##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2007
 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 o þ
 o þ




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##### 



FAUQUIER BANKSHARES, INC.
  PagePart I.
    
    FINANCIAL INFORMATION
    
    3Item 1.
    
    Financial Statements
    
    3Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006
    
    3Consolidated Statements of Income (unaudited) for the Three Months Ended September 30, 2007 and 2006
    
    4Consolidated Statements of Income (unaudited) for the Nine Months Ended September 30, 2007 and 2006
    
    5Consolidated Statements of Changes in Shareholders Equity (unaudited) for the Nine Months EndedSeptember 30, 2007 and 2006
    
    6Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2007and 2006
    
    7Notes to Consolidated Financial Statements
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    30Item 4.
    
    Controls and Procedures
    
    30Part II.
    
    OTHER INFORMATION
    
    31Item 1.
    
    Legal Proceedings
    
    31Item 1A.
    
    Risk Factors
    
    31Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    31Item 3.
    
    Defaults Upon Senior Securities
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    31Item 5.
    
    Other Information
    
    31Item 6.
    
    Exhibits
    
    31SIGNATURES
    
    
    
    32
  -2-




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
 Unaudited
    
    
    AuditedSeptember 30,
    
    
    December 31,2007
    
    
    2006AssetsCash and due from banks
    
    $
    16,084,779
    
    
    $
    21,019,764Interest-bearing deposits in other banks
    
    
    309,872
    
    
    
    537,891Federal funds sold
    
    
    20,000
    
    
    
    20,122,000Securities available for sale
    
    
    40,508,371
    
    
    
    40,352,775Loans, net of allowance for loan losses of $4,413,196
in 2007 and $4,470,533 in 2006
    
    
    406,346,425
    
    
    
    416,061,150Bank premises and equipment, net
    
    
    7,273,295
    
    
    
    7,584,089Accrued interest receivable
    
    
    1,766,875
    
    
    
    1,802,379Other assets
    
    
    14,183,834
    
    
    
    14,282,097Total assets
    
    $
    486,493,451
    
    
    $
    521,762,145Liabilities and Shareholders EquityDeposits:Noninterest-bearing
    
    $
    73,011,299
    
    
    $
    85,495,160Interest-bearing
    
    
    325,294,882
    
    
    
    330,576,258Total deposits
    
    
    398,306,181
    
    
    
    416,071,418Federal funds purchased
    
    
    4,400,000
    
    
    
    Federal Home Loan Bank advances
    
    
    35,000,000
    
    
    
    55,000,000Company-obligated mandatorily redeemable
capital securities
    
    
    4,124,000
    
    
    
    8,248,000Other liabilities
    
    
    3,929,148
    
    
    
    3,730,778Commitments and contingencies
    
    
    
    
    
    
    Total liabilities
    
    
    445,759,329
    
    
    
    483,050,196Shareholders EquityCommon stock, par value, $3.13; authorized 8,000,000
shares: issued and outstanding, 2007: 3,541,514 shares
(includes nonvested shares of 31,190);
2006: 3,478,960 shares (includes nonvested shares of
31,829)
    
    
    10,987,314
    
    
    
    10,789,521Retained earnings
    
    
    30,643,651
    
    
    
    28,962,409Accumulated other comprehensive income (loss), net
    
    
    (896,843
    )
    
    
    (1,039,981
    )Total shareholders equity
    
    
    40,734,122
    
    
    
    38,711,949Total liabilities and shareholders equity
    
    $
    486,493,451
    
    
    $
    521,762,145
  -3-




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended September 30, 2007 and 2006
 2007
    
    
    2006Interest IncomeInterest and fees on loans
    
    $
    7,227,839
    
    
    $
    7,371,651Interest and dividends on securities available for sale:Taxable interest income
    
    
    372,966
    
    
    
    394,861Interest income exempt from federal income taxes
    
    
    37,774
    
    
    
    13,189Dividends
    
    
    47,046
    
    
    
    79,041Interest on federal funds sold
    
    
    15,432
    
    
    
    4,783Interest on deposits in other banks
    
    
    5,322
    
    
    
    11,877Total interest income
    
    
    7,706,379
    
    
    
    7,875,402Interest ExpenseInterest on deposits
    
    
    2,542,449
    
    
    
    2,142,033Interest on federal funds purchased
    
    
    45,709
    
    
    
    184,898Interest on Federal Home Loan Bank advances
    
    
    436,153
    
    
    
    549,514Distribution on capital securities of subsidiary trusts
    
    
    72,652
    
    
    
    100,490Total interest expense
    
    
    3,096,963
    
    
    
    2,976,935Net interest income
    
    
    4,609,416
    
    
    
    4,898,467Provision for loan losses
    
    
    120,000
    
    
    
    60,000Net interest
income after provision for loan losses
    
    
    4,489,416
    
    
    
    4,838,467Other IncomeWealth management income
    
    
    358,441
    
    
    
    337,088Service charges on deposit accounts
    
    
    762,328
    
    
    
    704,079Other service charges, commissions and income
    
    
    417,358
    
    
    
    377,748Total other income
    
    
    1,538,127
    
    
    
    1,418,915Other ExpensesSalaries and benefits
    
    
    2,295,427
    
    
    
    2,265,102Net occupancy expense of premises
    
    
    265,361
    
    
    
    240,509Furniture and equipment
    
    
    306,121
    
    
    
    329,785Advertising expense
    
    
    139,700
    
    
    
    145,826Consulting expense
    
    
    226,930
    
    
    
    161,932Data processing expense
    
    
    343,970
    
    
    
    284,461Other operating expenses
    
    
    705,891
    
    
    
    693,554Total other expenses
    
    
    4,283,400
    
    
    
    4,121,169Income before income taxes
    
    
    1,744,143
    
    
    
