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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2003

Commission File Number 005-62335

HAMPTON ROADS BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

201 Volvo Parkway, Chesapeake, VA 23320

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (757) 436-1000

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨  No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of March 31, 2003.

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HAMPTON ROADS BANKSHARES, INC.

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HAMPTON ROADS BANKSHARES, INC.

Consolidated Balance Sheets

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

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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Income (Unaudited)

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

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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Shareholders’ Equity

Three Months Ended March 31, 2003, and the Years Ended 2002 and 2001

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

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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Cash Flows (Unaudited)

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

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HAMPTON ROADS BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

March 31, 2003

NOTE A—BASIS OF PRESENTATION

Hampton Roads Bankshares, Inc., a Virginia corporation (the “Holding Company”), was incorporated under the laws of the Commonwealth of Virginia on February 28, 2001, primarily to serve as a holding company for Bank of Hampton Roads (the “Bank”). The consolidated financial statements of Hampton Roads Bankshares, Inc. (the “Company”) include the accounts of the Holding Company and its wholly-owned subsidiary, the Bank. All significant intercompany balances have been eliminated in consolidation.

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2002.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities: An Interpretation of ARB No. 51. This interpretation addresses the issue of consolidation of variable interest entities, which were previously commonly referred to as special-purpose entities (“SPEs”). Generally, in a variable interest entity, the equity investment at risk is not sufficient to allow the entity to function without subordinated financial support from other parties that absorb some of the expected losses and the equity investors do not have the essential characteristics of a controlling financial interest, as defined. According to FIN 46, if a business has a controlling financial interest in a variable interest entity, the assets, liabilities and operating results of the variable interest entity should be consolidated with the business, even if the business does not have voting control of the variable interest entity. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and to interest in variable interest entities acquired after that date. FIN 46 also applies to the first interim or fiscal periods beginning after June 15, 2003 for those variable interest entities in which a business holds an interest that were acquired before February 1, 2003. This statement has no impact on the Company’s financial statements.

NOTE B—INVESTMENT SECURITIES

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

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NOTE C—LOANS

Major classifications of loans are summarized as follows:

NOTE D—ALLOWANCE FOR LOAN LOSSES

Transactions affecting the allowance for loan losses during the three months ended March 31, 2003 and 2002 were as follows:

NOTE E—PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

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ITEM 2—MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Hampton Roads Bankshares, Inc., a Virginia corporation, was incorporated under the laws of the Commonwealth of Virginia on February 28, 2001, primarily to serve as a holding company for Bank of Hampton Roads. The consolidated financial statements of Hampton Roads Bankshares, Inc. include the accounts of the Holding Company and its wholly-owned subsidiary, the Bank. All significant intercompany balances have been eliminated in consolidation.

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

The following discussion and analysis by the Company’s management compares the financial condition and results of the Company’s operations for the three months ended March 31, 2003 and March 31, 2002. The following should be read in conjunction with the Company’s 2002 Annual Report.

Financial Condition

The first three months of 2003 proved to be very successful for Hampton Roads Bankshares, Inc., with average assets increasing an additional $26.6 million over the average balance for the year ended December 31, 2002, to a new record of $292.1 million. The Company’s total assets at March 31, 2003 decreased slightly to $297.4 million, a decrease of $1.3 million or less than 1.0%, from $298.7 million at December 31, 2002.

The Company’s primary market objective focuses on generating construction, real estate, consumer and commercial loans to individuals and to small and medium sized businesses. The loan portfolio grew $6.5 million to a record $209.7 million on March 31, 2003 from $203.2 million on December 31, 2002. Average loans for the first three months of 2003 increased $10.9 million from the average balance for the year ended December 31, 2002 to a record $205.4 million. The increased volume of loans was generated by the favorable financing environment as well as the efforts of the Company’s personnel to attract new business. An emphasis has been placed on maintaining the diversification of the loan portfolio with respect to loan type, nature of collateral and geographic location. This emphasis has resulted in success, with no one loan type holding a disproportionately large percentage of the overall loan portfolio. Asset quality has continued to be strong for all loans. The allowance for loan losses on March 31, 2003 and December 31, 2002 was $2.9 million and $2.8 million, respectively, and represented 1.38% and 1.40% of outstanding loans. Loan charge-offs, net of recoveries, were $31,411 for the first three months of 2003, compared to $101,030 for the comparable period in 2002. Based upon management’s review of historical trends and the estimate of losses inherent in the portfolio, it considers the allowance to be adequate.

