##### 



UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC
20549
 
 FORM
10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from  to
 Commission
File No. 000-25805
 Fauquier Bankshares, Inc.
  Virginia
(State or other jurisdiction of incorporation or organization)
    
    54-1288193
(I.R.S. Employer Identification No.)
 10 Courthouse Square Warrenton, Virginia
(Address of principal executive offices)
    
    20186
(Zip Code)
 (540) 347-2700
  Not Applicable
  þ o
 o þ
 o þ




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##### 



FAUQUIER BANKSHARES, INC.
 INDEX
 PagePart I.      FINANCIAL INFORMATION
    
    
    2Item 1.
    
    Financial Statements
    
    
    2Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004
    
    
    2Consolidated Statements of Income (unaudited) for the Three Months Ended September 30, 2005 and 2004
    
    
    3Consolidated Statements of Income (unaudited) for the Nine Months Ended September 30, 2005 and 2004
    
    
    4Consolidated Statements of Changes in Shareholders Equity (unaudited) for the Nine Months Ended September 30, 2005 and 2004
    
    
    5Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2005 and 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4.
    
    Controls and Procedures
    
    
    25Part II.      OTHER INFORMATION
    
    
    26Item 1.
    
    Legal Proceedings
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3.
    
    Defaults Upon Senior Securities
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    26SIGNATURES
    
    
    
    
    27




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##### 



Part I. FINANCIAL INFORMATION
 Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
 Unaudited
    
    
    AuditedSeptember 30, 2005
    
    
    December 31, 2004AssetsCash and due from banks
    
    $
    17,492,653
    
    
    $
    8,944,590Interest-bearing deposits in other banks
    
    
    142,458
    
    
    
    112,984Federal funds sold
    
    
    208,000
    
    
    
    109,000Securities, at fair value
    
    
    49,425,513
    
    
    
    58,594,905Loans, net of allowance for loan losses of $4,338,156
in 2005 and $4,060,321 in 2004
    
    
    366,767,923
    
    
    
    337,791,782Bank premises and equipment, net
    
    
    8,470,730
    
    
    
    8,533,619Accrued interest receivable
    
    
    1,449,847
    
    
    
    1,507,391Other assets
    
    
    13,836,742
    
    
    
    13,604,948Total assets
    
    
    457,793,866
    
    
    
    429,199,219LiabilitiesDeposits:Noninterest-bearing
    
    
    94,691,194
    
    
    
    79,222,524Interest-bearing
    
    
    295,196,578
    
    
    
    295,433,173Total deposits
    
    
    389,887,772
    
    
    
    374,655,697Federal funds purchased
    
    
    4,500,000
    
    
    
    Dividends payable
    
    
    
    
    
    
    508,887Federal Home Loan Bank advances
    
    
    22,000,000
    
    
    
    15,000,000Company-obligated mandatorily redeemable capital securities
    
    
    4,124,000
    
    
    
    4,124,000Other liabilities
    
    
    2,638,292
    
    
    
    3,019,571Commitments and contingent liabilities
    
    
    
    
    
    
    Total liabilities
    
    
    423,150,064
    
    
    
    397,308,155Shareholders EquityCommon stock, par value, $3.13; authorized 8,000,000 shares;
issued and outstanding, 2005, 3,447,506 shares; 2004, 3,392,580 shares
    
    
    10,790,694
    
    
    
    10,618,775Retained earnings
    
    
    24,196,698
    
    
    
    21,320,223Accumulated other comprehensive income (loss), net
    
    
    (343,590
    )
    
    
    (47,934
    )Total shareholders equity
    
    
    34,643,802
    
    
    
    31,891,064Total liabilities and shareholders equity
    
    $
    457,793,866
    
    
    $
    429,199,219
  2




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended September 30,
 2005
    
    
    2004Interest IncomeInterest and fees on loans
    
    $
    5,855,666
    
    
    $
    5,131,571Interest and dividends on securities available for sale:Taxable interest income
    
    
    448,791
    
    
    
    427,159Interest income exempt from federal income taxes
    
    
    13,082
    
    
    
    14,381Dividends
    
    
    61,656
    
    
    
    48,154Interest on federal funds sold
    
    
    8,907
    
    
    
    19,178Interest on deposits in other banks
    
    
    1,400
    
    
    
    536Total interest income
    
    
    6,389,502
    
    
    
    5,640,979Interest ExpenseInterest on deposits
    
    
    1,275,949
    
    
    
    906,465Interest on federal funds purchased
    
    
    31,348
    
    
    
    15Interest on Federal Home Loan Bank advances
    
    
    204,282
    
    
    
    185,503Distribution on capital securities of subsidiary trust
    
    
    72,272
    
    
    
    53,176Total interest expense
    
    
    1,583,851
    
    
    
    1,145,159Net interest income
    
    
    4,805,651
    
    
    
    4,495,820Provision for loan losses
    
    
    139,167
    
    
    
    231,250Net interest income after
provision for loan losses
    
    
    4,666,484
    
    
    
    4,264,570Other IncomeWealth management income
    
    
    432,082
    
    
    
    336,445Service charges on deposit accounts
    
    
    675,440
    
    
    
    687,073Other service charges, commissions and fees
    
    
    335,506
    
    
    
    273,936Other operating income
    
    
    18,452
    
    
    
    8,891Total other income
    
    
    1,461,480
    
    
    
    1,306,345Other ExpensesSalaries and benefits
    
    
    2,102,809
    
    
    
    1,960,821Net occupancy expense of premises
    
    
    244,778
    
    
    
    221,771Furniture and equipment
    
    
    311,403
    
    
    
    342,591Other operating expenses
    
    
    1,302,490
    
    
    
    1,109,791Total other expenses
    
    
    3,961,480
    
    
    
    3,634,974Income before income taxes
    
    
    2,166,484
    
    
    