    2,136,213Income tax expense
    
    
    534,006
    
    
    
    652,882Net Income
    
    $
    1,210,137
    
    
    $
    1,483,331Earnings per Share, basic
    
    $
    0.34
    
    
    $
    0.43Earnings per Share, assuming dilution
    
    $
    0.34
    
    
    $
    0.41Dividends per Share
    
    $
    0.20
    
    
    $
    0.19
  -4-




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006
 2007
    
    
    2006Interest IncomeInterest and fees on loans
    
    $
    21,739,829
    
    
    $
    20,700,435Interest and dividends on securities available for sale:Taxable interest income
    
    
    1,108,418
    
    
    
    1,208,183Interest income exempt from federal income taxes
    
    
    67,262
    
    
    
    39,441Dividends
    
    
    190,450
    
    
    
    201,036Interest on federal funds sold
    
    
    81,983
    
    
    
    22,188Interest on deposits in other banks
    
    
    25,984
    
    
    
    23,155Total interest income
    
    
    23,213,926
    
    
    
    22,194,438Interest ExpenseInterest on deposits
    
    
    7,503,724
    
    
    
    5,559,707Interest on federal funds purchased
    
    
    184,154
    
    
    
    389,348Interest on Federal Home Loan Bank advances
    
    
    1,339,757
    
    
    
    1,431,951Distribution on capital securities of subsidiary trusts
    
    
    300,094
    
    
    
    273,213Total interest expense
    
    
    9,327,729
    
    
    
    7,654,219Net interest income
    
    
    13,886,197
    
    
    
    14,540,219Provision for loan losses
    
    
    360,000
    
    
    
    360,000Net interest
income after provision for loan losses
    
    
    13,526,197
    
    
    
    14,180,219Other IncomeWealth management income
    
    
    1,051,999
    
    
    
    1,000,969Service charges on deposit accounts
    
    
    2,139,644
    
    
    
    2,063,531Other service charges, commissions and income
    
    
    1,282,355
    
    
    
    1,103,153Gain on sale of property rights
    
    
    
    
    
    
    250,000Loss on sale of securities
    
    
    
    
    
    
    (82,564
    )Total other income
    
    
    4,473,998
    
    
    
    4,335,089Other ExpensesSalaries and benefits
    
    
    6,956,868
    
    
    
    6,769,925Net occupancy expense of premises
    
    
    798,644
    
    
    
    744,310Furniture and equipment
    
    
    889,830
    
    
    
    1,009,291Advertising expense
    
    
    421,793
    
    
    
    410,659Consulting expense
    
    
    660,820
    
    
    
    689,192Data processing expense
    
    
    956,511
    
    
    
    837,974Other operating expenses
    
    
    2,053,162
    
    
    
    2,080,316Total other expenses
    
    
    12,737,628
    
    
    
    12,541,667Income before income taxes
    
    
    5,262,567
    
    
    
    5,973,641Income tax expense
    
    
    1,600,519
    
    
    
    1,804,886Net Income
    
    $
    3,662,048
    
    
    $
    4,168,755Earnings per Share, basic
    
    $
    1.05
    
    
    $
    1.20Earnings per Share, assuming dilution
    
    $
    1.03
    
    
    $
    1.16Dividends per Share
    
    $
    0.590
    
    
    $
    0.555
  -5-




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006
 AccumulatedOtherCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Income
    
    
    TotalBalance, December 31, 2005
    
    $
    10,794,700
    
    
    $
    25,440,838
    
    
    $
    (656,393
    )
    
    
    
    
    
    $
    35,579,145Comprehensive income:Net income
    
    
    
    
    
    
    4,168,755
    
    
    
    
    
    
    $
    4,168,755
    
    
    
    4,168,755Other comprehensive income net of tax:Unrealized holding losses on securities
available for sale, net of deferred income taxes of $95,003
    
    
    
    
    
    
    
    
    
    
    184,417
    
    
    
    184,417
    
    
    
    184,417Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,353,172Cash dividends ($.555 per share)
    
    
    
    
    
    
    (1,928,695
    )
    
    
    
    
    
    
    
    
    
    
    (1,928,695
    )Acquisition of 1,900 shares of common stock
    
    
    (5,947
    )
    
    
    (37,258
    )
    
    
    
    
    
    
    
    
    
    
    (43,205
    )SFAS No. 123(R) implementation adjustment
    
    
    (67,238
    )
    
    
    67,238Net issuance of restricted stock, stock
incentive plan (10,347 shares)
    
    
    32,386
    
    
    
    228,772
    
    
    
    
    
    
    
    
    
    
    
    261,158Unearned compensation on restricted stock
    
    
    
    
    
    
    (261,158
    )
    
    
    
    
    
    
    
    
    
    
    (261,158
    )Amortization of unearned compensation,
restricted stock awards
    
    
    
    
    
    
    161,573
    
    
    
    
    
    
    
    
    
    
    
    161,573Issuance of common stock
    
    
    15,797
    
    
    
    108,492
    
    
    
    
    
    
    
    
    
    
    
    124,289Exercise of stock options
    
    
    45,949
    
    
    
    33,749
    
    
    
    
    
    
    
    
    
    
    
    79,698Balance, September 30, 2006
    
    $
    10,815,647
    
    
    $
    27,982,306
    
    
    $
    (471,976
    )
    
    
    
    
    
    $
    38,325,977Balance, December 31, 2006
    
    $
    10,789,521
    
    
    $
    28,962,409
    
    
    $
    (1,039,981
    )
    
    
    
    
    
    $
    38,711,949Comprehensive income:Net income
    
    
    
    
    
    
    3,662,048
    
    
    
    
    
    
    $
    3,662,048
    
    
    
