Xenith Bankshares, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - Xenith Bankshares, Inc.	exhibit3121.htm
EX-31.1 - EXHIBIT 31.1 - Xenith Bankshares, Inc.	exhibit3111.htm
EX-32.1 - EXHIBIT 32.1 - Xenith Bankshares, Inc.	exhibit3211.htm
EXCEL - IDEA: XBRL DOCUMENT - Xenith Bankshares, Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

Commission File Number: 001-32968

Hampton Roads Bankshares, Inc.

(Exact name of registrant as specified in its charter)




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

641 Lynnhaven Parkway Virginia Beach, Virginia	23452
(Address of principal executive offices)	(Zip Code)

(757) 217-1000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer ¨ Smaller reporting company x

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ¨ No x

The number of shares outstanding of the issuer's Common Stock as of April 30, 2015 was 170,697,216 shares, par value $0.01 per share.

HAMPTON ROADS BANKSHARES, INC.

Table of Contents



PART I	FINANCIAL INFORMATION

ITEM 1	FINANCIAL STATEMENTS

	Consolidated Balance Sheets	3
	March 31, 2015
	December 31, 2014

	Consolidated Statements of Operations	4
	Three months ended March 31, 2015 and 2014

	Consolidated Statements of Comprehensive Income	5
	Three months ended March 31, 2015 and 2014

	Consolidated Statement of Changes in Shareholders' Equity	6
	Three months ended March 31, 2015

	Consolidated Statements of Cash Flows	7
	Three months ended March 31, 2015 and 2014

	Notes to Consolidated Financial Statements	8

ITEM 2	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION	34
	AND RESULTS OF OPERATIONS

ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	45

ITEM 4	CONTROLS AND PROCEDURES	46

PART II	OTHER INFORMATION

ITEM 1	LEGAL PROCEEDINGS	47

ITEM 1A	RISK FACTORS	47

ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	47

ITEM 3	DEFAULTS UPON SENIOR SECURITIES	47

ITEM 4	MINE SAFETY DISCLOSURES	47

ITEM 5	OTHER INFORMATION	47

ITEM 6	EXHIBITS	47

	SIGNATURES	48

	EXHIBIT INDEX	49

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS



(in thousands, except share data)
(unaudited)	March 31, 2015			December 31, 2014
Assets:
Cash and due from banks	$	16,259		$	16,684
Interest-bearing deposits in other banks	1,984			1,349
Overnight funds sold and due from Federal Reserve Bank	81,151			85,586
Investment securities available for sale, at fair value	234,535			302,221
Restricted equity securities, at cost	13,902			15,827
Loans held for sale	55,519			22,092
Loans	1,534,881			1,422,935
Allowance for loan losses	(28,177		)	(27,050		)
Net loans	1,506,704			1,395,885
Premises and equipment, net	62,839			63,519
Interest receivable	4,209			4,503
Other real estate owned and repossessed assets,
net of valuation allowance	17,884			21,721
Intangible assets, net	693			842
Bank-owned life insurance	49,885			49,536
Other assets	10,177			8,841
Totals assets	$	2,055,741		$	1,988,606
Liabilities and Shareholders' Equity:
Deposits:
Noninterest-bearing demand	$	292,044		$	266,921
Interest-bearing:
Demand	633,034			621,066
Savings	59,814			56,221
Time deposits:
Less than $100	351,077			342,794
$100 or more	347,449			294,346
Total deposits	1,683,418			1,581,348
Federal Home Loan Bank borrowings	125,664			165,847
Other borrowings	29,337			29,224
Interest payable	582			560
Other liabilities	15,170			14,130
Total liabilities	1,854,171			1,791,109
Commitments and contingencies
Shareholders' equity:
Preferred stock, 1,000,000 shares authorized; none issued
and outstanding	—			—
Common stock, $0.01 par value; 1,000,000,000 shares
authorized; 170,697,216 and 170,572,217 shares issued
and outstanding on March 31, 2015 and December 31, 2014,
respectively	1,707			1,706
Capital surplus	589,264			588,692
Accumulated deficit	(394,200		)	(395,535		)
Accumulated other comprehensive income (loss), net of tax	3,938			2,134
Total shareholders' equity before non-controlling interest	200,709			196,997
Non-controlling interest	861			500
Total shareholders' equity	201,570			197,497
Total liabilities and shareholders' equity	$	2,055,741		$	1,988,606
See accompanying notes to consolidated financial statements.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF OPERATIONS



(in thousands, except share and per share data)	Three Months Ended
(unaudited)	March 31, 2015			March 31, 2014
Interest Income:
Loans, including fees	$	16,159		$	15,692
Investment securities	1,742			2,234
Overnight funds sold and due from FRB	59			32
Total interest income	17,960			17,958
Interest Expense:
Deposits:
Demand	674			623
Savings	10			8
Time deposits:
Less than $100	909			772
$100 or more	934			737
Interest on deposits	2,527			2,140
Federal Home Loan Bank borrowings	324			422
Other borrowings	418			441
Total interest expense	3,269			3,003
Net interest income	14,691			14,955
Provision for loan losses	600			100
Net interest income
after provision for loan losses	14,091			14,855
Noninterest Income:
Mortgage banking revenue	4,223			1,811
Service charges on deposit accounts	1,142			1,159
Income from bank-owned life insurance	349			3,216
Gain on sale of investment securities available for sale (includes $112 and $67 accumulated other comprehensive income reclassifications for unrealized net gains on available for sale securities during the three months ended March 31, 2015, and March 31, 2014, respectively)	112			67
Loss on sale of premises and equipment	(14		)	(13		)
Gain on sale of other real estate owned and repossessed assets	76			221
Other than temporary impairment of other real estate owned and repossessed assets	(934		)	(336		)
Visa check card income	641			593
Other	858			584
Total noninterest income	6,453			7,302
Noninterest Expense:
Salaries and employee benefits	10,667			9,567
Professional and consultant fees	808			1,228
Occupancy	1,629			1,719
FDIC insurance	624			901
Data processing	1,431			1,147
Problem loan and repossessed asset costs	120			433
Equipment	350			373
Directors' and regional board fees	302			387
Advertising and marketing	260			254
Other	2,444			2,508
Total noninterest expense	18,635			18,517
Income before provision for income taxes	1,909			3,640
Provision for income taxes	40			7
Net income	1,869			3,633
Net income (loss) attributable to non-controlling interest	534			(226		)
Net income attributable to
Hampton Roads Bankshares, Inc.	$	1,335		$	3,859
Per Share:
Cash dividends declared	$	—		$	—
Basic income	$	0.01		$	0.02
Diluted income	$	0.01		$	0.02
See accompanying notes to consolidated financial statements.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



(in thousands)	Three Months Ended
(unaudited)	March 31, 2015					March 31, 2014
Net income				$	1,869				$	3,633
Other comprehensive income,
net of tax
Change in unrealized gain
on securities available for sale	$	1,916				$	2,062
Reclassification adjustment for
securities gain included in
net income	(112		)			(67		)
Other comprehensive income,
net of tax				1,804					1,995
Comprehensive income				3,673					5,628
Comprehensive income (loss) attributable
to non-controlling interest				534					(226		)
Comprehensive income
attributable to
Hampton Roads Bankshares, Inc.				$	3,139				$	5,854
See accompanying notes to consolidated financial statements.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY




									Accumulated
									Other		Non-			Total
(in thousands, except share data)	Common Stock			Capital		Accumulated			Comprehensive		controlling			Shareholders'
(unaudited)	Shares	Amount		Surplus		Deficit			Income (Loss)		Interest			Equity
Balance at December 31, 2014	170,572,217	$	1,706	$	588,692	$	(395,535	)	$	2,134	$	500		$	197,497
Net income	—	—		—		1,335			—		534			1,869
Other comprehensive income	—	—		—		—			1,804		—			1,804
Share-based compensation expense	—	—		572		—			—		—			572
Net settlement of restricted stock units	124,999	1		—		—			—		—			1
Distributed non-controlling interest	—	—		—		—			—		(173		)	(173		)
Balance at March 31, 2015	170,697,216	$	1,707	$	589,264	$	(394,200	)	$	3,938	$	861		$	201,570
See accompanying notes to consolidated financial statements.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS



(in thousands)	Three Months Ended
(unaudited)	March 31, 2015			March 31, 2014
Operating Activities:
Net income	$	1,869		$	3,633
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	801			833
Amortization of intangible assets and fair value adjustments	79			46
Provision for loan losses	600			100
Proceeds from mortgage loans held for sale	130,729			86,389
Originations of mortgage loans held for sale	(164,156		)	(81,846		)
Share-based compensation expense	572			362
Net amortization of premiums and accretion of discounts on investment securities available for sale	355			526
Income from bank-owned life insurance	(349		)	(3,216		)
Gain on sale of investment securities available for sale	(112		)	(67		)
Loss on sale of premises and equipment	14			13
Gain on sale of other real estate owned and repossessed assets	(76		)	(221		)
Other-than-temporary impairment of other real estate owned and repossessed assets	934			336
Changes in:
Interest receivable	294			244
Other assets	(1,336		)	(2,146		)
Interest payable	22			316
Other liabilities	1,040			(388		)
Net cash provided by (used in) operating activities	(28,720		)	4,914
Investing Activities:
Proceeds from maturities and calls of investment securities available for sale	8,069			8,405
Proceeds from sale of investment securities available for sale	61,178			16,526
Purchase of investment securities available for sale	—			(16,285		)
Proceeds from sale of restricted equity securities	2,121			962
Purchase of restricted equity securities	(196		)	(25		)
Proceeds from sale of premises and equipment	5			70
Purchase of premises and equipment	(140		)	(332		)
Net (increase) decrease in loans	(111,623		)	30,993
Proceeds from bank-owned life insurance death benefit	—			2,226
Proceeds from sale of other real estate owned and repossessed assets, net	3,183			8,855
Net cash provided by (used in) investing activities	(37,403		)	51,395
Financing Activities:
Net increase (decrease) in deposits	102,070			(5,417		)
Repayments of Federal Home Loan Bank borrowings	(40,000		)	(5,017		)
Settlement of restricted stock units	1			—
Distributed non-controlling interest	(173		)	(44		)
Net cash provided by (used in) financing activities	61,898			(10,478		)
Increase (decrease) in cash and cash equivalents	(4,225		)	45,831
Cash and cash equivalents at beginning of period	103,619			62,301
Cash and cash equivalents at end of period	$	99,394		$	108,132
Supplemental cash flow information:
Cash paid for interest	$	3,001		$	2,687
Cash paid for income taxes	3			—
Supplemental non-cash information:
Change in unrealized gain (loss) on securities available for sale	$	1,804		$	1,995
Transfer from other real estate owned and repossessed assets to loans	594			901
Transfer from loans to other real estate owned and repossessed assets	798			825
See accompanying notes to consolidated financial statements.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - Basis of Presentation

The accompanying unaudited consolidated financial statements of Hampton Roads Bankshares, Inc., (the “Company,” “we,” “us,” or “our”), have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the financial statements reflect all adjustments (consisting of a normal recurring nature) considered necessary for a fair presentation. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year. The Company has two banking subsidiaries, Bank of Hampton Roads (“BOHR”) and Shore Bank (“Shore”, collectively the “Banks”), which constitute substantially all of the Company’s assets and operations. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (“2014 Form 10-K”).

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make assumptions, judgments, and estimates that affect the reported amounts of assets and liabilities, 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 significant change in the near term are the determination of the allowance for loan losses, the valuation of other real estate owned, determination of fair value for financial instruments, and tax assets, liabilities, and expenses

Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon a Foreclosure, which clarifies when banks and similar institutions (creditors) should reclassify mortgage loans collateralized by residential real estate properties from the loan portfolio to other real estate owned (OREO). The ASU defines when an in-substance repossession or foreclosure has occurred and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. This ASU allows for prospective or modified retrospective application. The effective date for public business entities is for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The adoption of the new guidance did not have a material impact on the Company’s consolidated financial statements.

During the second quarter of 2014, ASU 2014-09, Revenue from Contracts with Customers (“new revenue standard”), was issued. ASU 2014-09 represents a comprehensive reform of many of the revenue recognition requirements in GAAP. The ASU creates a new topic within the Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers. The new revenue standard will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition, and supersedes or amends much of the industry-specific revenue recognition guidance found throughout the ASC. The core principle of the new revenue standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The ASU creates a five-step process for achieving that core principle: (1) identifying the contract with the customer, (2) identifying the performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the performance obligations, and (5) recognizing revenue when an entity has completed the performance obligations. The ASU also requires additional disclosures that allow users of the financial statements to understand the nature, timing, and uncertainty of revenue and cash flows resulting from contracts with customers. The guidance in the ASU is effective for the Company on January 1, 2017. The new revenue standard permits the use of retrospective or cumulative effect transition methods. It appears that a majority of the Company’s contracts with customers (i.e., financial instruments) do not fall within the scope of the new revenue standard. Therefore, the Company does not expect the ASU to have a material impact on the Company’s reported financial results.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - Regulatory Matters

Termination of a Material Definitive Agreement

On February 9, 2015, the Company received notice that the memorandum of understanding, which was effective March 27, 2014 (the “MOU”), by and among the Company, BOHR, the Federal Reserve Bank of Richmond ("FRB") and the Bureau of Financial Institutions of the Virginia State Corporation Commission (“Bureau of Financial Institutions”) was terminated effective February 5, 2015.