    1,935,941Income tax expense
    
    
    693,707
    
    
    
    603,956Net Income
    
    $
    1,472,777
    
    
    $
    1,331,985Earnings per Share, basic
    
    $
    0.43
    
    
    $
    0.40Earnings per Share, assuming dilution
    
    $
    0.41
    
    
    $
    0.38Dividends per Share
    
    $
    0.16
    
    
    $
    0.14
  3




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Nine Months Ended September 30,
 2005
    
    
    2004Interest IncomeInterest and fees on loans
    
    $
    16,930,296
    
    
    $
    14,721,572Interest and dividends on securities available for sale:Taxable interest income
    
    
    1,439,268
    
    
    
    1,132,968Interest income exempt from federal income taxes
    
    
    39,218
    
    
    
    43,172Dividends
    
    
    147,155
    
    
    
    112,383Interest on federal funds sold
    
    
    46,403
    
    
    
    39,641Interest on deposits in other banks
    
    
    4,230
    
    
    
    18,796Total interest income
    
    
    18,606,570
    
    
    
    16,068,532Interest ExpenseInterest on deposits
    
    
    3,518,244
    
    
    
    2,430,544Interest on federal funds purchased
    
    
    58,234
    
    
    
    33,817Interest on Federal Home Loan Bank advances
    
    
    626,385
    
    
    
    592,757Distribution on capital securities of subsidiary trust
    
    
    201,872
    
    
    
    149,208Total interest expense
    
    
    4,404,735
    
    
    
    3,206,326Net interest income
    
    
    14,201,835
    
    
    
    12,862,206Provision for loan losses
    
    
    472,917
    
    
    
    539,583Net interest income after
provision for loan losses
    
    
    13,728,918
    
    
    
    12,322,623Other IncomeWealth management income
    
    
    1,034,450
    
    
    
    969,766Service charges on deposit accounts
    
    
    1,976,960
    
    
    
    1,922,547Other service charges, commissions and fees
    
    
    944,925
    
    
    
    897,424Other operating income
    
    
    34,595
    
    
    
    33,208Total other income
    
    
    3,990,930
    
    
    
    3,822,945Other ExpensesSalaries and benefits
    
    
    6,235,035
    
    
    
    5,799,404Net occupancy expense of premises
    
    
    708,096
    
    
    
    649,489Furniture and equipment
    
    
    948,531
    
    
    
    952,108Other operating expenses
    
    
    3,990,144
    
    
    
    3,743,251Total other expenses
    
    
    11,881,806
    
    
    
    11,144,252Income before income taxes
    
    
    5,838,042
    
    
    
    5,001,315Income tax expense
    
    
    1,805,846
    
    
    
    1,515,312Net Income
    
    $
    4,032,196
    
    
    $
    3,486,003Earnings per Share, basic
    
    $
    1.18
    
    
    $
    1.05Earnings per Share, assuming dilution
    
    $
    1.13
    
    
    $
    0.99Dividends per Share
    
    $
    0.47
    
    
    $
    0.41
  4




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
For the Nine Months Ended September 30,
 AccumulatedOtherCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Income
    
    
    TotalBalance, December 31, 2003
    
    $
    10,367,280
    
    
    $
    18,082,684
    
    
    $
    12,821
    
    
    
    
    
    
    $
    28,462,785Comprehensive income:Net income
    
    
    
    
    
    
    3,486,003
    
    
    
    
    
    
    
    3,486,003
    
    
    
    3,486,003Other comprehensive income net of tax:Unrealized holding gain on securities available
for sale, net of deferred income taxes of $28,538
    
    
    
    
    
    
    
    
    
    
    55,397
    
    
    
    55,397
    
    
    
    55,397Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,541,400
    
    
    
    Cash dividends
    
    
    
    
    
    
    (1,363,017
    )
    
    
    
    
    
    
    
    
    
    
    (1,363,017
    )Acquisition of 30,570 shares of common stock
    
    
    (95,684
    )
    
    
    (601,147
    )
    
    
    
    
    
    
    
    
    
    
    (696,831
    )Net issuance of restricted stock, stock incentive plan
(12,557 shares)
    
    
    39,304
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,304Unearned compensation on restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of unearned compensation, restricted stock awards
    
    
    
    
    
    
    26,126
    
    
    
    
    
    
    
    
    
    
    
    26,126Exercise of stock options
    
    
    136,264
    
    
    
    210,754
    
    
    
    
    
    
    
    
    
    
    
    347,018Balance, September 30, 2004
    
    $
    10,447,164
    
    
    $
    19,841,403
    
    
    $
    68,218
    
    
    
    
    
    
    $
    30,356,785Balance, December 31, 2004
    
    $
    10,618,775
    
    
    $
    21,320,224
    
    
    $
    (47,934
    )
    
    
    
    
    
    $
    31,891,065Comprehensive income:Net income
    
    
    
    
    
    
    4,032,196
    
    
    
    
    
    
    $
    4,032,196
    
    
    
    4,032,196Other comprehensive income net of tax:Unrealized holding losses on securities available
for sale, net of deferred income taxes of $152,308
    
    
    
    
    
    
    
    
    
    
    (295,655
    )
    
    
    (295,655
    )
    
    
    (295,655
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,736,541
    
    
    
    Cash dividends ($.47 per share)
    
    
    
    
    
    
    (1,617,192
    )
    
    
    
    
    
    
    
    
    
    
    (1,617,192
    )Restricted stock forfeiture
    
    
    (3,506
    )
    
    
    (24,494
    )
    
    
    
    
    
    
    
    
    
    
    (28,000
    )Net issuance of restricted stock, stock incentive plan
(10,045 shares)
    
    
    31,441
    
    
    
    218,077
    
    
    
    
    
    
    
    
    
    
    
    249,518Unearned compensation on restricted stock
    
    
    
    
    
    
    (249,518
    )
    
    
    