    3,662,048Other comprehensive income net of tax:Unrealized holding losses on securities
available
for sale, net of deferred income taxes
of $73,738
    
    
    
    
    
    
    
    
    
    
    143,138
    
    
    
    143,138
    
    
    
    143,138Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,805,186Cash dividends ($.59 per share)
    
    
    
    
    
    
    (2,089,302
    )
    
    
    
    
    
    
    
    
    
    
    (2,089,302
    )Acquisition of 27,370 shares of common stock
    
    
    (85,668
    )
    
    
    (516,802
    )
    
    
    
    
    
    
    
    
    
    
    (602,470
    )Amortization of unearned compensation,
restricted stock awards
    
    
    
    
    
    
    191,685
    
    
    
    
    
    
    
    
    
    
    
    191,685Issuance of
common stock  nonvested shares
(11, 437 shares)
    
    
    35,797
    
    
    
    (35,797
    )Exercise of stock options
    
    
    247,664
    
    
    
    469,410
    
    
    
    
    
    
    
    
    
    
    
    717,074Balance, September 30, 2007
    
    $
    10,987,314
    
    
    $
    30,643,651
    
    
    $
    (896,843
    )
    
    
    
    
    
    $
    40,734,122
  -6-




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30, 2007 and 2006
 2007
    
    
    2006Cash Flows from Operating ActivitiesNet income
    
    $
    3,662,048
    
    
    $
    4,168,755Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    773,598
    
    
    
    901,951Provision for loan losses
    
    
    360,000
    
    
    
    360,000Amortization (accretion) of security
premiums, net
    
    
    3,049
    
    
    
    18,958Amortization of unearned compensation
    
    
    191,685
    
    
    
    161,573Changes in assets and liabilities:Decrease in other assets
    
    
    60,029
    
    
    
    213,350Decrease in other liabilities
    
    
    198,370
    
    
    
    263,228Net cash provided
by operating
activities
    
    
    5,248,779
    
    
    
    6,087,815Cash Flows from Investing ActivitiesProceeds from sale of securities available for sale
    
    
    
    
    
    
    3,024,745Proceeds from maturities, calls and principal
payments of securities available for sale
    
    
    2,951,459
    
    
    
    3,192,165Purchase of securities available for sale
    
    
    (3,816,728
    )
    
    
    Purchase of premises and equipment
    
    
    (462,804
    )
    
    
    (360,923
    )Purchase (proceeds) from sale of other bank stock
    
    
    923,500
    
    
    
    (373,900
    )Net decrease (increase) in loans
    
    
    9,354,725
    
    
    
    (33,194,904
    )Net cash provided
by (used in)
investing
activities
    
    
    8,950,152
    
    
    
    (27,712,817
    )Cash Flows from Financing ActivitiesNet increase (decrease) in demand deposits, NOW accounts
and savings accounts
    
    
    12,308,976
    
    
    
    (23,227,413
    )Net (decrease) increase in certificates of deposit
    
    
    (30,074,213
    )
    
    
    26,819,242Federal Home Loan Bank advances
    
    
    35,000,000
    
    
    
    70,000,000Federal Home Loan Bank principal repayments
    
    
    (55,000,000
    )
    
    
    (64,000,000
    )Purchase (repayment) of federal funds
    
    
    4,400,000
    
    
    
    (3,974,000
    )(Repayment) issuance of trust preferred securities
    
    
    (4,124,000
    )
    
    
    4,124,000Cash dividends paid on common stock
    
    
    (2,089,302
    )
    
    
    (1,928,695
    )Issuance of common stock
    
    
    717,074
    
    
    
    203,986Acquisition of common stock
    
    
    (602,470
    )
    
    
    (43,204
    )Net cash (used in)
provided by
financing
activities
    
    
    (39,463,935
    )
    
    
    7,973,916(Decrease) in cash
and cash
equivalents
    
    
    (25,265,004
    )
    
    
    (13,651,086
    )Cash and Cash EquivalentsBeginning
    
    
    41,679,655
    
    
    
    27,738,715Ending
    
    $
    16,414,651
    
    
    $
    14,087,629Supplemental Disclosures of Cash Flow InformationCash payments for:Interest
    
    $
    7,685,021
    
    
    $
    5,357,341Income taxes
    
    $
    1,363,000
    
    
    $
    1,534,000Supplemental Disclosures of Noncash Investing ActivitiesUnrealized gain (loss) on securities available for sale, net
of tax effect
    
    $
    143,138
    
    
    $
    (279,419
    )
  -7-




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
 1.
    
    General
   2.
    
    Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueSeptember 30, 2007Obligations
of U.S. Government corporations
and agencies
    
    $
    26,588,109
    
    
    $
    2,360
    
    
    $
    (304,702
    )
    
    $
    26,285,767Obligations of states and political
subdivisions
    
    
    4,757,722
    
    
    
    42,276
    
    
    
    (23,451
    )
    
    
    4,776,547Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (17,500
    )
    
    
    5,982,500Mutual Funds
    
    
    288,486
    
    
    
    
    
    
    
    (10,349
    )
    
    
    278,137FHLMC Preferred Bank Stock
    
    
    441,000
    
    
    
    
    
    
    
    (31,000
    )
    
    
    410,000Restricted investments:Federal Home Loan Bank Stock
    
    
    2,513,500
    
    
    
    
    
    
    
    
    
    
    
    2,513,500Federal Reserve Bank Stock
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000The Bankers Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    40,850,737
    
    
    $
    44,636
    
    
    $
    (387,002
    )
    
    $
    40,508,371
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueDecember 31, 2006Obligations of U.S.
Government corporations
and agencies
    
    $
    29,529,836
    
    
    $
    2,029
    
    
    $
    (599,698
    )
    
