference.
10.13	Employment Agreement, dated as of July 16, 2003, between the Registrant and Donald Fulton, Jr., attached as Exhibit 10.26.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.
10.14	First Amendment to the Employment Agreement, dated as of July 16, 2003, between the Registrant and Donald Fulton, Jr., attached as Exhibit 10.26.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.
10.15	Second Amendment to the Employment Agreement, dated as of July 16, 2003, between the Registrant and Donald Fulton, Jr., attached as Exhibit 10.26.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.
10.16	Third Amendment to the Employment Agreement, dated as of July 16, 2003, between the Registrant and Donald Fulton, Jr., attached as Exhibit 10.26.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.
10.17	Third Amendment to Employment Agreement, dated as of June 24, 2003, between the Registrant and Jack Gibson, attached as Exhibit 10.24 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.
10.18	Third Amendment to Employment Agreement, dated as of June 24, 2003, between the Registrant and Renee’ McKinney, attached as Exhibit 10.28 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.
10.19	Third Amendment to Employment Agreement, dated as of June 24, 2003, between the Registrant and Tiffany Glenn, attached as Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.
10.20	Third Amendment to Employment Agreement, dated as of June 24, 2003, between the Registrant and Gregory Marshall, attached as Exhibit 10.27 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.
10.21	Third Amendment to Employment Agreement, dated as of June 24, 2003, between the Registrant and Julie Anderson, attached as Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, incorporated herein by reference.

20

10.22	Hampton Roads Bankshares, Inc. 2006 Stock Incentive Plan, dated as of March 14, 2006, attached as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-8 dated May 31, 2006, incorporated herein by reference.
10.23	First Amendment to the Employment Agreement between the Registrant and Gregory Marshall, dated October 11,2001, attached as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated June 27, 2006, incorporated herein by reference.
10.24	Second Amendment to the Employment Agreement between the Registrant and Gregory Marshall, dated October 11, 2001, attached as Exhibit 99.2 to the Registrant’s Current Report on Form 8-K dated June 27, 2006, incorporated herein by reference.
10.25	Hampton Roads Bankshares and Bank of Hampton Roads Executive Savings Plan, dated as of December 1, 2003, attached as Exhibit 99.3 to the Registrant’s Current Report on Form 8-K dated June 27, 2006, incorporated herein by reference.
10.26	Amendment No. One to the Supplemental Retirement Agreement, dated as of December 9, 2003, between the Registrant and Jack Gibson, attached as Exhibit 99.4 to the Registrant’s Current Report on Form 8-K dated June 27, 2006, incorporated herein by reference.
10.27	Bank of Hampton Roads Supplemental Executive Retirement Plan, dated as of January 1, 2005, attached as Exhibit 99.5 to the Registrant’s Current Report on Form 8-K dated June 27, 2006, incorporated herein by reference.
10.28	2006 Executive Officers Bonus Plan Summary, attached as Exhibit 99.6 to the Registrant’s Current Report on Form 8-K dated June 27, 2006, incorporated herein by reference.
10.29	Director Retirement Plan Summary, attached as Exhibit 99.7 to the Registrant’s Current Report on Form 8-K dated June 27, 2006, incorporated herein by reference.
13.1	The Annual Report for the year ended December 31, 2006, except to the extent incorporated 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.
14.1	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., 2nd Floor, Norfolk, VA 23510.
21.1	The subsidiaries of Hampton Roads Bankshares, Inc. are filed herewith.
23.1	Consent of KPMG LLP is filed herewith.
31.1	The Rule 13a-14(a)/15d-14(a) certification of Jack W. Gibson is filed herewith.
31.2	The Rule 13a-14(a)/15d-14(a) certification of Donald W. Fulton, Jr. is filed herewith.
32.1	The Section 1350 certifications of Jack W. Gibson and Donald W. Fulton, Jr. are filed herewith.

21

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	20
	Report of Independent Registered Public 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
	Regional Board Members	44
	Shareholder Information
	Inside Back Cover

The photograph on page 3 provided by Nauticus,

all other location photographs by Glenn Bashaw.

DEAR SHAREHOLDER

As I write this letter, I am reflecting upon the fact that it was nearly twenty years ago today that we celebrated the sale of our first share of Bank of Hampton Roads common stock. From that point forward, every significant business decision made by our company has been influenced by the effect it would have on our shareholders and their respective investment. I am very proud of the manner in which our company has always put our shareholders first and of the way we have consistently shared our success with you.

2006 was another great year for Hampton Roads Bankshares and more importantly, for our stockholders. We celebrated our nineteenth consecutive year of record earnings and watched our balance sheet grow to new levels.

Our net income for the year was a record $6,035,539, an increase of 10% over 2005. I am extremely proud that we were able to increase earnings at this rate considering that our net income increased 33% in 2005 and that the economic environment and other factors affecting our 2006 financial results were quite different from any other recent year. Our financial performance reflected our ability to manage the increased expenses relating to the move of our corporate headquarters to the Dominion Tower in late 2005 as well as the costs related to the renovation and improvements to several of our branch locations.

In consideration of the company’s strong financial performance in 2006 and the tax advantaged status of dividend payments, our board of directors increased the cash dividend 11% to an annualized rate of $0.40 per share. In addition, the board increased the frequency of cash dividend payments to quarterly from semi-annually beginning with the payment made on December 15, 2006. Since 1992, our company has paid twenty-one dividends to shareholders totaling $23,518,848 or 53% of our total net income.

Our return on average assets for 2006 was very strong at 1.39%. This was the fourteenth year in a row that our return on average assets exceeded 1.20%, which is the benchmark and high standard we have set for our company.

Total assets increased 16% during 2006 to a new high of $476,299,468. Asset growth was driven by a record $89,714,226 or 31% increase in our loan portfolio. Our total loans ended the year at an all-time high of $375,044,161. Deposits increased 11% during 2006 to end the year at a record $363,261,329; $97,559,421 or 27% of our total deposits are in the form of non-interest bearing demand deposit accounts and provide a low-cost source of funding for loans and other investments.

2006 was another great year for Hampton Roads Bankshares and more importantly, for our stockholders.

We celebrated our nineteenth consecutive year of record earnings and watched our balance sheet grow to new levels.

Our deposit mix is highly favorable and helps to consistently keep our net interest margin above that of our peer group. On December 31, 2006, our net interest margin was 5.20%, 99 basis points higher than our peer average of 4.21% as reported by the FFIEC in the Uniform Bank Performance Report. Because of competition for deposits and the increased cost of funding loans,

2006 ANNUAL REPORT 1

net interest margins are facing pressure throughout the industry. Managing this ratio has always been our primary focus and will be of utmost importance to us in 2007.

Bank of Hampton Roads has been extremely successful at attracting core deposits through our large network of seventeen branch offices, all staffed with friendly, service-oriented people. We continue to have more full-service branch locations serving Southside Hampton Roads than any other bank headquartered in our market. Our newest offices, Dominion Tower and Great Bridge, which both opened for business in 2005, experienced the highest levels of growth in 2006. Together those offices brought in $30,858,049 in new deposits.

In 2007, the bank will open an office in one of Hampton Roads’ most sought after residential and commercial developments – Chesapeake’s Edinburgh. Our site is a prime outparcel located in the Edinburgh Commons North Shopping Center, which is anchored by Target and fronts the highly traveled Chesapeake Expressway. Edinburgh features a mix of national and specialty retailers, restaurants and services and is the largest retail center between the Greenbrier area of Chesapeake and the Outer Banks of North Carolina. Neighboring the retail development is the prestigious Edinburgh residential area. It will be the site of this year’s Homearama, our area’s annual showcase of custom built homes.

Speaking of Homearama, our bank provided construction financing for four of the fifteen homes on display at the event held last October in the Pitchkettle Farms subdivision in Suffolk. Visitors to “our homes” were greeted by Bank of Hampton Roads welcome mats at each doorway and were provided with information about our new Home Equity Lines of Credit. With nearly 100,000 visitors per year, we thought Homearama was the perfect venue to introduce this competitive new product, which features an interest rate of prime minus 1/2%, no closing costs and interest only payments. The product has proven to be a very good source of new loans for us.

Bank of Hampton Roads has been extremely successful at attracting core deposits through our large network of seventeen branch offices, all staffed with friendly, service-oriented people.

Hampton Roads Bankshares common stock settled into a new home on August 3, 2006 on the NASDAQ Capital Market under our existing symbol HMPR. NASDAQ is the nation’s largest electronic stock market and is home to companies that are leaders across all areas of business. Our primary objectives for listing our stock on NASDAQ were to provide greater visibility for our shares and to introduce our company to investors and analysts outside of our market. Our objectives were met almost instantaneously with increased trading volume in our stock as well as invitations for us to participate in investor conferences in New York and Atlanta. I am pleased to report that the investment community has responded favorably to our stock thus far.

On December 1, 2006, Hampton Roads Bankshares was selected for inclusion in the America’s Community Bankers NASDAQ Index, ticker symbol ACBQ. The index sets the benchmark for community bank performance and we are truly honored to be a part of it.

Just prior to listing our shares on NASDAQ, we raised approximately $19 million in new capital through a fully subscribed rights offering of 670,000 shares and a fully subscribed public offering of 1,179,200 shares of common stock. Although the increased capital and higher number of outstanding shares has a short-term impact on some of our financial reports and ratios, it provides for an increased legal lending limit and gives us the ability to easily grow and expand our franchise.

Hampton Roads is a vibrant market full of opportunity for future growth. Virginia Beach is the fastest growing city on the East Coast and the largest city in the state, and we are diligently working to secure property for at least two to three more branch

2 HAMPTON ROADS BANKSHARES, INC.

locations there. Downtown Norfolk is the preeminent business center of our region and is a city of big plans. New businesses in the downtown area will employ approximately 1,600 new workers by the end of 2007, and plans are underway for at least five new high-rise buildings and surrounding mixed-use developments. These new residents and employees will all be located within walking distance of our two downtown Norfolk locations. This spring, a new multi-million dollar cruise terminal will open just around the corner from us in downtown Norfolk. The facility is slated to become an East Coast gateway to Bermuda, the Bahamas, the Caribbean, New England and Canada.

In addition to our strong and ever-growing tourism industry, increased defense spending will help ensure that the Hampton Roads economy remains strong. The 2008 defense budget includes nearly $3 billion for the construction of a new aircraft carrier, the Gerald R. Ford, and $2.5 billion was provided for work on an attack submarine. Both of these enormous projects will be handled at a local ship yard.

The most vital component of our continued success is the people we have in place to serve you and our thousands of customers. We have 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 a discerning factor that sets us apart from our competition.

We also have a talented board of directors at the helm of our organization and they are committed to helping our company grow and even further succeed. In 2006, four new members joined our board: Douglas J. Glenn, Robert R. Kinser, Jordan E. Slone and Roland Carroll Smith, Sr. Each of these gentlemen is well-respected and active in the business community, and they are considered among the best in their particular fields of business.

When we diversified our board, we had to be mindful of the many layers of corporate governance and regulation applicable to our industry and the increased responsibility it places on a director. In today’s world, it is necessary for a director to be able to comprehend complex laws and regulations such as the Sarbanes-Oxley Act, the Patriot Act, and the Gramm-Leach Bliley Act among many others. The new board members were not only selected based upon their good character and judgment, but also upon their ability to deal with these issues.

Hampton Roads is a vibrant market full of opportunity for future growth. Virginia Beach is the fastest growing city on the East Coast and the largest city in the state, and we are diligently working to secure property for at least two to three more branch locations there.

Bank of Hampton Roads will celebrate its twentieth anniversary on December 8, 2007, and we have every intention of declaring this another banner year for our organization. Our Edinburgh office will open for business in the coming months and we also hope to secure additional Virginia Beach locations in the near future. At this early point in the year, loan demand looks promising for 2007. We have increased our lending staff with the addition of three new well-known lenders. Collectively, they have nearly 70 years of banking experience and have formed relationships with many customers along the way.

Competition is the greatest challenge faced by any business and we are no exception. You can 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. When you do business with us, you can ENJOY BANKING while helping your company and investment grow.