    
    
    
    
    
    
    
    (249,518
    )Amortization of unearned compensation, restricted stock awards
    
    
    
    
    
    
    194,720
    
    
    
    
    
    
    
    
    
    
    
    194,720Issuance of common stock
    
    
    12,764
    
    
    
    91,937
    
    
    
    
    
    
    
    
    
    
    
    104,701Exercise of stock options
    
    
    131,219
    
    
    
    230,747
    
    
    
    
    
    
    
    
    
    
    
    361,966Balance, September 30, 2005
    
    $
    10,790,694
    
    
    $
    24,196,698
    
    
    $
    (343,590
    )
    
    
    
    
    
    $
    34,643,802
  5




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30,
 2005
    
    
    2004Cash Flows from Operating ActivitiesNet income
    
    $
    4,032,196
    
    
    $
    3,486,003Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    879,681
    
    
    
    798,695Provision for loan losses
    
    
    472,917
    
    
    
    539,583(Gain) on sale of premises and equipment
    
    
    
    
    
    
    (5,910
    )Amortization of security premiums, net
    
    
    44,714
    
    
    
    217,925Amortization of unearned compensation
    
    
    194,720
    
    
    
    64,218Changes in assets and liabilities:(Increase) in other assets
    
    
    (21,944
    )
    
    
    (1,098,980
    )(Decrease) in other liabilities
    
    
    (890,166
    )
    
    
    188,227Net cash provided by operating activities
    
    
    4,712,118
    
    
    
    4,189,761Cash Flows from Investing ActivitiesProceeds from maturities, calls and principal
payments of securities available for sale
    
    
    9,589,469
    
    
    
    14,202,716Purchase of securities available for sale
    
    
    (524,451
    )
    
    
    (13,657,652
    )Proceeds from sale of premises and equipment
    
    
    
    
    
    
    5,910Purchase of premises and equipment
    
    
    (816,792
    )
    
    
    (1,626,318
    )Purchase of other investment
    
    
    (416,300
    )
    
    
    Net (increase) in loans
    
    
    (29,449,058
    )
    
    
    (27,363,138
    )Net cash (used in) investing activities
    
    
    (21,617,132
    )
    
    
    (28,438,482
    )Cash Flows from Financing ActivitiesNet increase (decrease) in demand deposits, NOW accounts
and savings accounts
    
    
    (6,328,598
    )
    
    
    52,063,292Net increase (decrease) in certificates of deposit
    
    
    21,560,673
    
    
    
    (411,557
    )Federal Home Loan Bank advances
    
    
    7,000,000
    
    
    
    9,000,000Federal Home Loan Bank principal repayments
    
    
    
    
    
    
    (14,000,000
    )Proceeds from federal funds purchased
    
    
    4,500,000
    
    
    
    Repayment from federal funds purchased
    
    
    
    
    
    
    (2,000,000
    )Cash dividends paid
    
    
    (1,617,191
    )
    
    
    (1,793,607
    )Issuance of common stock
    
    
    28,000
    
    
    
    348,230Acquisition of common stock
    
    
    (28,000
    )
    
    
    (696,831
    )Net cash provided by financing activities
    
    
    25,114,884
    
    
    
    42,509,527Increase (decrease) in cash and cash
equivalents
    
    
    8,209,870
    
    
    
    18,260,806Cash and Cash EquivalentsBeginning
    
    
    9,166,574
    
    
    
    11,950,429Ending
    
    $
    17,376,444
    
    
    $
    30,211,235Supplemental Disclosures of Cash Flow InformationCash payments for:Interest
    
    $
    4,264,442
    
    
    $
    3,170,282Income taxes
    
    $
    1,290,000
    
    
    $
    1,572,000Supplemental Disclosures of Noncash Investing ActivitiesUnrealized gain (loss) on securities available for sale, net
    
    $
    (447,962
    )
    
    $
    83,935
  6




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##### 



FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 1.
    
    GeneralThe consolidated statements include the accounts of Fauquier Bankshares, Inc. (the Company) and its wholly-owned subsidiaries,
Fauquier Statutory Trust I (Trust I) and The Fauquier Bank (the Bank), and the Banks wholly-owned subsidiary Fauquier Bank
Services, Inc. In consolidation, significant intercompany financial balances and transactions have been eliminated. In the opinion of
management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial positions as of September 30, 2005 and December 31, 2004, and the
results of operations for the three and nine months ended September 30, 2005 and 2004 and cash flows for the nine months
ended September 30, 2005 and 2004.
The results of operations for the three and nine months ended September 30, 2005 and 2004 are not necessarily indicative of the
results expected for the full year.2.
    
    SecuritiesThe amortized cost of securities available for sale, with unrealized gains and losses follows:
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueSeptember 30, 2005Obligations of U.S.
Government corporations
and agencies
    
    $
    40,195,695
    
    
    $
    2,074
    
    
    $
    (491,676
    )
    
    $
    39,706,093Obligations of states and political
subdivisions
    
    
    961,898
    
    
    
    70,527
    
    
    
    
    
    
    
    1,032,425Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (83,750
    )
    
    
    5,916,250Mutual Funds
    
    
    264,491
    
    
    
    
    
    
    
    (1,766
    )
    
    
    262,725FHLMC Preferred
Bank stock
    
    
    441,000
    
    
    
    
    
    
    
    (16,000
    )
    
    
    425,000Restricted investments:Federal Home Loan
Bank stock
    
    
    1,848,100
    
    
    
    
    
    
    
    
    
    
    
    1,848,100Federal Reserve Bank
stock
    
    
    72,000
    
    
    
    
    
    
    
    
    
    
    
    72,000Community Bankers
Bank stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000The Bankers Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    49,946,104
    
    
    $
    72,601
    
    
    $
    (593,192
    )
    
    $
    49,425,513
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueDecember 31, 2004Obligations of U.S.
Government corporations
and agencies
    
