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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 June 30, 2007

Commission File Number: 001-32968

HAMPTON ROADS BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of August 1, 2007.

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HAMPTON ROADS BANKSHARES, INC.

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PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

HAMPTON ROADS BANKSHARES, INC.

Consolidated Balance Sheets

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

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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Income (Unaudited)

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

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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Changes in Shareholders’ Equity

Six months ended June 30, 2007 and year ended December 31, 2006

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

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HAMPTON ROADS BANKSHARES, INC.

Consolidated Statements of Cash Flows (Unaudited)

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

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HAMPTON ROADS BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2007

NOTE A – BASIS OF PRESENTATION

Hampton Roads Bankshares, Inc., a Virginia corporation (the “Company”), was incorporated under the laws of the Commonwealth of Virginia on February 28, 2001, primarily to serve as a holding company for Bank of Hampton Roads (the “Bank”). All significant intercompany balances and transactions have been eliminated in consolidation.

The Bank is a Virginia state-chartered commercial bank with 17 full service offices in the Hampton Roads region of southeastern Virginia, including eight offices in the city of Chesapeake, four offices in each of the cities of Norfolk and Virginia Beach, and one office in the city of Suffolk. The Bank was organized in March 1987 and commenced operations in December 1987. The Bank’s principal executive office is located at 999 Waterside Drive, 2^nd Floor, Norfolk, VA 23510 and our telephone number is (757) 217-1000.

In January 2004, the Company formed Hampton Roads Investments, Inc., a wholly owned subsidiary, to provide securities, brokerage, and investment advisory services. It is a full service investment services firm handling all aspects of wealth management including stocks, bonds, annuities, mutual funds and financial advice.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by U. S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2006 (the “2006 Form 10-K”). The results of operations for the three and six months ended June 30, 2007 are not necessarily indicative of the results to be expected for the full year.

NOTE B – SHARE-BASED COMPENSATION

The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment, on January 1, 2006, using the modified prospective method which applies SFAS No. 123R to new awards and to the portion of existing awards that had not completely vested as of January 1, 2006. During 2007 and 2006, the Company used the fair-value method to account for stock-based compensation and the fair value of stock options was estimated at the date of grant using a lattice option pricing model.

Stock-based compensation expense recognized in the consolidated statements of income for the six months ended June 30, 2007 and June 30, 2006 was $249,962 and $147,111, respectively, with a related tax benefit of $62,417 and $50,018, respectively. During the first six months of 2007 and 2006, stock-based compensation expense was comprised of $98,196 and $13,373, respectively, related to stock options which vested during the period, and $151,766 and $133,738 respectively, related to share awards.

The Company has granted stock options to its directors and employees under stock compensation plans that have been approved by the Company’s shareholders. All outstanding options, other than the options granted on December 31, 2006, have 10-year terms and are fully vested and exercisable at the date of grant. The options granted on December 31, 2006 have 10-year terms and vest ratably over periods that range from 1 year to 5 years. A summary of the Company’s stock option activity and related information for the six months ended June 30, 2007 is as follows:

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Option valuation models require the input of highly subjective assumptions. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a representative single measure of the fair value at which transactions may occur. The assumptions used to value stock options granted during the first half of 2007 were as follows: risk-free interest rate of 4.68%, volatility of 18.40%, dividend yield of 3.33%, and weighted-average expected option term of 5.16 years. Expected volatility is based on historical volatility of the Company’s traded shares. The expected term is calculated by the lattice option pricing model using assumptions regarding the contractual term of the stock options, vesting periods, the exercise price to market stock price multiple experienced by the Company, and the historical employee exit rate. The stock options granted during the first half of 2007 were the result of reload features on stock options that had a remaining weighted-average contractual life of 5.68 years.

The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2007 and 2006 was $2.13 and $1.32, respectively. The total intrinsic value at grant date of stock options exercised during the six month periods ended June 30, 2007 and 2006 was $40,402 and $250,050, respectively. Cash received from stock option exercises for the six month periods ended June 30, 2007 and 2006 was $82,902 and $206,657, respectively. The excess tax benefit realized for the tax deductions from option exercises totaled $6,596 and $189,558, respectively, for the six month periods ended June 30, 2007 and 2006. The Company may issue new shares to satisfy stock option exercises and as of June 30, 2007 there were 2,298,992 shares available under the existing stock incentive plan that was approved by shareholders. However, shares may be repurchased in open market or privately negotiated transactions under certain circumstances. As of June 30, 2007, there was $365,810 of unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 3.88 years.

