UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(MARK ONE)

[ X ]    QUARTERLY  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 1999

                                       or

[  ]     TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934

             For the transition period from __________ to __________


                            FAUQUIER BANKSHARES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


              Virginia                               54-1288193
--------------------------------------------------------------------------------
    (State or other jurisdiction of               (I.R.S. Employer
     incorporation or organization)               Identification No.)


10 Courthouse Square Warrenton, Virginia                       20186
--------------------------------------------------------------------------------
(Address of principal executive offices)                     (Zip Code)


                                 (540) 347-2700
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                                 Not Applicable
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes _____ No ___X___

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date:  1,793,797 shares of
common stock, par value $3.13 per share, were outstanding as of August 4, 1999.


<PAGE>

                            Fauquier Bankshares, Inc.

                                      INDEX
<TABLE>
<CAPTION>
Part I.  FINANCIAL INFORMATION
                                                                                                             Page
                                                                                                             ----

<S>                                                                                                          <C>
   Item 1. Financial Statements                                                                               1

         Consolidated Balance Sheets (unaudited) as of June 30, 1999 and December 31, 1998                    1

         Consolidated Statements of Income (unaudited) for the Three Months Ended June 30, 1999 and 1998      2

         Consolidated Statements of Income (unaudited) for the Six Months Ended June 30, 1999 and 1998        3

         Consolidated Statements of Changes in Stockholders'  Equity  (unaudited)for the Six Months Ended
         June 30, 1999 and 1998                                                                               4

         Consolidated  Statements of Cash Flows  (unaudited)  for the Six Months Ended June 30, 1999 and 1998 5

         Notes to Condensed Consolidated Financial Statements                                                 6

   Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations              8

   Item 3. Quantitative and Qualitative Disclosure of Market Risk                                            15

Part II. OTHER INFORMATION                                                                                   16

   Item 1. Legal Proceedings                                                                                 16

   Item 2. Changes in Securities and Use of Proceeds                                                         16

   Item 3. Defaults Upon Senior Securities                                                                   16

   Item 4. Submission of Matters to a Vote of Security Holders                                               16

   Item 5. Other Information                                                                                 17

   Item 6. Exhibits and Reports on Form 8-K                                                                  17



SIGNATURES
</TABLE>



<PAGE>


ITEM 1.           FINANCIAL STATEMENTS.


                   FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                       JUNE 30, 1999              DECEMBER 31, 1998
                                                                  ----------------------      ------------------------
<S>                                                              <C>                         <C>
ASSETS
Cash and due from banks                                                   $   6,472,988                 $   9,868,240
Interest-bearing deposits in other banks                                        138,882                     3,680,430
Federal funds sold                                                            9,711,000                    13,182,000
Securities (fair value: 1999, $32,951,052; 1998, $22,865,960)                32,941,526                    22,790,801
Loans, net                                                                  172,817,368                   162,272,291
Bank premises and equipment, net                                              5,618,946                     5,879,737
Accrued interest receivable                                                   1,579,183                     1,084,500
Other real estate                                                               122,335                        56,944
Other assets                                                                  1,741,748                     1,211,432
                                                                  ----------------------      ------------------------
                                                                          $ 231,143,976                 $ 220,026,375
                                                                  ======================      ========================
              Total assets

LIABILITIES
Deposits:
  Non-interest bearing demand deposits                                    $  34,957,674                 $  34,438,128
  Savings and interest-bearing demand deposits                              109,249,694                   102,176,226
  Time deposits                                                              45,837,222                    42,602,788
                                                                  ----------------------      ------------------------
     Total deposits                                                       $ 190,044,590                 $ 179,217,142
Federal Home Loan advances                                                   18,000,000                    18,000,000
Dividends payable                                                               251,825                       238,910
Other liabilities                                                             1,877,996                     1,393,487
                                                                  ----------------------      ------------------------

              Total liabilities                                           $ 210,174,411                 $ 198,849,539
                                                                  ----------------------      ------------------------