I express my thanks to our Board of Directors, Regional 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

2006 ANNUAL REPORT 3

SELECTED FINANCIAL DATA

Years Ended December 31,

(Dollars in thousands except per share data)	2006			2005			2004			2003			2002
Operating Results:
Interest income	$	30,021		$	24,558		$	18,068		$	17,469		$	17,344
Interest expense		9,123			5,869			3,911			4,417			5,413
Net interest income		20,898			18,689			14,157			13,052			11,931
Provision for loan losses		180			486			926			370			1,100
Noninterest income		3,398			3,214			3,791			3,410			3,371
Noninterest expense		14,946			13,040			10,794			9,983			9,207
Income taxes		3,134			2,870			2,140			2,086			1,697
Income before cumulative effect of change in accounting principle		6,036			5,507			4,088			4,023			3,298
Cumulative effect of change in accounting principle, net		—			—			46			—			—
Net income	$	6,036		$	5,507		$	4,134		$	4,023		$	3,298
Per Share Data:
Basic earnings after change in accounting principle	$	0.66		$	0.68		$	0.52		$	0.52		$	0.43
Diluted earnings after change in accounting principle		0.65			0.66			0.50			0.50			0.42
Book value		6.84			5.96			5.41			5.22			5.07
Basic weighted average shares outstanding		9,092,980			8,137,244			7,973,844			7,805,231			7,606,446
Diluted weighted average shares outstanding		9,275,788			8,407,821			8,236,169			7,994,251			7,782,466
Shares outstanding at year-end		10,251,336			8,242,822			8,059,528			7,908,708			7,707,744
Year-End Balances:
Assets	$	476,299		$	409,517		$	344,969		$	316,473		$	298,714
Overnight funds sold		9,524			18,294			7,294			10,038			33,105
Loans		375,044			285,330			275,190			210,775			203,184
Investment securities		59,545			73,826			38,995			72,046			45,055
Deposits		363,261			327,447			275,115			257,433			243,874
Shareholders’ equity		70,163			49,131			43,626			41,314			39,111
Average Balances:
Assets	$	432,716		$	382,821		$	324,485		$	301,073		$	265,532
Overnight funds sold		4,558			7,132			6,509			10,179			10,517
Loans		325,506			287,979			236,082			207,853			194,503
Investment securities		67,130			52,706			57,455			61,705			41,574
Deposits		333,242			302,167			260,110			243,177			218,387
Shareholders’ equity		57,640			44,855			41,960			39,311			36,499
Ratios:
Return on average assets		1.39	%		1.44	%		1.27	%		1.34	%		1.24	%
Return on average equity		10.47			12.28			9.85			10.23			9.04
Average equity to average assets		13.32			11.72			12.93			13.06			13.75
Allowance for loan losses to year-end loans		1.04			1.26			1.12			1.40			1.40
Net interest margin		5.20			5.26			4.71			4.65			4.83
Dividend payout ratio		75.76			52.94			63.46			80.77			60.47
Efficiency ratio		61.52			59.54			60.14			60.64			60.17

4 HAMPTON ROADS BANKSHARES, INC.

of Financial Condition and Results of Operations

Introduction and Financial Overview

Hampton Roads Bankshares, Inc. (the “Company”) is a $476 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”).

2006 was another year of growth for the Company. The Company achieved record net income in 2006 of $6.04 million or $0.65 per diluted share, a 9.59% increase over 2005 earnings of $5.51 million, or $0.66 per diluted share. The record earnings performance extended the Company’s string of record performances to 19 consecutive years. Earnings per share comparisons reflect the issuance of 1,849,200 shares of common stock through fully subscribed rights and public offerings in the third quarter of 2006. Book value per share increased from $5.96 at year-end 2005 to $6.84 at year-end 2006 largely due to the shares issued during the offerings at $10.90 per share.

Profitability, as measured by return on average assets, remained strong in 2006, but decreased to 1.39% compared to 1.44% in 2005 as a result of higher costs of funding loan growth in a rising interest rate environment. Return on average shareholders’ equity decreased to 10.47% in 2006 compared to 12.28% in 2005 as a result of an increase in average equity of $12.78 million.

The net income increase in 2006 was driven by an 11.82% 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 2006 because of an increase in average earning assets (loans, securities, and other investments) and increases in interest rates. The increase in net interest income occurred in spite of the compressed net interest spread caused by increased cost of funds. In general, net interest income in 2006 benefited from greater volume at higher prices.

Also contributing to the 2006 increase in net income was a $306,000 reduction in the provision for loan losses from 2005. The reduction was the result of strong loan recoveries and low loan charge-offs in 2006 resulting in a net recovery of $133,446. In spite of the reduction in the provision for loan losses in 2006, the Company determined the allowance for loan losses was sufficient to absorb incurred losses on existing loans that may become uncollectible. The allowance for loan losses as a percentage of total loans was 1.04% in 2006 compared to 1.26% in 2005.

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 14.61% in 2006. Salaries and employee benefits and occupancy expenses contributed the majority of the increase.

As previously noted, the Company’s growth played a role in the net income increase in 2006. Total assets at year-end 2006 were $476 million, or 16.31% higher than at year-end 2005. The growth in assets was fueled by vibrant loan growth during the year, with total loans increasing $89.71 million, or 31.44%, to $375.04 million at December 31, 2006. Average loans increased 13.03% in 2006 over 2005. As loan growth outpaced deposit growth, the Company funded new loans with an increase in capital, proceeds from maturities of investment securities, a reduction in overnight funds sold and increased Federal Home Loan Bank borrowings.

The Company historically has upheld a strong capital position. The Company maintained its well-capitalized position with a total risk-based capital ratio of 18.44% at December 31, 2006, compared to 16.59% at December 31, 2005. At year-end 2006, shareholders’ equity represented 14.73% of total assets. The Company increased dividends paid to shareholders by 38.89% to $0.50 per share from $0.36 per share in 2005. In the fourth quarter of 2006, the Company paid a quarterly dividend in addition to the semi-annual dividends paid in the first and third quarters of 2006.

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.

2006 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 11.82% in 2006 to $20.90 million, or $2.21 million over the 2005 total. The increase in net interest income during 2006 was attained by strong increases in the average balance of interest earning assets, most notably in average loans, which increased 13.03% in 2006. Interest rates also were a factor in net interest income and the net interest margin in 2006. The Federal Reserve increased its discount rate and targeted Federal Funds rate 25 basis points four times in 2006 for a cumulative increase in the rates of 1.00%. As the targeted Federal Funds rate rose in 2006, the yields on all categories of average earning assets rose as did the rates paid on all categories of interest bearing liabilities. The average yield on interest earning assets increased from 6.92% in 2005 to 7.47% in 2006 and the average rate paid on interest bearing liabilities increased from 2.51% in 2005 to 3.37% in 2006. These changes in average yield and rate produced a net interest spread which compressed from 4.41% in 2005 to 4.10% in 2006. Net interest income in 2005 increased $4.53 million, or 32.01%, over the 2004 amount. The increase in net interest income during 2005 was attributable to growth in average interest earning assets, a shift in the mix of interest earning assets and higher rates on those assets, and a change in the mix of funding sources experienced during the year.

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 5.20% in 2006, as compared to 5.26% in 2005 and 4.71% in 2004. The net interest margin decreased slightly in 2006 due to the higher cost of funding loan growth. The net interest margin was affected positively in 2005 by a shift in the mix of interest earning assets from 2004.

Interest income from loans, including loan fees, accelerated to $26.83 million for the year 2006, an increase of $4.49 million over 2005. During 2006, average loans increased $37.53 million, or 13.03%, while the average interest yield increased 48 basis points. New loan production was strong throughout 2006. At December 31, 2006, approximately 49.73% of the loan portfolio consisted of variable rate loans, compared with 49.88% and 49.27% at December 31, 2005 and 2004, respectively. Interest income from loans increased $5.97 million to $22.34 million in 2005 over the 2004 amount due to an increase in loan fees of $1.29 million, an increase of 82 basis points in the average interest yield and an increase of $51.90 million in the average loan balance.

Interest income from investment securities increased $1.00 million from 2005 to 2006. This increase is related to an increase in the average yield on investment securities of 79 basis points, along with an increase in average investment securities of $14.42 million. Interest income on investment securities increased $104 thousand from 2004 to 2005. This increase was caused by an increase in the average yield on investment securities of 45 basis points, partially offset by a decrease in average investment securities of $4.75 million from 2004 to 2005.

A shift in the mix of funding sources was a factor in the Company’s net interest margin in 2006. Average noninterest bearing demand deposits made up only 29.97% of the average deposit portfolio in 2006 compared to 32.98% in 2005 and 32.44% in 2004. Time deposits, a higher cost funding source, made up 35.09% of the average deposit portfolio in 2006 compared to 32.37% in 2005 and 34.95% in 2004. Savings deposits, including the premium savings account product, made up 21.10% of the average deposit portfolio in 2006 compared to 17.35% in 2005 and 5.85% in 2004. The Company also increased rates on deposit accounts in order to attract deposits to fund loan growth. Interest expense on deposits increased $2.76 million from 2005 to 2006 as average interest bearing deposits increased $30.86 million or 15.24% and the average rate paid on interest bearing deposits increased 87 basis points. Interest on other borrowings increased $491 thousand from 2005 to 2006 resulting from an increase in average other borrowings of $6.02 million and an 80 basis point increase in the average rate paid on other borrowings. Interest expense increased $1.96 million from 2004 to 2005 due to a $39.00 million increase in interest bearing liabilities and a 50 basis point increase in the average rate paid on interest bearing liabilities.

6 HAMPTON ROADS BANKSHARES, INC.

Table 1: Average Balance Sheet and Net Interest Margin Analysis

(In thousands)	Average Balance			2006 Interest Income/ Expense		Average Yield/ Rate		Average Balance			2005 Interest Income/ Expense		Average Yield/ Rate		Average Balance			2004 Interest Income/ Expense		Average Yield/ Rate
Assets:
Interest earning assets
Loans	$	325,506		$	26,827	8.24	%	$	287,979		$	22,342	7.76	%	$	236,082		$	16,375	6.94	%
Investment securities		67,130			2,721	4.05			52,706			1,720	3.26			57,455			1,616	2.81
Interest-bearing deposits in other banks		4,761			244	5.12			7,184			246	3.42			521			6	1.15
Overnight funds sold		4,558			229	5.02			7,132			250	3.51			6,509			71	1.09
Total interest earning assets		401,955			30,021	7.47			355,001			24,558	6.92			300,567			18,068	6.01
Noninterest earning assets
Cash and due from banks		16,194							15,801							13,808
Premises and equipment		11,808							10,432							9,137
Other assets		6,527							4,986							4,249
Less: Allowance for loan losses		(3,768	)						(3,399	)						(3,276	)
Total assets	$	432,716						$	382,821						$	324,485
Liabilities and Shareholders’ Equity:
Interest bearing liabilities
Interest bearing demand	$	46,132		$	522	1.13	%	$	52,268		$	319	0.61	%	$	69,579		$	425	0.61	%
Savings deposits		70,315			2,180	3.10			52,415			1,156	2.21			15,221			91	0.60
Time deposits		116,918			4,927	4.21			97,823			3,391	3.47			90,921			2,834	3.12
Other borrowings		36,968			1,494	4.04			30,944			1,003	3.24			18,734			561	2.99
Total interest bearing liabilities		270,333			9,123	3.37			233,450			5,869	2.51			194,455			3,911	2.01
Noninterest bearing liabilities
Demand deposits		99,877							99,661							84,389
Other liabilities		4,866							4,855							3,681
Shareholders’ equity		57,640							44,855							41,960
Total liabilities and shareholders’ equity	$	432,716						$	382,821						$	324,485
Net interest income				$	20,898						$	18,689						$	14,157
Net interest spread						4.10	%						4.41	%						4.00	%
Net interest margin						5.20	%						5.26	%						4.71	%

Note: Interest income from loans included fees of $1,359,262 in 2006, $2,408,180 in 2005, and $1,116,165 in 2004. Nonaccrual loans are not material and are included in loans above.

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

	2006 Compared to 2005								2005 Compared to 2004							2004 Compared to 2003
	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	$	4,485		$	1,451	$	3,034		$	5,967	$	2,090	$	3,877		$	982		$	(860	)	$	1,842
Investment securities		1,001			470		531			104		215		(111	)		(349	)		(219	)		(130	)
Interest-bearing deposits in other banks		(2	)		4		(6	)		241		36		205			(3	)		—			(3	)
Overnight funds sold		(21	)		102		(123	)		178		171		7			(31	)		10			(41	)
Total interest earning assets	$	5,463		$	2,027	$	3,436		$	6,490	$	2,512	$	3,978		$	599		$	(1,069	)	$	1,668
Interest Bearing Liabilities:
Deposits	$	2,763		$	1,708	$	1,055		$	1,516	$	957	$	559		$	(566	)	$	(568	)	$	2
Other borrowings		491			275		216			441		49		392			60			(37	)		97
Total interest bearing liabilities		3,254			1,983		1,271			1,957		1,006		951			(506	)		(605	)		99
Net interest income	$	2,209		$	44	$	2,165		$	4,533	$	1,506	$	3,027		$	1,105		$	(464	)	$	1,569

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.