As of June 30, 2007, the Company had granted non-vested shares of common stock to certain directors and employees as part of incentive programs and to those directors who elected to use deferred directors’ fees to purchase non-vested shares of common stock. Non-vested shares of common stock awarded to employees and directors as part of incentive programs have vesting schedules that range from four to nine years and are expensed over the same schedules. Non-vested shares of common stock issued to directors as a method of deferring their directors’ fees are expensed at the time the fees are earned by the director. A summary of the Company’s non-vested share activity and related information for the six months ended June 30, 2007 is as follows:

As of June 30, 2007, there were $227,413 of total unrecognized compensation cost related to non-vested shares of common stock. That cost is expected to be recognized over a weighted-average period of 4.64 years.

NOTE C – INVESTMENT SECURITIES

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

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NOTE D – LOANS

Major classifications of loans are summarized as follows:

Non-performing assets were as follows:

Information on impaired loans was as follows:

NOTE E – ALLOWANCE FOR LOAN LOSSES

Transactions affecting the allowance for loan losses during the six months ended June 30, 2007 and 2006 were as follows:

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NOTE F – PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:

NOTE G – SUPPLEMENTAL RETIREMENT AGREEMENTS

The Company has entered into supplemental retirement agreements with several key officers and recognizes expense each year related to these agreements based on the present value of the benefits expected to be provided to the employees and any beneficiaries. The expense recognized during the first six months of 2007 and 2006 was $252,818 and $233,028, respectively.

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

The following discussion provides information about the important factors affecting the consolidated results of operations, financial condition, capital resources and liquidity of the Company. This report identifies trends and material changes that occurred during the reporting periods and should be read in conjunction with the 2006 Form 10-K.

The Company’s primary source of revenue is from net interest income earned by the Bank. Net interest income represents interest and fees earned from lending and investment activities less the interest paid to fund these activities. Variations in the volume and mix of interest earning assets and interest bearing liabilities, changes in the yields earned and the rates paid, and the level of noninterest bearing liabilities available to support earning assets, all impact net interest income. In addition to net interest income, noninterest income is another important source of revenue for the Company. Noninterest income is derived primarily from service charges on deposits and fees earned from bank services. Other factors that impact net income are the provision for loan losses and noninterest expense.

Financial Condition

Total average assets, a benchmark used by banks when comparing size, are the strongest indicator of our continuous growth. Average assets increased $89.6 million, or 21.8%, to a new high of $499.5 million for the six months ended June 30, 2007 compared to the six months ended June 30, 2006. Total assets at June 30, 2007 were $521.5 million, an increase of $45.2 million, or 9.5%, over December 31, 2006 total assets of $476.3 million.

As a community bank, the Company has a primary objective of meeting the business and consumer credit needs within its market where standards of profitability, client relationships and credit quality can be met. The loan portfolio grew $53.5 million, or 14.3%, to $428.5 million as of June 30, 2007 compared to December 31, 2006.

The Company continuously reviews its loan portfolio and maintains an allowance for loan losses sufficient to absorb losses inherent in the portfolio. In addition to the review of credit quality through ongoing credit review processes, the Company conducts an independent and comprehensive allowance analysis of its loan portfolio at least quarterly. The allowance for loan losses was $4.4 million, or 1.02% of outstanding loans, as of June 30, 2007 compared with $3.9 million, or 1.04% of outstanding loans, as of December 31, 2006. Management considers the allowance for loan losses to be adequate.

The Company’s investment portfolio consists primarily of available-for-sale U.S. Agency, U.S. Treasury and mortgage-backed securities. At June 30, 2007, the estimated market value of investment securities held by the Company was $49.4 million, down $6.2 million or 11.1%, from $55.6 million at December 31, 2006. The decrease

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was the result of maturities of investment securities with a par value of $7.0 million netted against the purchase of investment securities with a par value of $1.0 million along with the change in unrealized gains or losses on available-for-sale investment securities and amortization/accretion of premiums/discounts on the remaining investment securities.

Deposits are a source of the Company’s funds for use in lending and general business purposes. The Company’s balance sheet growth is largely determined by the availability of deposits in its market, the cost of attracting the deposits, and the prospects of profitably utilizing the available deposits by increasing the loan or investment portfolios. Total deposits at June 30, 2007 increased $27.4 million, or 7.6%, to $390.7 million compared to December 31, 2006. Changes in the deposit categories include an increase of $7.2 million or 7.3% in noninterest bearing demand deposits, a decrease of $3.0 million or 7.1% in interest bearing demand deposits and an increase of $5.8 million or 7.8% in savings accounts from December 31, 2006 to June 30, 2007. Total time deposits increased $17.5 million, or 11.7% from December 31, 2006 to June 30, 2007. The increase in time deposits was a result of efforts by the Company to remain competitive in its market by increasing rates offered on time deposits.