    $
    49,352,582
    
    
    $
    175,475
    
    
    $
    (238,296
    )
    
    $
    49,289,761Obligations of states and political
subdivisions
    
    
    961,515
    
    
    
    60,037
    
    
    
    
    
    
    
    1,021,552Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (68,750
    )
    
    
    5,931,250Mutual Funds
    
    
    256,524
    
    
    
    
    
    
    
    (1,095
    )
    
    
    255,429FHLMC Preferred
Bank stock
    
    
    441,000
    
    
    
    
    
    
    
    
    
    
    
    441,000Restricted investments:Federal Home Loan
Bank stock
    
    
    1,431,800
    
    
    
    
    
    
    
    
    
    
    
    1,431,800Federal Reserve Bank
stock
    
    
    72,000
    
    
    
    
    
    
    
    
    
    
    
    72,000Community Bankers
Bank stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000The Bankers Bank Stock
    
    
    102,113
    
    
    
    
    
    
    
    
    
    
    
    102,113$
    58,667,534
    
    
    $
    235,512
    
    
    $
    (308,141
    )
    
    $
    58,594,905
 The amortized cost and fair value of securities available for sale, by contractual maturity, are shown below. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations without penalties.
 7




---



##### 



September 30, 2005Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    6,680
    
    
    $
    6,741Due after one year through five years
    
    
    19,890,806
    
    
    
    19,559,896Due after five years through ten years
    
    
    1,921,556
    
    
    
    1,891,991Due after ten years
    
    
    25,338,550
    
    
    
    25,196,140Equity Securities
    
    
    2,788,511
    
    
    
    2,770,745$
    49,946,104
    
    
    $
    49,425,513
  Less than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    
    (Losses)
    
    
    Fair Value
    
    
    (Losses)
    
    
    Fair Value
    
    
    (Losses)Obligations of U.S. Government,
Corporations & agencies
    
    $
    23,133,350
    
    
    $
    (202,679
    )
    
    $
    12,716,633
    
    
    $
    (307,123
    )
    
    $
    35,849,983
    
    
    $
    (509,802
    )Corporate Bonds
    
    
    4,952,500
    
    
    
    (47,500
    )
    
    
    963,750
    
    
    
    (36,250
    )
    
    
    5,916,250
    
    
    
    (83,750
    )Subtotal, debt securities
    
    
    28,085,850
    
    
    
    (250,179
    )
    
    
    13,680,383
    
    
    
    (343,373
    )
    
    
    41,766,233
    
    
    
    (593,552
    )Preferred Stock
    
    
    441,000
    
    
    
    (16,000
    )
    
    
    
    
    
    
    
    
    
    
    441,000
    
    
    
    (16,000
    )Mutual Fund
    
    
    
    
    
    
    
    
    
    
    264,491
    
    
    
    (1,766
    )
    
    
    264,491
    
    
    
    (1,766
    )Total temporary impaired securities
    
    $
    28,526,850
    
    
    $
    (266,179
    )
    
    $
    13,944,874
    
    
    $
    (345,139
    )
    
    $
    42,471,724
    
    
    $
    (611,318
    )
     8




---



##### 



3. Loans
  September 30,
    
    
    December 31,2005
    
    
    2004(Thousands)Real estate loans:Construction
    
    $
    22,990
    
    
    $
    29,270Secured by farmland
    
    
    612
    
    
    
    965Secured by 1-to-4 family residential
    
    
    150,495
    
    
    
    136,165Other real estate loans
    
    
    115,347
    
    
    
    100,757Commercial and industrial loans (except those secured by real estate)
    
    
    33,954
    
    
    
    24,036Consumer installment loans
    
    
    38,183
    
    
    
    41,088All other loans
    
    
    9,981
    
    
    
    9,941Total loans
    
    $
    371,562
    
    
    $
    342,222Unearned income
    
    
    (456
    )
    
    
    (370
    )Allowance for loan losses
    
    
    4,338
    
    
    
    4,060Net loans
    
    $
    366,768
    
    
    $
    337,792
  Nine Months
    
    
    Nine Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,2005
    
    
    2004
    
    
    2004Balance at beginning of period
    
    $
    4,060,321
    
    
    $
    3,575,002
    
    
    $
    3,575,002Provision charged to operating expense
    
    
    472,917
    
    
    
    539,583
    
    
    
    539,583Recoveries added to the allowance
    
    
    46,657
    
    
    
    29,546
    
    
    
    300,830Loan losses charged to the allowance
    
    
    (241,739
    )
    
    
    (185,890
    )
    
    
    (355,094
    )Balance at end of period
    
    $
    4,338,156
    
    
    $
    3,958,241
    
    
    $
    4,060,321
  September 30,
    
    
    December 31,2005
    
    
    2004(Thousands)Nonaccrual loans
    
    $
    78
    
    
    $
    62Restructured loans
    
    
    
    
    
    
    Total nonperforming loans
    
    
    78
    
    
    
    62Foreclosed property
    
    
    155
    
    
    
    121Total nonperforming assets
    
    $
    233
    
    
    $
    183
  4.
    
    Company-Obligated Mandatorily Redeemable Capital Securities of Subsidiary TrustOn March 26, 2002, the Companys wholly-owned Connecticut statutory business trust privately issued $4 million face amount of
the trusts Floating Rate Capital Securities (Capital Securities) in a pooled capital securities offering. Simultaneously,
the
trust used the proceeds of that sale to purchase $4 million
principal amount of the Companys Floating Rate Junior Subordinated
Deferrable Interest Debentures due 2032 (Subordinated Debentures). Both the Capital Securities and the Subordinated Debentures
are callable at any time after five years from the issue date. The Subordinated Debentures are an unsecured obligation of the
Company and are junior in right of payment to all present and future senior indebtedness of the Company. The Capital Securities
are guaranteed by the Company on a subordinated basis.The Capital Securities are presented in the consolidated balance sheets of the Company under the caption Company-obligated
mandatorily redeemable capital securities. The Company records distributions payable on the Capital Securities as an Interest
Expense in its consolidated statements of income. The cost of issuance of the Capital Securities was approximately $128,000.
This cost is being amortized over a five year period from the issue date.
 9




---



##### 



5.
    