2006 ANNUAL REPORT 7

Provision for Loan Losses

The Company’s provision for loan losses in 2006 was $180 thousand compared to $486 thousand in 2005 and $926 thousand in 2004. This decrease was attributable to recoveries on loans previously charged off, which exceeded current year charge-offs, reduced loan losses and other overall credit quality factors. The Company’s allowance for loan losses as a percentage of loans outstanding decreased to 1.04% at year-end 2006 compared with 1.26% at year-end 2005 and 1.12% at year-end 2004.

Noninterest Income and Expense

As shown in Table 3, the Company reported an increase in total noninterest income of $184 thousand, or 5.72%, in 2006. Noninterest income decreased $577 thousand or 15.22% from 2004 to 2005. Noninterest income comprised 10.17% of total revenue in 2006, 11.57% in 2005 and 17.34% in 2004.

Service charges on deposit accounts, the Company’s primary source of noninterest income, decreased 3.65% from 2005 to 2006. This decrease was due to a decline in non sufficient funds (“NSF”) fees and stop payment fees. From 2004 to 2005, service charges on deposit accounts increased 0.67%.

Another significant component of noninterest income is ATM surcharge income, which increased by $10 thousand, or 4.88%, in 2006 as a result of the addition of three new ATMs. ATM surcharge income decreased from 2004 to 2005 by $14 thousand, or 6.39%.

Other bank service charges and fees increased $245 thousand or 23.03% from 2005 to 2006 due primarily to an increase in commission income earned by the Company’s investment services subsidiary, HRI. Other bank service charges and fees decreased $68 thousand, or 6.01%, from 2004 to 2005. The 2005 decrease was due primarily to a decrease in loan extension fees.

Table 3: Noninterest Income

December 31, (In thousands)	2006		2005		2004		2006 Compared to 2005					2005 Compared to 2004
							Amount			%		Amount			%
Service charges on deposit accounts	$	1,874	$	1,945	$	1,932	$	(71	)	(3.65	)%	$	13		0.67	%
ATM surcharge fees		215		205		219		10		4.88			(14	)	(6.39	)
Gain on sale of investment securities		—		—		508		—		—			(508	)	(100.00	)
Other service charges and fees		1,309		1,064		1,132		245		23.03			(68	)	(6.01	)
Total noninterest income	$	3,398	$	3,214	$	3,791	$	184		5.72	%	$	(577	)	(15.22	)%

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 3.45%, 3.41%, and 3.33%, for the years ended December 31, 2006, 2005, and 2004, respectively. As shown in Table 4, total noninterest expense increased $1.91 million, or 14.62%, for the year ended December 31, 2006 to $14.95 million, compared to $13.04 million in 2005. From 2004 to 2005, the increase in noninterest expense was $2.25 million, or 20.81%.

Table 4: Noninterest Expense

December 31, (In thousands)	2006		2005		2004		2006 Compared to 2005					2005 Compared to 2004
							Amount			%		Amount			%
Salaries and employee benefits	$	9,106	$	7,962	$	6,603	$	1,144		14.37	%	$	1,359		20.58	%
Occupancy		1,677		1,109		912		568		51.22			197		21.60
Data processing		598		560		571		38		6.79			(11	)	(1.93	)
Directors’ and advisory board fees		284		313		254		(29	)	(9.27	)		59		23.23
Bank franchise tax		280		251		230		29		11.55			21		9.13
Professional fees		367		380		184		(13	)	(3.42	)		196		106.52
Telephone and postage		294		282		283		12		4.26			(1	)	(0.35	)
ATM and VISA Check Card expense		423		467		359		(44	)	(9.42	)		108		30.08
Advertising and marketing		481		304		240		177		58.22			64		26.67
Other		1,436		1,412		1,158		24		1.70			254		21.93
Total noninterest expense	$	14,946	$	13,040	$	10,794	$	1,906		14.62	%	$	2,246		20.81	%

8 HAMPTON ROADS BANKSHARES, INC.

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, 2006. During 2006, salaries and benefits were $9.11 million, an increase of $1.14 million over 2005. 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 designed to reward employees for generating business. Likewise, salaries and employee benefits increased $1.36 million to $7.96 million from 2004 to 2005.

Occupancy expense increased $568 thousand for the year ended December 31, 2006 to $1.68 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 2004 to 2005, occupancy expense increased $197 thousand to $1.11 million.

Data processing expense increased $38 thousand, or 6.79%, to $598 thousand from 2005 to 2006. This increase is related to the cost of upgrading branch networking equipment in 2006. This upgrade included the purchase of new network servers and computer equipment. From 2004 to 2005, data processing expense decreased $11 thousand, or 1.93%, to $560 thousand.

All other expenses increased $155 thousand from 2005 to 2006. A number of expense categories contributed to the increase, the largest of which was advertising and marketing, which includes expenses related to the television campaign, which ran in late 2005 and early 2006. In 2005, other expenses increased $701 thousand over the amount recorded in 2004.

Provision for Income Taxes

Income tax expense for 2006, 2005, and 2004 was $3.13 million, $2.87 million, and $2.14 million, respectively. The Company’s effective tax rate for the years ended December 31, 2006, 2005, and 2004 was 34.18%, 34.26%, and 34.36%, 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 nineteen years. Compared to prior years, average assets increased $49.89 million, or 13.03%, to a new high of $432.72 million in 2006, and by $58.33 million, or 17.98%, to $382.82 million in 2005. Total assets at year-end 2006 were $476.30 million, an increase of $66.78 million, or 16.31%, over December 31, 2005 total assets of $409.52 million. Loan growth drove the increase in total assets in 2006. The Company was able to fund this growth with an increase in total deposits and by raising additional capital through rights and public offerings in mid 2006. In 2005, the growth in total assets was reflected in totals for investment securities, other short-term investments, and, to a lesser extent, loans.

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 $89.71 million, or 31.44%, from year-end 2005 to year-end 2006.

Table 5: Loans by Classification

December 31, (In thousands)	2006					2005					2004					2003				2002
	Balance			%		Balance			%		Balance			%		Balance		%		Balance		%
Loan Classification:
Commercial	$	72,133		19.23	%	$	60,972		21.37	%	$	58,501		21.26	%	$	59,334	28.15	%	$	62,007	30.52	%
Construction		116,812		31.15			85,205		29.86			73,508		26.71			44,465	21.10			35,970	17.70
Real estate - commercial mortgage		140,260		37.40			104,313		36.56			108,314		39.36			74,865	35.52			62,611	30.81
Real estate - residential mortgage		25,523		6.81			20,011		7.01			17,900		6.50			15,595	7.40			20,341	10.01
Installment loans to individuals		20,599		5.49			15,107		5.30			17,251		6.27			16,493	7.82			22,217	10.94
Deferred loan fees and related costs		(283	)	(0.08	)		(278	)	(0.10	)		(284	)	(0.10	)		23	0.01			38	0.02
Total loans	$	375,044		100.00	%	$	285,330		100.00	%	$	275,190		100.00	%	$	210,775	100.00	%	$	203,184	100.00	%

Commercial loans are loans to businesses which typically are not collateralized by real estate. Generally the purpose of commercial loans is for the financing of accounts receivable, inventory, or the purchase of equipment and machinery. The commercial loan portfolio increased from the 2005 year-end balance of $60.97 million to the 2006 year-end balance of $72.13 million. The commercial loan category grew 4.22% from year-end 2004 to year-end 2005.

2006 ANNUAL REPORT 9

Construction loans increased $31.60 million from the year-end 2005 balance of $85.21 million to the year-end 2006 balance of $116.81 million. Construction and development loans are made to individuals and businesses for the purpose of construction of single family residential properties, multi-family properties and commercial projects, as well as the development of residential neighborhoods and commercial office parks. The Company has been, and continues to be, a leader in Hampton Roads in the construction and development market. Due to the experience held by senior management and the construction and development lending team, this trend is expected to continue for years to come. The construction loan category grew 15.91% from year-end 2004 to year-end 2005.

The Company makes real estate-commercial mortgage loans for the purchase and re-financing of owner occupied commercial properties as well as non-owner occupied income producing properties. These loans are secured by various types of commercial real estate including office, retail, warehouse, industrial, storage facilities and other non-residential types of properties. The real estate-commercial mortgage loan portfolio increased from the 2005 year-end balance of $104.31 million to the 2006 year-end balance of $140.26 million. The real estate-commercial mortgage loan category decreased 3.69% from year-end 2004 to year-end 2005.

The real estate-residential mortgage portfolio includes first and second mortgage loans, home equity lines of credit and other term loans secured by first and second mortgages. First mortgage loans are generally for the purchase of permanent residences, second homes or residential investment property. Second mortgages and home equity loans are generally for personal, family and household purposes such as home improvements, major purchases, education and other personal needs. 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 real estate-residential mortgage loan portfolio increased from the 2005 year-end balance of $20.01 million to the 2006 year-end balance of $25.52 million. The real estate-residential mortgage loan category increased 11.79% from year-end 2004 to year-end 2005.

Installment loans to individuals are made on a regular basis for personal, family, and general household purposes. More specifically, the Company makes automobile loans, home improvement loans, loans for vacations, and debt consolidation loans with the majority of the portfolio made up of automobile loans. Due to low interest rates offered by auto dealership financial programs, this segment of our loan portfolio has decreased in recent years. The installment loan portfolio increased from the 2005 year-end balance of $15.11 million to the 2006 year-end balance of $20.60 million. The installment loan category decreased 12.43% from year-end 2004 to year-end 2005.

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 2006, the Company had $116.81 million, or 31.15% of total loans, in loans outstanding to finance construction and development. These loans are collateralized by the underlying real estate. No other loan concentrations existed as of December 31, 2006.

Loan growth will continue to be one of the Company’s primary goals for 2007 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 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 periods of the Company’s loan portfolio as of December 31, 2006. Demand loans are reported as due within one year. Loans are included in the period in which they contractually mature. Since the majority of the Company’s loan portfolio is short-term, and 49.69% of the loan portfolio as of December 31, 2006 had adjustable or floating rates, the Company can re-price its portfolio frequently to adjust the portfolio to current market rates.

10 HAMPTON ROADS BANKSHARES, INC.

Table 6: Loan Maturities Schedule

December 31, 2006 (In thousands)	Commercial		Construction		R/E Commercial		R/E Residential		Installment		Total
Variable Rate:
Within 1 year	$	27,058	$	111,529	$	20,587	$	9,597	$	10,447	$	179,218
1 to 5 years		1,473		727		50		3,987		10		6,247
After 5 years		—		—		—		—		1,048		1,048
Total variable rate	$	28,531	$	112,256	$	20,637	$	13,584	$	11,505	$	186,513
Fixed Rate:
Within 1 year	$	8,146	$	2,362	$	28,266	$	1,604	$	2,530	$	42,908
1 to 5 years		35,340		2,194		91,357		10,261		6,503		145,655
After 5 years		116		—		—		74		61		251
Total fixed rate	$	43,602	$	4,556	$	119,623	$	11,939	$	9,094	$	188,814
Total maturities	$	72,133	$	116,812	$	140,260	$	25,523	$	20,599	$	375,327

Non-Performing Assets

Total non-performing assets were $1.63 million, or 0.34% of total assets at year-end 2006, as compared to $1.82 million, or 0.44% of total assets at year-end 2005 and $2.37 million, or 0.69% of total assets at year-end 2004. 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.

The Company did not have any loans categorized as 90 days or more past due at December 31, 2006, as compared to $30 thousand and $469 thousand at year-end 2005 and 2004, respectively.

Nonaccrual loans were $1.63 million at December 31, 2006 compared to $1.79 million and $1.90 million at December 31, 2005 and 2004, respectively. Nonaccrual loans at year-end 2006 consisted of one commercial loan. 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, $153,128, $136,878, and $56,814 of additional interest income would have been recorded in 2006, 2005 and 2004, respectively. There were no interest payments recorded in 2006 as interest income for nonaccrual loans.

The Company did not have any real estate acquired in settlement of loans at December 31, 2006, 2005 or 2004.

Allowance for Loan Losses

The Company continuously reviews its loan portfolio and maintains an allowance for loan losses sufficient to absorb incurred losses inherent in the portfolio. In addition to the review of credit quality through ongoing credit review processes, the Company constructs a 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 $3.91 million, or 1.04% of outstanding loans at year-end 2006. This compares to an allowance of $3.60 million, or 1.26% of total loans and $3.07 million, or 1.12% of total loans at year-end 2005 and 2004, respectively, as seen in Table 7. The allowance for loan losses as of December 31, 2006 was based primarily on the evaluation of the quality of the loan portfolio. 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.