    $
    28,932,167Obligations of states and political
subdivisions
    
    
    962,814
    
    
    
    48,740
    
    
    
    
    
    
    
    1,011,554Corporate Bonds
    
    
    6,000,000
    
    
    
    27,500
    
    
    
    (42,500
    )
    
    
    5,985,000Mutual Funds
    
    
    279,445
    
    
    
    
    
    
    
    (9,311
    )
    
    
    270,134FHLMC Preferred Bank Stock
    
    
    441,000
    
    
    
    14,000
    
    
    
    
    
    
    
    455,000Restricted investments:Federal Home Loan Bank Stock
    
    
    3,437,000
    
    
    
    
    
    
    
    
    
    
    
    3,437,000Federal Reserve Bank Stock
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000The Bankers Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    40,912,015
    
    
    $
    92,269
    
    
    $
    (651,509
    )
    
    $
    40,352,775
 -8-




---



##### 



September 30, 2007Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    9,578,107
    
    
    $
    9,511,970Due after one year through five years
    
    
    5,017,231
    
    
    
    4,962,327Due after five years through ten years
    
    
    4,749,323
    
    
    
    4,700,879Due after ten years
    
    
    18,001,170
    
    
    
    17,869,638Equity securities
    
    
    3,504,906
    
    
    
    3,463,557$
    40,850,737
    
    
    $
    40,508,371
  September 30, 2007
    
    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 and agencies
    
    $
    
    
    
    $
    
    
    
    $
    22,468,330
    
    
    $
    (304,702
    )
    
    $
    22,468,330
    
    
    $
    (304,702
    )Obligations of states and political
subdivisions
    
    
    2,104,697
    
    
    
    (23,451
    )
    
    
    
    
    
    
    
    
    
    
    2,104,697
    
    
    
    (23,451
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    982,500
    
    
    
    (17,500
    )
    
    
    982,500
    
    
    
    (17,500
    )Subtotal, debt securities
    
    
    2,104,697
    
    
    
    (23,451
    )
    
    
    23,450,830
    
    
    
    (322,202
    )
    
    
    25,555,527
    
    
    
    (345,653
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    278,137
    
    
    
    (10,349
    )
    
    
    278,137
    
    
    
    (10,349
    )FHLMC preferred bank stock
    
    
    441,000
    
    
    
    (31,000
    )
    
    
    
    
    
    
    
    
    
    
    441,000
    
    
    
    (31,000
    )Total temporary impaired securities
    
    $
    2,545,697
    
    
    $
    (54,451
    )
    
    $
    23,728,967
    
    
    $
    (332,551
    )
    
    $
    26,274,664
    
    
    $
    (387,002
    )
 December 31, 2006
    
    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 and agencies
    
    $
    
    
    
    $
    
    
    
    $
    28,734,320
    
    
    $
    (599,698
    )
    
    $
    28,734,320
    
    
    $
    (599,698
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    3,957,500
    
    
    
    (42,500
    )
    
    
    3,957,500
    
    
    
    (42,500
    )Subtotal, debt securities
    
    
    
    
    
    
    
    
    
    
    32,691,820
    
    
    
    (642,198
    )
    
    
    32,691,820
    
    
    
    (642,198
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    279,445
    
    
    
    (9,311
    )
    
    
    279,445
    
    
    
    (9,311
    )Total temporary impaired securities
    
    $
    
    
    
    $
    
    
    
    $
    32,971,265
    
    
    $
    (651,509
    )
    
    $
    32,971,265
    
    
    $
    (651,509
    )
 -9-




---



##### 



3.
    
    Loans
  September 30,
    
    
    December 31,2007
    
    
    2006(Thousands)Real estate loans:Construction
    
    $
    33,556
    
    
    $
    33,662Secured by farmland
    
    
    1,370
    
    
    
    1,365Secured by 1 - to - 4 family residential
    
    
    169,164
    
    
    
    168,310Other real estate loans
    
    
    134,129
    
    
    
    134,955Commercial and industrial loans (not secured
by real estate)
    
    
    37,625
    
    
    
    41,508Consumer installment loans
    
    
    26,193
    
    
    
    31,952All other loans
    
    
    9,109
    
    
    
    9,273Total loans
    
    $
    411,146
    
    
    $
    421,025Unearned income
    
    
    (387
    )
    
    
    (493
    )Allowance for loan losses
    
    
    (4,413
    )
    
    
    (4,471
    )Net loans
    
    $
    406,346
    
    
    $
    416,061
 -10-




---



##### 



Nine
    
    
    Nine
    
    
    TwelveMonths
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    December 31,2007
    
    
    2006
    
    
    2006Balance at beginning of year
    
    $
    4,470,533
    
    
    $
    4,238,143
    
    
    $
    4,238,143Provision for loan losses
    
    
    360,000
    
    
    
    360,000
    
    
    
    360,000Recoveries of loans previously charged-off
    
    
    43,701
    
    
    
    113,112
    
    
    
    128,463Loan losses charged-off
    
    
    (461,038
    )
    
    
    (198,741
    )
    
    
    (256,073
    )Balance at end of year
    
    $
    4,413,196
    
    
    $
    4,512,514
    
    
    $
    4,470,533
  September 30,
    
    
    December 31,2007
    
    
    2006(Thousands)Nonaccrual loans
    
    $
    1,240
    
    
    $
    1,608Restructured loans
    
    
    
    
    
    
    Total nonperforming loans
    
    
    1,240
    
    
    
    1,608Foreclosed property
    
    
    142
    
    
    
    140Total nonperforming assets
    
    $
    1,382
    
    
    $
    1,748
  4.
    
    Company-Obligated Mandatorily Redeemable Capital Securities of Subsidiary Trusts
    -11-




---



##### 



5.
    