    Earnings Per ShareThe following table shows the weighted average number of shares used in computing earnings per share and the
effect on weighted average number of shares of dilutive potential common stock. Dilutive potential common stock
had no effect on income available to common shareholders.
 Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    EndedSeptember 30, 2005
    
    
    September 30, 2005
    
    
    September 30, 2004Per Share
    
    
    
    
    
    
    Per Share
    
    
    
    
    
    
    Per ShareShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountBasic earnings per share
    
    
    3,445,200
    
    
    $
    0.43
    
    
    
    3,429,161
    
    
    $
    1.18
    
    
    
    3,318,458
    
    
    $
    1.05Effect of dilutive securities, stock options
    
    
    131,093
    
    
    
    
    
    
    
    129,600
    
    
    
    
    
    
    
    189,582Diluted earnings per share
    
    
    3,576,293
    
    
    $
    0.41
    
    
    
    3,558,761
    
    
    $
    1.13
    
    
    
    3,508,040
    
    
    $
    0.99
 6.
    
    Stock-Based CompensationAt September 30, 2005, the Company has one stock-based compensation
plan. The Company accounts for the plan under the recognition and
measurement principles of APB Opinion 25, Accounting for Stock Issued
to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted
under the plan had an exercise price equal to the market value of the
underlying common stock on the date of the grant. The following table
illustrates the effect on net income and earnings per share for the
Company had the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation, been applied to
stock-based compensation.
 September 30, 2005
    
    
    September 30, 2004Net Income, as reported
    
    $
    4,032,196
    
    
    $
    3,486,003Deduct: Total stock-based employee compensation
expense determined based on fair value
method of awards, net of tax
    
    
    
    
    
    
    (48,752
    )Pro forma net income
    
    $
    4,032,196
    
    
    $
    3,437,251Earnings per share:Basic  as reported
    
    $
    1.18
    
    
    $
    1.05Basic  pro forma
    
    
    1.18
    
    
    
    1.04Diluted  as reported
    
    
    1.13
    
    
    
    0.99Diluted  pro forma
    
    
    1.13
    
    
    
    0.98
 7.
    
    Employee Benefit PlanThe following table provides a reconciliation of the changes in the
defined benefit pension plans obligations for the
periods ended September 30, 2005 and 2004.
 Nine Months EndedSeptember 30,2005
    
    
    2004Service cost
    
    $
    287,240
    
    
    $
    341,877Interest cost
    
    
    170,240
    
    
    
    304,269Expected return on plan assets
    
    
    (150,858
    )
    
    
    (294,861
    )Amortization of transition obligation/(asset)
    
    
    (9,490
    )
    
    
    (14,235
    )Amortization of prior service cost
    
    
    3,884
    
    
    
    5,826Recognized net actuarial loss
    
    
    31,156
    
    
    
    29,517Net periodic benefit cost
    
    $
    332,172
    
    
    $
    372,393
  10




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  
    
    interest rates,
    
    general economic conditions,
    
    housing valuations within our market area
    
    the legislative/regulatory climate,
    
    monetary and fiscal policies of the U.S. Government, including the policies of
the U.S. Treasury and the Board of Governors of the Federal Reserve System,
    
    the quality or composition of The Fauquier Banks (the Bank) loan or investment portfolios,
    
    competition,
    
    demand for financial products and services in our market area, and
    
    accounting principles, policies and guidelines.
  GENERAL
    11




---



##### 



CRITICAL ACCOUNTING POLICIES
 GENERAL.
 ALLOWANCE FOR LOAN LOSSES.
 12




---



##### 



EXECUTIVE OVERVIEW
      NET INCOME.
 NET INTEREST INCOME.
  13




---



##### 



14




---



##### 



Three Months Ended September 30, 2005
    
    
    Three Months Ended September 30, 2004Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    352,164
    
    
    $
    5,771
    
    
    
    6.42
    %
    
    $
    320,795
    
    
    $
    5,041
    
    
    
    6.17
    %Tax-exempt (1)
    
    
    7,010
    
    
    
    128
    
    
    
    7.17
    %
    
    
    7,509
    
    
    
    137
    
    
    
    7.13
    %Nonaccrual
    
    
    91
    
    
    
    
    
    
    
    
    
    
    
    971
    
    
    
    Total loans
    
    
    359,265
    
    
    
    5,899
    
    
    
    6.44
    %
    
    
    329,275
    
    
    
    5,178
    
    
    
    6.17
    %SecuritiesTaxable
    
    
    49,124
    
    
    
    510
    
    
    
    4.15
    %
    
    
    50,841
    
    
    
    475
    
    
    
    3.74
    %Tax-exempt (1)
    
    
    1,029
    
    
    
    20
    
    
    
    7.70
    %
    
    
    1,211
    
    
    
    22
    
    
    
    7.19
    %Total securities
    
    
    50,153
    
    
    
    530
    
    
    
    4.23
    %
    
    
    52,052
    
    
    
    497
    
    
    
    3.82
    %Deposits in banks
    
    
    717
    
    
    
    1
    
    
    
    0.76
    %
    
    
    261
    
    
    
    1
    
    
    
    0.81
    %Federal funds sold
    
    
    902
    
    
    
    9
    
    
    
    3.87
    %
    
    
    5,561
    
    
    
    19
    
    
    
    1.35
    %Total earning assets
    
    
    411,037
    
    
    
    6,439
    
    
    
    6.15
    %
    
    
    387,149
    
    
    