SHAREHOLDERS' EQUITY
Common  stock,  par  value,  $3.13;  authorized  8,000,000
  shares;  issued  and outstanding 1999, 1,798,747 shares;
  1998, 1,837,770 shares                                                  $   5,630,078                 $   5,752,220
Capital surplus                                                                       -                             -
Retained earnings                                                            15,543,338                    15,432,062
Accumulated other comprehensive income                                         (203,851)                       (7,446)
                                                                  ----------------------      ------------------------
              Total shareholders' equity                                     20,969,565                    21,176,836
                                                                  ----------------------      ------------------------

              Total liabilities and shareholders' equity                  $ 231,143,976                 $ 220,026,375
                                                                  ======================      ========================
</TABLE>



See accompanying notes to financial statements.

                                       1
<PAGE>
                   FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998




<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED JUNE 30,
                                                                 ---------------------------------------------
                                                                      1999                         1998
                                                                 ----------------            -----------------
<S>                                                             <C>                         <C>
INTEREST INCOME
          Interest and fees on loans                                 $ 3,772,691                   $3,206,159
          Interest on investment securities:
                      Taxable interest income                             55,863                       94,304
                      Interest income exempt from federal
                        income taxes                                      28,153                       36,960
          Interest and dividends on securities available
            for sale:
                      Taxable interest income                            338,738                      290,337
                      Interest income exempt from federal
                        income taxes                                      13,392                       12,064
                      Dividends                                           52,275                       32,293
          Interest on federal funds sold                                 121,896                      117,020
          Interest on deposits in other banks                              3,866                          942
                                                                 ----------------            -----------------
                      Total interest income                          $ 4,386,874                   $3,790,079
                                                                 ----------------            -----------------

INTEREST EXPENSE
          Interest on deposits                                       $ 1,252,767                   $1,302,374
          Interest on Federal Home Loan Bank advances                    233,450                       11,957
          Interest on federal funds purchased                                  -                          160
                                                                 ----------------            -----------------
                      Total interest expense                         $ 1,486,217                   $1,314,491
                                                                 ----------------            -----------------

                      Net interest income                            $ 2,900,657                   $2,475,588

PROVISION FOR LOAN LOSSES                                                225,000                      135,000
                                                                 ----------------            -----------------

                      Net interest income after
                        provision for loan losses                    $ 2,675,657                   $2,340,588
                                                                 ----------------            -----------------

OTHER INCOME
          Trust Department income                                    $  132,818                    $  132,965
          Service charges on deposit accounts                            329,643                      236,160
          Other service charges, commissions
            and fees                                                      55,962                       62,486
          Other operating income                                             877                       12,001
                                                                 ----------------            -----------------
                      Total other income                             $   519,300                   $  443,612
                                                                 ----------------            -----------------

OTHER EXPENSES
          Salaries and employees' benefits                           $   935,515                   $  827,259
          Net occupancy expense of premises                              133,726                      103,806
          Furniture and equipment                                        191,266                      194,384
          Advertising                                                     79,320                       51,983
          Bank card                                                      115,347                       35,639
          Consulting                                                     136,095                       92,391
          Data processing                                                142,873                       83,507
          Postage                                                         32,262                       32,648
          Supplies                                                        27,355                       21,301
          Taxes, other than income                                        31,840                       46,932
          Telephone                                                       73,039                       36,064
          Other operating expenses                                       203,112                      453,216
                                                                 ----------------            -----------------
                      Total other expenses                           $ 2,101,750                   $1,979,130
                                                                 ----------------            -----------------

                      Income before income taxes                     $ 1,093,207                   $  805,070

Income tax expense                                                       302,000                      300,761
                                                                 ----------------            -----------------

                      Net income                                     $   791,207                   $  504,309
                                                                 ================            =================

EARNINGS PER SHARE, basic                                            $      0.44                   $     0.27
                                                                 ================            =================

EARNINGS PER SHARE, assuming dilution                                $      0.43                   $     0.27
                                                                 ================            =================
</TABLE>



See accompanying notes to financial statements.