Under the MOU that was terminated, the Company and BOHR had agreed that they would obtain prior written approval of the FRB and the Bureau of Financial Institutions before, (i) either the Company or BOHR declared or paid dividends of any kind; (ii) the Company made any payments on its trust preferred securities; (iii) the Company incurred or guaranteed any debt; or (iv) the Company purchased or redeemed any shares of its stock. In addition, the MOU had instituted certain reporting requirements and addressed ongoing regulatory requirements.

NOTE C - Earnings Per Share

The following table shows the basic and diluted earnings per share calculations for the three months ended March 31, 2015 and 2014.




(in thousands, except share and per share data)	Three Months Ended
(unaudited)	March 31, 2015		March 31, 2014
Net income attributable to
Hampton Roads Bankshares, Inc.	$	1,335	$	3,859
Shares:
Weighted average number
of common shares outstanding	170,948,437		170,477,548
Dilutive stock awards and warrants	1,263,347		751,215
Diluted weighted average number of
common shares outstanding	172,211,784		171,228,763
Basic income per share	$	0.01	$	0.02
Diluted income per share	$	0.01	$	0.02

NOTE D - Investment Securities

The amortized cost, gross unrealized gains and losses, and fair values of investment securities available for sale at March 31, 2015 and December 31, 2014 were as follows.



	March 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(in thousands)	Cost		Gains		Losses		Value
U.S. agency securities	$	15,786	$	718	$	—	$	16,504
Corporate bonds	12,001		—		472		11,529
Mortgage-backed securities -
Agency	178,072		3,671		62		181,681
Asset-backed securities	23,768		22		403		23,387
Equity securities	970		464		—		1,434
Total investment securities
available for sale	$	230,597	$	4,875	$	937	$	234,535

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	December 31, 2014
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
(in thousands)	Cost		Gains		Losses		Value
U.S. agency securities	$	17,042	$	611	$	—	$	17,653
Corporate bonds	15,080		23		543		14,560
Mortgage-backed securities -
Agency	212,650		2,991		213		215,428
Asset-backed securities	54,345		—		1,148		53,197
Equity securities	970		422		9		1,383
Total investment securities
available for sale	$	300,087	$	4,047	$	1,913	$	302,221

Unrealized losses

The following tables reflect the fair values and gross unrealized losses aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position at March 31, 2015 and December 31, 2014.



	March 31, 2015
(in thousands)	Less than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
Description of Securities	Fair Value		Loss		Fair Value		Loss		Fair Value		Loss
Corporate bonds	$	11,529	$	472	$	—	$	—	$	11,529	$	472
Mortgage-backed securities -
Agency	3,534		37		1,706		25		5,240		62
Asset-backed securities	14,942		158		5,693		245		20,635		403
	$	30,005	$	667	$	7,399	$	270	$	37,404	$	937



	December 31, 2014
(in thousands)	Less than 12 Months				12 Months or More				Total
			Unrealized				Unrealized				Unrealized
Description of Securities	Fair Value		Loss		Fair Value		Loss		Fair Value		Loss
Corporate bonds	11,462		542		2,517		1		13,979		543
Mortgage-backed securities -
Agency	17,881		77		7,895		136		25,776		213
Asset-backed securities	34,896		570		15,379		578		50,275		1,148
Equity securities	181		9		—		—		181		9
	$	64,420	$	1,198	$	25,791	$	715	$	90,211	$	1,913

Debt securities with unrealized losses totaling $937 thousand at March 31, 2015 included four corporate securities, five mortgage-backed agency securities, and eight asset-backed securities, compared with unrealized losses totaling $1.9 million at December 31, 2014, which included five corporate securities, twelve mortgage-backed agency securities, and eighteen asset-backed securities. In instances where an unrealized loss did occur, there was no indication of an adverse change in credit on any of the underlying securities in the tables above. Management believes no individual unrealized loss represented an other-than-temporary impairment as of those dates. The Company does not intend to sell, and it is not more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis, which may be at maturity.

At March 31, 2015, none of the equity securities experienced unrealized losses compared with one of the equity securities experienced an unrealized loss totaling $9 thousand at December 31, 2014. The Company’s unrealized losses on equity securities were caused by what management deems to be transitory fluctuations in market valuation.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other-than-temporary impairment (“OTTI”)

During the three months ended March 31, 2015 and 2014, none of the investment securities available for sale were determined to be other-than-temporarily impaired; therefore, no losses were recognized through noninterest income.

Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. In determining OTTI, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

When OTTI occurs, the amount of the OTTI recognized in earnings depends on whether an entity intends to sell the security or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss. If an entity intends to sell or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, less any current period credit loss, the OTTI shall be recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its fair value at the balance sheet date. If an entity does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis less any current period loss, the OTTI shall be separated into the amount representing the credit loss and the amount related to all other factors. The amount of the total OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

Maturities of investment securities

The amortized cost and fair value by contractual maturity of investment securities available for sale that are not determined to be other-than-temporarily impaired at March 31, 2015 and December 31, 2014 are shown below.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed and asset-backed securities, which are not due at a single maturity date, and equity securities, which do not have contractual maturities, are shown separately.



	March 31, 2015				December 31, 2014
	Amortized				Amortized
(in thousands)	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	647	$	653	$	970	$	982
Due after one year
but less than five years	2,323		2,388		5,670		5,726
Due after five years
but less than ten years	13,057		12,682		13,228		12,806
Due after ten years	11,760		12,310		12,254		12,699
Mortgage-backed securities -
Agency	178,072		181,681		212,650		215,428
Asset-backed securities	23,768		23,387		54,345		53,197
Equity securities	970		1,434		970		1,383
Total available for sale securities	$	230,597	$	234,535	$	300,087	$	302,221

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Federal Home Loan Bank (“FHLB”)

The Company’s investment in FHLB stock totaled $7.2 million at March 31, 2015 and $9.2 million at December 31, 2014. FHLB stock is generally viewed as a long-term investment and as a restricted investment security because it is required to be held in order to access FHLB advances (i.e. borrowings). It is carried at cost as there is no active market or exchange for the stock other than the FHLB or member institutions. Therefore, when evaluating FHLB stock for impairment, its value is based on ultimate recoverability of the par value rather than by recognizing temporary declines in value. The Company does not consider this investment to be other-than-temporarily impaired at March 31, 2015 and December 31, 2014, and no impairment has been recognized.

Federal Reserve Bank (“FRB”) and Other Restricted Stock

The Company’s investment in FRB and other restricted stock totaled $6.7 million at March 31, 2015 and $6.6 million at December 31, 2014. FRB stock comprises the majority of this amount and is generally viewed as a long-term investment and as a restricted investment security as it is required to be held to effect membership in the Federal Reserve System. It is carried at cost as there is not an active market or exchange for the stock other than the FRB or member institutions. The Company does not consider these investments to be other-than-temporarily impaired at March 31, 2015 and December 31, 2014, except for one restricted equity security, which was determined to be other-than-temporarily impaired at December 31, 2014 with $10 thousand impairment recorded in 2014. No impairment has been recognized for any of the other restricted equity securities, including the investment in FRB.

NOTE E - Loans and Allowance for Loan Losses

The Company offers a full range of commercial, real estate, and consumer loans described in further detail below. Our loan portfolio is comprised of the following categories: commercial and industrial, construction, real estate-commercial mortgage, real estate-residential mortgage, and installment. Our primary lending objective is to meet business and consumer needs in our market areas while maintaining our standards of profitability and credit quality and enhancing client relationships. All lending decisions are based upon a thorough 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.

During 2012 and 2013, the Company purchased several portfolios of loans secured by boats totaling $55.7 million that are classified as installment loans. In May 2014, Shore launched Shore Premier Finance ("SPF"), a specialty finance unit that specializes in marine financing for U.S. Coast Guard documented vessels to customers throughout the United States. Through direct marine loan originations, as well as purchases of existing portfolios of marine loans, the Company's intention is to significantly grow the installment loan portion of its loan portfolio. In fact, during the first quarter of 2015, SPF arranged a $104.8 million marine loan portfolio purchase, of which $75.3 million were classified as installment loans and $29.4 million were commercial floor plan loans classified as commercial and industrial.

The total of our loans by segment at March 31, 2015 and December 31, 2014 are as follows.



(in thousands)	March 31, 2015			December 31, 2014
Commercial and Industrial	$	252,244		$	219,029
Construction	142,489			136,955
Real estate - commercial mortgage	635,761			639,163
Real estate - residential mortgage	351,717			354,017
Installment	153,174			74,821
Deferred loan fees and related costs	(504		)	(1,050		)
Total loans	$	1,534,881		$	1,422,935

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Loan Losses

A rollforward of the activity within the allowance for loan losses by loan type and recorded investment in loans for the three months ended March 31, 2015 and 2014 is as follows.



	March 31, 2015
							Real Estate
	Commercial						Commercial			Residential
(in thousands)	and Industrial			Construction			Mortgage			Mortgage			Installment			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	4,605		$	4,342		$	6,854		$	7,142		$	979		$	3,128		$	27,050
Charge-offs	(185		)	(31		)	(100		)	(96		)	(38		)				(450		)
Recoveries	363			430			57			97			30						977
Provision	(293		)	487			796			(454		)	93			(29		)	600
Ending balance	$	4,490		$	5,228		$	7,607		$	6,689		$	1,064		$	3,099		$	28,177
Ending balance: attributable to
loans individually evaluated
for impairment	$	227		$	1,318		$	551		$	1,984		$	47					$	4,127
Recorded investment: loans
individually evaluated for
impairment	$	1,535		$	10,795		$	22,029		$	15,174		$	114
Ending balance: attributable to
loans collectively evaluated
for impairment	$	4,263		$	3,910		$	7,056		$	4,705		$	1,017		$	3,099		$	24,050
Recorded investment: loans
collectively evaluated for
impairment	$	250,709		$	131,694		$	613,732		$	336,543		$	153,060

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	March 31, 2014
							Real Estate
	Commercial						Commercial			Residential
(in thousands)	and Industrial			Construction			Mortgage			Mortgage			Installment			Unallocated			Total
Allowance for loan losses:
Beginning balance	$	2,404		$	9,807		$	10,135		$	7,914		$	521		$	4,250		$	35,031
Charge-offs	(132		)	(2,824		)	(1,630		)	(501		)	(80		)	—			(5,167		)
Recoveries	97			664			217			250			68			—			1,296
Provision	587			(1,176		)	(715		)	800			961			(357		)	100
Ending balance	$	2,956		$	6,471		$	8,007		$	8,463		$	1,470		$	3,893		$	31,260
Ending balance: attributable to
loans individually evaluated
for impairment	$	1,364		$	3,108		$	2,979		$	3,753		$	507					$	11,711
Recorded investment: loans
individually evaluated for
impairment	$	3,567		$	11,454		$	30,561		$	24,052		$	1,256
Ending balance: attributable to
loans collectively evaluated
for impairment	$	1,592		$	3,363		$	5,028		$	4,710		$	963		$	3,893		$	19,549
Recorded investment: loans
collectively evaluated for
impairment	$	202,563		$	137,613		$	557,919		$	331,022		$	51,183

Management believes the allowance for loan losses as of March 31, 2015 is adequate to absorb losses inherent in the portfolio and is directionally consistent with the change in the quality of our loan portfolio. 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 us to recognize additions to the allowance for loan losses based on their judgments about information available at the time of the examinations.

Impaired Loans

Total impaired loans were $49.6 million and $48.9 million at March 31, 2015, and December 31, 2014, respectively. The Company continues to resolve its troubled loans through charge-offs, curtailments, pay offs, and returns of loans to performing status. Collateral dependent impaired loans were $44.1 million and $43.3 million at March 31, 2015, and December 31, 2014, respectively, and are measured at the fair value of the underlying collateral less costs to sell. Impaired loans for which no allowance is provided totaled $29.6 million and $29.1 million at March 31, 2015, and December 31, 2014, respectively. Loans written down to their estimated fair value of collateral less the costs to sell account for $6.9 million and $7.6 million of the impaired loans for which no allowance has been provided as of March 31, 2015, and December 31, 2014, respectively. The weighted average age of appraisals for collateral dependent loans is 0.41 and 0.56 years at March 31, 2015 and December 31, 2014, respectively. The remaining impaired loans for which no allowance is provided are expected to be fully covered by the fair value of the collateral, and therefore, no loss is expected on these loans.

The following charts show recorded investment, unpaid balance, and related allowance, as of March 31, 2015 and December 31, 2014, as well as average investment and interest recognized for the three months ended March 31, 2015 and 2014, for impaired loans by major segment and class.