    Earnings per Share
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedSeptember 30, 2007
    
    
    September 30, 2006Per Share
    
    
    
    
    
    
    Per ShareShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBasic earnings per share
    
    
    3,513,130
    
    
    $
    0.34
    
    
    
    3,477,402
    
    
    $
    0.43Effect of dilutive
securities, stock-based
awards
    
    
    45,179
    
    
    
    
    
    
    
    105,0393,558,309
    
    
    $
    0.34
    
    
    
    3,582,441
    
    
    $
    0.41
 Nine Months
    
    
    Nine MonthsEnded
    
    
    EndedSeptember 30, 2007
    
    
    September 30, 2006Per Share
    
    
    
    
    
    
    Per ShareShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBasic earnings per share
    
    
    3,503,844
    
    
    $
    1.05
    
    
    
    3,471,194
    
    
    $
    1.20Effect of dilutive
securities, stock-based
awards
    
    
    63,522
    
    
    
    
    
    
    
    110,1373,567,366
    
    
    $
    1.03
    
    
    
    3,581,331
    
    
    $
    1.16
 6.
    
    Stock-Based Compensation
   -12-




---



##### 



Nine Months EndedSeptember 30, 2007WeightedAverage
    
    
    AverageNumber of
    
    
    Exercise
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value (1)Outstanding at January 1
    
    
    177,466
    
    
    $
    9.50Granted
    
    
    
    
    
    
    Exercised
    
    
    79,126
    
    
    
    9.06Forfeited
    
    
    
    
    
    
    Outstanding at September 30,
    
    
    98,340
    
    
    $
    9.85
    
    
    $
    1,041,421Exercisable at end of quarter
    
    
    98,340
    
    
    
    
    
    
    $
    1,041,421Weighted-average fair value
per option of options
granted during the year
    
    $
    
 
 (1)
    
    The aggregate intrinsic value of stock options in the table above reflects the
pre-tax intrinsic value (the amount by which the September 30, 2007 market value of the
underlying stock option exceeded the exercise price of the option) that would have been
received by the option holders had all option holders exercised their options on
September 30, 2007. This amount changes based on the changes in the market value of
the Companys stock.   Nine Months EndedSeptember 30, 2007WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceNonvested at January 1
    
    
    31,829Granted
    
    
    10,798
    
    
    $
    25.40Vested
    
    
    (11,437
    )Forfeited
    
    
    
    
    
    
    Novested at September 30,
    
    
    31,190
  -13-




---



##### 



7.
    
    Employee Benefit Plan
  Three Months EndedSeptember 30,2007
    
    
    2006Service cost
    
    $
    167,680
    
    
    $
    173,127Interest cost
    
    
    100,343
    
    
    
    93,997Expected return on plan assets
    
    
    (111,378
    )
    
    
    (98,960
    )Amortization of transition (asset)
    
    
    1,942
    
    
    
    (4,745
    )Amortization of prior service cost
    
    
    (4,745
    )
    
    
    1,942Recognized net actuarial loss
    
    
    5,258
    
    
    
    15,239Net periodic benefit cost
    
    $
    159,100
    
    
    $
    180,600
 Nine Months EndedSeptember 30,2007
    
    
    2006Service cost
    
    $
    503,040
    
    
    $
    519,381Interest cost
    
    
    301,029
    
    
    
    281,991Expected return on plan assets
    
    
    (334,134
    )
    
    
    (296,880
    )Amortization of transition (asset)
    
    
    5,826
    
    
    
    (14,235
    )Amortization of prior service cost
    
    
    (14,235
    )
    
    
    5,826Recognized net actuarial loss
    
    
    15,774
    
    
    
    45,717Net periodic benefit cost
    
    $
    477,300
    
    
    $
    541,800
  -14-




---



##### 



-15-




---



##### 



- 16 -




---



##### 



- 17 -




---



##### 



- 18 -




---



##### 



Three Months Ended
    
    
    Three Months EndedSeptember 30, 2007
    
    
    September 30, 2006Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    404,429
    
    
    $
    7,137
    
    
    
    6.90
    %
    
    $
    410,750
    
    
    $
    7,274
    
    
    
    6.94
    %Tax-exempt (1)
    
    
    7,536
    
    
    
    139
    
    
    
    7.17
    %
    
    
    8,194
    
    
    
    149
    
    
    
    7.09
    %Nonaccrual
    
    
    744
    
    
    
    
    
    
    
    
    
    
    
    1,691
    
    
    
    Total Loans
    
    
    412,709
    
    
    
    7,276
    
    
    
    6.90
    %
    
    
    420,635
    
    
    
    7,423
    
    
    
    6.91
    %SecuritiesTaxable
    
    
    36,024
    
    
    
    420
    
    
    
    4.66
    %
    
    
    41,782
    
    
    
    474
    
    
    
    4.54
    %Tax-exempt (1)
    
    
    3,299
    
    
    
    57
    
    
    
    6.94
    %
    
    
    1,011
    
    
    
    20
    
    
    
    7.91
    %Total securities
    
    
    39,323
    
    
    
    477
    
    
    
    4.85
    %
    
    
    42,793
    
    
    
    494
    
    
    
    4.62
    %Deposits in banks
    
    
    641
    
    
    
    5
    
    
    
    3.25
    %
    
    
    630
    
    
    
    12
    
    
    
    7.36
    %Federal funds sold
    
    
    1,289
    
    
    
    15
    
    
    
    4.69
    %
    
    
    371
    
    
    
    5
    
    
    
    5.04
    %Total earning assets
    
    
    453,962
    
    
    
    7,773
    
    
    
    6.72
    %
    
    
    464,429
    
    
    
    7,934
    
    
    
    6.70
    %Less: Reserve for loan losses
    
    
    (4,414
    )
    