                                       2
<PAGE>

                   FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                  FOR THE SIX MONTHS ENDED JUNE, 1999 AND 1998


<TABLE>
<CAPTION>
                                                                                JUNE 30, 1999              JUNE 30, 1998
                                                                            ---------------------      ---------------------
<S>                                                                        <C>                        <C>
INTEREST INCOME
Interest and fees on loans                                                        $ 7,263,291               $ 6,181,129
Taxable interest on investment securities                                             116,649                   186,215
Tax-exempt interest on investment securities                                           57,326                    74,011
Taxable interest on AFS securities                                                    546,535                   530,651
Tax-exempt interest on AFS securities                                                  25,139                    24,156
Dividends                                                                              75,684                    73,793
Interest on federal funds sold                                                        291,347                   273,037
Interest on deposits in other banks                                                    27,688                       942
                                                                            ---------------------      ---------------------
     Total interest income                                                        $ 8,403,659               $ 7,343,934
                                                                            ---------------------      ---------------------

INTEREST EXPENSE
Interest on deposits                                                              $ 2,583,309               $ 2,573,827
Interest on FHLB advances                                                             470,577                    11,957
Interest on federal funds purchased                                                         -                       160
                                                                            ---------------------      ---------------------
     Total interest expense                                                       $ 3,053,886               $ 2,585,943
                                                                            ---------------------      ---------------------

     Net interest income                                                          $ 5,349,773               $ 4,757,991

Provision for loan losses                                                             460,000                   270,000
                                                                            ---------------------      ---------------------

     Net interest income after
     provision for loan losses                                                    $ 4,889,773               $ 4,487,991


OTHER INCOME
Trust department income                                                           $   313,004               $   274,547
Service charges on deposit accounts                                                   583,216                   482,606
Other service charges, commissions and fees                                           138,544                   116,582
Gains on securities AFS                                                                     0                         -
Other operating income                                                                    877                     4,702
                                                                            ---------------------      ---------------------
     Total other income                                                           $ 1,035,641               $   878,437
                                                                            ---------------------      ---------------------

OTHER EXPENSES
Salaries and employee benefits                                                    $ 1,890,885               $ 1,650,533
Net occupancy expense of premises                                                     240,682                   195,053
Furniture and equipment                                                               402,341                   401,556
Advertising                                                                           101,467                    78,282
Bank card                                                                             178,904                   116,220
Consulting                                                                            200,750                   166,729
Data processing                                                                       293,621                   221,437
Postage                                                                                74,636                    75,040
Supplies                                                                               55,188                    52,767
Taxes, other than income                                                               83,944                    89,152
Telephone                                                                             114,729                    91,288
Other operating expenses                                                              554,414                   610,894
                                                                            ---------------------      ---------------------
     Total other expense                                                          $ 4,191,561               $ 3,748,951
                                                                            ---------------------      ---------------------

     Income before income taxes                                                   $ 1,733,853               $ 1,617,476

Income tax expense                                                                    512,000                   481,092
                                                                            ---------------------      ---------------------

Net income                                                                        $ 1,221,853               $ 1,136,384
                                                                            =====================      =====================

EARNINGS PER SHARE, BASIC                                                         $      0.67               $      0.61
                                                                            =====================      =====================

EARNINGS PER SHARE, DILUTED                                                       $      0.62               $      0.61
                                                                            =====================      =====================
</TABLE>


See Accompanying Notes to Financial Statements.

