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

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

Forward-Looking Statements

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

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

For a discussion of the risks, uncertainties, and assumptions that could affect these statements and our future events, developments, or results, you should carefully review the risk factors summarized below. Our risks include, without limitation, the following:

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

• Our estimate for losses in our loan portfolio may be inadequate;

• We have had and may continue to have difficulties managing our problem loans and our loan administration;

• We did not undergo a "stress test" under the Federal Reserve's Supervisory Capital Assessment Program; our self-administered stress test differed from the Supervisory Capital Assessment Program and the results of our test may be inaccurate;

• We have recently had a significant turnover in our senior management team;

• Governmental regulation and regulatory actions against us may impair our operations or restrict our growth;

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

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

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

• Difficult market conditions have adversely affected our industry;

• A significant part of GFH's loan portfolio is unseasoned;

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

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

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

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

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

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

• We may not be able to successfully maintain our capital;

• We may fail to realize the potential benefits of the mergers with SFC and GFH;

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

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

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

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

• We face a variety of threats from technology based frauds and scams;

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

• Our directors and officers have significant voting power.

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

Overview

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Critical Accounting Policies

GAAP is complex and requires management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements and the accompanying footnotes. Actual results, in fact, could differ from those estimates. We consider our policies on allowance for loan losses and goodwill and other intangible assets to be critical accounting policies. Refer to our 2008 Form 10-K for further discussion of these policies.

Material Trends

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

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

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

ANALYSIS OF FINANCIAL CONDITION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

   Total non-accrual loans              $            175,443   $            32,885

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

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

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

million was related to an increase in our business sweep account, which is . . .