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	March 31, 2015						Three Months Ended March 31, 2015
	Recorded		Unpaid		Related		Average		Interest
(in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related
allowance recorded:
Commercial & Industrial	$	1,256	$	2,055	$	—	$	1,344	$	2
Construction
1-4 family residential
construction	—		—		—		—		—
Commercial construction	4,365		5,638		—		4,630		16
Real estate
Commercial Mortgage
Owner occupied	12,378		12,577		—		12,737		74
Non-owner occupied	3,956		8,635		—		5,208		4
Residential Mortgage
Secured by 1-4 family
1st lien	6,344		6,912		—		6,866		15
Junior lien	1,244		1,917		—		1,495		1
Installment	10		31		—		14		—
	$	29,553	$	37,765	$	—	$	32,294	$	112
With an allowance recorded:
Commercial & Industrial	$	279	$	279	$	227	$	311	$	—
Construction
1-4 family residential
construction	—		—		—		—		—
Commercial construction	6,430		7,304		1,318		6,598		50
Real estate
Commercial Mortgage
Owner occupied	5,695		5,833		551		5,774		47
Non-owner occupied	—		—		—		—		—
Residential Mortgage
Secured by 1-4 family
1st lien	5,771		5,789		1,312		5,813		43
Junior lien	1,815		1,815		672		1,853		11
Installment	104		104		47		104		—
	$	20,094	$	21,124	$	4,127	$	20,453	$	151
Total:
Commercial & Industrial	$	1,535	$	2,334	$	227	$	1,655	$	2
Construction	10,795		12,942		1,318		11,228		66
Real estate
Commercial mortgage	22,029		27,045		551		23,719		125
Residential mortgage	15,174		16,433		1,984		16,027		70
Installment	114		135		47		118		—
Total	$	49,647	$	58,889	$	4,127	$	52,747	$	263

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



	December 31, 2014						Three Months Ended March 31, 2014
	Recorded		Unpaid		Related		Average		Interest
(in thousands)	Investment		Balance		Allowance		Investment		Recognized
With no related
allowance recorded:
Commercial & Industrial	$	1,082	$	2,245	$	—	$	1,911	$	3
Construction
1-4 family residential
construction	—		—		—		—		—
Commercial construction	4,273		6,765		—		6,946		13
Real estate
Commercial Mortgage
Owner occupied	12,319		12,692		—		16,590		94
Non-owner occupied	3,550		8,130		—		2,927		13
Residential Mortgage
Secured by 1-4 family
1st lien	6,447		7,104		—		9,557		27
Junior lien	1,372		2,729		—		2,319		3
Installment	11		32		—		65		—
	$	29,054	$	39,697	$	—	$	40,315	$	153
With an allowance recorded:
Commercial & Industrial	$	565	$	564	$	412	$	1,840	$	—
Construction
1-4 family residential
construction	—		—		—		—		—
Commercial construction	6,379		6,380		887		5,097		18
Real estate
Commercial Mortgage
Owner occupied	5,313		5,313		379		7,100		56
Non-owner occupied	487		487		100		5,471		—
Residential Mortgage
Secured by 1-4 family
1st lien	4,970		4,981		1,009		10,217		50
Junior lien	1,987		2,013		708		2,865		3
Installment	104		104		47		1,193		2
	$	19,805	$	19,842	$	3,542	$	33,783	$	129
Total:
Commercial & Industrial	$	1,647	$	2,809	$	412	$	3,751	$	3
Construction	10,652		13,145		887		12,043		31
Real estate
Commercial mortgage	21,669		26,622		479		32,088		163
Residential mortgage	14,776		16,827		1,717		24,958		83
Installment	115		136		47		1,258		2
Total	$	48,859	$	59,539	$	3,542	$	74,098	$	282

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Non-performing Assets

Non-performing assets consist of loans 90 days past due and still accruing interest, nonaccrual loans, and other real estate owned and repossessed assets. Our non-performing assets ratio, defined as the ratio of non-performing assets to gross loans plus loans held for sale plus other real estate owned and repossessed assets was 2.54% and 2.95% at March 31, 2015 and December 31, 2014, respectively. Non-performing assets as of March 31, 2015 and December 31, 2014, were as follows.



(in thousands)	March 31, 2015		December 31, 2014
Loans 90 days past due and still accruing interest	$	—	$	—
Nonaccrual loans, including nonaccrual impaired loans	22,911		21,507
Other real estate owned and repossessed assets	17,884		21,721
Non-performing assets	$	40,795	$	43,228

A reconciliation of nonaccrual loans to impaired loans as of March 31, 2015 and December 31, 2014 is as follows.



(in thousands)	March 31, 2015		December 31, 2014
Nonaccrual loans, including nonaccrual impaired loans	$	22,911	$	21,507
TDRs on accrual	24,525		25,028
Impaired loans on accrual	2,211		2,324
Total impaired loans	$	49,647	$	48,859

Nonaccrual Loans

Nonaccrual loans were $22.9 million at March 31, 2015 compared to $21.5 million at December 31, 2014. If income on nonaccrual loans had been recorded under original terms, $428 thousand and $551 thousand of additional interest income would have been recorded for the three months ended March 31, 2015 and 2014 respectively.

The following table provides a rollforward of nonaccrual loans for the three months ended March 31, 2015.



							Real Estate
(in thousands)	Commercial & Industrial			Construction			Commercial Mortgage			Residential Mortgage			Installment			Total
Balance at December 31, 2014	$	1,494		$	3,621		$	8,190		$	8,191		$	11		$	21,507
Transfers in	370			672			958			1,411			100			3,511
Transfers to OREO	—			—			(168		)	(320		)	—			(488		)
Charge-offs	(185		)	(31		)	(100		)	(96		)	(38		)	(450		)
Payments	(282		)	(291		)	(78		)	(555		)	37			(1,169		)
Return to accrual	—			—			—			—			—			—
Loan type reclassification	—			—			—			—			—			—
Balance at March 31, 2015	$	1,397		$	3,971		$	8,802		$	8,631		$	110		$	22,911

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Age Analysis of Past Due Loans

An age analysis of past due loans as of March 31, 2015 and December 31, 2014 is as follows.



	March 31, 2015
															90 Days or
															More Past
	30-59 Days		60-89 Days		90 Days		Total					Total			Due and
(in thousands)	Past Due		Past Due		Past Due		Past Due		Current			Loans			Accruing
Commercial & Industrial	$	1,349	$	49	$	1,397	$	2,795	$	249,449		$	252,244		$	—
Construction
1-4 family residential
construction	392		—		—		392		21,392			21,784			—
Commercial construction	48		—		3,971		4,019		116,686			120,705			—
Real estate
Commercial Mortgage
Owner occupied	3,670		42		5,108		8,820		250,912			259,732			—
Non-owner occupied	955		—		3,694		4,649		371,380			376,029			—
Residential Mortgage
Secured by 1-4 family
1st lien	652		—		6,672		7,324		219,140			226,464			—
Junior lien	40		34		1,959		2,033		123,220			125,253			—
Installment	—		—		110		110		153,064			153,174			—
Deferred loan fees
and related costs	—		—		—		—		(504		)	(504		)	—
Total	$	7,106	$	125	$	22,911	$	30,142	$	1,504,739		$	1,534,881		$	—



	December 31, 2014
															90 Days or
															More Past
	30-59 Days		60-89 Days		90 Days		Total					Total			Due and
(in thousands)	Past Due		Past Due		Past Due		Past Due		Current			Loans			Accruing
Commercial & Industrial	$	648	$	—	$	1,494	$	2,142	$	216,887		$	219,029		$	—
Construction
1-4 family residential
construction	—		—		—		—		17,989			17,989			—
Commercial construction	66		395		3,621		4,082		114,884			118,966			—
Real estate
Commercial Mortgage
Owner occupied	4,567		364		4,417		9,348		241,426			250,774			—
Non-owner occupied	504		63		3,773		4,340		384,049			388,389			—
Residential Mortgage
Secured by 1-4 family
1st lien	1,905		266		5,940		8,111		217,656			225,767			—
Junior lien	264		—		2,251		2,515		125,735			128,250			—
Installment	—		—		11		11		74,810			74,821			—
Deferred loan fees
and related costs	—		—		—		—		(1,050		)	(1,050		)	—
Total	$	7,954	$	1,088	$	21,507	$	30,549	$	1,392,386		$	1,422,935		$	—

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Credit Quality

The following tables provide information on March 31, 2015 and December 31, 2014 about the credit quality of the loan portfolio using the Company’s internal rating system as an indicator.



	March 31, 2015
				Special Mention				Nonaccrual Loans
(in thousands)	Pass					Substandard				Total
Commercial & Industrial	$	232,055		$	11,434	$	7,358	$	1,397	$	252,244
Construction
1-4 family residential
construction	21,392			392		—		—		21,784
Commercial construction	92,620			7,461		16,653		3,971		120,705
Real estate
Commercial Mortgage
Owner occupied	230,687			20,566		3,371		5,108		259,732
Non-owner occupied	358,454			8,804		5,077		3,694		376,029
Residential Mortgage
Secured by 1-4 family
1st lien	195,532			18,823		5,437		6,672		226,464
Junior lien	116,875			4,528		1,891		1,959		125,253
Installment	152,007			1,000		57		110		153,174
Deferred loan fees
and related costs	(504		)	—		—		—		(504		)
Total	$	1,399,118		$	73,008	$	39,844	$	22,911	$	1,534,881



	December 31, 2014
				Special Mention				Nonaccrual Loans
(in thousands)	Pass					Substandard				Total
Commercial & Industrial	$	195,564		$	14,455	$	7,516	$	1,494	$	219,029
Construction
1-4 family residential
construction	17,623			366		—		—		17,989
Commercial construction	88,970			9,077		17,298		3,621		118,966
Real estate
Commercial Mortgage
Owner occupied	218,436			22,289		5,632		4,417		250,774
Non-owner occupied	369,745			9,778		5,093		3,773		388,389
Residential Mortgage
Secured by 1-4 family
1st lien	194,104			20,191		5,532		5,940		225,767
Junior lien	118,061			5,686		2,252		2,251		128,250
Installment	73,700			1,002		108		11		74,821
Deferred loan fees
and related costs	(1,050		)	—		—		—		(1,050		)
Total	$	1,275,153		$	82,844	$	43,431	$	21,507	$	1,422,935

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Modifications

Loans meeting the criteria to be classified as Troubled Debt Restructurings (“TDRs”) are included in impaired loans. As of March 31, 2015 and December 31, 2014, loans classified as TDRs were $28.3 million and $28.4 million, respectively. The following table shows the loans classified as TDRs by management at March 31, 2015 and December 31, 2014.



(in thousands except number of contracts)	March 31, 2015			December 31, 2014
		Recorded Investment			Recorded Investment
Troubled Debt Restructurings	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
Commercial & Industrial	2	$	138	2	$	153
Construction
1-4 family residential construction	—	—		—	—
Commercial construction	13	8,696		13	8,905
Real estate
Commercial Mortgage
Owner occupied	13	13,897		11	13,619
Non-owner occupied	1	262		1	264
Residential Mortgage
Secured by 1-4 family, 1st lien	10	4,128		10	4,156
Secured by 1-4 family, junior lien	7	1,208		7	1,292
Installment	1	4		1	4
Total	47	$	28,333	45	$	28,393

Of total TDRs, $24.5 million was accruing and $3.8 million was nonaccruing at March 31, 2015 and $25.0 million was accruing and $3.4 million was nonaccruing at December 31, 2014. Loans that are on nonaccrual status at the time of the restructuring generally remain on nonaccrual status for approximately six months before management considers whether such loans may return to accrual status. TDRs in nonaccrual status are returned to accrual status after a period of performance under which the borrower demonstrates the ability and willingness to repay the loan in accordance with the modified terms. For the three months ended March 31, 2015 none of the nonaccrual TDRs were returned to accrual status; $576 thousand of the nonaccrual TDRs were returned to accrual status during the year ended December 31, 2014.

The following table shows a rollforward of accruing and nonaccruing TDRs for the three months ended March, 31, 2015.



(in thousands)	Accruing			Nonaccruing			Total
Balance at December 31, 2014	$	25,028		$	3,365		$	28,393
Charge-offs	—			—			—
Payments	(356		)	(95		)	(451		)
New TDR designation	391			—			391
Release TDR designation	—			—			—
Transfer	(538		)	538			—
Balance at March 31, 2015	$	24,525		$	3,808		$	28,333

The allowance for loan losses allocated to TDRs was $2.0 million and $1.9 million at March 31, 2015 and December 31, 2014, respectively. There were no TDRs charged off and there was no allocated portion of allowance for loan losses associated with TDRs charged off, during the three months ended March 31, 2015. The total of TDRs charged off and the allocated portion of allowance for loan losses associated with TDRs charged off were $3.2 million and $2.9 million, respectively, during the year ended December 31, 2014.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows a summary of the primary reason and pre- and post-modification outstanding recorded investment for loan modifications that were classified as TDRs during the three months ended March 31, 2015 and March 31, 2014. These tables include modifications made to existing TDRs as well as new modifications that are considered TDRs for the periods presented. TDRs made with a below market rate that also include a modification of loan structure are included under rate change.