                                       3
<PAGE>

                   FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (UNAUDITED)
            FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>

                                                                        COMMON             CAPITAL              RETAINED
                                                                        STOCK              SURPLUS              EARNINGS
                                                                   ----------------    ----------------    --------------------
<S>                                                               <C>                 <C>                 <C>
BALANCE, DECEMBER 31, 1997                                             $ 5,978,150         $ 1,207,680            $ 13,887,212
Comprehensive income:
  Net income                                                                                                         1,136,384
  Other comprehensive income (loss) net of tax:
    Unrealized holding gains on securities available
      for sale, net of deferred income taxes of $16,858
  Other comprehensive income (loss) net of tax
  Total comprehensive income
Cash dividends                                                                                                        (389,082)
Acquisition of 30,119 shares of common stock                              (188,244)           (993,715)
Change in par value from $6.25 to $3.13                                      9,264              (9,264)
                                                                   ----------------    ----------------    --------------------
BALANCE, JUNE 30, 1998                                                 $ 5,799,170           $ 204,701            $ 14,634,514
                                                                   ================    ================    ====================
BALANCE, DECEMBER 31, 1998                                             $ 5,752,220           $       -            $ 15,432,062
Comprehensive income:
  Net income                                                                                                         1,221,853
  Other comprehensive income (loss) net of tax:
    Unrealized holding gains on securities available
      for sale, net of deferred income taxes of $(101,178)
  Other comprehensive income (loss) net of tax
  Total comprehensive income
Cash dividends                                                                                                        (488,831)
Acquisition of 39,023 shares of common stock                              (122,142)                                   (621,746)
                                                                   ----------------    ----------------    --------------------
BALANCE, JUNE 30, 1999                                                 $ 5,630,078           $       -            $ 15,543,338
                                                                   ================    ================    ====================
</TABLE>
<TABLE>
<CAPTION>
                                                                       ACCUMULATED
                                                                          OTHER
                                                                      COMPREHENSIVE             COMPREHENSIVE
                                                                          INCOME                    INCOME               TOTAL
                                                                   -------------------      -------------------   -----------------
<S>                                                               <C>                      <C>                   <C>
BALANCE, DECEMBER 31, 1997                                             $ (95,144)                                 $   20,977,898
Comprehensive income:
  Net income                                                                                 $     1,136,384           1,136,384
  Other comprehensive income (loss) net of tax:
    Unrealized holding gains on securities available
      for sale, net of deferred income taxes of $16,858                                               32,725                   -
                                                                                            -------------------
  Other comprehensive income (loss) net of tax                            32,725                      32,725              32,725
                                                                                            -------------------
  Total comprehensive income                                                                 $     1,169,109
                                                                                            ===================
Cash dividends                                                                                                          (389,082)
Acquisition of 30,119 shares of common stock                                                                          (1,181,959)
Change in par value from $6.25 to $3.13                                                                                        -
                                                                   ---------------------                          -----------------
BALANCE, JUNE 30, 1998                                                 $ (62,419)                                 $    20,575,966
                                                                   =====================                          =================
BALANCE, DECEMBER 31, 1998                                             $  (7,446)                                 $    21,176,836
Comprehensive income:
  Net income                                                                                 $       1,221,853           1,221,853
  Other comprehensive income (loss) net of tax:
    Unrealized holding gains on securities available
      for sale, net of deferred income taxes of $(101,178)                                            (196,405)                  -
                                                                                            -------------------
  Other comprehensive income (loss) net of tax                          (196,405)                     (196,405)          (196,405)
                                                                                            -------------------
  Total comprehensive income                                                                 $       1,025,448
                                                                                            ===================
Cash dividends                                                                                                            (488,831)
Acquisition of 39,023 shares of common stock                                                                              (743,888)
                                                                   ---------------------                          -----------------
BALANCE, JUNE 30, 1999                                                 $(203,851)                                $     20,969,565
                                                                   =====================                          =================
</TABLE>
See Accompanying Notes to Financial Statements.