2006 ANNUAL REPORT 11

Table 7: Allowance for Loan Losses Analysis

December 31, (In thousands)	2006			2005			2004			2003			2002
Allowance for Loan Losses:
Balance at beginning of year	$	3,597		$	3,071		$	2,948		$	2,843		$	2,121
Charge-offs:
Commercial		—			(24	)		(845	)		(142	)		(219	)
Construction		—			—			—			—			—
Real estate - commercial mortgage		—			—			—			—			—
Real estate - residential mortgage		—			—			—			—			—
Installment loans to individuals		(59	)		(75	)		(95	)		(157	)		(215	)
Total charge-offs		(59	)		(99	)		(940	)		(299	)		(434	)
Recoveries:
Commercial		166			119			110			16			28
Construction		—			—			—			—			—
Real estate - commercial mortgage		—			—			—			—			—
Real estate - residential mortgage		—			—			—			—			—
Installment loans to individuals		27			20			27			18			28
Total recoveries		193			139			137			34			56
Net (charge-offs) recoveries		134			40			(803	)		(265	)		(378	)
Provision for loan losses		180			486			926			370			1,100
Balance at end of year	$	3,911		$	3,597		$	3,071		$	2,948		$	2,843
Allowance for loan losses to year-end loans		1.04	%		1.26	%		1.12	%		1.40	%		1.40	%
Ratio of net (charge-offs) recoveries to average loans		0.04	%		0.01	%		(0.34	)%		(0.13	)%		(0.19	)%

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)	2006		2005		2004		2003		2002
Commercial	$	1,058	$	1,068	$	1,040	$	1,003	$	977
Construction		993		767		588		358		291
Real estate - commercial mortgage		1,192		978		961		734		716
Real estate - residential mortgage		160		130		118		174		186
Installment loans to individuals		290		307		310		364		434
Unallocated		218		347		54		315		239
Total allowance for loan losses	$	3,911	$	3,597	$	3,071	$	2,948	$	2,843

Investment Securities and Overnight Funds Sold

The Company’s investment portfolio primarily consists of available-for-sale U.S. Agency securities. At year-end 2006, the estimated market value of available-for-sale investment securities held by the Company was $55.57 million, down 21.86% from $71.11 million at year-end 2005. This decrease was the result of the maturity of investment securities with proceeds of $18.13 million, netted against the purchase of investment securities with a cost of $2.31 million, the change in unrealized gains and losses, and unamortized premiums on the remaining securities. During 2005, investment securities available-for-sale increased 93.88% to $71.11 million. 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.

Table 9 displays the contractual maturities and weighted average yields from investment securities at year-end 2006. 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.

12 HAMPTON ROADS BANKSHARES, INC.

Table 9: Investment Maturities and Yields

December 31, 2006 (In thousands)	Amortized Cost		Market Value		Weighted Average Yield
Maturities:
U.S. Agency securities:
Within 1 year	$	13,989	$	13,865	3.55	%
After 1 year, but within 5 years		40,965		40,444	4.32
After 5 years, but within 10 years		—		—	—
Total U.S. Agency securities		54,954		54,309	4.13
U.S.Treasury securities:
Within 1 year		100		98	2.75
Mortgage-backed securities		712		707	4.83
Equity securities		472		455	—
Total investment securities available-for-sale	$	56,238	$	55,569	4.10	%

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 2006, average deposits increased $31.07 million, or 10.28%, to a new high of $333.24 million. This increase was a continuation of the growth experienced in 2005 of $42.06 million, or 16.17%, to $302.17 million.

See Table 10 for a comparison of year-end deposits by classification for the previous three years. Total deposits at December 31, 2006 increased $35.81 million, or 10.94%, to $363.26 million as compared to year-end 2005 total deposits of $327.45 million. In 2006 the Company experienced a shift in the classification of deposits resulting from the competitive interest rate environment. Noninterest bearing demand deposits decreased slightly to $97.56 million which was consistent with the trend in the market. Interest bearing demand and savings accounts decreased $5.01 million and $5.68 million, respectively. The increase in total deposits was heavily concentrated in rate sensitive certificates of deposits. Time deposits with balances less than $100,000 increased $15.64 million, or 25.59%, during 2006 over the 2005 balance of $61.12 million. Time deposits with balances of $100,000 or more, which tend to be more volatile, increased $38.23 million, or 111.16%, in 2006 and decreased $7.37 million, or 17.64%, during 2005. The increase in total time deposits was the result of efforts by the Company to remain competitive in its market by increasing rates offered on time deposits. Year-end 2005 total deposits grew to $327.45 million as compared to year-end 2004 total deposits of $275.12 million, an increase of 19.02%.

Table 10: Deposits by Classification

December 31, (In thousands)	2006				2005				2004
	Balance		%		Balance		%		Balance		%
Deposit Classifications:
Noninterest bearing demand	$	97,559	26.86	%	$	104,930	32.05	%	$	91,944	33.42	%
Interest bearing demand		42,486	11.70			47,492	14.50			64,460	23.43
Savings		73,831	20.32			79,514	24.28			15,253	5.54
Time deposits less than $100,000		76,757	21.13			61,117	18.67			61,699	22.43
Time deposits $100,000 or more		72,628	19.99			34,394	10.50			41,759	15.18
Total deposits	$	363,261	100.00	%	$	327,447	100.00	%	$	275,115	100.00	%

2006 ANNUAL REPORT 13

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 $290.63 million, or 80.01% of total deposits at year-end 2006 compared to $293.05 million, or 89.50% of total deposits at year-end 2005, and $233.36 million, or 84.82% of total deposits at year-end 2004.

Capital

Total shareholders’ equity increased $21.03 million, or 42.81%, to $70.16 million at December 31, 2006. On August 2, 2006, the Company completed the rights offering and public offering of 1,849,200 shares of its common stock. The Company received net proceeds (after deducting issuance costs) of $19.0 million from the offering. The Company used the net proceeds from the offering to increase equity and subsequently the Bank’s legal lending limit and for general corporate purposes, including future growth and expansion.

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, 2006. For more information on the Company’s regulatory capital requirements, see Note 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 2006, the Company repurchased 380,613 shares of its common stock in open market and privately negotiated transactions at prices ranging from $10.50 to $12.18. 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.

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, 2006, 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 $269.90 million, or 56.67% 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 Note 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.

14 HAMPTON ROADS BANKSHARES, INC.

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 2006 and 2005 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)	2006 Change in Net Interest Income					2005 Change in Net Interest Income
	Amount			%		Amount			%
Change in Interest Rates:
+200 basis points	$	3,130		14.12	%	$	2,738		15.11	%
+100 basis points		1,561		7.04			1,366		7.54
-100 basis points		(1,567	)	(7.06	)		(1,366	)	(7.54	)
-200 basis points		(3,141	)	(14.17	)		(2,697	)	(14.89	)

As indicated in Table 11, a decrease in interest rates would tend to reduce net interest 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 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, 2006, 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 $30.85 million, or 6.48% 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, 2005, the Company’s one year “positive gap” was $18.79 million, or 4.59% of total assets.

Table 12 sets forth the amounts of interest earning assets and interest bearing liabilities outstanding at December 31, 2006 and 2005 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.

2006 ANNUAL REPORT 15

Table 12: Interest Rate Sensitivity

December 31, 2006 (In thousands)	1 -90 Days			91 Days - 1 Year			1 - 3 Years			3 - 5 Years			Over 5 Years			Total
Interest Earning Assets:
Loans	$	191,057		$	38,081		$	70,129		$	75,526		$	251		$	375,044
Investments		1,992			11,972			28,593			12,550			4,438			59,545
Interest-bearing deposits in other banks		162			—			—			—			—			162
Overnight funds sold		9,524			—			—			—			—			9,524
Total	$	202,735		$	50,053		$	98,722		$	88,076		$	4,689		$	444,275
Cummulative total	$	202,735		$	252,788		$	351,510		$	439,586		$	444,275
Interest Bearing Liabilities:
Interest checking	$	18,179		$	—		$	—		$	—		$	—		$	18,179
Money market		24,308			—			—			—			—			24,308
Savings		73,830			—			—			—			—			73,830
Time deposits		32,395			65,230			28,661			23,096			3			149,385
FHLB borrowings		—			8,000			25,000			5,000			—			38,000
Total	$	148,712		$	73,230		$	53,661		$	28,096		$	3		$	303,702
Cumulative total	$	148,712		$	221,942		$	275,603		$	303,699		$	303,702
Interest sensitivity gap	$	54,023		$	(23,177	)	$	45,061		$	59,980		$	4,686		$	140,573
Cumulative interest sensitivity gap	$	54,023		$	30,846		$	75,907		$	135,887		$	140,573
Cumulative interest sensitivity gap as a percentage of total assets		11.34	%		6.48	%		15.94	%		28.53	%		29.51	%
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
Investments		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 total	$	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 total	$	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.

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, 2006. FHLB borrowings increased to $38.00 million at year-end 2006 compared with the year earlier total of $30.50 million. The increased borrowings were used by the Company to fund a portion of its loan growth during the first half of 2006.

Table 13: Contractual Obligations

December 31, 2006 (In thousands)	Less than 1 Year		1 -3 Years		3 -5 Years		Over 5 Years		Total
Time deposits	$	97,625	$	28,661	$	23,096	$	3	$	149,385
Long-term debt obligations		8,000		25,000		5,000		—		38,000
Operating lease obligations		830		1,583		1,493		3,297		7,203
Total contractual obligations	$	106,455	$	55,244	$	29,589	$	3,300	$	194,588

Critical Accounting Policies

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

Our single most critical accounting policy relates to our allowance for loan losses, which reflects the estimated losses resulting from the inability of our borrowers to make required loan payments. The allowance for loan losses is established through a provision for loan losses charged to expense. Loans are charged against the allowance for loan losses when management believes that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

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

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

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

Implementation of New Accounting Pronouncements

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment, on January 1, 2006, using the modified prospective method 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 had no existing stock options that remained unvested as of January 1, 2006; therefore, no additional stock-based compensation expense for existing awards of stock options was recognized after adopting SFAS No. 123R. Previously the Company had followed Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and had accounted for employee share options at intrinsic value. For more information on the Company’s adoption of SFAS No. 123R, see Note No. 1(l) of the Notes to Consolidated Financial Statements contained in this report.

Stock-based compensation expense recognized in the consolidated statements of income for the years ended December 31, 2006, 2005 and 2004 was $179,811, $704,300, and $145,582, respectively, with a related tax benefit of $61,136, $239,462, and $49,498, respectively. During 2006, 2005 and 2004, stock-based compensation expense was comprised of $13,372, $554,100, and $145,582,

2006 ANNUAL REPORT 17

respectively, related to stock options which vested during the period. During 2006 and 2005, the remaining stock-based compensation expense of $166,439 and $150,200, respectively, related to share awards. There were no non-vested share awards that vested during 2004.

In September 2006, the FASB issued SFAS No. 158, Accounting for Defined Benefit Pension and Other Postretirement Plans, which amends SFAS Nos. 87, 88, 106 and 132(R). This statement requires employers to recognize in the statement of financial position the over funded or under funded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation. SFAS No. 158 was effective for fiscal years ending after December 15, 2006. The adoption of this statement had no impact on financial condition or the results of operations.

In September 2006, the SEC released Staff Accounting Bulletin (“SAB”) No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, which requires registrants to consider the effect of both the balance sheet (iron curtain) and the income statement (rollover) methods of prior year uncorrected misstatements when quantifying errors in current year financial statements. The SEC allows registrants to record the effects of adopting this guidance as a cumulative-effect adjustment to retained earnings. This adjustment must be reported as of the beginning of the first fiscal year ending after November 15, 2006. The adoption of this SAB had no impact on financial condition or the results of operations.

Future Accounting Pronouncements

In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement resolves issues addressed in SFAS No. 133 related to beneficial interests in securitized financial assets and permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative. SFAS No. 155 is effective for all financial instruments acquired or issued for fiscal years beginning after September 15, 2006. The adoption of this statement is not expected to have an impact on financial condition or the results of operations.

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets, which amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement requires all separately recognized servicing assets and servicing liabilities be initially measured at fair value. SFAS No. 156 is effective for fiscal years beginning after September 15, 2006. The adoption of this statement is not expected to have an impact on financial condition or the results of operations.

In June 2006, the FASB issued Interpretation No. (“FIN”) 48, Accounting for Income Tax Uncertainties. FIN 48 clarifies the criteria for recognizing tax benefits under SFAS No. 109, Accounting for Income Taxes. This interpretation defines the threshold for recognizing the benefits of tax return positions in the financial statements as “more-likely-than-not” to be sustained by the taxing authority. FIN 48 is effective for fiscal years beginning after December 15, 2006, and is not expected to have an impact on financial condition or the results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have an impact on financial condition or the results of operations.