    5,695
    
    
    
    5.78
    %Less: Reserve for loan losses
    
    
    (4,362
    )
    
    
    
    
    
    
    
    
    
    
    (3,839
    )Cash and due from banks
    
    
    18,146
    
    
    
    
    
    
    
    
    
    
    
    17,041Bank premises and equipment, net
    
    
    8,459
    
    
    
    
    
    
    
    
    
    
    
    8,782Other assets
    
    
    15,462
    
    
    
    
    
    
    
    
    
    
    
    11,598Total Assets
    
    $
    448,742
    
    
    
    
    
    
    
    
    
    
    $
    420,731LIABILITIES AND SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    90,949
    
    
    
    
    
    
    
    
    
    
    $
    82,410Interest-bearing depositsNOW accounts
    
    
    58,699
    
    
    
    18
    
    
    
    0.12
    %
    
    
    56,789
    
    
    
    21
    
    
    
    0.15
    %Premium NOW accounts
    
    
    36,165
    
    
    
    197
    
    
    
    2.16
    %
    
    
    35,047
    
    
    
    197
    
    
    
    2.23
    %Money market accounts
    
    
    58,447
    
    
    
    232
    
    
    
    1.57
    %
    
    
    73,662
    
    
    
    149
    
    
    
    0.80
    %Savings accounts
    
    
    41,868
    
    
    
    34
    
    
    
    0.32
    %
    
    
    40,939
    
    
    
    36
    
    
    
    0.35
    %Time deposits
    
    
    100,263
    
    
    
    796
    
    
    
    3.15
    %
    
    
    78,180
    
    
    
    503
    
    
    
    2.55
    %Total interest-bearing deposits
    
    
    295,442
    
    
    
    1,276
    
    
    
    1.71
    %
    
    
    284,617
    
    
    
    906
    
    
    
    1.26
    %Federal funds purchased and securities sold
under agreements to repurchase
    
    
    2,946
    
    
    
    31
    
    
    
    4.22
    %
    
    
    3
    
    
    
    
    
    
    
    1.86
    %Federal Home Loan Bank advances
    
    
    18,804
    
    
    
    204
    
    
    
    4.25
    %
    
    
    17,554
    
    
    
    186
    
    
    
    4.14
    %Capital Securities of Subsidiary Trust
    
    
    4,124
    
    
    
    72
    
    
    
    6.86
    %
    
    
    4,124
    
    
    
    53
    
    
    
    5.05
    %Total interest-bearing liabilities
    
    
    321,316
    
    
    
    1,584
    
    
    
    1.95
    %
    
    
    306,298
    
    
    
    1,146
    
    
    
    1.48
    %Other liabilities
    
    
    2,377
    
    
    
    
    
    
    
    
    
    
    
    2,451Shareholders equity
    
    
    34,100
    
    
    
    
    
    
    
    
    
    
    
    29,572Total Liabilities & Shareholders
Equity
    
    $
    448,742
    
    
    
    
    
    
    
    
    
    
    $
    420,731Net interest spread
    
    
    
    
    
    $
    4,855
    
    
    
    4.20
    %
    
    
    
    
    
    $
    4,549
    
    
    
    4.30
    %Interest expense as a percent of average earning assets
    
    
    
    
    
    
    1.53
    %
    
    
    
    
    
    
    
    
    
    
    1.17
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.63
    %
    
    
    
    
    
    
    
    
    
    
    4.61
    %
  (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent
basis using a federal tax rate of 34%.
 15




---



##### 



Three Months Ended September 30, 2005 Compared toThree Months Ended September 30, 2004Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOMELoans; taxable
    
    $
    730
    
    
    $
    501
    
    
    $
    229Loans; tax-exempt (1)
    
    
    (9
    )
    
    
    (10
    )
    
    
    1Securities; taxable
    
    
    35
    
    
    
    (14
    )
    
    
    49Securities; tax-exempt (1)
    
    
    (2
    )
    
    
    (4
    )
    
    
    2Deposits in banks
    
    
    
    
    
    
    
    
    
    
    Federal funds sold
    
    
    (10
    )
    
    
    (16
    )
    
    
    6Total Interest Income
    
    
    744
    
    
    
    457
    
    
    
    287INTEREST EXPENSENOW accounts
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Premium NOW accounts
    
    
    
    
    
    
    
    
    
    
    Money market accounts
    
    
    83
    
    
    
    (22
    )
    
    
    105Savings accounts
    
    
    (2
    )
    
    
    1
    
    
    
    (3
    )Time deposits
    
    
    292
    
    
    
    160
    
    
    
    132Federal funds purchased and securities
sold under agreements to repurchase
    
    
    31
    
    
    
    31
    
    
    
    Federal Home Loan Bank Advances
    
    
    18
    
    
    
    14
    
    
    
    4Capital Securities of Subsidiary Trust
    
    
    19
    
    
    
    
    
    
    
    19Total Interest Expense
    
    
    438
    
    
    
    184
    
    
    
    254Net Interest Income
    
    $
    306
    
    
    $
    273
    
    
    $
    33
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%.  PROVISION FOR LOAN LOSSES.
 16




---



##### 



TOTAL OTHER INCOME.
 TOTAL OTHER EXPENSES.
   NET INCOME.
 NET INTEREST INCOME.
 17




---



##### 



18




---



##### 



Nine Months Ended September 30, 2005
    
    
    Nine Months Ended September 30, 2004Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    345,089
    
    
    $
    16,674
    
    
    
    6.38
    %
    
    $
    306,797
    
    
    $
    14,431
    
    
    
    6.19
    %Tax-exempt (1)
    
    
    7,147
    
    
    
    388
    
    
    
    7.16
    %
    
    
    8,074
    
    
    
    441
    
    
    
    7.18
    %Nonaccrual
    
    
    124
    
    
    
    
    
    
    
    
    
    
    