Competitive interest rates on deposits, growth in branch office locations and aggressive call programs by branch personnel have contributed to successful market share gains. In the first three months of 2003, the Company has experienced a $20.0 million or 9.2% increase in average deposits from the average balance for the year ended December 31, 2002 to a new high of $238.4 million. Total month end deposits decreased slightly from $243.9 million at December 31, 2002 to $243.2 million at March 31, 2003, a decrease of $0.7 million or 0.3%. This positive growth trend in average deposits can be attributed to several factors: a change in the local community banking marketplace as three respected competitors were acquired by larger institutions, efforts of experienced personnel to attract new accounts, and increased advertising highlighting the Bank’s heritage and its commitment to extending excellent customer service. As the Company grows it will continue to seek core deposits as they are the main source of funds for the Company’s earning assets.

The Company’s investment portfolio, consisting primarily of U.S. Agency securities, serves as a source of liquidity to fund future loan growth and to meet the necessary collateral requirements for public funds on deposit. The investment portfolio was $59.0 million or 19.8% of total assets on March 31, 2003 compared to $45.1 million or 15.1% of total assets on December 31, 2002. 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. Overnight funds sold decreased by $28.2 million or 85.0% at March 31, 2003 compared to December 31, 2002. The increase in the investment portfolio and decline in overnight funds sold was due to the purchase of $26.8 million in investment securities, net of investment calls/maturities of $13.3 million in the first three months of 2003.

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Premises and equipment decreased through the first three months of 2003, by a net amount of $82,418 due to depreciation of $125,590 offset by fixed asset purchases of $43,172.

Results of Operations

During the first three months of 2003, the Company had net income of $970,412, resulting in a return of 1.35% on average total assets of $292.1 million. During the comparable three month period in 2002, the Company earned $680,103 resulting in a return of 1.17% on average total assets of $235.6 million. Net income for the three months ended March 31, 2003 increased 42.7% or $290 thousand as compared to the same period in 2002. Diluted earnings per share increased to $0.12 per share for the first three months of 2003 as compared to the $0.09 per share in 2002.

Net interest income, the principal source of the Company’s earnings, represents the difference between interest and fees earned from lending and investment activities and the interest paid to fund these activities. Variations in the volume and mix of assets and liabilities and their relative sensitivity to interest rate movements impact net interest income.

Due to the low interest rate environment, loan yields declined, however, our strong loan demand led to a record increase in the average loan volume, and sustained the Company’s earnings. Interest income on loans increased $168 thousand in the first three months of 2003 to $3.9 million from $3.7 million for the three months ended March 31, 2002. As a result of a $40.3 million increase in average investment securities, interest income on investment securities increased by $251 thousand or 115.7% for the first three months of 2003 as compared to the same time period in the prior year. Interest on overnight funds sold decreased $42,285 for the first three months of 2003, as compared to the same period in 2002, predominantly due to declining interest rates as well as the impact of a 37.2% decrease in the average year to date balance for the quarter ended March 31, 2003 compared to the same period ended March 31, 2002.

Interest expense on deposits and borrowings decreased in 2003 by $120,402, or 9.2%, when compared to the same three month period in 2002. This decrease is due to the decrease in overall rates paid on liabilities, in this lower interest rate environment, which was partially offset by the record increase in the Company’s average interest bearing liabilities.

The net interest margin, which is calculated by expressing net interest income as a percentage of average interest earning assets, is an indicator of the Company’s efficiency in generating income from earning assets. The net interest margin is affected by the structure of the balance sheet as well as by competition and the economy. The Company’s net interest margin decreased from 4.98% during the first three months of 2002 to 4.74% for the same period in 2003. These decreases can be attributed to changes in the balance sheet mix, changes in the yields obtained from interest earning assets and paid on interest bearing liabilities, the falling interest rate environment, and changes in volume.