The Emerging Issues Task Force (“EITF”) published Issue No. 06-5, Accounting for Purchases of Life Insurance - Determining the Amount That Could Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance. The EITF reached a consensus that a policyholder should consider any additional amounts to be received included in the contractual terms of the policy in determining the amount that could be realized under the insurance contract. The EITF also reached a consensus that a policyholder should determine the amount that could be realized under the life insurance contract assuming the surrender of an individual-life by individual-life policy (or certificate by certificate in a group policy). Furthermore, the EITF reached a consensus that the cash surrender value should not be discounted when contractual limitations on the ability to surrender a policy exist if the policy continues to operate under its normal terms (continues to earn interest) during the restriction period. The consensuses are effective for fiscal years beginning after December 15, 2006. EITF No. 06-5 is not expected to have a material impact 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”). 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

18 HAMPTON ROADS BANKSHARES, INC.

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.

Forward-Looking Statements

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

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

For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully review the risk factors summarized below and the more detailed discussions in the “Risk Factors” and “Business” sections in the 2006 Form 10-K. Our risks include, without limitation, the following:

• Our dependence on key personnel;

• The high level of competition with the banking industry;

• Our dependence on construction and land development loans that could be negatively affected by a downturn in the real estate market;

• The adequacy of our estimate for known and inherent losses in our loan portfolio;

• Changes in interest rate;

• Our ability to manage our growth;

• Governmental and regulatory changes that may adversely affect our expenses and cost structure;

• The threat from technology based frauds and scams; and

• Our ability to use the proceeds from our recent offerings profitably.

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

2006 ANNUAL REPORT 19

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 2006 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, 2006 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, 2006.

20 HAMPTON ROADS BANKSHARES, INC.

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, 2006 and 2005, 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, 2006. 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, 2006, 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, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, 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, 2006, 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, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As discussed in note 1(l) to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, on January 1, 2006.

Norfolk, Virginia

March 1, 2007

2006 ANNUAL REPORT 21

CONSOLIDATED BALANCE SHEETS

December 31, 2006 and 2005

	2006			2005
Assets:
Cash and due from banks	$	17,112,616		$	17,513,955
Overnight funds sold		9,524,445			18,294,012
Interest-bearing deposits in other banks		161,490			932,688
Total cash and cash equivalents		26,798,551			36,740,655
Investment securities available-for-sale, at fair value		55,569,440			71,113,959
Federal Home Loan Bank stock		2,597,900			2,057,100
Federal Reserve Bank stock		1,377,350			654,600
Total investments		59,544,690			73,825,659
Loans		375,044,161			285,329,935
Allowance for loan losses		(3,910,943	)		(3,597,497	)
Net loans		371,133,218			281,732,438
Premises and equipment		12,183,884			11,456,501
Interest receivable		2,281,945			1,761,570
Deferred tax asset, net		2,209,117			1,951,043
Other assets		2,148,063			2,049,417
Total assets	$	476,299,468		$	409,517,283
Liabilities and Shareholders’ Equity:
Deposits:
Noninterest bearing demand	$	97,559,421		$	104,930,259
Interest bearing:
Demand		42,486,451			47,491,912
Savings		73,830,518			79,514,001
Time deposits:
Less than $ 100,000		76,756,540			61,116,511
$100,000 or more		72,628,399			34,393,834
Total deposits		363,261,329			327,446,517
Federal Home Loan Bank borrowings		38,000,000			30,500,000
Interest payable		1,472,889			490,182
Other liabilities		3,402,707			1,950,055
Total liabilities		406,136,925			360,386,754
Shareholders’ equity:
Preferred stock, no par value. Authorized 1,000,000 shares: none issued and outstanding		—			—
Common stock, $0.625 par value. Authorized 40,000,000 shares; issued and outstanding 10,251,336 shares in 2006 and 8,242,822 shares in 2005		6,407,085			5,151,764
Capital surplus		42,105,666			23,852,040
Retained earnings		22,091,191			20,770,448
Accumulated other comprehensive loss, net of tax		(441,399	)		(643,723	)
Total shareholders’ equity		70,162,543			49,130,529
Total liabilities and shareholders’ equity	$	476,299,468		$	409,517,283

See accompanying notes to consolidated financial statements.

22 HAMPTON ROADS BANKSHARES, INC.

CONSOLIDATED STATEMENTS of INCOME

Years ended December 31, 2006, 2005 and 2004

	2006		2005		2004
Interest Income:
Loans, including fees	$	26,827,215	$	22,342,047	$	16,374,717
Investment securities		2,721,046		1,720,177		1,616,074
Overnight funds sold		228,712		249,507		71,469
Interest-bearing deposits in other banks		244,298		246,380		5,511
Total interest income		30,021,271		24,558,111		18,067,771
Interest Expense:
Deposits:
Demand		522,235		319,376		424,826
Savings		2,180,372		1,155,739		91,161
Time deposits:
Less than $100,000		2,618,461		2,169,358		2,049,986
$100,000 or more		2,308,374		1,221,610		783,627
Interest on deposits		7,629,442		4,866,083		3,349,600
Federal Home Loan Bank borrowings		1,377,241		992,569		560,454
Overnight funds purchased		116,602		10,235		1,156
Total interest expense		9,123,285		5,868,887		3,911,210
Net interest income		20,897,986		18,689,224		14,156,561
Provision for loan losses		180,000		486,000		926,000
Net interest income after provision for loan losses		20,717,986		18,203,224		13,230,561
Noninterest Income:
Service charges on deposit accounts		1,873,525		1,945,319		1,932,521
ATM surcharge fees		215,021		204,761		219,399
Gain on sale of investment securities		—		—		507,500
Other service charges and fees		1,309,333		1,064,387		1,131,862
Total noninterest income		3,397,879		3,214,467		3,791,282
Noninterest Expense:
Salaries and employee benefits		9,105,901		7,962,216		6,603,352
Occupancy		1,677,308		1,108,712		911,616
Data processing		598,276		560,298		570,653
Other		3,564,256		3,409,145		2,708,449
Total noninterest expense		14,945,741		13,040,371		10,794,070
Income before provision for income taxes and cumulative effect of change in accounting principle		9,170,124		8,377,320		6,227,773
Provision for income taxes		3,134,585		2,869,991		2,139,583
Net income before cumulative effect of change in accounting principle		6,035,539		5,507,329		4,088,190
Cumulative effect of change in accounting principle, net of taxes of $23,607		—		—		45,825
Net Income	$	6,035,539	$	5,507,329	$	4,134,015
Basic earnings per share before cumulative effect of change in accounting principle	$	0.66	$	0.68	$	0.51
Cumulative effect of change in accounting principle		—		—		0.01
Basic earnings per share	$	0.66	$	0.68	$	0.52
Diluted earnings per share before cumulative effect of change in accounting principle	$	0.65	$	0.66	$	0.49
Cumulative effect of change in accounting principle		—		—		0.01
Diluted earnings per share	$	0.65	$	0.66	$	0.50
Basic weighted average shares outstanding		9,092,980		8,137,244		7,973,844
Effect of dilutive stock options and non-vested stock		182,808		270,577		262,325
Diluted weighted average shares outstanding		9,275,788		8,407,821		8,236,169

See accompanying notes to consolidated financial statements.

2006 ANNUAL REPORT 23

CONSOLIDATED STATEMENTS of CHANGES IN SHAREHOLDERS’ EQUITY

Years ended December 31, 2006, 2005 and 2004

	Common Stock					Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount
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
Non-vested 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
Comprehensive income:
Net income	—			—			—			6,035,539			—			6,035,539
Change in unrealized gain (loss) on securities available-for-sale, net of taxes of $104,228	—			—			—			—			202,324			202,324
Total comprehensive income																6,237,863
Shares issued related to:
401(k) plan	11,333			7,083			115,312			—			—			122,395
Advisory board fees	2,332			1,457			23,843			—			—			25,300
Exercise of stock options	277,041			173,151			1,432,735			—			—			1,605,886
Dividend reinvestment	229,090			143,181			2,512,766			—			—			2,655,947
Stock-based compensation expense	20,131			12,582			167,229			—			—			179,811
Stock offering, net of issuance costs of $1,109,824	1,849,200			1,155,750			17,890,706			—			—			19,046,456
Common stock repurchased	(380,613	)		(237,883	)		(4,035,983	)		—			—			(4,273,866	)
Tax benefit of stock option exercises	—			—			147,018			—			—			147,018
Cash dividends ($0.50 per share)	—			—			—			(4,714,796	)		—			(4,714,796	)
Balance at December 31, 2006	10,251,336		$	6,407,085		$	42,105,666		$	22,091,191		$	(441,399	)	$	70,162,543

See accompanying notes to consolidated financial statements.

24 HAMPTON ROADS BANKSHARES, INC.

CONSOLIDATED STATEMENT S of CASHFLOWS

Years ended December 31, 2006, 2005 and 2004

	2006			2005			2004
Operating Activities:
Net income	$	6,035,539		$	5,507,329		$	4,134,015
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		876,625			637,576			563,700
Provision for loan losses		180,000			486,000			926,000
Advisory board fees		25,300			—			—
Stock-based compensation expense		179,811			704,300			145,582
Net amortization of premiums and accretion of discounts on investment securities		31,853			477,583			256,100
Loss on sale of other real estate owned		—			—			3,575
(Gain) loss on sale of premises and equipment		—			129,839			(19,731	)
Gain on sale of investment securities available-for-sale		—			—			(507,500	)
Deferred income tax expense (benefit)		(362,302	)		(432,982	)		26,926
Changes in:
Interest receivable		(520,375	)		(507,896	)		134,145
Other assets		(98,646	)		(309,358	)		(195,670	)
Interest payable		982,707			80,283			(3,947	)
Other liabilities		1,452,652			564,629			543,146
Net cash provided by operating activities		8,783,164			7,337,303			6,006,341
Investing Activities:
Proceeds from maturities and calls of U.S. Treasury and
U.S. Agency securities available-for-sale		18,000,000			11,428,732			6,002,253
Proceeds from sales of U.S. Treasury and U.S. Agency securities available-for-sale		—			—			44,667,500
Proceeds from maturities and calls of mortgage backed securities available-for-sale		130,775			—			—
Purchase of U.S. Treasury and U.S. Agency securities available-for-sale		(1,000,000	)		(47,000,000	)		(17,660,000	)
Purchase of mortgage backed securities available-for-sale		(839,057	)		—			—
Purchase of equity securities available-for-sale		(472,500	)		—			—
Proceeds from sales of Federal Home Loan Bank stock		2,227,500			112,500			—
Purchase of Federal Home Loan Bank stock		(2,768,300	)		(502,200	)		(792,400	)
Purchase of Federal Reserve Bank stock		(722,750	)		(6,250	)		(3,950	)
Net increase in total loans		(90,316,530	)		(10,098,844	)		(65,218,741	)
Purchase of premises and equipment		(868,258	)		(2,430,533	)		(1,280,555	)
Proceeds from sale of premises and equipment		—			—			22,075
Proceeds from sale of other real estate owned		—			—			100,239
Net cash used in investing activities		(76,629,120	)		(48,496,595	)		(34,163,579	)
Financing Activities:
Net increase in deposits		35,814,812			52,331,159			17,682,027
Proceeds from Federal Home Loan Bank borrowings		10,000,000			10,000,000			10,500,000
Repayments of Federal Home Loan Bank borrowings		(2,500,000	)		(2,500,000	)		(2,500,000	)
Stock issuance costs		(1,109,824	)		—			—
Common stock repurchased		(3,424,628	)		(1,092,378	)		(396,960	)
Issuance of shares to 401(k) plan		122,395			87,284			94,586
Issuance of shares in rights and public offerings		20,156,280			—			—
Proceeds from exercise of stock options		756,648			408,452			373,675
Excess tax benefit realized from stock options exercised		147,018			—			—
Dividends paid, net		(2,058,849	)		(1,108,055	)		(1,357,288	)
Net cash provided by financing activities		57,903,852			58,126,462			24,396,040
Increase (decrease) in cash and cash equivalents		(9,942,104	)		16,967,170			(3,761,198	)
Cash and cash equivalents at beginning of year		36,740,655			19,773,485			23,534,683
Cash and cash equivalents at end of year	$	26,798,551		$	36,740,655		$	19,773,485
Supplemental cash flow information:
Cash paid during the year for interest	$	8,140,578		$	5,788,604		$	3,916,687
Cash paid during the year for income taxes		3,370,000			2,862,000			2,132,876
Supplemental non-cash information:
Dividends reinvested	$	2,655,947		$	1,799,531		$	1,265,360
Value of shares exchanged in exercise of stock options		849,238			132,886			—
Receipt of land in payment of loan		735,750			—			—

See accompanying notes to consolidated financial statements.