Federal Home Loan Bank borrowings increased $15.0 million or 39.5% to $53.0 million at June 30, 2007 compared to $38.0 million at December 31, 2006. The additional borrowings were used to fund loan growth during the first half of 2007.

Results of Operations

During the first six months of 2007, the Company had net income of $3.3 million, an increase of 12.7% over net income of $2.9 million in the first six months of 2006. The increase in net income in the first half of 2007 was driven largely by strong loan growth resulting in increased interest income. Return on average total assets for the first six months of 2007 decreased to 1.32% from 1.42% for the first six months of 2006. Return on average shareholders’ equity decreased in the first six months of 2007 to 9.29% from 11.87% for the first six months of 2006 due to an increase in average shareholders’ equity of $21.6 million over the comparable period in 2006. Net income for the three months ended June 30, 2007 was $1.7 million compared with $1.6 million for the three months ended June 30, 2006. Diluted earnings per share decreased 8.8% to $0.31 per share for the first six months of 2007 compared to $0.34 per share for the first six months of 2006. Diluted earnings per share decreased 10.5% to $0.17 per share in the three months ended June 30, 2007 compared to $0.19 per share in the three months ended June 30, 2006. The decrease in diluted earnings per share reflected the issuance of 1,849,200 shares of common stock in the third quarter of 2006.

Net interest income for the first six months of 2007 was $11.8 million, a $1.8 million or 17.7% increase over the first six months of 2006. Net interest income for the second quarter of 2007 was $6.1 million, a $922 thousand or 17.7% increase over the second quarter of 2006.

The net interest margin, which is calculated by expressing net interest income as a percentage of average interest earning assets, is an indicator of effectiveness in generating income from earning assets. The Company’s net interest margin decreased from 5.33% during the first six months of 2006 to 5.07% for the same period in 2007 due to the higher cost of funding loan growth. During the fourth quarter of 2006, the net interest margin was 5.03%, indicating that the margin decline had stabilized during the first half of 2007. The Company’s net interest margin for the three months ended June 30, 2007 was 5.08% compared with 5.41% in the three months ended June 30, 2006.

The Company’s interest earning assets consist primarily of loans, investment securities, interest-bearing deposits in other banks, and overnight funds sold. Interest income on loans, including fees, increased $4.7 million to $16.9 million for the six months ended June 30, 2007 compared to the same time period during 2006. This increase resulted from the 30 basis point increase experienced in the average interest yield along with the $102.5 million increase in the average loan balance. Interest income on loans, including fees, increased 37.3% to $8.8 million for the three months ended June 30, 2007 compared to $6.4 million for the three months ended June 30, 2006. Interest income on investment securities decreased $232 thousand to $1.2 million for the six months ended June 30, 2007 compared to the same time period during 2006. The $15.6 million decrease in the average investment securities balance netted against a 27 basis point increase in the average interest yield produced this decrease. Interest income on investment securities decreased 16.0% to $598 thousand for the three months ended June 30, 2007 compared to $711 thousand for the three months ended June 30, 2006. Interest income on interest-bearing deposits in other banks increased $123 thousand for the six months ended June 30, 2007 compared to the same time period during 2006. This increase was the result of the 82 basis point increase in the average interest yield along with a $4.6 million increase in average interest-bearing deposits in other banks. Interest income on interest-bearing deposits in other banks increased $107 thousand to $116 thousand for the three months ended June 30, 2007 compared to the three months ended June 30, 2006. Interest income on overnight funds sold decreased $32 thousand to $29 thousand for the six months ended June 30, 2007 compared to the same time period during 2006. This decrease was due to the $1.6 million decrease in average overnight funds sold partially offset by the 68 basis point increase experienced in the average interest yield. Interest income on overnight funds sold decreased $15 thousand to $6 thousand for the three months ended June 30, 2007 compared to the three months ended June 30, 2007.