	March 31, 2015
(in thousands except number of contracts)	Rate					Structure
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment



Troubled Debt Restructurings
Commercial & Industrial	—	$	—	$	—	—	$	—	$	—
Construction
1-4 family residential construction	—	—		—		—	—		—
Commercial construction	—	—		—		—	—		—
Real estate
Commercial Mortgage
Owner occupied	2	704		391		—	—		—
Non-owner occupied	—	—		—		—	—		—
Residential Mortgage
Secured by 1-4 family, 1st lien	—	—		—		—	—		—
Secured by 1-4 family, junior lien	—	—		—		—	—		—
Installment	—	—		—		—	—		—
Total	2	$	704	$	391	—	$	—	$	—



	March 31, 2014
(in thousands except number of contracts)	Rate					Structure
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment



Troubled Debt Restructurings
Commercial & Industrial	—	$	—	$	—	—	$	—	$	—
Construction
1-4 family residential construction	—	—		—		—	—		—
Commercial construction	—	—		—		—	—		—
Real estate
Commercial Mortgage
Owner occupied	—	—		—		—	—		—
Non-owner occupied	—	—		—		—	—		—
Residential Mortgage
Secured by 1-4 family, 1st lien	—	—		—		2	408		226
Secured by 1-4 family, junior lien	—	—		—		1	2		2
Installment	—	—		—		—	—		—
Total	—	$	—	$	—	3	$	410	$	228

For the three months ended March 31, 2015 and 2014, the Company had no loans for which there was a payment default and subsequent movement to nonaccrual status, that were modified as TDR’s within the previous twelve months.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Loans that are considered TDRs are considered specifically impaired and the primary consideration for measurement of impairment is the present value of the expected cash flows. However, given the prevalence of real estate secured loans in the Company’s portfolio of troubled assets, the majority of the Company’s TDR loans are ultimately considered collateral-dependent. As a practical expedient, impairments are, therefore, calculated based upon the estimated fair value of the underlying collateral and observable market prices for the sale of the respective notes are not considered as a basis for impairment for any of the Company’s loans.

In determining the estimated fair value of collateral dependent impaired loans, the Company uses third party appraisals and, if necessary, utilizes a proprietary database of its own historical property appraisals in conjunction with external data and applies a relevant discount derived from analysis of appraisals of similar property type, vintage, and geographic location (for example, in situations where the most recent available appraisal is aged and an updated appraisal has not yet been received).

The Company does not participate in any government or company sponsored TDR programs and holds no corresponding assets. Rather, loans are individually modified in situations where the Company believes it will minimize the probability of losses to the Company. Additionally, the Company had no commitments to lend additional funds to debtors owing receivables whose terms have been modified in TDRs at March 31, 2015.

NOTE F - Other Real Estate Owned and Repossessed Assets

The following table shows a rollforward of other real estate owned and repossessed assets for the three months ended March 31, 2015.



(in thousands)	Amount
Balance at December 31, 2014	$	21,721
Transfers in (via foreclosure)	798
Sales	(3,777		)
Gain on sales	76
Impairments	(934		)
Balance at March 31, 2015	$	17,884

Other real estate owned and repossessed assets are presented net of an allowance for losses. An analysis of the allowance for losses on these assets as of and for the three months ended March 31, 2015 and 2014 is as follows:



(in thousands)	March 31, 2015			March 31, 2014
Balance at beginning of year	$	7,553		$	12,776
Impairments	934			336
Charge-offs	(953		)	(2,791		)
Balance at end of year	$	7,534		$	10,321

Expenses applicable to other real estate owned and repossessed assets for the three months ended March 31, 2015 and 2014 include the following:



(in thousands)	March 31, 2015			March 31, 2014
Gains on sale of other real estate owned	$	(76	)	$	(221	)
Impairments	934			336
Operating expenses	131			359
Total	$	989		$	474

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE G - Share-Based Compensation Plans

On October 4, 2011, the Company’s shareholders approved the 2011 Omnibus Incentive Plan (the “Plan”), which succeeds the Company’s 2006 Stock Incentive Plan and provided for the grant of up to 2,750,000 shares of our Common Stock as awards to employees of the Company and its related entities, members of the Board of Directors of the Company, and members of the board of directors of any of the Company’s related entities. On June 25, 2012, the Company’s shareholders approved an amendment to the Plan that increased the number of shares reserved for issuance under the Plan to 13,675,000 of which 4,110,226 remain to be granted as of March 31, 2015.

Stock Options

Outstanding stock options consist of grants made to the Company’s directors and employees under share-based compensation plans that have been approved by the Company’s shareholders. All outstanding options issued prior to 2014 have original terms that range from five to ten years and are either fully vested and exercisable at the date of grant or vest ratably over three to ten years. During 2014, there were 5,510,035 stock options granted to certain Company executive managers. The options granted during 2014 ratably vest over a four year period between 2015 and 2018, and expire in August 2021. A summary of the Company’s stock option activity and related information for the three months ended March 31, 2015 is as follows:



	Options Outstanding		Weighted Average Exercise Price		Average Intrinsic Value


Balance at December 31, 2014	5,521,541		4.34		—
Granted	—		—		—
Expired	(823	)	238.59		—
Balance at March 31, 2015	5,520,718		$	2.30	$	—
Options exercisable at
March 31, 2015	10,476		$	353.29	$	—

As of March 31, 2015, there was $4.5 million of total unrecognized compensation cost related to stock options. That cost is expected to be recognized over a weighted-average period of 2.21 years.

Restricted Stock Units

The Company granted restricted stock units ("RSUs") to non-employee directors and certain employees as part of incentive programs. The restricted stock units are settled in Common Stock of the Company and will generally vest over a range of one to four years. Grants of these awards were valued based on the closing price on the day of grant. Compensation expense for outstanding restricted stock units is recognized ratably over the vesting periods of the awards. The restricted stock units are not eligible to receive dividends or dividend equivalence until the RSUs are settled in Common Stock of the Company. At that time, the participant will be entitled to all the same rights as a shareholder of the Company.

A summary of the Company’s unvested restricted stock unit activity and related information for the three months ended March 31, 2015 is as follows.



	Number of Unvested Awards	Weighted-Average Grant Date Fair Value


Balance at December 31, 2014	2,122,561	$	1.57
Granted	—	—
Vested	—	—
Forfeited and canceled	—	—
Balance at March 31, 2015	2,122,561	1.57

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At March 31, 2015, there were 955,247 of restricted stock units that were fully vested, of which 587,312 were settled in Common Stock of the Company.

As of March 31, 2015, there was $2.2 million of total unrecognized compensation cost related to restricted stock units. That cost is expected to be recognized over a weighted-average period of 1.96 years.

Compensation cost relating to share-based awards is accounted for in the consolidated financial statements based on the fair value of the share-based award. Share-based compensation expense recognized in the consolidated statements of operations for the years ended March 31, 2015 and 2014 was as follows.



(in thousands)	March 31, 2015		March 31, 2014
Expense recognized:
Related to stock options	$	332	$	—
Related to restricted stock units	243		362
Related tax benefit	—		—

NOTE H - Business Segment Reporting

The Company has identified its operating segments by product and subsidiary bank. The Company’s two community bank subsidiaries, BOHR and Shore, provide loan and deposit services through full-service branches and loan production offices located in Virginia, North Carolina, Delaware, and Maryland. In addition to its banking operations, the Company has two additional reportable segments: Mortgage and Corporate. Gateway Bank Mortgage, Inc. comprises our Mortgage segment and provides mortgage banking services such as originating and processing mortgage loans for sale to the secondary market. Our Corporate segment includes the holding company, and immaterial passive operating results from inactive subsidiary units.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies in the 2014 Form 10-K. Segment profit and loss is measured by net income prior to corporate overhead allocation. Intersegment transactions are recorded at cost and eliminated as part of the consolidation process. Because of the interrelationships between the segments, the information is not indicative of how the segments would perform if they operated as independent entities.

The following tables show certain financial information as of and for the three months ended March 31, 2015 and 2014 for each segment and in total. (Note: In order to be consistent with the presentation of total assets at March 31, 2015, total assets at March 31, 2014 have been reclassified to remove the impact of investments in subsidiaries from the Eliminations and Corporate segments).

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(in thousands)	Total		Elimination			BOHR		Shore		Mortgage			Corporate
Three Months Ended March 31, 2015
Net interest income (loss)	$	14,691	$	—		$	11,996	$	3,024	$	60		$	(389	)
Provision for loan losses	600		—			567		75		(42		)	—
Net interest income (loss)
after provision for loan losses	14,091		—			11,429		2,949		102			(389		)
Noninterest income	6,453		(102		)	1,617		674		4,248			16
Noninterest expense	18,635		(76		)	11,422		3,500		3,267			522
Income (loss) before provision
for income taxes (benefit)	1,909		(26		)	1,624		123		1,083			(895		)
Provision for income taxes (benefit)	40		—			—		8		32			—
Net income (loss)	1,869		(26		)	1,624		115		1,051			(895		)
Net income attributable to
non-controlling interest	534		—			—		—		534			—
Net income (loss) attributable to
Hampton Roads Bankshares, Inc.	$	1,335	$	(26	)	$	1,624	$	115	$	517		$	(895	)
Total assets at March 31, 2015	$	2,055,741	$	(97,158	)	$	1,681,005	$	392,198	$	69,746		$	9,950



(in thousands)	Total			Elimination			BOHR			Shore		Mortgage			Corporate
Three Months Ended March 31, 2014
Net interest income (loss)	$	14,955		$	—		$	12,385		$	2,921	$	89		$	(440	)
Provision for loan losses	100			—			(200		)	300		—			—
Net interest income (loss)
after provision for loan losses	14,855			—			12,585			2,621		89			(440		)
Noninterest income	7,302			(60		)	4,933			618		1,810			1
Noninterest expense	18,517			(61		)	12,357			2,974		2,360			887
Income (loss) before provision
for income taxes (benefit)	3,640			1			5,161			265		(461		)	(1,326		)
Provision for income taxes (benefit)	7			—			—			7		—			—
Net income (loss)	3,633			1			5,161			258		(461		)	(1,326		)
Net income attributable to
non-controlling interest	(226		)	—			—			—		(226		)	—
Net income (loss) attributable to
Hampton Roads Bankshares, Inc.	$	3,859		$	1		$	5,161		$	258	$	(235	)	$	(1,326	)
Total assets at March 31, 2014	$	1,945,612		$	(66,037	)	$	1,635,861		$	325,914	$	31,980		$	17,894

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I - Derivative Instruments

Derivatives are a financial instrument whose value is based on one or more underlying assets. The Company originated residential mortgage loans for sale into the secondary market on both a best efforts and (from September 2012 to December 2013) on a mandatory delivery basis. In connection with the underwriting process, the Company enters into commitments to lock-in the interest rate of the loan with the borrower prior to funding (“interest rate lock commitments”). Generally, such interest rate lock commitments are for periods less than 60 days. These interest rate lock commitments are considered derivatives. The Company manages its exposure to changes in fair value associated with these interest rate lock commitments by entering into simultaneous agreements to sell the residential loans to third party investors shortly after their origination and funding. At March 31, 2015 and December 31, 2014, the Company had loans held for sale of $55.5 million and $22.1 million, respectively.

Under the contractual relationship in the best efforts method, the Company is obligated to sell the loans only if the loans close. As a result of the terms of these contractual relationships, the Company is not exposed to changes in fair value nor will it realize gains related to its rate-lock commitments due to subsequent changes in interest rates. At March 31, 2015 and December 31, 2014, the Company had rate-lock commitments to originate residential mortgage loans (unfunded par amount of loans) on a best efforts basis in the amounts of $88.0 million and $35.6 million, respectively.

Additionally, to meet the needs of its commercial customers, the Company uses interest rate swaps to manage its interest rate risk. Derivative contracts are executed between the Company and certain commercial loan customers with offsetting positions to dealers under a back-to-back swap program enabling the commercial loan customers to effectively exchange variable-rate interest payments under their existing obligations for fixed-rate interest payments. For the three months ended March 31, 2015 and 2014, the Company recorded gains totaling $173 thousand and $79 thousand, respectively, related to trading income on the interest rate swaps included in the back-to-back swap program that was included within other noninterest income on the Consolidated Statements of Operations.

As of March 31, 2015 and December 31, 2014, the Company has derivative financial instruments not included in hedge relationships. These derivatives consist of interest rate swaps to facilitate interest rate management strategies for both the company and its commercial borrowers.

Certain financial instruments, including derivatives, may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements. The Company’s derivative transactions with financial institution counterparties are generally executed under International Swaps and Derivative Association (ISDA) master agreements which include right of setoff provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. Nonetheless, the Company does not generally offset financial instruments for financial reporting purposes.