2006 ANNUAL REPORT 25

December 31, 2006, 2005 and 2004

(1) Summary of Significant Accounting Policies

Hampton Roads Bankshares, Inc., a Virginia Corporation (the “Company”), is a financial holding company that was formed in February 2001 and is headquartered in Norfolk, Virginia. The Company’s primary subsidiary is Bank of Hampton Roads (the “Bank”), which opened for business in December 1987. Currently, the Bank operates 17 banking offices in the Hampton Roads region of southeastern Virginia, including eight offices in the city of Chesapeake, four offices each in the cities of Norfolk and Virginia Beach, and one office in the city of Suffolk.

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 $2,126,000 and $2,578,000 at December 31, 2006 and 2005, 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 noninterest 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.

(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 over the life of the loan 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. In

26 HAMPTON ROADS BANKSHARES, INC.

those instances when a loan prepays, the remaining deferred fee is recognized in the income statement. 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 is the amount necessary in management’s judgment to maintain the allowance for loan losses at a level it believes sufficient to cover incurred 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 were 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 long-lived assets were deemed to be impaired as of December 31, 2006.

(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. The Company did not have any other real estate owned as of December 31, 2006 or 2005.

(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.

2006 ANNUAL REPORT 27

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, 2006 or 2005 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 non-vested stock using the treasury stock method.

(k) Advertising Costs

Advertising costs are expensed as incurred.

(l) Stock-Based Compensation

The Company adopted SFAS No. 123R, Share-Based Payment, on January 1, 2006, using the modified prospective method 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 had no existing stock options that remained unvested as of January 1, 2006; therefore, no additional stock-based compensation expense for existing awards of stock options was recognized after adopting SFAS No. 123R. Previously, the Company had followed Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and had accounted for employee share options at intrinsic value. The information below for the years ended December 31, 2005 and 2004 was disclosed in accordance with SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure. During 2006, the Company used the fair-value method to account for stock-based compensation and the fair value of stock options was estimated at the date of grant using a lattice option pricing model. Stock options granted with pro rata vesting schedules are expensed over the vesting period on a straight line basis.

Stock-based compensation expense recognized in the consolidated statements of income for the years ended December 31, 2006, 2005 and 2004 was $179,811, $704,300, and $145,582, respectively, with a related tax benefit of $61,136, $239,462, and $49,498, respectively. During 2006, 2005 and 2004, stock-based compensation expense was comprised of $13,372, $554,100, and $145,582, respectively, related to stock options which vested during the period. During 2006 and 2005, the remaining stock-based compensation expense of $166,439 and $150,200, respectively, related to share awards. There were no non-vested share awards that vested during 2004.

Reported and pro forma results and a summary of the assumptions used to value stock options granted during 2006, 2005 and 2004 were as follows:

Years Ended December 31,	2006			2005			2004
Reported net income after change in accounting principle	$	6,035,539		$	5,507,329		$	4,134,015
Stock option expense (net of tax):
As reported		8,826			365,706			96,084
Pro forma		(8,826	)		(378,359	)		(125,851	)
Pro forma net income after change in accounting principle	$	6,035,539		$	5,494,676		$	4,104,248
Net income per share after change in accounting principle:
Basic-as reported	$	0.66		$	0.68		$	0.52
Basic-pro forma		0.66			0.68			0.51
Diluted-as reported		0.65			0.66			0.50
Diluted-pro forma		0.65			0.65			0.50
Assumptions:
Risk-free interest rate		4.68	%		4.32	%		3.94	%
Volatility		18.40	%		10.08	%		21.62	%
Dividend yield		3.33	%		3.38	%		2.86	%
Weighted average expected term (in years)		8.72			8.60			7.75

28 HAMPTON ROADS BANKSHARES, INC.

The table above excludes stock-based compensation related to share awards. 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. The information in the table above for 2006 reflects the adoption of SFAS No. 123R as of January 1, 2006; therefore, there is no difference between the stock option expense (net of tax) amounts as reported and the pro forma amounts.

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. Expected volatility is based on historical volatility of the Company’s traded shares. The expected term is calculated by the lattice option pricing model using assumptions regarding the contractual term of the stock options, vesting periods, the exercise price to market stock price multiple experienced by the Company, and the historical employee exit rate. Expected terms range from 8.10 years to 9.90 years for the stock options granted during 2006.

(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, the fair value of stock options, 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.

(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 Emerging Issues Task Force (“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 $282.6 million and $209.5 million of the total loan portfolio at December 31, 2006 and 2005, 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 2005 and 2004 amounts have been reclassified to conform to the 2006 presentation.

2006 ANNUAL REPORT 29

(2) Investment Securities

The amortized cost and estimated fair values of investment securities available-for-sale at December 31, 2006 and 2005 were as follows:

	2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investment Securities Available-for-Sale:
U.S. Treasury securities	$	100,000	$	—	$	1,461	$	98,539
U.S. Agency securities		54,954,164		20,404		665,349		54,309,219
Mortgage backed securities		711,561		—		4,879		706,682
Equity securities		472,500		—		17,500		455,000
Total investment securities available-for-sale	$	56,238,225	$	20,404	$	689,189	$	55,569,440
	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

Investment securities available-for-sale in an unrealized loss position and temporarily impaired at December 31, 2006 and 2005 were as follows:

	2006
	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	$	—	$	—	$	98,539	$	1,461	$	98,539	$	1,461
U.S. Agency securities		6,995,625		53,564		45,311,406		611,785		52,307,031		665,349
Mortgage backed securities		706,682		4,879		—		—		706,682		4,879
Equity securities		455,000		17,500		—		—		455,000		17,500
	$	8,157,307	$	75,943	$	45,409,945	$	613,246	$	53,567,252	$	689,189
	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

The unrealized loss positions on debt securities at December 31, 2006 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 debt securities are AAA rated investments. Bonds with unrealized loss positions at 2006 year-end included 1 U.S. Treasury security, 2 mortgage backed securities, and 42 U.S. Agency securities. The unrealized loss on equity securities at December 31, 2006 is considered by management to be temporary given the duration of the unrealized loss.

30 HAMPTON ROADS BANKSHARES, INC.

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 2006 or 2005.

The amortized cost and estimated fair value of investment securities available-for-sale at December 31, 2006 by contractual maturity were as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	14,088,654	$	13,963,227
Due after one year through five years		41,669,327		41,143,541
Due after ten years		480,246		462,672
	$	56,238,227	$	55,569,440

Investment securities that were pledged to secure deposits, outstanding borrowings, or available to secure future borrowings at December 31, 2006 and 2005 were as follows:

	2006		2005
Public deposits	$	11,873,879	$	9,769,876
Treasury, tax and loan deposits		1,453,125		1,442,344
FHLB borrowings		26,170,469		12,889,688
FRB borrowings		2,969,063		2,947,812
Debtor in possession deposit		98,539		97,457
	$	42,565,075	$	27,147,177

(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.

Major classifications of loans at December 31, 2006 and 2005 were as follows:

	2006			2005
Commercial	$	72,132,578		$	60,972,016
Construction		116,812,110			85,205,034
Real estate - commercial mortgage		140,259,912			104,313,449
Real estate - residential mortgage		25,522,729			20,010,503
Installment loans to individuals		20,599,390			15,107,168
Deferred loan fees and related costs		(282,558	)		(278,235	)
	$	375,044,161		$	285,329,935
Non-performing assets at December 31, 2006 and 2005 were as follows:
	2006			2005
Loans 90 days past due and still accruing interest	$	—		$	30,112
Nonaccrual loans, including impaired loans		1,629,990			1,790,869
Real estate acquired in settlement of loans		—			—
	$	1,629,990		$	1,820,981

If interest on nonaccrual loans had been accrued, such income would have amounted to $153,128, $136,878 and $56,814 in 2006, 2005 and 2004, respectively, none of which was recognized in income.

2006 ANNUAL REPORT 31

Information on impaired loans at December 31, 2006, 2005 and 2004 was:

	2006		2005		2004
Impaired loans for which an allowance has been provided	$	1,854,990	$	1,770,656	$	1,887,542
Impaired loans for which no allowance has been provided		—		—		—
Total impaired loans	$	1,854,990	$	1,770,656	$	1,887,542
Allowance provided for impaired loans, included in the allowance for loan losses	$	438,998	$	354,131	$	377,508
Average balance in impaired loans	$	1,936,082	$	1,777,615	$	1,911,411
Interest income recognized from impaired loans	$	1,026	$	—	$	—

Transactions affecting the allowance for loan losses for the years ended December 31, 2006, 2005 and 2004 were as follows:

	2006			2005			2004
Balance at beginning of year	$	3,597,497		$	3,070,600		$	2,948,011
Provision for loan losses		180,000			486,000			926,000
Loans charged off		(59,118	)		(98,737	)		(940,555	)
Recoveries		192,564			139,634			137,144
Balance at end of year	$	3,910,943		$	3,597,497		$	3,070,600

(4) Premises, Equipment and Leases

Premises and equipment at December 31, 2006 and 2005 are summarized as follows:

	2006			2005
Land	$	4,321,467		$	3,580,313
Buildings and improvements		6,008,298			5,805,407
Leasehold improvements		820,694			812,650
Equipment, furniture and fixtures		5,178,374			4,526,455
		16,328,833			14,724,825
Less accumulated depreciation and amortization		(4,144,949	)		(3,268,324	)
	$	12,183,884		$	11,456,501

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

Total rent expense was $845,744 in 2006, $428,500 in 2005 and $304,598 in 2004. 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 payments began during the fourth quarter of 2006.

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, 2006 were as follows:

2007	$	830,418
2008		806,823
2009		776,597
2010		748,552
2011		744,506
2012 - 2016		3,297,451
	$	7,204,347

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, 2006 were as follows:

2007	$	84,443
2008		84,443
2009		28,148
	$	197,034

32 HAMPTON ROADS BANKSHARES, INC.

(5) Deposits

The maturities of time deposits at December 31, 2006 and 2005 were as follows:

	2006				2005
	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	$	11,506,473	$	20,801,560	$	8,404,562	$	4,331,946
Over 3 months - 6 months		15,831,990		24,426,473		5,603,594		8,817,057
Over 6 months - 12 months		15,969,016		9,074,891		10,425,598		6,070,549
1 year - 2 years		11,290,285		6,300,140		14,402,170		5,468,777
2 years - 3 years		7,491,413		3,594,608		8,358,404		3,533,581
3 years - 4 years		10,270,500		4,899,477		6,741,940		2,285,090
4 years - 5 years		4,396,863		3,531,250		7,180,243		3,886,834
	$	76,756,540	$	72,628,399	$	61,116,511	$	34,393,834

(6) Federal Home Loan Bank Borrowings

At December 31, 2006 and 2005, the Company had borrowings from the FHLB system totaling $38,000,000 and $30,500,000, respectively. Interest only is payable on a monthly basis until maturity. Maturities of FHLB borrowings at December 31, 2006 were as follows:

	Interest Rate		Balance
Maturity Date:
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
May 2009	5.53			5,000,000
June 2009	5.68			5,000,000
April 2011	5.46			5,000,000
			$	38,000,000

The borrowings were collateralized by a blanket lien on the Company’s 1-4 family residential real estate loans, with carrying values of $19,144,117 and $13,471,104 as of December 31, 2006 and 2005, respectively, commercial real estate loans with carrying values of $5,101,268 and $11,992,348 as of December 31, 2006 and 2005, respectively, and investment securities with carrying values of $26,170,469 and $12,889,688 as of December 31, 2006 and 2005, respectively.

(7) Income Taxes

Total income tax was allocated for the years ended December 31, 2006, 2005 and 2004 as follows:

	2006			2005			2004
Provision for income taxes before cumulative effect of change in accounting principle	$	3,134,585		$	2,869,991		$	2,139,583
Tax effect of change in accounting principle		—			—			23,607
Shareholders’ equity for unrealized gain (loss) on securities available-for-sale		104,228			(223,911	)		(370,462	)
Shareholders’ equity for excess tax benefit realized from stock options exercised		(147,018	)		(121,321	)		(137,996	)
	$	3,091,795		$	2,524,759		$	1,654,732

2006 ANNUAL REPORT 33

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

	2006			2005			2004
Current	$	3,496,887		$	3,302,973		$	2,112,657
Deferred		(362,302	)		(432,982	)		26,926
	$	3,134,585		$	2,869,991		$	2,139,583

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

	2006			2005			2004
Deferred income tax expense (benefit)	$	(398,884	)	$	(469,565	)	$	(9,656	)
NOL carryforward		36,582			36,583			36,582
	$	(362,302	)	$	(432,982	)	$	26,926

The provisions for income taxes for the years ended December 31, 2006, 2005 and 2004 differ from the amount computed by applying the statutory federal income tax rate of 34% to income before taxes. The differences were as follows:

	2006			2005		2004
Income taxes at statutory rates	$	3,117,842		$	2,848,289	$	2,117,443
Increase resulting from:
Nondeductible expenses		17,268			20,382		20,242
Other		(525	)		1,320		1,898
Income tax expense before cumulative effect of change in accounting principle	$	3,134,585		$	2,869,991	$	2,139,583

Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2006 and 2005 were as follows:

	2006		2005
Deferred tax assets:
Allowance for loan losses	$	1,089,508	$	1,152,063
Unrealized loss on securities available-for-sale		227,387		331,615
Nonaccrual loan interest		122,533		—
Rent payable		179,408		—
Deferred directors’ fees		107,834		69,523
Nonqualified deferred compensation		1,248,619		982,241
Net operating loss carryforward		—		36,582
Total deferred tax assets		2,975,289		2,572,024
Deferred tax liabilities:
Depreciation		679,898		567,838
Affiliate income		86,274		53,143
Total deferred tax liabilities		766,172		620,981
Net deferred tax asset	$	2,209,117	$	1,951,043

At December 31, 2006, the Company had utilized the remaining net operating loss carryforward of $107,595 for income tax purposes, resulting from a 1992 acquisition. The amount of net operating loss carryforward utilization was 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.”