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The Company’s interest bearing liabilities consist of deposit accounts and other borrowings. Interest expense from deposits increased $2.4 million to $5.5 million for the six months ended June 30, 2007 compared to the same time period during 2006. This increase resulted from the 120 basis point increase experienced in the average interest rate on interest bearing deposits, as well as the $58.5 million increase in average interest bearing deposits. Interest expense on deposits increased 80.7% to $2.8 million for the three months ended June 30, 2007 compared to $1.6 million for the three months ended June 30, 2006. Interest expense from other borrowings, which consists of FHLB borrowings and overnight funds purchased, increased $375 thousand to $1.0 million for the six months ended June 30, 2007 compared to the same time period during 2006. The $11.1 million increase in average other borrowings and the 72 basis point increase in the average interest rate on other borrowings produced this result. Interest expense on other borrowings increased 48.6% to $591 thousand for the three months ended June 30, 2007 compared to $398 thousand for the three months ended June 30, 2006.

During the first half of 2007, the Company recorded net loan charge-offs of $2 thousand and a provision for loan losses in the amount of $468 thousand due to the strong loan growth experienced during that time period. During the first half of 2006, the Company recorded loan recoveries to the allowance for loan losses in the amount of $183 thousand and loan charge-offs in the amount of $54 thousand. As a result of the loan recoveries and after the quarterly analysis of the allowance for loan losses, the Company determined that no provision for loan losses was necessary for the first half of 2006.

The Company reported an increase in total noninterest income of $40 thousand, or 2.3%, for the first six months of 2007 compared to the same period in 2006. Service charges on deposit accounts, the Company’s primary source of noninterest income, increased $95 thousand or 10.7% to $984 thousand for the first six months of 2007 compared to the same period in 2006. Other service charges and fees decreased $55 thousand, or 6.7%, for the first six months of 2007 compared to the first six months of 2006. Noninterest income comprised 8.8% of total revenue in the first six months of 2007 compared with 11.1% in the first six months of 2006. Noninterest income increased 3.8% to $830 thousand for the three months ended June 30, 2007 compared with $800 thousand for the three months ended June 30, 2006.

Noninterest expense represents the overhead expenses of the Company. Total noninterest expense increased $802 thousand, or 11.0%, for the first six months of 2007 compared to the first six months of 2006. This increase was primarily attributable to a 16.6% increase in salaries and employee benefits resulting from normal annual salary adjustments and increases in certain employee benefit costs, including stock-based compensation. Occupancy expense decreased to $815 thousand for the six months ended June 30, 2007 compared to $824 thousand for the same time period in 2006. Data processing expense, another category of noninterest expense, posted an increase of 5.8% for the first six months of 2007 compared to the first six months of 2006, which reflected increases in the cost of data processing supplies and software maintenance. Other noninterest expenses posted an increase of 3.5% to $1.8 million for the first six months of 2007 compared to the same time period during 2006. The ratio of annualized noninterest expense to average total assets was 3.28% for the first six months of 2007 compared to 3.60% for the first six months of 2006. Noninterest expense increased 13.3% to $4.1 million for the three months ended June 30, 2007 compared with $3.6 million for the three months ended June 30, 2006.

Income tax expense for the first six months of 2007 and 2006 was $1.7 million and $1.5 million, respectively. The Company’s effective tax rate was 34.0% and 34.2% in 2007 and 2006, respectively, and differed from the statutory rate of 34.0% during 2006 due primarily to nondeductible expenses. Income tax expense for the three months ended June 30, 2007 and 2006 was $892 thousand and $819 thousand, respectively. The Company’s effective tax rate for each of the three month periods ended June 30, 2007 and June 30, 2006 was 34.0% and 34.2%, respectively.

Capital Resources and Liquidity

Total shareholders’ equity increased $1.4 million, or 1.9%, to $71.5 million at June 30, 2007 compared to $70.2 million at December 31, 2006. As of June 30, 2007, the Company and the Bank were considered “well-capitalized”, the highest category of capitalization defined by the Federal Reserve Bank (the “FRB”). The Company continually monitors current and projected capital adequacy positions of both the Company and the Bank. Maintaining adequate capital levels is integral to providing stability to the Company, resources to achieve the Company’s growth objectives, and returns to the shareholders in the form of dividends.

A key goal of asset/liability management is to maintain an adequate degree of liquidity without impairing long-term earnings. Liquidity represents the Company’s ability to meet present and future financial obligations through

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either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Short-term liquidity is provided primarily by access to the federal funds market through established correspondent banking relationships. Funds also can be obtained through the Company’s borrowing privileges at the FRB and the Federal Home Loan Bank (the “FHLB”). Additional liquidity is available through loan repayments and maturities of the Company’s investment portfolio. The Company maintains a very liquid portfolio of both assets and liabilities and attempts to mitigate the risk inherent in changing rates in this manner. Management believes that the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and to meet its customers’ credit needs.