                                       4
<PAGE>

                   FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                 FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                                               SIX MONTHS ENDED JUNE 31,
                                                                                       -------------------------------------------
                                                                                             1999                      1998
                                                                                       -----------------         -----------------
<S>                                                                                   <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES
         Net income                                                                        $  1,221,853              $  1,136,384
         Adjustments to reconcile net income to net
           cash provided by operating activities:
              Depreciation                                                                      371,717                   389,619
              Provision for loan losses                                                         460,000                   270,000
              Provision for other real estate                                                     6,000                         -
              Net premium amortization on investment
                  securities                                                                     14,501                    18,756
              Changes in assets and liabilities:
                  (Increase) in accrued interest receivable                                    (494,683)                 (486,313)
                  (Increase) decrease in other assets                                          (429,138)                 (563,124)
                  Increase (decrease) in other liabilities                                      484,510                   395,670
                                                                                       -----------------         -----------------
                               Net cash provided by operating activities                   $  1,634,760              $  1,160,992
                                                                                       -----------------         -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
         Proceeds from sale of securities available for sale                               $     66,700              $     498,732
         Proceeds from maturities, calls and principal
              payments of investment securities                                                 766,407                 1,695,707
         Proceeds from maturities, calls and principal
              payments of securities available for sale                                       2,479,511                 7,118,356
         Purchase of investment securities                                                            -                  (499,250)
         Purchase of securities available for sale                                          (13,775,427)              (12,122,264)
         Purchase of premises and equipment                                                    (110,926)                 (263,376)
         Net (increase) in loans                                                            (11,076,468)              (19,478,633)
                                                                                       -----------------         -----------------
                               Net cash (used in) investing activities                     $(21,650,203)             $(23,050,728)
                                                                                       -----------------         -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
         Net increase in demand deposits, NOW accounts
              and savings accounts                                                         $  7,593,014              $ 10,528,768
         Net increase (decrease) in certificates of deposit                                   3,234,434                   849,505
         Proceeds from FHLB advances                                                                  -                 8,000,000
         Cash dividends paid                                                                   (475,917)                 (376,578)
         Acquisition of common stock                                                           (743,888)               (1,181,959)
                                                                                       -----------------         -----------------
                               Net cash provided by financing activities                   $  9,607,643              $ 17,819,736
                                                                                       -----------------         -----------------
                               Increase (decrease) in cash and cash equivalents            $(10,407,800)             $ (4,070,000)
CASH AND CASH EQUIVALENTS
         Beginning                                                                           26,730,670                20,212,129
                                                                                       -----------------         -----------------
         Ending                                                                            $ 16,322,870              $ 16,142,129
                                                                                       =================         =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
         Cash payments for:
              Interest                                                                     $  3,012,088              $  2,550,816
                                                                                       =================         =================
              Income taxes                                                                 $    355,000              $    575,000
                                                                                       =================         =================
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
         Other real estate acquired in settlement of loans                                 $     71,391              $    180,000
                                                                                       =================         =================
         Unrealized gain (loss) on securities available for sale, net                      $   (311,333)             $     49,584
                                                                                       =================         =================
</TABLE>


                                       5
<PAGE>


                   FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     GENERAL

       The consolidated  statements include the accounts of Fauquier Bankshares,
       Inc. and subsidiaries, The Fauquier Bank and Fauquier Bank Services, Inc.
       All  significant   intercompany   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 June 30, 1999 and  December 31, 1998,  and the results of
       operations  and cash  flows for the six months  ended  June 30,  1999 and
       1998.

       The results of operations for the six months ended June 30, 1999 and 1998
       are not necessarily indicative of the results expected for the full year.

2.     INVESTMENT SECURITIES

       Amortized  costs and fair values of securities  being held to maturity as
       of June 30, 1999 and December 31, 1998, are as follows:
<TABLE>
<CAPTION>
                                                                               GROSS             GROSS
                                                           AMORTIZED         UNREALIZED        UNREALIZED          FAIR
                                                             COST              GAINS            (LOSSES)           VALUE
                                                        ----------------   ---------------   ---------------  ----------------
                                                                                    JUNE 30, 1999
                                                        ----------------------------------------------------------------------
<S>                                                    <C>                   <C>              <C>            <C>
       U.S. Treasury securities and obligations
         of U.S. government corporations and
         agencies                                         $3,461,745           $ 1,248          $ (7,073)      $ 3,455,920