Information about financial instruments that are eligible for offset in the consolidated balance sheet as of March 31, 2015 and December 31, 2014 is presented in the following tables:

Gross

Net Amounts

Gross Amounts

Amounts

of Assets

Not Offset in the

Gross

Offset in

Presented

Consolidated Balance Sheets

Amounts

the

in the

Consolidated

Cash

Recognized

Balance

Financial

Collateral

Net

(in thousands)

Assets

Sheets

Instruments

Received

Amount

Derivative assets:

March 31, 2015

Interest rate swap agreements

1,661

—

1,661

—

1,661

December 31, 2014

Interest rate swap agreements

913

—

913

197

—

716

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Gross

Net Amounts

Gross Amounts

Amounts

of Liabilities

Not Offset in the

Gross

Offset in

Presented

Consolidated Balance Sheets

Amounts

the

in the

Consolidated

Cash

Recognized

Balance

Financial

Collateral

Net

(in thousands)

Liabilities

Sheets

Instruments

Pledged

Amount

Derivative liabilities:

March 31, 2015

Interest rate swap agreements

1,661

—

1,661

—

1,661

—

December 31, 2014

Interest rate swap agreements

913

—

913

197

566

150

NOTE J - Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classifies financial assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Valuation methodologies for the fair value hierarchy are as follows.

Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as certain Treasury securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose values are determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include values that are determined using pricing models, discounted cash flow methodologies, or similar techniques as well as assets and liabilities for which the determination of fair value requires significant management judgment or estimation.

The categorization of an asset or liability within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Recurring Basis

The Company measures or monitors certain of its assets on a fair value basis. Fair value is used on a recurring basis for those assets and liabilities for which an election was made as well as for certain assets and liabilities in which fair value is the primary basis of accounting. The following tables reflect the fair value of assets measured and recognized at fair value on a recurring basis in the consolidated balance sheets at March 31, 2015 and December 31, 2014.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(in thousands)	March 31, 2015		Fair Value Measurements at Reporting Date Using
Assets	March 31, 2015		Level 1		Level 2		Level 3
Investment securities available for sale
U.S. agency securities	$	16,504	$	—	$	16,504	$	—
Corporate bonds	11,529		—		11,529		—
Mortgage-backed securities -
Agency	181,681		—		181,681		—
Asset-backed securities	23,387		—		23,387		—
Equity securities	1,434		1,145		—		289
Total investment securities
available for sale	234,535		1,145		233,101		289
Derivative loan commitments	1,215		—		—		1,215
Interest rate swaps	1,661		—		1,661		—
Total assets	$	237,411	$	1,145	$	234,762	$	1,504

Liabilities
Interest rate swaps	$	1,661	$	—	$	1,661	$	—
Total liabilities	$	1,661	$	—	$	1,661	$	—



(in thousands)	December 31, 2014		Fair Value Measurements at Reporting Date Using
Assets	December 31, 2014		Level 1		Level 2		Level 3
Investment securities available for sale
U.S. agency securities	$	17,653	$	—	$	17,653	$	—
Corporate bonds	14,560		—		14,560		—
Mortgage-backed securities -
Agency	215,428		—		215,428		—
Asset-backed securities	53,197		—		53,197		—
Equity securities	1,383		1,103		—		280
Total investment securities
available for sale	302,221		1,103		300,838		280
Derivative loan commitments	472		—		—		472
Interest rate swaps	913		—		913		—
Total assets	$	303,606	$	1,103	$	301,751	$	752

Liabilities
Interest rate swaps	$	913	$	—	$	913	$	—
Total liabilities	$	913	$	—	$	913	$	—

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table shows a rollforward of recurring fair value measurements categorized within Level 3 of the fair value hierarchy for the three months ended March 31, 2015 and 2014.



	Activity in Level 3 Fair Value Measurements Three Months Ended March 31, 2015				Activity in Level 3 Fair Value Measurements Three Months Ended March 31, 2014

(in thousands)
	Investment Securities Available for Sale		Derivative Loan Commitments		Investment Securities Available for Sale		Derivative Loan Commitments

Description
Beginning of period balance	$	280	$	472	$	289	$	844
Unrealized gains included in:
Earnings	—		—		—		—
Other comprehensive income	—		—		—		—
Purchases	9		—		—		—
Sales	—		—		—		—
Issuances	—		743		—		—
Settlements	—		—		—		(247		)
End of period balance	$	289	$	1,215	$	289	$	597

The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer.

The following describes the valuation techniques used to estimate fair value for our assets and liabilities that are measured on a recurring basis.

Investment Securities Available for Sale. Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products, and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities would include U.S. agency securities, mortgage-backed securities, obligations of states and political subdivisions, and certain corporate, asset-backed, and other securities valued using third party quoted prices in markets that are not active. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

Derivative Loan Commitments. The Company originates mortgage loans for sale into the secondary market on a best efforts basis. Under the best efforts basis, the Company enters into commitments to originate mortgage loans whereby the interest rate is fixed prior to funding. These commitments, in which the Company intends to sell in the secondary market, are considered freestanding derivatives. The fair values of interest rate lock commitments, which are related to mortgage loan commitments and are categorized as Level 3, are based on quoted prices adjusted for commitments that the Company does not expect to fund.

Interest Rate Swaps. The Company uses observable inputs to determine fair value of its interest rate swaps. The valuation of these instruments is determined using widely accepted valuation techniques that are based on discounted cash flow analysis using the expected cash flows of each derivative over the contractual terms of the derivatives, including the period to maturity and market-based interest rate curves. The fair value of the interest rate swaps is determined using a market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments were based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. Accordingly, the Company categorizes these financial instruments within Level 2 of the fair value hierarchy.

Nonrecurring Basis

Certain assets, specifically collateral dependent impaired loans and other real estate owned and repossessed assets, are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment and an allowance is established to adjust the asset to its estimated fair value). The adjustments are based on appraisals of underlying collateral or other observable market prices when current appraisals or observable market prices are available. Where we do not have an appraisal that is less than

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12 months old, an existing appraisal or other valuation would be utilized after discounting it to reflect current market conditions, and, as such, may include significant management assumptions and input with respect to the determination of fair value.

To assist in the discounting process, a valuation matrix was developed to provide valuation guidance for collateral dependent loans and other real estate owned where it was deemed that an existing appraisal was outdated as to current market conditions. The matrix applies discounts to external appraisals depending on the type of real estate and age of the appraisal. The discounts are generally specific point estimates; however in some cases, the matrix allows for a small range of values. The discounts were based in part upon externally derived statistical data. The discounts were also based upon management’s knowledge of market conditions and prices of sales of other real estate owned. In addition, matrix value adjustments may be made by our independent appraisal group to reflect property value trends within specific markets as well as actual sales data from market transactions and/or foreclosed real estate sales. It is the Company’s policy to classify these as Level 3 assets within the fair value hierarchy. The weighted average age of appraisals for valuations of collateral dependent impaired loans was 0.41 years as of March 31, 2015 and 0.56 years as of December 31, 2014. Management periodically reviews the discounts in the matrix as compared to valuations from updated appraisals and modifies the discounts accordingly should updated appraisals reflect valuations significantly different than those derived utilizing the matrix. To date, management believes the appraisal discount matrix has resulted in appropriate adjustments to existing appraisals thereby providing management with reasonable valuations for the collateral underlying the loan portfolio; however, while appraisals are indicators of fair value, the amount realized upon sale of these assets could be significantly different.

The following tables reflect the fair value of assets measured and recognized at fair value on a nonrecurring basis in the consolidated balance sheets at March 31, 2015 and December 31, 2014.



	Assets Measured at Fair Value		Fair Value Measurements at March 31, 2015 Using
			Fair Value Measurements at March 31, 2015 Using
(in thousands)			Level 1		Level 2		Level 3
Impaired loans	$	40,367	$	—	$	—	$	40,367
Other real estate owned
and repossessed assets	17,884		—		—		17,884



	Assets Measured at Fair Value		Fair Value Measurements at
			December 31, 2014 Using
			Level 1		Level 2		Level 3
Impaired loans	$	40,107	$	—	$	—	$	40,107
Other real estate owned
and repossessed assets	21,721		—		—		21,721

The following describes the valuation techniques used to estimate fair value for our assets that are required to be measured on a nonrecurring basis.

Impaired Loans. The majority of the Company’s impaired loans are considered collateral dependent. For collateral dependent impaired loans, impairment is measured based upon the estimated fair value of the underlying collateral. Due to the nature of real-estate appraisals and the discounts applied by the Company in determining fair value of the underlying collateral as described previously, collateral-dependent loans are considered level 3 financial instruments.

Other Real Estate Owned and Repossessed Assets. The adjustments to other real estate owned and repossessed assets are based primarily on appraisals of the real estate or other observable market prices. Our policy is that fair values for these assets are based on current appraisals. In most cases, we maintain current appraisals for these items. Where we do not have a current appraisal, an existing appraisal would be utilized after discounting it to reflect changes in market conditions from the date of the existing appraisal, and, as such, may include significant management assumptions and input with respect to the determination of fair value.

Table of Contents

HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant Unobservable Inputs

The following table presents the significant unobservable inputs used to value the Company’s material Level 3 assets; these factors represent the significant unobservable inputs that were used in measurement of fair value.



	Fair Value at March 31, 2015		Significant Unobservable Inputs by Valuation technique	Significant Unobservable Inputs as of March 31, 2015
(in thousands except for percentages)

Type
Derivative loan commitments	$	1,215	Pull through rate	80%
			Percentage of loans that will
			ultimately close
Impaired loans	40,367		Appraised value	10%
			Discounts to reflect current market
			conditions, ultimate collectability,
			and estimated costs to sell
Other real estate owned	17,884		Appraised value	8%
			Discounts to reflect current market
			conditions, abbreviated holding
			period, and estimated costs to sell

Other Fair Value Measurements

Additionally, accounting standards require the disclosure of the estimated fair value of financial instruments that are not recorded at fair value. For the financial instruments that the Company does not record at fair value, estimates of fair value are made at a point in time based on relevant market data and information about the financial instrument. No readily available market exists for a significant portion of the Company’s financial instruments. Fair value estimates for these instruments are based on current economic conditions, interest rate risk characteristics, and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following methods and assumptions were used by the Company in estimating fair value of these financial instruments.

(a) Cash and Cash Equivalents

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

(b) Investment Securities Available for Sale

Fair values are based on published market prices where available. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Investment securities available for sale are carried at their aggregate fair value.

These investments are carried at cost as there is no active market or exchange for the stock other than the FHLB, FRB, or member institutions. The carrying amount approximates fair value.

(d) Loans Held For Sale

The carrying value of loans held for sale is a reasonable estimate of fair value since loans held for sale are expected to be sold within a short period.

(e) Loans

To determine the fair values of loans other than those listed as nonaccrual, we use discounted cash flow analyses. In these analyses, we use discount rates that are similar to the interest rates and terms currently being offered to borrowers of similar terms and credit

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ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

quality. For nonaccrual loans, we use a variety of techniques to measure fair value, such as using the current appraised value of the collateral, discounting the contractual cash flows, and analyzing market data that we may adjust due to the specific characteristics of the loan or collateral.

(f) Interest Receivable and Interest Payable

The carrying amount approximates fair value.

(g) Bank-Owned Life Insurance

The carrying amount approximates fair value.

(h) Deposits

The fair values disclosed for transaction deposits such as demand and savings accounts are equal to the amount payable on demand at the reporting date (this is, their carrying values). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

(i) Borrowings

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

(j) 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 March 31, 2015 and December 31, 2014, and as such, the related fair values have not been estimated.

The carrying amounts and fair values of those financial instruments that are not recorded at fair value at March 31, 2015 and December 31, 2014 were as follows.



	March 31, 2015
	Carrying Amount		Fair Value		Fair Value Measurements at Reporting Date Using
(in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Loans, net(1)	$	1,506,704	$	1,518,339	$	—	$	—	$	1,518,339
Financial Liabilities:
Deposits	1,683,418		1,673,588		—		1,673,588		—
FHLB borrowings	125,664		125,749		—		125,749		—
Other borrowings	29,337		56,703		—		56,703		—



	December 31, 2014
	Carrying Amount		Fair Value		Fair Value Measurements at Reporting Date Using
(in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Loans, net(1)	$	1,395,885	$	1,406,608	$	—	$	—	$	1,406,608
Financial Liabilities:
Deposits	1,581,348		1,565,278		—		1,565,278		—
FHLB borrowings	165,847		165,963		—		165,963		—
Other borrowings	29,224		56,703		—		56,703		—

(1)Carrying amount and fair value includes impaired loans. Carrying amount is net of the allowance for loan losses.

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PART I. FINANCIAL INFORMATION

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - Contingencies

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

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

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

Forward-Looking Statements

This Form 10-Q contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. When or if used in this annual report or any SEC 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.”