Off-Balance Sheet Arrangements

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. For more information on the Company’s off-balance sheet arrangements, see Note 8 of the Notes to Consolidated Financial Statements contained in the 2006 Form 10-K.

Contractual Obligations

The Company’s contractual obligations consist of FHLB borrowings, time deposits, and operating lease obligations.

Critical Accounting Policies

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

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

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

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

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

Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair

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value measurements. SFAS 157 does not require any new fair value measurements but may change current practice for some entities. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those years. The Company does not expect the implementation of SFAS 157 to have a material impact on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). This statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of this Statement is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option may be applied instrument by instrument and is irrevocable. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. The Company does not expect the implementation of SFAS 159 to have a material impact on its consolidated financial statements.

Forward-Looking Statements

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

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

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

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

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s primary market risk is exposure to interest rate volatility. Fluctuations in interest rates will impact both the level of interest income and interest expense and the market value of the Company’s interest earning assets and interest bearing liabilities.

The primary goal of the Company’s asset/liability management strategy is to optimize net interest income while limiting exposure to fluctuations caused by changes in the interest rate environment. The Company’s ability to manage its interest rate risk depends generally on the Company’s ability to match the maturities and re-pricing characteristics of its assets and liabilities while taking into account the separate goals of maintaining asset quality and liquidity and achieving the desired level of net interest income.

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The Company’s management, guided by the Asset/Liability Committee, 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 the Company uses to quantify and manage interest rate risk is simulation analysis, which is used to model net interest income from assets and liabilities over a specified time period under various interest rate scenarios and balance sheet structures. This analysis measures the sensitivity of net interest income over a relatively short time horizon. Key assumptions in the simulation analysis relate to the behavior of interest rates and spreads, the changes in product balances and the behavior of loan and deposit customers in different rate environments.

The expected effect on net interest income for the twelve months following June 30, 2007 and December 31, 2006 due to a shock in interest rates is shown below. These estimates are dependent on material assumptions, such as those previously discussed.

A decrease in interest rates would reduce the Company’s net interest income, while an increase would tend to increase the Company’s net interest income. Thus, the Company’s interest rate sensitivity position is asset-sensitive. It should be noted, however, that the simulation analysis is based upon equivalent changes in interest rates for all categories of assets and liabilities. In normal operating conditions interest rate changes rarely occur in such a uniform manner. Many factors affect the timing and magnitude of interest rate changes on financial instruments. Consequently, variations should be expected from the projections resulting from the controlled conditions of the simulation analysis.

The Company had no derivative financial instruments, foreign currency exposure, or trading portfolio as of June 30, 2007.

ITEM 4 – CONTROLS AND PROCEDURES

As of June 30, 2007, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s Exchange Act filings. In addition, no change in its internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the quarter ended June 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

In the ordinary course of operations, the Company may become a party to legal proceedings. Currently, the Company is not party to any material legal proceedings.

ITEM 1A – RISK FACTORS

There have been no material changes from the risk factors as previously disclosed in the 2006 Form 10-K.

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

The Company announced an open ended program in 2003 by which management was authorized to repurchase an unlimited number of shares of the Company’s common stock in open market and privately negotiated transactions. During the first six months of 2007, the Company repurchased 118,732 shares of its common stock in open market and privately negotiated transactions. Detail for the share repurchase transactions conducted during the second quarter of 2007 appears below.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company’s annual meeting of shareholders was held on May 8, 2007.

The shareholders of the Company elected the following individuals as directors of the Company: Herman A. Hall, III with 7,051,784 shares, representing 68.68% of shares voting for the election and 51,901 shares withheld, W. Lewis Witt with 7,056,689 shares, representing 68.73% of shares voting for the election and 46,997 shares withheld, Robert R. Kinser with 7,056,479 shares, representing 68.73% of shares voting for the election and 47,207 shares withheld, and Jordan E. Slone with 7,048,250 shares, representing 68.65% of shares voting for the election and 55,436 shares withheld.

The shareholders of the Company voted for the election of Yount, Hyde & Barbour, P.C. as the Company’s independent registered public accounting firm for 2007 with 7,017,341 shares, representing 68.35% of the outstanding stock ratifying the election, 8,123 shares voting against, and 78,221 shares abstained.

ITEM 5 – OTHER INFORMATION

None.

ITEM 6 – EXHIBITS

16

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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.