       Obligations of states and political
         subdivisions                                      2,736,576            15,351                 -         2,751,927
                                                       ----------------   ---------------    ---------------  ----------------
                                                          $6,198,321          $ 16,599          $ (7,073)      $ 6,207,847
                                                       ================   ===============    ===============  ================
</TABLE>

<TABLE>
<CAPTION>
                                                                               GROSS             GROSS
                                                           AMORTIZED         UNREALIZED        UNREALIZED          FAIR
                                                             COST              GAINS            (LOSSES)           VALUE
                                                        ----------------   ---------------   ---------------  ----------------
                                                                                  DECEMBER 31, 1998
                                                        ----------------------------------------------------------------------
<S>                                                    <C>                   <C>               <C>            <C>
       U.S. Treasury securities and obligations
         of U.S. government corporations and
         agencies                                          $4,229,829          $ 25,582          $ (1,844)      $ 4,253,567
       Obligations of states and political
         subdivisions                                       2,738,025            51,421                 -         2,789,446
                                                        ----------------   ---------------   ---------------  ----------------

                                                           $6,967,854          $ 77,003          $ (1,844)      $ 7,043,013
                                                        ================   ===============   ===============  ================
</TABLE>

       Amortized  costs and fair values of  securities  available for sale as of
       June 30, 1999 and December 31, 1998, are as follows:


                                       6
<PAGE>


<TABLE>
<CAPTION>
                                                                               GROSS             GROSS
                                                           AMORTIZED         UNREALIZED        UNREALIZED          FAIR
                                                             COST              GAINS            (LOSSES)           VALUE
                                                        ----------------  ---------------   ---------------  ----------------
                                                                                   JUNE 30, 1999
                                                        ---------------------------------------------------------------------
<S>                                                    <C>                  <C>                <C>            <C>
       U.S. Treasury securities and obligations
         of U.S. government corporations and
         agencies                                         $14,873,143          $ 27,556         $(206,829)      $14,693,870

       Obligations of states and political
         subdivisions                                         683,669               954                 -           684,623

       Corporate bonds                                      9,047,950                 -           (17,903)        9,030,047

       Mutual funds                                           937,809                            (112,644)          825,165

       Restricted investment -
         Federal Home Loan Bank stock                         900,000                 -                 -           900,000

       Equity securities                                      609,500                 -                 -           609,500
                                                        ----------------   ---------------   ---------------  ----------------

                                                          $27,052,071          $ 28,510         $(337,376)      $26,743,205
                                                        ================   ===============   ===============  ================
</TABLE>

<TABLE>
<CAPTION>
                                                                               GROSS             GROSS
                                                           AMORTIZED         UNREALIZED        UNREALIZED          FAIR
                                                             COST              GAINS            (LOSSES)           VALUE
                                                        ----------------   ---------------   ---------------  ----------------
                                                                                  DECEMBER 31, 1998
                                                        ----------------------------------------------------------------------
<S>                                                    <C>                   <C>                 <C>             <C>
       U.S. Treasury securities and obligations
         of U.S. government corporations and
         agencies                                           $12,621,891       $    76,979         $ (16,387)      $12,682,483

       Obligations of states and political
         subdivisions                                           684,580             3,832                 -           688,412

       Mutual funds                                             937,809                             (61,957)          875,852

       Restricted investment -
         Federal Home Loan Bank stock                           966,700                 -                 -           966,700

       Equity securities                                        609,500                 -                 -           609,500
                                                        ----------------   ---------------   ---------------  ----------------

                                                            $15,820,480       $    80,811         $ (78,344)      $15,822,947
                                                        ================   ===============   ===============  ================
</TABLE>