    
    
    
    
    
    
    
    
    
    (4,515
    )Cash and due from banks
    
    
    14,292
    
    
    
    
    
    
    
    
    
    
    
    16,526Bank premises and equipment, net
    
    
    7,350
    
    
    
    
    
    
    
    
    
    
    
    7,920Other assets
    
    
    16,093
    
    
    
    
    
    
    
    
    
    
    
    15,601Total Assets
    
    $
    487,283
    
    
    
    
    
    
    
    
    
    
    $
    499,961LIABILITIES AND
SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    73,072
    
    
    
    
    
    
    
    
    
    
    $
    82,615Interest-bearing depositsNOW accounts
    
    
    70,966
    
    
    
    232
    
    
    
    1.30
    %
    
    
    64,439
    
    
    
    74
    
    
    
    1.91
    %Money market accounts
    
    
    25,112
    
    
    
    92
    
    
    
    1.45
    %
    
    
    34,498
    
    
    
    120
    
    
    
    1.38
    %Premium money market accounts
    
    
    78,628
    
    
    
    812
    
    
    
    4.10
    %
    
    
    54,173
    
    
    
    554
    
    
    
    4.06
    %Savings accounts
    
    
    32,173
    
    
    
    34
    
    
    
    0.43
    %
    
    
    36,702
    
    
    
    34
    
    
    
    0.37
    %Time deposits
    
    
    122,956
    
    
    
    1,372
    
    
    
    4.43
    %
    
    
    126,358
    
    
    
    1,355
    
    
    
    4.25
    %Total interest-bearing deposits
    
    
    329,835
    
    
    
    2,542
    
    
    
    3.06
    %
    
    
    316,170
    
    
    
    2,137
    
    
    
    2.68
    %Federal funds purchased
    
    
    3,146
    
    
    
    46
    
    
    
    5.76
    %
    
    
    13,653
    
    
    
    185
    
    
    
    5.37
    %Federal Home Loan Bank advances
    
    
    32,207
    
    
    
    436
    
    
    
    5.30
    %
    
    
    42,293
    
    
    
    550
    
    
    
    5.08
    %Company-obligated mandatorily redeemable capital securities
    
    
    4,124
    
    
    
    73
    
    
    
    6.89
    %
    
    
    4,572
    
    
    
    100
    
    
    
    8.60
    %Total interest-bearing liabilities
    
    
    369,312
    
    
    
    3,097
    
    
    
    3.32
    %
    
    
    376,688
    
    
    
    2,972
    
    
    
    3.12
    %Other liabilities
    
    
    3,811
    
    
    
    
    
    
    
    
    
    
    
    3,020Shareholders equity
    
    
    41,088
    
    
    
    
    
    
    
    
    
    
    
    37,638Total Liabilities & Shareholders
Equity
    
    $
    487,283
    
    
    
    
    
    
    
    
    
    
    $
    499,961Net interest spread
    
    
    
    
    
    $
    4,676
    
    
    
    3.40
    %
    
    
    
    
    
    $
    4,962
    
    
    
    3.58
    %Interest expense as a percent of average earning assets
    
    
    
    
    
    
    2.70
    %
    
    
    
    
    
    
    
    
    
    
    2.53
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.02
    %
    
    
    
    
    
    
    
    
    
    
    4.17
    %
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%. - 19 -




---



##### 



Three Months Ended September 30, 2007 Compared toThree Months Ended September 30, 2006Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOMELoans; taxable
    
    $
    (137
    )
    
    $
    (215
    )
    
    $
    78Loans; tax-exempt (1)
    
    
    (10
    )
    
    
    (12
    )
    
    
    2Securities; taxable
    
    
    (54
    )
    
    
    (64
    )
    
    
    10Securities; tax-exempt (1)
    
    
    37
    
    
    
    45
    
    
    
    (8
    )Deposits in banks
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Federal funds sold
    
    
    10
    
    
    
    11
    
    
    
    (1
    )Total Interest Income
    
    
    (161
    )
    
    
    (235
    )
    
    
    74INTEREST EXPENSENOW accounts
    
    
    158
    
    
    
    9
    
    
    
    149Money market accounts
    
    
    (28
    )
    
    
    (33
    )
    
    
    5Premium money market accounts
    
    
    258
    
    
    
    250
    
    
    
    8Savings accounts
    
    
    
    
    
    
    (4
    )
    
    
    4Time deposits
    
    
    17
    
    
    
    (36
    )
    
    
    53Federal funds purchased
    
    
    (139
    )
    
    
    (142
    )
    
    
    3Federal Home Loan Bank
advances
    
    
    (114
    )
    
    
    (132
    )
    
    
    18Company-obligated mandatorily
redeemable capital
securities
    
    
    (27
    )
    
    
    (10
    )
    
    
    (17
    )Total Interest Expense
    
    
    125
    
    
    
    (98
    )
    
    
    223Net Interest Income
    
    $
    (286
    )
    
    $
    (137
    )
    
    $
    (149
    )
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%.  - 20 -




---



##### 



- 21 -




---



##### 



- 22 -




---



##### 



Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2007
    
    
    September 30, 2006Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    406,667
    
    
    $
    21,463
    
    
    
    6.95
    %
    
    $
    396,714
    
    
    $
    20,404
    
    
    
    6.79
    %Tax-exempt (1)
    
    
    7,697
    
    
    
    419
    
    
    
    7.18
    %
    
    
    8,085
    
    
    
    449
    
    
    
    7.32
    %Nonaccrual
    
    
    1,313
    
    
    
    
    
    
    
    
    
    
    
    1,178
    
    
    
    Total Loans
    
    
    415,677
    
    
    
    21,882
    
    
    
    6.95
    %
    
    
    405,977
    
    
    