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Therefore, we caution you against relying on any of these 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 discussion in the "Risk Factors" section of this report. Our risks include, without limitation, the following:


•	Our success is largely dependent on attracting and retaining key management team members;


•	We are not paying dividends on our Common Stock currently and absent regulatory approval are prevented from doing so. The failure to resume paying dividends on our Common Stock may adversely affect the market price of our Common Stock;


•	We incurred significant losses from 2009 to 2012. While we returned to profitability in 2013 and continued to be profitable during 2015, we can make no assurances that will continue. An inability to improve our profitability could adversely affect our operations and our capital levels;


•	Our mortgage banking earnings are cyclical and sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market, any of which could adversely impact our results of operations;


•	Economic, market, or operational developments may negatively impact our ability to maintain required capital levels or otherwise negatively impact our financial condition;


•	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;


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


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


•	Sales, or the perception that sales could occur, of large amounts of our Common Stock by our institutional investors may depress our stock price;


•	The concentration of our loan portfolio continues to be in real estate – commercial mortgage, equity line lending, and construction, which may expose us to greater risk of loss;


•	General economic conditions in the markets in which we do business may decline and may have a material adverse effect on our results of operations and financial condition;


•	We have had large numbers of problem loans, relative to our peers. Although problem loans have declined significantly, there is no assurance that they will continue to do so;

•

The determination of the appropriate balance of our allowance for loan losses is merely an estimate of the inherent risk of loss in our existing loan portfolio and may prove to be incorrect. If such estimate is proven to be materially incorrect and we are required to increase our allowance for loan losses, our results of operations, financial condition, and the market price of our Common Stock could be materially adversely affected;


•	Our profitability will be jeopardized if we are unable to successfully manage interest rate risk;


•	We may face increasing deposit-pricing pressures, which may, among other things, reduce our profitability;


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

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


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


•	Our business, financial condition, and results of operations are highly regulated and could be adversely affected by new or changed regulations and by the manner in which such regulations are applied by regulatory authorities;


•	Banking regulators have broad enforcement power, but regulations are meant to protect depositors and not investors;


•	The fiscal, monetary, and regulatory policies of the Federal Government and its agencies could have a material adverse effect on our results of operations;


•	Government legislation and regulation may adversely affect our business, financial condition, and results of operations;


•	Proposed and final regulations could restrict our ability to originate loans; and


•	The soundness of other financial institutions could adversely affect us.

Our forward-looking statements could be incorrect in light of these 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 report and you should not expect us to do so.

Critical Accounting Policies

U.S. generally accepted accounting principles (“GAAP”) 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 assumptions, judgments, and estimates. Our assumptions, judgments, and estimates may be incorrect, and changes in such assumptions, judgments, and estimates may have a material impact on the consolidated financial statements. Actual results, in fact, could differ materially from those estimates. We consider our policies on allowance for loan losses, the valuation of deferred taxes, and the valuation of other real estate owned to be critical accounting policies. Refer to our 2014 Form 10-K for further discussion of these policies.

Material Trends and Uncertainties

The Company's largest market in which it does business, the Hampton Roads region of Virginia, continues to see a slow but steadily improving economy. According to the U.S. Bureau of Labor Statistics, the Hampton Roads unemployment rate was 5.6% in February 2015, compared to 6.1% in February 2014, and total non-farm employment rose 0.7% from February 2014 to February 2015. The housing market showed signs of strength. According to the Real Estate Information Network, existing home sales rose 32% in March 2015 compared to March 2014, with the median price of existing homes increasing 6%. Distressed home sales declined to 22.7% of all homes sales in March 2015, down from 25% in March 2014.

There was a general market expectation that the Federal Reserve would begin the normalization of interest rates by June 2015. However, first quarter 2015 U.S. economic data which showed slowing economic growth, slow wage growth, and stubbornly low inflation could put those plans on hold. A reading of the minutes from the Federal Open Market Committee’s March 17 and March 18 meetings supports a growing consensus that the Federal Reserve may wait until September 2015, and possibly later, to start raising interest rates. Based on this information, we expect the low interest rate environment to continue through the remainder of 2015.

The loan portfolio grew 7.9% in the first quarter of 2015, primarily driven by a $104.8 million marine loan portfolio purchase, executed by our Shore Premier Finance unit, of which $75.3 million were installment loans and $29.4 million were commercial loans. Despite a modest increase in non-performing and impaired loans in the first quarter, classified loans continued to decline, and overall credit quality, as measured by weighted average risk grade, continued the trend of improvement as well. With mortgage loan rates declining during the first quarter of 2015, there was an increase in demand for refinancing, which drove mortgage banking revenue up 133.2% over the same period last year. Strong growth in deposits continued in the first quarter expanding by $102.1 million, or 6.5%.

For further discussion of the material trends and uncertainties that may affect our results and financial condition, refer to the risk factors contained Part II Item 1A “Risk Factors” in this report.

Company Overview

Hampton Roads Bankshares, Inc. (the “Company”) is a multi-bank holding company headquartered in Virginia Beach, Virginia. The Company’s primary subsidiaries are Bank of Hampton Roads (“BOHR”) and Shore Bank (“Shore” collectively the “Banks”). The Banks engage in general community and commercial banking business, targeting the needs of individuals and small- to medium-

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

sized businesses in our primary service areas. Currently, BOHR operates 17 full-service offices in the Hampton Roads region of southeastern Virginia and 10 full-service offices throughout Richmond, Virginia and the Northeastern and Research Triangle regions of North Carolina that do business as Gateway Bank (“Gateway”). Shore operates 7 full-service offices in the Eastern Shore of Virginia and Maryland and 3 loan production offices in Maryland and Delaware. Through various divisions, the Banks also offer mortgage banking and marine financing. Our largest investor shareholders include Anchorage Capital Group, L.L.C. (“Anchorage”), CapGen Capital Group VI LP (“CapGen”), and The Carlyle Group, L.P. (“Carlyle”). Anchorage, CapGen, and Carlyle own 24.84%, 29.89%, and 24.84%, respectively, of the outstanding shares of our Common Stock as of March 31, 2015.

Our primary source of revenue is 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 assets, and the level of noninterest-bearing liabilities available to support earning assets. In addition to net interest income, noninterest income is another important source of revenue. Noninterest income is derived primarily from service charges on deposits and mortgage banking revenue. Gains and losses on the sale or impairment of our other real estate owned and repossessed assets are recognized in noninterest income. Other significant factors that impact net income attributable to Hampton Roads Bankshares, Inc. are the provision for loan losses, and noninterest expense.

The direct lending activities in which the Company engages carry the risk that the borrowers will be unable to perform on their obligations. As such, interest rate policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve") and general economic conditions, nationally and in the Company's primary market areas, have a significant impact on the Company's results of operations. To the extent that economic conditions deteriorate, business and individual borrowers may be less able to meet their obligations to the Company in full, in a timely manner, resulting in decreased earnings or losses to the Company. Regarding net interest margin, the Company makes fixed rate loans, whereby general increases in interest rates will tend to reduce the Company's spread as the interest rates the Company must pay for deposits may increase while interest income may be unchanged. Economic conditions may also adversely affect the value of property pledged as security for loans and the ability to liquidate that property to satisfy a loan if necessary.

The Company's goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures and modifying those policies on occasion to account for changing or emerging risks or changing market conditions, evaluating each borrower's business plan and financial condition during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and maintaining sufficient collateral to mitigate economic loss in the event of liquidation. An allowance for loan losses has been established which consists of general, specific, and unallocated components.

A risk rating system is employed to estimate loss exposure and provide a measuring system for setting general reserve allocations. The general component relates to groups of homogeneous loans not designated for specific impairment analysis and are collectively evaluated for potential loss. The specific component relates to loans that are determined to be impaired and, therefore, individually evaluated for impairment. The specific allowance for loan losses is based on a loan-by-loan analysis and varies between impaired loans largely due to the value of the loan’s underlying collateral. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses and considers internal portfolio management effectiveness and external macroeconomic factors.

Overview of Results of Operations and Financial Condition

The following commentary provides information about the major components of our financial condition, results of operations, liquidity, and capital resources. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements.

Since 2008, our loan customers have operated in an economically stressed environment. However, the markets in which we operate have begun to experience generally more stable business conditions. The levels of loan delinquencies and defaults have continued to decline over the last several years, although they continue to be higher than historical levels. During this period, our net interest income, before the provision for loan losses, has not grown.

The Company reported net income for the three months ended March 31, 2015, as it did for all of 2014 and 2013, compared to reporting net operating losses for 2010 to 2012, primarily resulting from improved general economic conditions and credit performance of the Company’s loan portfolio. There is no guarantee that we will be able to maintain this improvement in our net income. In addition to the risk that the broader economic conditions will stagnate or reverse their improvements, our mortgage banking earnings are particularly volatile due to their dependence upon the direction and level of mortgage interest rates. As of March 31, 2015, the

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

Company exceeded the regulatory capital minimums and BOHR and Shore were considered “well capitalized” under the risk-based capital standards.

The following is a summary of our financial condition as of March 31, 2015 and our financial performance for the three months then ended.

•

Assets were $2.1 billion at March 31, 2015. Total assets increased by $67.1 million or 3.4% from December 31, 2014. The increase in assets was primarily associated with a $111.9 million or 7.9% increase in gross loans, a $33.4 million or 151.3% increase in loans held for sale, offset by a $67.7 million or 22.4% decrease in investment securities available for sale, a $4.4 million or 5.2% decrease in overnight funds sold and due from FRB, and a $3.8 million or 17.7% decrease in other real estate owned and repossessed assets, net of valuation allowance.


•	Investment securities available for sale were $234.5 million as of March 31, 2015, down from $302.2 million at December 31, 2014. The proceeds from investment security sales partially funded the loan portfolio growth during the quarter. A general decrease in interest rates contributed to an increase in the net unrealized gains in our portfolio.


•	The growth in gross loans was primarily driven by a $104.8 million marine loan portfolio purchase; of which $75.3 million were installment loans and $29.4 million were commercial loans. Impaired loans modestly increased by $788 thousand, or 1.6% to $49.6 million at March 31, 2015, compared to $48.9 million at December 31, 2014.

•

Allowance for loan losses increased $1.1 million, or 4.2% to $28.2 million at March 31, 2015; up from $27.1 million at December 31, 2014. The combination of a longer historical loss look-back period, lengthening loss emergence periods in certain loan categories, and substantial loan portfolio growth necessitated an increase in general reserves. A modest rise in non-performing and impaired loans increased specific reserves. Recoveries outpaced charge-offs during the quarter, which helped build the total reserve.

•

Deposits increased $102.1 million or 6.5% from December 31, 2014, as a result of increases of $53.1 million or 18.0% in time deposits over $100 thousand, increases of $25.1 million or 9.4% in noninterest-bearing demand deposits, increases of $12.0 million or 1.9% in interest-bearing demand deposits, increases of $8.3 million or 2.4% in time deposits less than $100 thousand, and increases of $3.6 million or 6.4% in savings deposits. The Company has made a concerted effort to attract additional deposits in order to support loan growth. Approximately half of the deposit growth came from the addition of one commercial deposit relationship obtained through the Company's expansion into Baltimore, MD.

•

Net interest income decreased $264 thousand during the three months ended March 31, 2015 as compared to the same period in 2014. Several factors contributed to this decline. Average interest-earning assets grew by $113.4 million; however, the average yield on these assets declined 24 basis points. Interest-bearing deposits grew $94.2 million, with the average rate paid on these deposits increasing 7 basis points. Net interest margin was 3.14% at March 31, 2015, compared to 3.40% at March 31, 2014. This decline was primarily driven by the lower average yield earned on loans, as well as increased average rate paid on interest-bearing deposits.


•	A provision for losses for the three months ended March 31, 2015 was recorded for $600 thousand, compared to $100 thousand for the same period in 2014. The need for an increase in the provision expense came as a result of significant portfolio growth and a modest increase in non-performing and impaired loans during the quarter.

•

Noninterest income for the three months ended March 31, 2015 was $6.5 million, a decline of $849 thousand or 11.6% compared to the same period in 2014. Major drivers of this decline included a decrease of $2.9 million in income from bank-owned life insurance; a decrease of $145 thousand in gain on sale of other real estate owned and repossessed assets; and an increase of $598 thousand in other than temporary impairment of other real estate owned and repossessed assets. Mortgage banking revenue experienced healthy growth of $2.4 million or 133.2%.


•	The Company's return on average assets ratio (ROAA) was 0.26%, and 0.80% for the three months ended March 31, 2015 and 2014, respectively, and its return on average equity ratio (ROAE) was 2.66% and 8.25% for the three months ended March 31, 2015 and 2014, respectively.


•	Our effective tax rate was 2.10% for the three months ended March 31, 2015 compared to 0.2% for the same period in 2014. These taxes related to state income taxes owed. These rates differ from the statutory rate due primarily to the valuation allowance against the Company’s deferred tax assets.

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PART I. FINANCIAL INFORMATION

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

ANALYSIS OF RESULTS OF OPERATIONS

Net income attributable to Hampton Roads Bankshares, Inc. for the three months ended March 31, 2015 was $1.3 million, as compared with net income of $3.9 million for the three months ended March 31, 2014.

Net Interest Income and Net Interest Margin

Net interest income, a major component of our earnings, is the difference between the income generated by interest-earning assets and the cost of interest-bearing liabilities. 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. Interest-earning assets consist of loans, investment securities, overnight funds sold and due from FRB, and interest-bearing deposits in other banks. Interest-bearing liabilities consist of deposit accounts and borrowings. Net interest income and net interest margin may be significantly impacted by the market interest rates (rate); the mix, duration, and volume of interest-earning assets and interest-bearing liabilities (volume); changes in the yields earned and rates paid; and the level of noninterest-bearing liabilities available to support interest-earning assets. Our management team strives to maximize net interest income through prudent balance sheet administration and by maintaining appropriate risk levels as determined by our Asset / Liability Committee (“ALCO”) and the Board of Directors. Table 1 presents the average interest-earning assets and liabilities, the average yields earned on such assets and rates paid on such liabilities, net interest margin, and income and expense variances caused by changes in average balances and rates for the indicated periods.