3.     LOANS

       Major classifications of loans are as follows:
<TABLE>
<CAPTION>
                                                                                                JUNE 30,       DECEMBER 31,
                                                                                                  1999             1998
                                                                                             ---------------  ----------------
                                                                                                       (Thousands)
<S>                                                                                         <C>              <C>
       Real estate loans:
         Construction and land development                                                    $   11,646      $    8,297
         Secured by farmland                                                                       1,139           1,163
         Secured by 1-4 family residential                                                        58,074          53,430
         Other real estate                                                                        49,443          49,814
       Commercial and industrial loans (except those secured by real estate)                      18,706          16,933
       Loans to individuals for personal expenditures                                             31,090          30,284
       All other loans                                                                             5,192           4,620
                                                                                             ---------------  ----------------
                   Total loans                                                                $  175,290      $   164,541
       Less:  Unearned income                                                                        256              416
                 Allowance for loan losses                                                         2,217            1,853
                                                                                             ---------------  ----------------
                   Net loans                                                                  $   172,817     $   162,272
                                                                                             ===============  ================
</TABLE>

       The following  schedule  summarizes the changes in the allowance for loan
losses:

<TABLE>
<CAPTION>
                                                                             SIX MONTHS        SIX MONTHS
                                                                               ENDING            ENDING
                                                                              JUNE 30,          JUNE 30,       DECEMBER 31,
                                                                                1999              1998             1998
                                                                           ---------------   ---------------  ----------------
                                                                                             (Thousands)
<S>                                                                       <C>               <C>               <C>
       Balance at beginning of year                                           $ 1,853           $ 1,655          $ 1,655
       Provision charged against income                                           460               270              535
       Recoveries                                                                  25                10               35
       Loans charged off                                                          121               135              372
                                                                           ---------------   ---------------  ----------------
       Balance at end of year                                                 $ 2,217           $ 1,800          $ 1,853
                                                                           ===============   ===============  ================
</TABLE>

       Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
                                                                                                JUNE 30,       DECEMBER 31,
                                                                                                  1999             1998
                                                                                             ---------------  ----------------
                                                                                                      (Thousands)
<S>                                                                                         <C>              <C>
       Nonaccrual loans                                                                          $ 574            $ 539
       Restructured loans                                                                            -                -
                                                                                             ---------------  ----------------
                   Total non-performing loans                                                    $ 574            $ 539
       Foreclosed real estate                                                                      122               57
                                                                                             ---------------  ----------------
                   Total non-performing assets                                                   $ 696            $ 596
                                                                                             ===============  ================
</TABLE>

       Total  loans  past  due 90 days or more  and  still  accruing  were  $536
       thousand on June 30, 1999 and $951 thousand on December 31, 1998.

4.     EARNINGS PER SHARE

       The 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 diluted  potential  common stock.  Weighted  average  number of
       shares for all periods reported have been restated giving effect to stock
       splits.

<TABLE>
<CAPTION>
                                                                  JUNE 30, 1999                     DECEMBER 31, 1998
                                                                             PER SHARE                           PER SHARE
                                                            SHARES             AMOUNT            SHARES           AMOUNT
                                                        ----------------   ---------------   ---------------  ----------------
<S>                                                    <C>                <C>               <C>              <C>
       Basic earnings per share                            1,818,156           $ 0.67          1,857,282          $ 1.31
                                                                                                             ================

       Effect of dilutive securities, stock options           16,918                              18,359
                                                        ----------------                     ---------------

       Diluted earnings per share                          1,835,074            $ 0.62          1,875,641         $ 1.30
                                                        ================                     ===============  ================
</TABLE>


                                       7
<PAGE>

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

GENERAL

         Fauquier  Bankshares,  Inc.   ("Bankshares") was incorporated under the
laws of the  Commonwealth  of Virginia on Janu2ary  13,  1984.  Bankshares  is a
registered  bank  holding  company  and owns  all of the  voting  shares  of The
Fauquier  Bank  ("TFB").  Bankshares  engages in its  business  throu2gh  TFB, a
Virginia  state-chartered bank that commenced operations in 1902. Bankshares has
no significant operations other than owning the stock of TFB.