34 HAMPTON ROADS BANKSHARES, INC.

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, 2006 and 2005 were:

	2006		2005
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	90,598,124	$	66,622,791
Standby letters of credit		10,039,282		13,459,838
	$	100,637,406	$	80,082,629

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 obligation 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 2006, employees under the age of 50 were able to contribute up to $15,000 and employees 50 years and older were able to contribute up to $20,000. The Company contributed 100% of the employees’ contributions up to 4% of salary. The Company may also make an additional discretionary contribution. Company contributions will not exceed the maximum amount deductible annually for income tax purposes. The Company made discretionary contributions of $119,000, $196,000 and $161,000 for the years ended December 31, 2006, 2005 and 2004, respectively. The Company also made matching contributions of $185,031, $53,430 and $48,913 for the years ended December 31, 2006, 2005 and 2004, respectively. The Company offers its stock as an investment option under the 401(k) plan. The plan purchased 11,333, 8,952, and 9,365 shares at prices of $10.80, $9.75, and $10.10 per share in 2006, 2005 and 2004, respectively.

(10) Supplemental Retirement Agreements and Executive Savings Plan

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 either ten or 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, 2006 and 2005 was $661,640 and $566,448, respectively, which is included in other assets. 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, 2006, 2005 and 2004 was as follows:

	2006			2005			2004
Benefit obligation at beginning of year	$	1,124,635		$	857,867		$	672,785
Service cost		423,065			224,495			151,443
Interest cost		102,617			42,273			33,639
Benefit obligation at end of year		1,650,317			1,124,635			857,867
Fair value of plan assets		—			—			—
Funded status	$	(1,650,317	)	$	(1,124,635	)	$	(857,867	)

2006 ANNUAL REPORT 35

The amounts recognized in the consolidated balance sheets as of December 31, 2006 and 2005 consisted of:

				2006			2005
Accrued benefit cost included in other liabilities				$	(1,650,317	)	$	(1,124,635	)
The components of net periodic benefit cost for the years ended December 31, 2006, 2005 and 2004 consisted of:
	2006			2005			2004
Service cost	$	423,065		$	224,495		$	151,443
Interest cost		102,617			42,273			33,639
Net periodic benefit cost	$	525,682		$	266,768		$	185,082
The weighted-average assumptions used to determine benefit obligations at December 31, 2006 and 2005, and to determine net periodic benefit cost for the years ended December 31, 2006, 2005 and 2004 were as follows:
	2006			2005			2004
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 2007. As of December 31, 2006, the following benefit payments are expected to be paid over the next ten years:

2007	$	—
2008		—
2009		—
2010		317,981
2011		317,981
2012 - 2016		1,589,905
	$	2,225,867

The Company has implemented an Executive Savings Plan with certain officers whereby an initial contribution made by the officers will be matched each year by the Company as long as the officers’ employment continues. During 2006, participants were offered the election to use funds in the plan to purchase employer stock and become 100% vested in the plan. The employer stock purchased by the plan is held in a Rabbi Trust for the benefit of each individual participant. Contributions into the plan subsequent to this election may be used to purchase employer stock or may be placed in savings accounts for the benefit of each individual participant and earn interest at the highest rate currently being paid on a Company certificate of deposit. Company contributions to the Executive Savings Plan during 2006, 2005 and 2004 were $217,000, $123,771, and $166,560, respectively.

(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. 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 2006, $2,655,947 of the $4,714,796 total dividend declared was reinvested. 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.

36 HAMPTON ROADS BANKSHARES, INC.

(12) Director and Employee Stock Compensation Plans

During 2006, 2005 and 2004 the Company authorized the grant of options to employees and directors for 210,131, 135,096 and 125,703 shares, respectively, of the Company’s common stock under stock compensation plans that have been approved by the Company’s shareholders. All outstanding options granted previous to December 31, 2006 have 10-year terms and are fully vested and exercisable at the date of grant. The options granted on December 31, 2006 have 10-year terms and vest ratably over periods that range from 1 year to 5 years. 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, 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
Granted	210,131			11.93
Exercised	(277,041	)		5.80
Expired	(27,679	)		8.94
Balance at December 31, 2006	929,970		$	9.19

In 2006 and 2005, 277,041 and 97,828 options were exercised, respectively; however, only 198,158 and 85,421 new shares, respectively, were issued since 78,883 and 12,407 shares, respectively, of previously acquired stock were used to exercise some of the options.

Information pertaining to fully vested options outstanding and exercisable as of December 31, 2006 was as follows:

Range of Exercise Prices	Aggregate Intrinsic Value		Number of Options	Remaining Contractual Life (in years)	Weighted Average Exercise Price
$ 3.750 - $ 4.000	$	444,768	55,236	4.21	$	3.95
4.375 -    5.970		525,388	80,983	2.43		5.51
6.530 -    8.770		1,165,016	284,926	5.19		7.91
9.750 -    11.800		477,185	308,825	6.93		10.45
$ 3.750 - $ 11.800	$	2,612,357	729,970	5.55	$	8.42

The weighted-average grant-date fair value of stock options granted during 2006, 2005 and 2004 was $1.96, $1.41, and $1.52, respectively. The total intrinsic value at grant date of stock options exercised during 2006, 2005 and 2004 was $506,699, $155,416, and $44,032, respectively. Cash received from stock option exercises during 2006, 2005 and 2004 was $756,648, $408,452, and $373,675, respectively. The excess tax benefit realized for the tax deductions from option exercises totaled $147,018, $121,321, and $137,996, respectively, for 2006, 2005 and 2004. The Company has a policy of issuing new shares to satisfy stock option exercises and has 2,323,324 shares available under shareholder approved stock incentive plans. However, shares may be repurchased in open market or privately negotiated transactions under certain circumstances. As of December 31, 2006, there was $431,925 of unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted average period of 4.38 years.

As of December 31, 2006, the Company had granted non-vested shares to certain directors and employees as part of incentive programs and to those directors who elected to use deferred directors’ fees to purchase non-vested shares. Non-vested shares awarded to employees and directors as part of incentive programs have vesting schedules that range from four to nine years and are expensed

2006 ANNUAL REPORT 37

over the same schedules. Non-vested shares issued to directors as a method of deferring their directors’ fees are expensed at the time the fees are earned by the director. A summary of the Company’s non-vested share activity and related information is as follows:

	Number of Shares	Weighted Average Grant Date Fair Value
Balance at December 31, 2004	—	$	—
Granted	33,045		10.71
Vested	3,000		10.65
Balance at December 31, 2005	30,045		10.71
Granted	20,131		10.81
Vested	3,000		10.65
Balance at December 31, 2006	47,176	$	10.76

As of December 31, 2006, there was $254,812 of total unrecognized compensation cost related to non-vested share awards. That cost is expected to be recognized over a weighted average period of 5.14 years. The total fair value of shares vested during the years ended December 31, 2006 and 2005 was $36,000 and $31,950, respectively. No shares vested during 2004.

(13) Employment Agreements

The Company has employment agreements with eleven officers. Three of the agreements expire in 2007, one expires in 2008, two expire is 2009, and five expire in 2011. The agreements will automatically renew at the end of their terms unless the officer is notified in writing. 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, 2006, 2005 and 2004 is as follows:

	2006		2005		2004
Advertising and marketing	$	481,398	$	304,089	$	240,128
Telephone and postage		294,407		281,548		283,075
Professional		366,683		379,853		184,125
Bank franchise tax		279,754		251,332		230,115
Equipment		304,140		205,437		181,386
ATM and VISA Check Card expense		422,840		466,605		359,108
Directors’ and advisory board fees		284,450		313,299		254,450
Other		1,130,584		1,206,982		976,062
	$	3,564,256	$	3,409,145	$	2,708,449

(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, 2006, the amount available was approximately $7.4 million. Loans and advances are limited to 10% of the Bank’s shareholders’ equity. As of December 31, 2006, funds available for loans or advances by the Bank to the Company were approximately $6.9 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, 2006, the Company and the Bank meet all capital adequacy requirements to which they are subject.

As of December 31, 2006, 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, 2006
Tier 1 Capital:
Consolidated Company	$	70,604	17.47	%	$	16,166	4.00	%	$	24,249	6.00	%
Bank		68,639	17.04			16,114	4.00			24,171	6.00
Total Risk-Based Capital:
Consolidated Company		74,515	18.44			32,332	8.00			40,415	10.00
Bank		72,550	18.01			32,228	8.00			40,285	10.00
Leverage Ratio:
Consolidated Company		70,604	15.11			18,693	4.00			23,366	5.00
Bank		68,639	14.69			18,693	4.00			23,366	5.00
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

(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 practical 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.

(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.

2006 ANNUAL REPORT 39

(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 only amounts recorded for commitments to extend credit and standby letters of credit are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant at December 31, 2006 and 2005, and as such, the related fair values have not been estimated.

The estimated fair value of the Company’s financial instruments required to be disclosed under SFAS No. 107 at December 31, 2006 and 2005 were:

	2006				2005
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value
Assets:
Cash and due from banks	$	17,112,616	$	17,112,616	$	17,513,955	$	17,513,955
Overnight funds sold		9,524,445		9,524,445		18,294,012		18,294,012
Interest-bearing deposits in other banks		161,490		161,490		932,688		932,688
Federal Home Loan Bank stock		2,597,900		2,597,900		2,057,100		2,057,100
Federal Reserve Bank stock		1,377,350		1,377,350		654,600		654,600
Investment securities available-for-sale		55,569,440		55,569,440		71,113,959		71,113,959
Loans		375,044,161		370,790,572		285,329,935		282,923,035
Interest receivable		2,281,945		2,281,945		1,761,570		1,761,570
Liabilities:
Deposits		363,261,329		365,171,331		327,446,517		328,960,581
Interest payable		1,472,889		1,472,889		490,182		490,182
FHLB borrowings		38,000,000		37,679,316		30,500,000		29,808,700

(18) Subsequent Events

On January 23, 2007, the Company declared a cash dividend of $0.10 per share payable March 15, 2007, to shareholders of record on February 15, 2007.

40 HAMPTON ROADS BANKSHARES, INC.

(19) Condensed Parent Company Only Financial Statements

The condensed financial position as of December 31, 2006 and 2005 and the condensed results of operations and cash flows for each of the years in the three-year period ended December 31, 2006, of Hampton Roads Bankshares, Inc., parent company only, are presented below.