Table 1: Average Balance Sheet and Net Interest Margin Analysis



	Three Months Ended March 31, 2015						Three Months Ended March 31, 2014						2015 Compared to 2014
													Interest
			Interest		Average				Interest		Average		Income/			Variance
(in thousands, except	Average		Income/		Yield/		Average		Income/		Yield/		Expense			Attributable to
average yield/rate data)	Balance		Expense		Rate		Balance		Expense		Rate		Variance			Rate			Volume
Assets:
Loans	$	1,519,205	$	16,159	4.31	%	$	1,377,921	$	15,692	4.62	%	$	467		$	(5,223	)	$	5,690
Investment securities	267,303		1,742		2.64		333,798		2,234		2.71		(492		)	(47		)	(445		)
Overnight funds sold
and due from FRB	110,226		59		0.22		72,581		32		0.18		27			10			17
Interest-bearing deposits
in other banks	1,741		—		—		741		—		—		—			—			—
Total interest-earning assets	1,898,475		17,960		3.84		1,785,041		17,958		4.08		2			(5,260		)	5,262
Noninterest-earning assets	135,972						150,986
Total assets	$	2,034,447					$	1,936,027
Liabilities and Shareholders' Equity:
Interest-bearing liabilities
Interest-bearing demand deposits	$	631,011	$	674	0.43	%	$	606,268	$	623	0.42	%	$	51		$	25		$	26
Savings deposits	57,471		11		0.08		59,510		8		0.05		3			5			(2		)
Time deposits	673,419		1,843		1.11		601,891		1,509		1.02		334			155			179
Total interest-bearing deposits	1,361,901		2,528		0.75		1,267,669		2,140		0.68		388			185			203
Borrowings	181,831		741		1.65		218,783		863		1.60		(122		)	148			(270		)
Total interest-bearing liabilities	1,543,732		3,269		0.86		1,486,452		3,003		0.82		266			333			(67		)
Noninterest-bearing liabilities
Demand deposits	267,408						241,905
Other liabilities	22,455						20,462
Total noninterest-bearing liabilities	289,863						262,367
Total liabilities	1,833,595						1,748,819
Shareholders' equity	200,852						187,208
Total liabilities and shareholders' equity	$	2,034,447					$	1,936,027
Net interest income			$	14,691					$	14,955
Net interest spread					2.98	%					3.26	%
Net interest margin					3.14	%					3.40	%
Note: Interest income from loans includes fees of $263 and $456 for the three months ended March 31, 2015 and 2014, respectively.

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PART I. FINANCIAL INFORMATION

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

Interest income on loans, including fees, increased predominantly as a result of an increase in average loan balances; however, this growth was offset by a decline in the average yield earned on loans. Interest income on investment securities decreased due to decline in the overall size of the average investment portfolio, as we partially funded the loan portfolio growth with proceeds from investment security sales.

Interest expense on deposits increased mainly due to an increase in average interest-bearing deposits, as well as an increase in the average rate paid on time deposits. Interest expense on borrowings, which consisted of FHLB borrowings and other borrowings, decreased mainly due to maturing FHLB advances being paid down.

Noninterest Income

Noninterest income comprised 26.4% of total revenue during the three months ended March 31, 2015 and 28.9% during the three months ended March 31, 2014. We define total revenue as the sum of interest income and noninterest income. Table 2 provides a summary of noninterest income for the three months ended March 31, 2015 and 2014.

Table 2: Noninterest Income



	Three Months Ended March 31,						2015 Compared to 2014
(in thousands, except for percentages)	2015			2014			$			%
Mortgage banking revenue	$	4,223		$	1,811		$	2,412		133.2	%
Service charges on deposit accounts	1,142			1,159			(17		)	(1.5	)
Income from bank-owned life insurance	349			3,216			(2,867		)	(89.1	)
Gain on sale of investment securities available for sale	112			67			45			67.2
Loss on sale of premises and equipment	(14		)	(13		)	(1		)	7.7
Gain on sale of other real estate owned & repossessed assets	76			221			(145		)	(65.6	)
Other than temporary impairment of other real estate owned and repossessed assets	(934		)	(336		)	(598		)	(178.0	)
Visa check card income	641			593			48			8.1
Other	858			584			274			46.9
Total noninterest income	$	6,453		$	7,302		$	(849	)	(11.6	)%

Mortgage banking revenue increased due to declining market interest rates which drove an increase demand for refinancing. Refinancing activity accounted for an average of 47.0% of mortgage originations during the three months ended March 31, 2015, as compared to 32.0% for the same period in 2014. Income from bank-owned life insurance declined due to death benefits received in excess of cash surrender value in the first quarter of 2014, were nonrecurring in 2015. Gain on sale of other real estate owned and repossessed assets declined by $145 thousand as first quarter of 2014 included several transactions with large gains. An increase of $598 thousand in other than temporary impairment of other real estate owned and repossessed assets was driven by updated market values for properties owned, as well as establishing a currency valuation allowance for the one property we own in Canada.

Noninterest Expense

Noninterest expense represents our operating and overhead expenses. The efficiency ratio, calculated by dividing noninterest expense by the sum of net interest income and noninterest income excluding securities gains was 88.6% during the three months ended March 31, 2015 compared to 83.5%for the same period in 2014. Table 3 provides a summary of noninterest expense for the three months ended March 31, 2015 and 2014.

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

Table 3: Noninterest Expense



	Three Months Ended March 31,				2015 Compared to 2014
(in thousands, except for percentages)	2015		2014		$			%
Salaries and employee benefits	10,667		$	9,567	$	1,100		11.5	%
Professional and consultant fees	808		1,228		(420		)	(34.2	)
Occupancy	1,629		1,719		(90		)	(5.2	)
FDIC insurance	624		901		(277		)	(30.7	)
Data processing	1,431		1,147		284			24.8
Problem loan and repossessed asset costs	120		433		(313		)	(72.3	)
Equipment	350		373		(23		)	(6.2	)
Directors' and regional board fees	302		387		(85		)	(22.0	)
Advertising and marketing	260		254		6			2.4
Other	2,444		2,508		(64		)	(2.6	)
Total noninterest expense	$	18,635	$	18,517	$	118		0.6	%

Salaries and employee benefits expense increased for the three months ended March 31, 2015, compared to the same period in 2014, mainly driven by subsidiary expansions, growth in commission expense in the mortgage division, increased share-based compensation, and one-time severance compensation paid out during the quarter. As the Company's credit profile improves and legacy legal issues are resolved, professional and consultant fees have declined. FDIC insurance expense has declined as our assessment rates have decreased due to the Company’s improved risk profile. Data processing expenses increased due to higher software license and maintenance fees. Problem loan and repossessed asset costs declined due to the overall decrease in other real estate owned and repossessed assets, and lower levels of classified loans.

ANALYSIS OF FINANCIAL CONDITION

Cash and Cash Equivalents. Cash and cash equivalents includes cash and due from banks, interest-bearing deposits in other banks, and overnight funds sold and due from FRB. Cash and cash equivalents are used for daily cash management purposes, management of short-term interest rate opportunities, and liquidity. Cash and cash equivalents as of March 31, 2015 were $99.4 million compared to $103.6 million at December 31, 2014 and consisted mainly of deposits with FRB. In the future, the Company expects to utilize its cash on hand to support loan origination activity.

Investment Securities. Our investment portfolio at March 31, 2015 consisted primarily of U.S. agency, mortgage-backed securities (“MBS”), and asset-backed securities ("ABS"). Repayment of principal and interest of the ABS is dependent upon the performance of the underlying loan collateral. The Company performs due diligence of each security on a pre- and post-purchase basis to evaluate the underlying collateral and invests in the investment grade tranches of securitizations. However, should defaults or loss severities exceed the credit enhancement in the structure, payment of principal or interest may be impacted. The Company currently does not own any collateralized loan obligation securities that are not compliant with the Volcker Rule.

Our available for sale securities are reported at fair value and are used primarily for liquidity, pledging, earnings, and asset / liability management purposes and are reviewed quarterly for possible impairment. Due to portfolio activity, the fair value of our available for sale investment securities at March 31, 2015 decreased $67.7 million or 2.4% to $234.5 million compared to $302.2 million at December 31, 2014. The proceeds from investment security sales partially funded the loan portfolio growth.

Loans. As a holding company of two community banks, we have a primary objective of meeting the business and consumer credit needs within our markets where standards of profitability, client relationships, and credit quality intersect. Our loan portfolio is comprised of commercial and industrial, construction, real estate-commercial mortgage, real estate-residential mortgage, and installment loans. Lending decisions are based upon evaluation of the financial strength and credit history of the borrower and the

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

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

quality and value of the collateral securing the loan. Personal guarantees are required on most loans; however, prudent exceptions are made on occasion based upon the financial viability of the borrowing entity or the underlying project that is being financed.

Gross loans increased by $111.9 million or 7.9% during the three months ended March 31, 2015. This growth was primarily driven by a $104.8 million marine loan portfolio purchase, arranged by the Shore Premier Finance marine lending unit, of which $75.3 million were installment loans and $29.4 million were commercial loans.

Credit concentrations are measured against internal and prudential regulatory guidelines. Additionally, our prudent business practices and internal guidelines and underwriting standards will continue to be followed in making lending decisions in order to manage exposure to credit-related losses.

Allowance for Loan Losses and Provision for Loan Losses. The allowance for loan losses was $28.2 million or 1.84% of outstanding loans as of March 31, 2015 compared with $27.1 million or 1.90% of outstanding loans as of December 31, 2014.

The allowance for loan losses increased $1.1 million during the three months ended March 31, 2015 as a result of recoveries exceeding charge-offs, and additional provisions for loan losses. Our provision for loan losses was $600 thousand during the three months ended March 31, 2015, compared to $100 thousand recorded for the same period in 2014. We did not make any significant changes to our methodology or model for estimating the allowance for loan losses during this most recent quarter or during any of the past three years.

The allowance consists of specific, general, and unallocated components. Table 4 provides an allocation of the allowance for loan losses and other related information at March 31, 2015 and December 31, 2014.

Table 4: Allowance for Loan Losses Components and Related Data



(in thousands, except for percentages)	March 31, 2015			December 31, 2014
Allowance for loan losses:
Specific component	$	4,127		$	3,542
Pooled component	20,951			20,380
Unallocated component	3,099			3,128
Total	$	28,177		$	27,050
Impaired loans	$	49,647		$	48,859
Non-impaired loans	1,485,234			1,374,076
Total loans	$	1,534,881		$	1,422,935

Specific component as % of impaired loans	8.31		%	7.25		%
Pooled component as % of non-impaired loans	1.41			1.48
Allowance as % of loans	1.84			1.90
Allowance as % of nonaccrual loans	122.98			125.77

The specific component of our allowance for loan losses relates to loans that are determined to be impaired and, therefore, are individually evaluated for impairment. The specific component increased during the three months ended March 31, 2015, primarily due to a modest rise in non-performing and impaired loans. Impaired loans increased to $49.6 million at March 31, 2015 from $48.9 million at December 31, 2014. Of these loans, $22.9 million were on nonaccrual status at March 31, 2015 as compared with $21.5 million at December 31, 2014, an increase of 13.5%. The general or pooled component relates to groups of homogeneous loans not designated for a specific allowance and collectively evaluated for impairment. The combination of a longer historical loss look-back period, lengthening loss emergence periods in certain loan categories, and substantial loan portfolio growth necessitated an increase in general reserves. Strong net recoveries helped to build the total reserve by offsetting some provisioning that would have been necessary otherwise. A loan loss provision of $600 thousand was added to the total reserve during the quarter. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated portion of the loan loss allowance decreased due to a combination of factors. Macroeconomic indicators, particularly GDP measures, indicated a sharp reduction in economic growth. However, we did not see evidence of this contraction in the markets we serve; therefore, we limited the growth in the unallocated component that considers external variables. The portion of the unallocated component that considers internal variables declined as a reflection of management’s assessment of the improved health of the portfolio and the assessed quality of the Company's credit processes.

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

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

Table 5 displays certain ratios used by management in assessing the adequacy of the allowance for loan losses at March 31, 2015 and December 31, 2014.

Table 5: Adequacy of the Allowance for Loan Losses



	March 31, 2015		December 31, 2014

Non-performing loans for which full loss has been charged off to total loans	0.46	%	0.55	%
Non-performing loans for which full loss has been charged off to non-performing loans	30.12		35.55
Charge-off rate for non-performing loans for which the full loss has been charged off	54.34		58.19
Coverage ratio net of non-performing loans for which the full loss has been charged off	175.99		195.16
Total allowance divided by total loans less non-performing loans for which the full loss has been charged off	1.88		1.95
Allowance for individually impaired loans divided by impaired loans for which an allowance has been provided	20.54		17.88

At March 31, 2015, management believed the level of the allowance for loan losses to be commensurate with the risk existing in our portfolio. 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 us to recognize additions to the allowance for loan losses based on their judgments about information available at the time of the examinations.