    965
    
    
    
    Total loans
    
    
    352,360
    
    
    
    17,062
    
    
    
    6.40
    %
    
    
    315,836
    
    
    
    14,872
    
    
    
    6.20
    %SecuritiesTaxable
    
    
    52,742
    
    
    
    1,586
    
    
    
    4.01
    %
    
    
    48,968
    
    
    
    1,245
    
    
    
    3.35
    %Tax-exempt (1)
    
    
    1,023
    
    
    
    59
    
    
    
    7.74
    %
    
    
    1,223
    
    
    
    65
    
    
    
    7.12
    %Total securities
    
    
    53,765
    
    
    
    1,645
    
    
    
    4.08
    %
    
    
    50,191
    
    
    
    1,310
    
    
    
    3.44
    %Deposits in banks
    
    
    360
    
    
    
    4
    
    
    
    1.55
    %
    
    
    2,908
    
    
    
    19
    
    
    
    0.85
    %Federal funds sold
    
    
    2,114
    
    
    
    46
    
    
    
    2.89
    %
    
    
    5,038
    
    
    
    40
    
    
    
    1.05
    %Total earning assets
    
    
    408,599
    
    
    
    18,757
    
    
    
    6.07
    %
    
    
    373,973
    
    
    
    16,241
    
    
    
    5.72
    %Less: Reserve for loan losses
    
    
    (4,217
    )
    
    
    
    
    
    
    
    
    
    
    (3,743
    )Cash and due from banks
    
    
    16,890
    
    
    
    
    
    
    
    
    
    
    
    17,989Bank premises and equipment, net
    
    
    8,461
    
    
    
    
    
    
    
    
    
    
    
    8,264Other assets
    
    
    14,975
    
    
    
    
    
    
    
    
    
    
    
    10,132Total Assets
    
    $
    444,708
    
    
    
    
    
    
    
    
    
    
    $
    406,615LIABILITIES AND SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    86,567
    
    
    
    
    
    
    
    
    
    
    $
    78,930Interest-bearing depositsNOW accounts
    
    
    60,179
    
    
    
    57
    
    
    
    0.13
    %
    
    
    56,403
    
    
    
    61
    
    
    
    0.14
    %Premium NOW accounts
    
    
    41,709
    
    
    
    682
    
    
    
    2.19
    %
    
    
    21,948
    
    
    
    369
    
    
    
    2.24
    %Money market accounts
    
    
    60,396
    
    
    
    593
    
    
    
    1.31
    %
    
    
    70,331
    
    
    
    426
    
    
    
    0.81
    %Savings accounts
    
    
    42,495
    
    
    
    105
    
    
    
    0.33
    %
    
    
    40,619
    
    
    
    109
    
    
    
    0.36
    %Time deposits
    
    
    92,329
    
    
    
    2,081
    
    
    
    3.01
    %
    
    
    77,853
    
    
    
    1,466
    
    
    
    2.51
    %Total interest-bearing deposits
    
    
    297,108
    
    
    
    3,518
    
    
    
    1.58
    %
    
    
    267,154
    
    
    
    2,431
    
    
    
    1.21
    %Federal funds purchased and securities sold
under agreements to repurchase
    
    
    2,363
    
    
    
    58
    
    
    
    3.30
    %
    
    
    3,484
    
    
    
    34
    
    
    
    1.29
    %Federal Home Loan Bank advances
    
    
    19,337
    
    
    
    626
    
    
    
    4.27
    %
    
    
    21,673
    
    
    
    593
    
    
    
    3.59
    %Capital Securities of Subsidiary Trust
    
    
    4,124
    
    
    
    202
    
    
    
    6.46
    %
    
    
    4,124
    
    
    
    149
    
    
    
    4.75
    %Total interest-bearing liabilities
    
    
    322,932
    
    
    
    4,404
    
    
    
    1.82
    %
    
    
    296,435
    
    
    
    3,207
    
    
    
    1.44
    %Other liabilities
    
    
    2,022
    
    
    
    
    
    
    
    
    
    
    
    2,157Shareholders equity
    
    
    33,187
    
    
    
    
    
    
    
    
    
    
    
    29,093Total Liabilities & Shareholders
Equity
    
    $
    444,708
    
    
    
    
    
    
    
    
    
    
    $
    406,615Net interest spread
    
    
    
    
    
    $
    14,353
    
    
    
    4.25
    %
    
    
    
    
    
    $
    13,034
    
    
    
    4.28
    %Interest expense as a percent of average earning assets
    
    
    
    
    
    
    1.44
    %
    
    
    
    
    
    
    
    
    
    
    1.14
    %Net interest margin
    
    
    
    
    
    
    4.63
    %
    
    
    
    
    
    
    
    
    
    
    4.58
    %
  (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%.
 19




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##### 



RATE/VOLUME ANALYSIS
  
 Nine Months Ended September 30, 2005 Compared toNine Months Ended September 30, 2004Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOMELoans; taxable
    
    $
    2,243
    
    
    $
    1,836
    
    
    $
    407Loans; tax-exempt (1)
    
    
    (53
    )
    
    
    (51
    )
    
    
    (2
    )Securities; taxable
    
    
    341
    
    
    
    100
    
    
    
    241Securities; tax-exempt (1)
    
    
    (6
    )
    
    
    (13
    )
    
    
    7Deposits in banks
    
    
    (15
    )
    
    
    (78
    )
    
    
    63Federal funds sold
    
    
    6
    
    
    
    (3
    )
    
    
    9Total Interest Income
    
    
    2,516
    
    
    
    1,791
    
    
    
    725INTEREST EXPENSENOW accounts
    
    
    (4
    )
    
    
    2
    
    
    
    (6
    )Premium NOW accounts
    
    
    313
    
    
    
    322
    
    
    
    (9
    )Money market accounts
    
    
    167
    
    
    
    (51
    )
    