Condensed Balance Sheets
December 31,				2006			2005
Assets:
Cash on deposit with Bank				$	548,133		$	4,038,464
Equity securities available-for-sale					455,000			—
Investment in subsidiaries					68,312,951			43,524,284
Investment in affiliates					846,608			782,748
Loans					—			800,000
Interest receivable					—			2,707
Other assets					5,950			—
Total assets				$	70,168,642		$	49,148,203
Liabilities and Shareholders’ Equity:
Other liabilities				$	6,099		$	17,674
Shareholders’ equity					70,162,543			49,130,529
Total liabilities and shareholders’ equity				$	70,168,642		$	49,148,203
Condensed Statements of Income
Years Ended December 31,	2006			2005			2004
Income:
Dividends from Bank	$	3,564,334		$	2,907,586		$	1,435,583
Income from affiliates		141,723			77,906			165,207
Interest income		16,849			241,457			98,207
Total income		3,722,906			3,226,949			1,698,997
Expenses:
Interest expense		—			139,325			29,801
Other expense		86,132			40,890			56,206
Total expense		86,132			180,215			86,007
Income before income taxes and equity in undistributed earnings of subsidiaries		3,636,774			3,046,734			1,612,990
Provision for income taxes		(24,105	)		(49,312	)		(63,193	)
Equity in undistributed earnings of subsidiaries		2,422,870			2,509,907			2,584,218
Net income	$	6,035,539		$	5,507,329		$	4,134,015

2006 ANNUAL REPORT 41

Condensed Statements of Cash Flows

Years Ended December 31,	2006			2005			2004
Operating Activities:
Net income	$	6,035,539		$	5,507,329		$	4,134,015
Adjustments:
Equity in undistributed earnings of subsidiaries		(2,422,870	)		(2,509,907	)		(2,584,218	)
Stock-based compensation expense		179,811			704,300			—
Advisory board fees		25,300			—			—
Depreciation and amortization		—			—			22,138
Change in other assets		216,581			(514,943	)		(236,007	)
Change in other liabilities		(11,575	)		95,595			267,850
Net cash provided by operating activities		4,022,786			3,282,374			1,603,778
Investing Activities:
Purchase of equity securities available-for-sale		(472,500	)		—			—
Net (increase) decrease in loans		800,000			4,999,375			(5,799,375	)
Investment in subsidiaries		(22,365,797	)		—			—
Investment in affiliates		(63,860	)		(96,059	)		(421,690	)
Net cash provided by (used in) investing activities		(22,102,157	)		4,903,316			(6,221,065	)
Financing Activities:
Net increase (decrease) in borrowings		—			(3,800,000	)		3,800,000
Issuance of shares in rights and public offering		20,156,280			—			—
Stock issuance costs		(1,109,824	)		—			—
Common stock repurchased		(3,424,628	)		(1,092,378	)		(396,960	)
Dividends paid, net		(2,058,849	)		(1,108,055	)		(1,357,288	)
Excess tax benefit realized from stock options exercised		147,018			—			—
Proceeds from exercise of stock options		756,648			408,452			373,675
Issuance of shares to 401(k) plan		122,395			87,284			94,586
Net cash provided by (used in) financing activities		14,589,040			(5,504,697	)		2,514,013
Increase (decrease) in cash and cash equivalents		(3,490,331	)		2,680,993			(2,103,274	)
Cash and cash equivalents at beginning of year		4,038,464			1,357,471			3,460,745
Cash and cash equivalents at end of year	$	548,133		$	4,038,464		$	1,357,471

(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, 2006 and 2005, THF had drawn $2,347,249 and $1,953,267 on this warehouse line of credit, at a variable rate of 8.25% and 7.25%, respectively.

The Company has an 11% 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, 2006 and 2005, loans to executive officers, directors and their associates amounted to $22,547,499 and $9,321,517, respectively. During 2006, additional loans and repayments of loans by executive officers, directors and their associates were $16,659,089 and $3,433,107, respectively.

42 HAMPTON ROADS BANKSHARES, INC.

(21) Significant 2005 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 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, 2006 and 2005 is as follows:

	2006
	Fourth		Third		Second		First
Interest income	$	8,448,531	$	7,906,899	$	7,149,441	$	6,516,400
Interest expense		2,896,191		2,560,813		1,951,543		1,714,738
Net interest income		5,552,340		5,346,086		5,197,898		4,801,662
Provision for loan losses		90,000		90,000		—		—
Noninterest income		830,016		853,808		799,597		914,458
Noninterest expense		3,830,364		3,800,453		3,604,487		3,710,437
Income before provision for income taxes		2,461,992		2,309,441		2,393,008		2,005,683
Provision for income taxes		840,019		789,886		818,898		685,782
Net income	$	1,621,973	$	1,519,555	$	1,574,110	$	1,319,901
Basic earnings per share	$	0.16	$	0.16	$	0.18	$	0.16
Diluted earnings per share	$	0.16	$	0.16	$	0.17	$	0.16

	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

2006 ANNUAL REPORT 43

Chesapeake/Suffolk

Robert G. Bagley

Retired, Bank of Hampton Roads

Phil L. Black

Century 21 First Colony Realty

The Honorable Harry B. Blevins

State Senator

James S. Creekmore

Creekmore Hardware

William B. Cross

Ashdon Builders, Inc.

Durwood S. Curling

Retired Executive Director

Southeastern Public Service Authority

Christopher H. Falk

Attorney at Law

Rodney L. Foster

Rodney Foster Construction

Mickey Garcia

Garcia Development, LLC

Jack W. Gibson

Bank of Hampton Roads

Erik P. Gordon

Attorney at Law

Charles G. Hackworth Sr.

Hackworth Reprographics, Inc.

Martin W. Holton

Forrest Septic Tank Contractors, Inc.

Douglas R. Jewell

EMS Industrial, Inc.

H. Lynn Keffer

Crossroads Fuel, Inc.

Robert R. Kinser

Basnight, Kinser, Telfeyan, Leftwich & Nuckolls, P.C.

Patricia S. Lawrence

Lawrence Pharmacy, Inc.

Robert G. MacDonald

MacDonald, Plumlee & Overton

Richard H. Matthews

Pender & Coward, P.C.

Thomas F. May

Vexon Chemicals, Inc.

Rev. James W. McNeil

McNeil Bus Service

Davis R. Mellott

Southeastern Equipment Corporation

Philip V. Miller

Virginia Door, Inc.

Herbert Mitchell Jr.

Mitchell’s Complete Upholstery, Inc.

JoAnn H. Nesson

John C. Holland Enterprises

John R. Newhart

Sheriff, City of Chesapeake

Hugo A. Owens Jr.

The Nia Corp.

Roderick L. Pierce

Retired, Bank of Hampton Roads

Jeffrey P. Powell MD, DDS

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

Richard G. Pretlow

Pretlow & Sons Funeral Home

Bobby L. Ralph

Former Director of Social Services, City of Suffolk

Robert C. Rhoads

Hoffman Industries, Inc.

Adrian T. Robertson

Allied Concrete Products, LLC

Clay Robertson

Robertson Insurance Agency / WBR Insurance Agency

Willard F Robins III

Willard F. Robins, III, CPA, PC

Judson H. Rodman

Rodman’s Bar-B-Que

Suzanne Rose

Rose and Womble Realty Company

James R. Rountree

Rountree Construction Co., Inc.

James F. Russell Sr.

Supreme Petroleum, Inc./Holiday Foods/Holiday Ice., Inc.

R. Curtis Saunders Jr.

Vico Construction Corporation

David L. Schloff

Great Bridge Servicenter, LLC

J. Wayne Scott

Frank E. Sheffer & Co.

Clifton D. Sipe

Atlantic Coastal Clearing & Grading, Inc.

Roland Carroll Smith Sr.

Hearndon Construction Corp.

Robert B. Speight

Greenway Farms, Ltd.

Elizabeth F. St. John

First District Court Service Unit,

City of Chesapeake

Gayle F. Upchurch

The Shoetique

Jeffrey A. Valentine

Valentine & Bruns, Inc.

Emil A. Viola

Vico Construction Corporation

Pat E. Viola

Vico Construction Corporation

Patricia C. Whitehurst

Civic Leader

Gilbert J. Wirth Jr.

Prentis, LLC

Constantine L. Zinovis

Restauranteur

Virginia Beach

Eric C. Anderson

Lakeside Construction Corporation

E. Lee Boyce III

Boyce-Widener, Ltd.

B. G. Campbell

Community Group, Inc.

William N. Dozier

Dozier Tire and Auto Center

Jack W. Gibson

Bank of Hampton Roads

Izaak D. Glasser

Glasser & Macon, P.C.

Douglas J. Glenn

Pender & Coward, P.C.

Herman A. Hall III

Hallmark Development, LLC

John Katsias

Katsias Company

David E. Kellam

Kellam & Eaton, Inc.

Pete O. Kotarides

The Kotarides Companies

James W. Lam

Attorney & Counselor at Law

Michael A. Leanzo

Mid-Atlantic Coatings, Inc.

James D. Marx

Broadbay Cotton

Gary L. Minson

1-800 SKILLED.COM

Townsend Oast

Retired Past President of Virginia Bankers Association

Robert L. Samuel Jr.

Williams Mullen

Norris W. Shirley

Retired Farmer

Kenneth R. Sims

Custom Stone Company, Inc.

Kevin R. Sims

Custom Stone Company, Inc.

Cynthia W. Snyman

Slip-Free Systems of Virginia

Leo Thomas

Ron Zoby Tours

Jeffrey M. Tourault

Atlantic Foundations, Inc.

William F. Whitlow

Whitlow Baker

Robert A. Widener

Ainslie-Widener, Inc.

Benjamin J. Willis III

Willis Furniture Company, Inc.

Patricia M. Windsor

Retired, Lakeside Construction Corporation

Norfolk

Warren L. Aleck

Retired President, Great Bridge Foods, Inc. t/a Earle’s Markets

G. Ray Bunch Jr.

Budget Rent A Car

Stuart H. Buxbaum

S&E Builders

Elaine Czohara

Adams Outdoor Advertising

Edward A. Fiorella

Norfolk Sheriff’s Office

Leigh Anne Folkes

Hassell & Folkes, P.C.

S. G. Folkes

Consultant

Jack W. Gibson

Bank of Hampton Roads

Robert A. Goldwasser

Sysco Foods of Hampton Roads

L. Steve Gossett

Virginia Auto Rental, Inc.

Donald M. Koble

Virginia Auto Rental, Inc.

Robert J. McCabe

Sheriff, City of Norfolk

Yale Nesson

AARD Screenprinters & Embroidery

Robert H. Powell III

Kaufman & Canoles, P.C.

Robert F. Sharak

Hampton Roads Partnership

Jordan E. Slone

Harbor Group International

Donald Stakes

Discount Plumbing, Inc.

George Stenke

Investor

Jonathon L. Thornton

Pierce & Thornton, PLC

Neal S. Windley

Habitat for Humanity

W. Lewis Witt

Inner-View, Ltd.

W. Randy Wright

Randy Wright’s Printing

Robert L. Young

Ryan Enterprises, Inc.

Michael P. Zarpas

Global Real Estate Investment

44 HAMPTON ROADS BANKSHARES, INC.

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.

Douglas J. Glenn

    Attorney at Law,

    Pender & Coward, P.C.;

    General Counsel and Secretary,

    Geeks on Call America, Inc.

Herman A. Hall, III

    Managing Member,

    Hallmark Development, LLC

Robert R. Kinser

    Attorney at Law,

    Basnight, Kinser, Telfeyan,

    Leftwich & Nuckolls, P.C.

Bobby L. Ralph

    Former Director of Social Services,

    City of Suffolk

Jordan E. Slone

    Chairman and Chief Executive Officer,

    Harbor Group International

Roland Carroll Smith, Sr.

    President and Chief Executive Officer,

    Hearndon Construction Corporation

Patricia M. Windsor

    Retired, 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 and

    Chief Credit 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 Company’s common stock trades under the symbol “HMPR” on the NASDAQ Capital Market. Stock inquiries should be directed to:

Transfer Agent

Registrar and Transfer Company

10 Commerce Drive

Cranford, NJ 07016

1-800-368-5948

MARKET MAKERS

Citadel Derivatives Group LLC

Davenport & Company LLC

Domestic Securities, Inc.

E* Trade Capital Markets LLC

Fig Partners, LLC

Hill Thompson Magid & Co., Inc.

Hudson Securities, Inc.

Knight Equity Markets, L.P.

McKinnon & Company, Inc.

Monroe Securities, Inc.

Morgan, Keegan & Company, Inc.

Ryan, Beck & Co., LLC

Scott & Stringfellow, Inc.

UBS Securities LLC

Wedbush Morgan Securities Inc.

WEB SITE ADDRESS

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 11% 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) on Form S-3 and (No. 333-64346, No. 333-134583, and No. 333-139968) on Form S-8 of Hampton Roads Bankshares, Inc. of our report dated March 1, 2007, with respect to the consolidated balance sheets of Hampton Roads Bankshares, Inc. and subsidiaries as of December 31, 2006 and 2005, 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, 2006, management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, and the effectiveness of internal control over financial reporting as of December 31, 2006, which report appears in the December 31, 2006 annual report on Form 10-K of Hampton Roads Bankshares, Inc. Our report refers to the Company’s adoption of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, on January 1, 2006.

Norfolk, Virginia

March 15, 2007

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 Annual Report on Form 10-K of Hampton Roads Bankshares, Inc. for the period ended December 31, 2006;

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 information; and

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

Date: March 15, 2007	/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 Annual Report on Form 10-K of Hampton Roads Bankshares, Inc. for the period ended December 31, 2006;

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 control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

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

Date: March 15, 2007	/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 on Form 10-K of Hampton Roads Bankshares, Inc. (the “Company”) for the period ended December 31, 2006 to be filed with the Securities and Exchange Commission (“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) The 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 the 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 15, 2007

/s/ Donald W. Fulton, Jr.

Donald W. Fulton, Jr.

Chief Financial Officer

Date: March 15, 2007