Non-Performing Assets. Management classifies non-performing assets as those loans on which payments have been delinquent 90 days and are still accruing interest, nonaccrual loans, and other real estate and repossessed assets. Total non-performing assets were $40.8 million and $43.2 million at March 31, 2015 and December 31, 2014, respectively. Our non-performing assets ratio, defined as the ratio of non-performing assets to gross loans plus loans held for sale plus other real estate owned and repossessed assets was 2.54% and 2.95% at March 31, 2015 and December 31, 2014, respectively. At March 31, 2015 and December 31, 2014 there were no loans categorized as 90 days or more past due and still accruing interest. Loans in nonaccrual status totaled $22.9 million and $21.5 million at March 31, 2015 and December 31, 2014, respectively. Loans are placed in nonaccrual status when the collection of principal or interest becomes uncertain, part of the balance has been charged off and no restructuring has occurred, or the loans reach 90 days past due, whichever occurs first, unless there are extenuating circumstances. We had $17.9 million and $21.7 million of other real estate owned and repossessed assets at March 31, 2015 and December 31, 2014, respectively. This decline was mainly due to sales of real estate owned outpacing foreclosure and repossession activity during the quarter. The Company’s largest borrower, as measured by total exposure, was downgraded to substandard in the third quarter of 2014. There is the potential for non-performing assets to materially increase should this borrower’s ability to repay become negatively affected.

Deposits. Deposits increased $102.1 million or 6.5% from December 31, 2014, as a result of increases of $53.1 million or 18.0% in time deposits over $100 thousand, increases of $25.1 million or 9.4% in noninterest-bearing demand deposits, increases of $12.0 million or 1.9% in interest-bearing demand deposits, increases of $8.3 million or 2.4% in time deposits less than $100 thousand, and increases of $3.6 million or 6.4% in savings deposits. The Company has made a concerted effort to attract additional deposits in order to support planned and anticipated loan growth. Approximately half of the deposit growth came from the addition of one commercial deposit relationship obtained through the Company's expansion into Baltimore, MD.

Borrowings. We use short-term and long-term borrowings from various sources including the FRB discount window, FHLB, and trust preferred securities. We manage the level of our borrowings to ensure that we have adequate sources of liquidity. Refer to our 2014 Form 10-K for further discussion about our borrowings.

Liquidity. Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. It is used by management to provide continuous access to sufficient, reasonably priced funds. We continued to maintain a strong liquidity position during the three months ended march 31, 2015. At March 31, 2015, cash and cash equivalents were $99.4 million, and investment securities available for sale, at fair value were $234.5 million.

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

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

At March 31, 2015, our Banks had credit lines in the amount of $237.9 million at the FHLB with advances of $125.7 million utilized. These lines may be utilized for short- and/or long-term borrowing. At March 31, 2015, all our FHLB borrowings mature by September 2015. We also possess additional sources of liquidity through a variety of borrowing arrangements. The Banks also maintain federal funds lines with three regional banking institutions and through the FRB Discount Window. These available lines totaled approximately $92.7 million at March 31, 2015, and none of these lines were utilized for borrowing purposes at March 31, 2015.

Capital Resources. Total shareholders’ equity increased $4.1 million or 7.4% to $201.6 million at March 31, 2015, from $197.5 million at December 31, 2014. The Company and the Banks are subject to regulatory capital guidelines that measure capital relative to risk-weighted assets and off-balance sheet financial instruments. Failure to meet minimum capital requirements can cause certain mandatory and discretionary actions by regulators that, if undertaken, could have a material effect on our consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt correction action, the Banks must meet specific capital guidelines that involve quantitative and qualitative measures to ensure capital adequacy.

Tier 1 capital is comprised of total shareholders’ equity before non-controlling interest, plus qualified trust preferred securities, plus net unrealized gains or losses on available for sale securities, less intangible assets. Total risk-based capital adds qualifying allowances for loan losses. Common equity tier 1 capital is comprised of total shareholders’ equity before non-controlling interest, less intangible assets.

As of March 31, 2015, our consolidated regulatory capital ratios were Tier 1 Leverage Ratio of 11.02%, Tier 1 Risk-Based Capital Ratio of 12.88%, Total Risk-Based Capital Ratio of 14.13%, and Common Equity Tier 1 Capital Ratio of 11.29%. As of March 31, 2015, the Company exceeded the regulatory capital minimums, and BOHR and Shore were considered “well capitalized” under the risk-based capital standards. The Banks' Tier 1 Leverage Ratio, Tier 1 Risk-Based Capital Ratio, Total Risk-Based Capital Ratio, and Common Equity Tier 1 Capital Ratio were as follows: 10.23%, 11.69%, 12.94, and 11.69%, respectively for BOHR and 9.99%, 13.16%, 14.24%, and 13.16%, respectively for Shore.

Contractual Obligations. We have contractual obligations to make future payments on debt and lease agreements. Additionally, in the normal course of business, we enter into contractual arrangements whereby we commit to future purchases of products or services from unaffiliated parties. Our contractual obligations consist of time deposits, borrowings, and operating lease obligations.

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet our customers’ financing needs. For more information on our off-balance sheet arrangements, refer to Note 13, Financial Instruments with Off-Balance Sheet Risk, of the Notes to Consolidated Financial Statements contained in the 2014 Form 10-K.

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

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

Use of Non-GAAP Financial Measures

The ratios “book value per common share-tangible,” “shareholders’ equity-tangible,” and “common shareholders’ equity-tangible” are non-GAAP financial measures. The Company believes these measurements are useful in our press releases and other correspondence for investors, regulators, management, and others to evaluate capital adequacy and to compare against other financial institutions. The following is a reconciliation of these non-GAAP financial measures with financial measures defined by GAAP.



(in thousands, except for percentages and per share data)	March 31, 2015				December 31, 2014
Total assets	$	2,055,741			$	1,988,606
Less: intangible assets	693				842
Tangible assets	$	2,055,048			$	1,987,764

Shareholders' equity before
non-controlling interest	$	200,709			$	196,997
Less: intangible assets	693				842
Shareholders' equity before
non-controlling interest - tangible	$	200,016			$	196,155

Shareholders' equity before
non-controlling interest (average)	$	200,290			$	193,761
Less: intangible assets (average)	785				1,151
Shareholders' equity before
non-controlling interest - tangible (average)	$	199,505			$	192,610

Return on average equity	2.70			%	4.81		%
Impact of excluding intangible assets	0.01				0.03
Return on average equity - tangible	2.71			%	4.84		%

Shareholders' equity before
non-controlling interest to total assets	9.76			%	9.91		%
Impact of excluding intangible assets	0.03				0.04
Tangible common equity to tangible assets	9.73			%	9.87		%

Book value per share	$	1.18			$	1.15
Impact of excluding intangible assets	(0.01		)		—
Book value per share - tangible	$	1.17			$	1.15

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HAMPTON ROADS BANKSHARES, INC

PART I. FINANCIAL INFORMATION

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Sensitivity

Market risk is the potential of loss arising from adverse changes in interest rates and prices. We are exposed to market risk as a consequence of the normal course of conducting our business activities. Management considers interest rate risk to be a significant market risk for the Company. 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 our asset/liability management strategy is to optimize net interest income while limiting exposure to fluctuations caused by changes in the interest rate environment. Our ability to manage our interest rate risk depends generally on our ability to match the maturities and re-pricing characteristics of our 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.

Our management, guided by ALCO, determines the overall magnitude of interest sensitivity risk and then formulates policies governing asset generation and pricing, funding sources and pricing, and off-balance sheet commitments. These decisions are based on management’s expectations regarding future interest rate movements, the state of the national and regional economy, and other financial and business risk factors.

The primary method that we use to quantify and manage interest rate risk is simulation analysis, which is used to model net interest income from assets and liabilities over a specified time period under various interest rate scenarios and balance sheet structures. This analysis measures the sensitivity of net interest income over a relatively short time horizon. Key assumptions in the simulation analysis relate to the behavior of interest rates and spreads, the changes in product balances, and the behavior of loan and deposit customers in different rate environments.

The table below illustrates the expected effect on net interest income for the twelve months following March 31, 2015 and December 31, 2014 due to an immediate change in interest rates. Estimated changes set forth below are dependent on material assumptions, such as those previously discussed.

Effect on Net Interest Income



	March 31, 2015					December 31, 2014
	Change in Net Interest Income					Change in Net Interest Income
(in thousands, except for percentages)	Amount			%		Amount			%
Change in Interest Rates:
+200 basis points	$	2,158		3.42	%	$	3,811		6.08	%
+100 basis points	1,096			1.74		1,940			3.09
–100 basis points	(2,096		)	(3.32	)	(2,552		)	(4.07	)
–200 basis points	N/A			N/A		N/A			N/A

As of March 31, 2015, we project an increase in net interest income in an increasing rate environment and a decrease in net interest income in a decreasing interest rate environment. As of December 31, 2014, we projected an increase in net interest income in an increasing rate environment and a decrease in net interest income in a decreasing interest rate environment.

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. In addition, management may deploy strategies that offset some of the impact of changes in interest rates. Dependent upon timing and shifts in the interest rate term structure, certain rising rate scenarios are less favorable due to lower levels of assets with short-term re-pricing characteristics, as well as due to the variable rate structure on the majority of our borrowings and the floors on many loans that will cause a delay in any interest income improvement. Consequently, variations should be expected from the projections resulting from the controlled conditions of the simulation analysis. Management utilizes an earnings simulation model as the primary quantitative tool in measuring the amount of interest rate risk associated with changing market rates. The model quantifies the effects of various interest rate scenarios on projected net interest income over varying time horizons. The model measures the impact on net interest income relative to a flat-rate case scenario of hypothetical fluctuations in interest. These simulations incorporate assumptions regarding balance sheet mix, pricing and the re-pricing and maturity characteristics of the existing and projected balance sheet.

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HAMPTON ROADS BANKSHARES, INC.

PART I. FINANCIAL INFORMATION

ITEM 4 - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. The Company, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2015. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of March 31, 2015 were effective in providing reasonable assurance that material information is recorded, processed, summarized, and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act and the rules and regulations promulgated thereunder.

Changes in Internal Control over Financial Reporting. No change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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HAMPTON ROADS BANKSHARES, INC.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On November 21, 2014, in the matter of Scott C. Harvard v. Shore Bank et al (CL13-4525-00), the Circuit Court for the City of Norfolk, Virginia ruled that former Shore Bank President Scott C. Harvard was entitled to $655,495.43 in severance pay, plus interest from May 20, 2014, and $155,000.00 in attorney’s fees, plus additional fees incurred since July 15, 2014. Mr. Harvard had initiated the claim in June 2013 alleging that the Company and Shore Bank were contractually obligated to make certain severance payments to him following the termination of his employment in 2009. The Company asserts that Mr. Harvard was not entitled to a “golden parachute” severance due to application of a regulation under the TARP program and furthermore, that based upon the legally distinct entity from which Harvard derived his compensation, Shore Bank did not owe Harvard severance compensation. The judge ruled in favor of Harvard that the prohibition of the payment of his contracted severance compensation was a taking of his private property without just compensation in violation of the Fifth Amendment to the Constitution, and further that the Company was prohibited from making the argument, based upon the doctrine of judicial estoppel, that Shore Bank was legally distinct from the holding company that employed Mr. Harvard. The Company filed a petition for appeal on February 27, 2015 in the Supreme Court of Virginia.

ITEM 1A – RISK FACTORS

For information regarding factors that could affect the Company's results of operations, financial condition, or liquidity, see the risk factors discussed in the Company's 2014 Form 10-K, Part I, Item 1A "Risk Factors". There have been no material changes to the risk factors as previously disclosed in the 2014 Form 10-K.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company announced an open ended program on August 13, 2003, by which management was authorized to repurchase an unlimited number of shares of the Company’s Common Stock in the open market and through privately negotiated transactions. There were no share repurchase transactions conducted during the three months ended March 31, 2015.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - MINE SAFETY DISCLOSURES

None.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 - EXHIBITS

See Exhibit Index, which is incorporated in this item by reference.

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HAMPTON ROADS BANKSHARES, INC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HAMPTON ROADS BANKSHARES, INC.

(Registrant)



DATE:	May 14, 2015	/s/ Thomas B. Dix III
		Thomas B. Dix III
		Chief Financial Officer

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HAMPTON ROADS BANKSHARES, INC.

Exhibit Index

Hampton Roads Bankshares, Inc.



Exhibit Number			Description
10.1			Amendment to the Company's Bylaws adopted by the Board of Directors on March 25, 2015, incorporated by reference from Exhibit 10.1 to the Registrant's Form 8-K, filed March 27, 2015.
31.1			The Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer, filed herewith.
31.2			The Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer, filed herewith.
32.1			Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, filed herewith.
101			The following materials from the Hampton Roads Bankshares, Inc. Quarterly Report on Form 10-Q for the three months ended March 31, 2015 formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements, filed herewith.

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