    
    218Savings accounts
    
    
    (4
    )
    
    
    7
    
    
    
    (11
    )Time deposits
    
    
    615
    
    
    
    299
    
    
    
    316Federal funds purchased and securities
sold under agreements to repurchase
    
    
    24
    
    
    
    (38
    )
    
    
    62Federal Home Loan Bank Advances
    
    
    33
    
    
    
    (48
    )
    
    
    81Capital Securities of Subsidiary Trust
    
    
    53
    
    
    
    
    
    
    
    53Total Interest Expense
    
    
    1,197
    
    
    
    493
    
    
    
    704Net Interest Income
    
    $
    1,319
    
    
    $
    1,298
    
    
    $
    21
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax
equivalent basis using a federal tax rate of 34%. PROVISION FOR LOAN LOSSES.
 TOTAL OTHER INCOME.
 20




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##### 



TOTAL OTHER EXPENSES.
 COMPARISON OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004 FINANCIAL CONDITION
  CASH AND DUE FROM BANKS.
 SECURITIES, AT FAIR VALUE.
 LOANS.
 DEPOSITS
 FEDERAL FUNDS PURCHASED.
 FEDERAL HOME LOAN BANK ADVANCES.
 ASSET QUALITY
  21




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##### 



CONTRACTUAL OBLIGATIONS
  OFF-BALANCE SHEET ARRANGEMENTS
  CAPITAL RESOURCES
     22




---



##### 



September 30, 2005
    
    
    December 31, 2004Tier 1 Capital:Shareholders Equity
    
    $
    34,644
    
    
    $
    31,891Plus: Unrealized loss on securities available for sale
    
    
    343
    
    
    
    46Less: Intangible assets, net
    
    
    (45
    )
    
    
    (58
    )Plus: Company-obligated madatorily redeemable capital
securities
    
    
    4,000
    
    
    
    4,000Total Tier 1 Capital
    
    
    38,942
    
    
    
    35,879Tier 2 Capital:Allowable Allowance for Loan Losses
    
    
    4,280
    
    
    
    4,060Total Capital
    
    $
    43,222
    
    
    $
    39,939Risk Weighted Assets:
    
    $
    342,332
    
    
    $
    330,177Regulatory Capital Ratios:Leverage Ratio
    
    
    8.51
    %
    
    
    8.30
    %Tier 1 to Risk Weighted Assets
    
    
    11.38
    %
    
    
    10.87
    %Total Capital to Risk Weighted Assets
    
    
    12.63
    %
    
    
    12.10
    %
 LIQUIDITY
   23




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##### 



September 30, 2005
    
    
    December 31, 2004Total
    
    
    In Use
    
    
    Available
    
    
    Total
    
    
    In Use
    
    
    AvailableSources:Federal funds borrowing lines of credit
    
    $
    42,806
    
    
    $
    4,500
    
    
    $
    38,306
    
    
    $
    37,800
    
    
    $
    
    
    
    $
    37,800Federal Reserve discount window
    
    
    245
    
    
    
    
    
    
    
    245
    
    
    
    369
    
    
    
    
    
    
    
    369Federal Home Loan Bank advances*
    
    
    81,153
    
    
    
    22,000
    
    
    
    59,153
    
    
    
    80,658
    
    
    
    15,000
    
    
    
    65,658Federal funds sold
    
    
    
    
    
    
    
    
    
    
    208
    
    
    
    
    
    
    
    
    
    
    
    109Securities, available for sale and
unpledged
at fair value
    
    
    
    
    
    
    
    
    
    
    28,349
    
    
    
    
    
    
    
    
    
    
    
    47,232Total short-term funding sources
    
    $
    124,204
    
    
    $
    26,500
    
    
    $
    126,261
    
    
    $
    118,827
    
    
    $
    15,000
    
    
    $
    151,168Uses:Unfunded loan commitments and
lending lines of credit
    
    
    
    
    
    
    
    
    
    $
    92,189
    
    
    
    
    
    
    
    
    
    
    $
    71,612Letters of credit
    
    
    
    
    
    
    
    
    
    
    11,360
    
    
    
    
    
    
    
    
    
    
    
    11,343Total potential short-term funding uses
    
    
    
    
    
    
    
    
    
    $
    103,549
    
    
    
    
    
    
    
    
    
    
    $
    82,955Ratio of short-term funding sources to
potential short-term funding uses
    
    
    
    
    
    
    
    
    
    
    121.9
    %
    
    
    
    
    
    
    
    
    
    
    182.2
    %
 
 *
    
    Represents the Lendable Collateral Value of blanket lien with the FHLB of
Atlanta as of the date indicated. The Banks line of credit with the FHLB of
Atlanta had a borrowing limit of $137.3 million and $127.4 million at September
30, 2005 and
December 31, 2004, respectively. Additional collateral would be required to be
added to the blanket lien for total borrowings in
excess of Landable Collateral Value.  RECENT ACCOUNTING PRONOUNCEMENTS
   24




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##### 



25




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##### 



Part II. OTHER INFORMATION
            3.1
    
    Articles of Incorporation of Fauquier Bankshares, Inc., as amended, incorporated by
reference to Exhibit 3(i) to registration statement on Form 10 filed April 16, 19993.2
    
    Bylaws of Fauquier Bankshares, Inc., incorporated by reference to
Exhibit 3(ii) to registration statement on Form 10 filed April 16, 199911
    
    Refer to Part I, Item 1, Footnote 5 to the Consolidated Financial Statements.31.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)31.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350 of Chief Financial Officer
 26




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##### 



Date: November 10, 2005
    /s/ Randy K. FerrellRandy K. FerrellPresident and Chief Executive Officer
(principal executive officer) Date: November 10, 2005
    /s/ Eric P. GraapEric P. GraapSenior Vice President and Chief Financial Officer
(principal financial and accounting officer) 27