    20,853
    
    
    
    6.78
    %SecuritiesTaxable
    
    
    37,071
    
    
    
    1,299
    
    
    
    4.63
    %
    
    
    43,283
    
    
    
    1,409
    
    
    
    4.34
    %Tax-exempt (1)
    
    
    1,874
    
    
    
    102
    
    
    
    7.25
    %
    
    
    1,016
    
    
    
    60
    
    
    
    7.84
    %Total securities
    
    
    38,945
    
    
    
    1,401
    
    
    
    4.79
    %
    
    
    44,299
    
    
    
    1,469
    
    
    
    4.42
    %Deposits in banks
    
    
    1,192
    
    
    
    26
    
    
    
    2.87
    %
    
    
    662
    
    
    
    23
    
    
    
    4.61
    %Federal funds sold
    
    
    2,155
    
    
    
    82
    
    
    
    5.02
    %
    
    
    645
    
    
    
    22
    
    
    
    4.53
    %Total earning assets
    
    
    457,969
    
    
    
    23,391
    
    
    
    6.75
    %
    
    
    451,583
    
    
    
    22,367
    
    
    
    6.54
    %Less: Reserve for loan losses
    
    
    (4,471
    )
    
    
    
    
    
    
    
    
    
    
    (4,396
    )Cash and due from banks
    
    
    14,854
    
    
    
    
    
    
    
    
    
    
    
    17,098Bank premises and equipment, net
    
    
    7,449
    
    
    
    
    
    
    
    
    
    
    
    8,104Other assets
    
    
    15,792
    
    
    
    
    
    
    
    
    
    
    
    15,181Total Assets
    
    $
    491,593
    
    
    
    
    
    
    
    
    
    
    $
    487,570LIABILITIES AND
SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    74,823
    
    
    
    
    
    
    
    
    
    
    $
    87,236Interest-bearing depositsNOW accounts
    
    
    71,263
    
    
    
    658
    
    
    
    1.23
    %
    
    
    68,424
    
    
    
    264
    
    
    
    0.52
    %Money market accounts
    
    
    26,594
    
    
    
    286
    
    
    
    1.44
    %
    
    
    38,010
    
    
    
    393
    
    
    
    1.38
    %Premium money market accounts
    
    
    68,988
    
    
    
    2,117
    
    
    
    4.10
    %
    
    
    48,469
    
    
    
    1,432
    
    
    
    3.95
    %Savings accounts
    
    
    33,216
    
    
    
    103
    
    
    
    0.41
    %
    
    
    37,782
    
    
    
    97
    
    
    
    0.34
    %Time deposits
    
    
    128,880
    
    
    
    4,341
    
    
    
    4.50
    %
    
    
    115,695
    
    
    
    3,368
    
    
    
    3.89
    %Total interest-bearing deposits
    
    
    328,941
    
    
    
    7,505
    
    
    
    3.05
    %
    
    
    308,380
    
    
    
    5,554
    
    
    
    2.41
    %Federal funds purchased
    
    
    4,354
    
    
    
    184
    
    
    
    5.65
    %
    
    
    9,752
    
    
    
    389
    
    
    
    5.34
    %Federal Home Loan Bank advances
    
    
    33,967
    
    
    
    1,340
    
    
    
    5.20
    %
    
    
    37,978
    
    
    
    1,432
    
    
    
    4.97
    %Company-obligated mandatorily
redeemable capital securities
    
    
    5,453
    
    
    
    300
    
    
    
    7.26
    %
    
    
    4,275
    
    
    
    273
    
    
    
    8.43
    %Total interest-bearing liabilities
    
    
    372,715
    
    
    
    9,329
    
    
    
    3.34
    %
    
    
    360,385
    
    
    
    7,648
    
    
    
    2.83
    %Other liabilities
    
    
    3,640
    
    
    
    
    
    
    
    
    
    
    
    2,759Shareholders equity
    
    
    40,415
    
    
    
    
    
    
    
    
    
    
    
    37,190Total Liabilities & Shareholders
Equity
    
    $
    491,593
    
    
    
    
    
    
    
    
    
    
    $
    487,570Net interest spread
    
    
    
    
    
    $
    14,062
    
    
    
    3.41
    %
    
    
    
    
    
    $
    14,719
    
    
    
    3.72
    %Interest expense as a percent of average earning assets
    
    
    
    
    
    
    2.72
    %
    
    
    
    
    
    
    
    
    
    
    2.26
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.03
    %
    
    
    
    
    
    
    
    
    
    
    4.29
    %
 - 23 -




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##### 



Nine Months Ended September 30, 2007 Compared toNine Months Ended September 30, 2006Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOMELoans; taxable
    
    $
    1,059
    
    
    $
    405
    
    
    $
    654Loans; tax-exempt (1)
    
    
    (30
    )
    
    
    (22
    )
    
    
    (8
    )Securities; taxable
    
    
    (110
    )
    
    
    (190
    )
    
    
    80Securities; tax-exempt (1)
    
    
    42
    
    
    
    51
    
    
    
    (9
    )Deposits in banks
    
    
    3
    
    
    
    19
    
    
    
    (16
    )Federal funds sold
    
    
    60
    
    
    
    52
    
    
    
    8Total Interest Income
    
    
    1,024
    
    
    
    315
    
    
    
    709INTEREST EXPENSENOW accounts
    
    
    394
    
    
    
    13
    
    
    
    381Money market accounts
    
    
    (107
    )
    
    
    (118
    )
    
    
    11Premium money market accounts
    
    
    685
    
    
    
    606
    
    
    
    79Savings accounts
    
    
    6
    
    
    
    (12
    )
    
    
    18Time deposits
    
    
    973
    
    
    
    384
    
    
    