Noninterest income increased by $205,403, or 33.7% in the first three months of 2003 from $608,739 for the period ended March 31, 2002 to $814,142 for the period ended March 31, 2003. Service charges on deposit accounts, representing 61.6% of total noninterest income, increased $131,508 or 35.5% from 2002 to 2003. This increase is primarily due to the additional number of accounts being serviced by the Bank, an increase in fees associated with new products offered, as well as the change in the economy, which has presented financial challenges for some customers and lead to a 35.1% increase in returned check fees. ATM surcharge fees declined $10,195 or 17.3% in the first quarter of 2003 as compared to the same period in 2002 due to closing one of our ATM locations. Other service charges and fees, which include late charges, cashiers check fees, credit card fees, ATM network and VISA check card fees, safe deposit box rentals and dividends, increased $84,090 or 46.8% in 2003. A large part of this increase is due to the $50 thousand dividend received from an affiliate in the first quarter of 2003. The overall increase in noninterest income is in line with the Company’s objective of increasing the share of income from noninterest sources to reduce its traditional dependence on the net interest margin.

Noninterest expense consists of salaries and benefits provided to employees of the Company, expenses related to premises and equipment, data processing expenses, and operating expenses associated with day to day business affairs. Total noninterest expense increased $277,866 or 12.9% in the first three months of 2003 when compared to the same period in 2002. This increase can primarily be attributed to a 10.9% increase in salaries and benefits resulting from the addition of several new positions during 2002 and a 24% increase in medical insurance costs on our employees, as well as a $53,721 increase in advertising due to the implementation of a new advertising campaign which began in the second quarter of 2002.

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Capital Resources and Liquidity

Shareholders’ equity was $38.6 million or 13.0% of total assets at March 31, 2003 as compared to $39.1 million or 13.1% at December 31, 2002. Under Federal Reserve Bank (“FRB”) rules, the Company was considered “well-capitalized,” the highest category of capitalization defined by the regulators as of March 31, 2003. The Company’s ability to generate capital through earnings and the Dividend Reinvestment and Optional Cash Purchase Plan available to its shareholders has been exceptional. Management believes that a strong capital position is necessary to take advantage of attractive growth and investment opportunities. On March 15, 2003, the Company paid a cash dividend of $0.27 per share, totaling $2,096,476.

In December 2001, the Company implemented a Stock Repurchase Program, where the Company agreed to buy back up to 375,000 shares of its common stock at a price of $8.00 per share during the time frame of December 17, 2001 to February 14, 2002. Upon expiration of the program, 64,918 shares for a total of $519,340 were repurchased by the Company.

In January 2003, the company repurchased 42,224 shares of its common stock in a privately negotiated transaction at a price of $9.50.

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 provide adequate funding sources for loan growth or deposit withdrawals. 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 Company’s borrowing privileges at the Federal Reserve and Federal Home Loan Bank of Atlanta. Additional liquidity is available through loan repayments and maturities of 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 rates in this manner. At March 31, 2003, cash, overnight funds sold, investments in securities, and loans maturing or repricing within one year were$145.4 million or 48.9% of total assets. Management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

Forward Looking Statements

Included in this discussion are forward-looking management comments and other statements that reflect management’s current outlook for the future. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements. Such risks and uncertainties include, but are not limited to, general business and economic conditions, climatic conditions, competitive pricing pressures, and product availability.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary component of market risk is 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 maximize its net interest income over time while keeping interest rate risk exposure within levels established by the Company’s management. The Company’s ability to manage its interest rate risk depends generally on the Company’s ability to match the maturities and repricing 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 principal variables that affect the Company’s management of its interest rate risk include the Company’s existing interest rate gap position, management’s assessment of future interest rates, and the withdrawal ofliabilities over time.

The Company’s primary technique for managing its interest rate risk exposure is the management of the Company’s interest sensitivity gap. The interest sensitivity gap is defined as the difference between the amount of interest earning assets anticipated, based upon certain assumptions, to mature or reprice within a specific time period and the amount of interest bearing liabilities anticipated, based upon certain assumptions, to mature or reprice within that time period. At March 31,

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2003, the Company’s one year “negative gap” (interest bearing liabilities maturing or repricing within a period exceed interest earning assets maturing or repricing within the same period) was approximately ($13.2) million, or (4.44%) of total assets. Thus, during periods of falling interest rates, this implies that the Company’s net interest income would be positively affected because the cost of the Company’s interest bearing liabilities is likely to be reduced more quickly than the yield of its interest earning assets. At December 31, 2002, the Company’s one year “positive gap” was approximately $4.9 million, or 1.63% of total assets.

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The following tables set forth the amounts of interest earning assets and interest bearing liabilities outstanding at March 31, 2003 and December 31, 2002 that are subject to repricing 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 reprice or mature during a particular period were determined in accordance with the contractual terms of the asset or liability.

Interest Sensitivity Analysis

March 31, 2003