1143155--4/23/2010--HAMPTON_ROADS_BANKSHARES

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Risks Relating to our Business We incurred significant losses in 2009 and may continue do so in the future and we can make no assurances as to when we will be profitable. We need to raise additional capital that may not be available to us. We may not be able to successfully maintain our regulatory capital, which may adversely affect our results of operations and financial condition. BOHR is restricted from accepting brokered deposits and offering interest rates on deposits that are substantially higher than the prevailing rates in our market. We expect to enter into a written agreement with the Federal Reserve, which will require us to designate a significant amount of resources to complying with the agreement. We may become subject to additional regulatory restrictions in the event that our regulatory capital levels continue to decline. Our estimate for losses in our loan portfolio may be inadequate, which would cause our results of operations and financial condition to be adversely affected. We have had and may continue to have large numbers of problem loans and difficulties with our loan administration, which could increase our losses related to loans. Our lack of eligibility to continue to use a short form registration statement on Form S-3 may affect our short-term ability to access the capital markets. If our Company were to suffer loan losses similar in amounts to those that may be predicted by a SCAP test, they could have a material adverse effect on our results of operations and the price, and market for, our Common Stock. We have recently had significant turnover in our senior management team, and this turnover could negatively impact our future results of operations. Governmental regulation and regulatory actions against us may impair our operations or restrict our growth. If the value of real estate in the markets we serve were to decline materially, a significant portion of our loan portfolio could become under-collateralized, which could have a material adverse effect on us. Our construction and land development, commercial real estate, and equity line lending may expose us to a greater risk of loss and hurt our earnings and profitability. Our lending on vacant land may expose us to a greater risk of loss and may have an adverse effect on results of operations. Difficult market conditions have adversely affected our industry. A significant part of Gateway s loan portfolio is unseasoned, and we can give no assurances as to the levels of future losses related to that portfolio. We are not paying dividends on our preferred stock or Common Stock and are deferring distributions on our Trust Preferred Securities, and we are prevented in otherwise paying cash dividends on our Common Stock. The failure to resume paying dividends on our Series C Preferred Stock and Trust Preferred Securities may adversely affect us. The Company can give no assurances that its deferred tax asset will not become impaired in the future because it is based on projections of future earnings, which are subject to uncertainty and estimates that may change based on economic conditions. Our ability to maintain adequate sources of funding may be negatively impacted by the current economic environment which may, among other things, impact our ability to resume the payment of dividends or satisfy our obligations. Our ability to maintain adequate sources of liquidity may be negatively impacted by the current economic environment which may, among other things, impact our ability to pay dividends or satisfy our obligations. The current economic environment may negatively impact our ability to maintain required capital levels or otherwise negatively impact our financial condition, which may, among other things, limit our access to certain sources of funding and liquidity. We may face increasing deposit-pricing pressures, which may, among other things, reduce our profitability. We may continue to incur losses if we are unable to successfully manage interest rate risk. Certain built-in losses could be limited if we experience an ownership change, as defined in the Internal Revenue Code. A substantial decline in the value of our FHLB common stock may result in an other-than-temporary impairment charge. Our future success is dependent on our ability to compete effectively in the highly competitive banking industry. Our operations and customers might be affected by the occurrence of a natural disaster or other catastrophic event in our market area We face a variety of threats from technology based frauds and scams. Virginia law and the provisions of our Articles of Incorporation, as amended, 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 directors and officers have significant voting power. Our management has identified a material weaknesses in our internal control over financial reporting, which if not properly remediated could result in material misstatements in our future interim and annual financial statements and have a material adverse effect on our business, financial condition and results of operations and the price of our common stock. We may be unable to recruit, motivate, and retain qualified employees. Risks Relating to our Capital Structure and Ability to Raise Capital Current levels of market volatility are unprecedented. The Company has issued three series of preferred stock that have rights that are senior to those of its common shareholders. If we are unable to redeem the Series C Preferred Stock prior to January 1, 2014, the cost of this capital to us will increase substantially. Because of our participation in TARP, we are subject to several restrictions including restrictions on compensation paid to our executives. Risks Relating to Market, Legislative, and Regulatory Events 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. Current and future increases in FDIC insurance premiums, including the FDIC special assessment imposed on all FDIC-insured institutions, will decrease our earnings. In addition, FDIC insurance assessments will likely increase from not maintaining a well capitalized status, which would further decrease earnings. 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. There can be no assurance that recently enacted legislation will stabilize the U.S. financial system. The impact on us of recently enacted legislation, in particular EESA and ARRA and their implementing regulations, and actions by the FDIC, cannot be predicted at this time. The soundness of other financial institutions could adversely affect us.

Full 10-K form ▸

1143155--4/23/2010--HAMPTON_ROADS_BANKSHARES_INC