    589Federal funds purchased
    
    
    (205
    )
    
    
    (216
    )
    
    
    11Federal Home Loan Bank
advances
    
    
    (92
    )
    
    
    (151
    )
    
    
    59Company-obligated mandatorily
redeemable capital
securities
    
    
    27
    
    
    
    75
    
    
    
    (48
    )Total Interest Expense
    
    
    1,681
    
    
    
    581
    
    
    
    1,100Net Interest Income
    
    $
    (657
    )
    
    $
    (266
    )
    
    $
    (391
    )
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%. - 24 -




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- 25 -




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- 26 -




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##### 



-27-




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##### 



September 30, 2007
    
    
    December 31, 2006Tier 1 Capital:Shareholders Equity
    
    $
    40,734
    
    
    $
    38,712Plus: Unrealized loss on securities available for sale
    
    
    185
    
    
    
    365Plus: Unrealized loss on defined benefit plan under SFAS 158
    
    
    671
    
    
    
    671Less: Intangible assets, net
    
    
    
    
    
    
    (6
    )Plus: Company-obligated mandatorily redeemable capital securities
    
    
    4,000
    
    
    
    8,000Total Tier 1 Capital
    
    
    45,590
    
    
    
    47,742Tier 2 Capital:Allowable Allowance for Loan Losses
    
    
    4,413
    
    
    
    4,471Total Capital
    
    $
    50,003
    
    
    $
    52,213Risk Weighted Assets:
    
    $
    393,283
    
    
    $
    404,603Regulatory Capital Ratios:Leverage Ratio
    
    
    9.35
    %
    
    
    9.50
    %Tier 1 to Risk Weighted Assets
    
    
    11.59
    %
    
    
    11.80
    %Total Capital to Risk Weighted Assets
    
    
    12.71
    %
    
    
    12.90
    %
 -28-




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##### 



September 30, 2007
    
    
    December 31, 2006Total
    
    
    In Use
    
    
    Available
    
    
    Total
    
    
    In Use
    
    
    AvailableSources:Federal funds borrowing lines of credit
    
    $
    52,056
    
    
    $
    4,400
    
    
    $
    47,656
    
    
    $
    51,901
    
    
    $
    
    
    
    $
    51,901Federal Home Loan Bank advances
    
    
    135,698
    
    
    
    35,000
    
    
    $
    100,698
    
    
    
    139,194
    
    
    
    55,000
    
    
    
    84,194Federal funds sold
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    20,122Securities, available for sale and
unpledged
at fair value
    
    
    
    
    
    
    
    
    
    
    22,523
    
    
    
    
    
    
    
    
    
    
    
    21,070Total short-term funding sources
    
    $
    187,754
    
    
    $
    39,400
    
    
    $
    170,897
    
    
    $
    191,095
    
    
    $
    55,000
    
    
    $
    177,287Uses:Unfunded loan commitments and
lending lines of credit
    
    
    
    
    
    
    
    
    
    $
    83,613
    
    
    
    
    
    
    
    
    
    
    $
    73,237Letters of credit
    
    
    
    
    
    
    
    
    
    
    6,267
    
    
    
    
    
    
    
    
    
    
    
    8,679Total potential short-term funding uses
    
    
    
    
    
    
    
    
    
    $
    89,880
    
    
    
    
    
    
    
    
    
    
    $
    81,916Ratio of short-term funding sources to
potential short-term funding uses
    
    
    
    
    
    
    
    
    
    
    190.1
    %
    
    
    
    
    
    
    
    
    
    
    216.4
    %
 -29-




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##### 



-30-




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##### 



Total
    
    Average
    
    Total Number of
    
    Maximum NumberNumber of
    
    Price
    
    Shares Purchased as
    
    of Shares that MayShare
    
    Paid per
    
    Part of Publicly
    
    Yet Be PurchasedPurchased
    
    Shares
    
    Announced Plan(1)
    
    Under the Plan(1)July 1  31, 2007
    
    
    2,000
    
    
    $
    20.70
    
    
    
    2,000
    
    
    
    198,468August 1  31, 2007
    
    
    15,200
    
    
    $
    20.72
    
    
    
    15,200
    
    
    
    183,268September 1  30, 2007
    
    
    1,900
    
    
    $
    20.70
    
    
    
    1,900
    
    
    
    181,368Total
    
    
    19,100
    
    
    
    
    
    
    
    19,100
 
 (1)
    
    In September 1998, the Company announced a stock repurchase program for its common
stock. Initially, the plan authorized the Company to repurchase up to 73,672 shares of its
common stock through December 31, 1999. Annually, the Board resets the amount of shares
authorized to be repurchased during the year under the buyback program. On January 18,
2007, the Board authorized the Company to repurchase up to 208,738 shares (6% of the shares
of common stock outstanding on January 1, 2007) beginning January 1, 2007 and continuing
until the next Board reset. Since January 1, 2007, 27,370 shares of common stock have been
repurchased. 
   
   
   
  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
    
    Amended and Restated Bylaws of Fauquier Bankshares, Inc., incorporated by reference to
Exhibit 3.2 to Form 8-K filed March 22, 200610.20
    
    Consulting Agreement, dated April 19, 2007 between The Fauquier Bank and C.H. Lawrence,
Jr., incorporated by reference to Exhibit 10.20 to Form 10-Q filed
May 14, 200710.21
    
    Employment Agreement, dated April 2, 2007, between Fauquier Bankshares, Inc., The Fauquier
Bank and Gregory D. Frederick, incorporated by reference to Exhibit 10.21 to Form 8-K/A filed
April 4, 200711
    
    Refer to Part I, Item 1, Note 5 to the Consolidated Financial Statements31.1
    
    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
 -31-




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##### 



SIGNATURES
    
 
 -32-