         TFB provides a range of consumer  and  commercial  banking  services to
individuals,  businesses,  and industries. The deposits of TFB are insured up to
applicable  limits by the Bank Insurance Fund of the Federal  Deposit  Insurance
Fund. The basic services  offered by TFB include:  demand  interest  bearing and
non-interest bearing accounts, money market deposit accounts, NOW accounts, time
deposits, safe deposit services, credit cards, cash management, direct deposits,
notary services,  money orders, night depository,  traveler's checks,  cashier's
checks,  domestic  collections,  savings bonds,  bank drafts,  automated  teller
services,  drive-in tellers, and banking by mail. In addition, TFB makes secured
and unsecured  commercial  and real estate  loans,  issues  stand-by  letters of
credit and  grants  available  credit for  installment,  unsecured  and  secured
personal  loans,  residential  mortgages  and  home  equity  loans,  as  well as
automobile and other consumer  financing.  TFB provides automated teller machine
(ATM) cards,  as a part of the Honor and Plus ATM networks,  thereby  permitting
customers to utilize the convenience of larger ATM networks.

         The revenues of TFB are  primarily  derived from  interest on, and fees
received in connection  with, real estate and other loans, and from interest and
dividends  from  investment  and  mortgage-backed   securities,  and  short-term
investments. The principal sources of funds for TFB's lending activities are its
deposits,   repayment  of  loans,  and  the  sale  and  maturity  of  investment
securities,  and  borrowings  from the Federal  Home Loan Bank of  Atlanta.  The
principal  expenses of TFB are the interest paid on deposits,  and operating and
general administrative expenses.

         TFB's general  market area  principally  includes  Fauquier  County and
neighboring  communities and is located approximately sixty (60) miles southwest
of Washington, D.C.

SAFE HARBOR STATEMENT FOR FORWARD-LOOKING STATEMENTS

         This report contains  forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended.  Forward-looking statements,  which
are based on certain  assumptions  and describe  future plans,  strategies,  and
expectations  of  Bankshares,  are  generally  identifiable  by use of the words
"believe," "expect," "intend,"  "anticipate,"  "estimate,"  "project" or similar
expressions.  Bankshares'  ability  to predict  results or the

                                       8

<PAGE>

actual effect of future plans or strategies  is  inherently  uncertain.  Factors
which  could  have a  material  adverse  affect  on the  operations  and  future
prospects of Bankshares  include,  but are not limited to, changes in:  interest
rates, general economic conditions, legislative/regulatory changes, monetary and
fiscal policies of the U.S. Government,  including policies of the U.S. Treasury
and the Board of  Governors  of the  Federal  Reserve  System,  the  quality  or
composition  of the loan or  investment  portfolios,  demand for loan  products,
deposit flows, competition,  demand for financial services in Bankshares' market
area and  accounting  principles,  policies  and  guidelines.  These  risks  and
uncertainties should be considered in evaluating  forward-looking statements and
undue reliance should not be placed on such statements.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999
   AND JUNE 30, 1998

         NET  INCOME.  Net  income  for the three  months  ended  June 30,  1999
increased  56.9% to $791,000  from  $504,000 for the three months ended June 30,
1998.  The increase in net income was primarily due to increases in net interest
income and total other  income that more than  offset  increases  in total other
expenses and provisions for loan losses.

         NET INTEREST INCOME. Net interest income increased $425,000 or 17.2% to
$2.90 million for the three months ended June 30, 1999 compared to $2.48 million
for the three  months ended June 30, 1998.  The  increase was  primarily  due to
growth in total interest  income of $597,000 as compared to an increase in total
interest expense of only $172,000.

         INTEREST INCOME.  Total interest income grew $597,000 or 15.8% to $4.39
million for the three months ended June 30, 1999  compared to $3.79  million for
the three months ended June 30, 1998.  The increase was a result of increases in
loan originations.
Interest and fees on loans increased $567,000 or 17.7%.

         INTEREST EXPENSE. Total interest expense increased $172,000 or 13.1% to
$1.48  million for the three months  ended June 30, 1999 from $1.31  million for
the three months ended June 30, 1998.  This was  primarily due to an increase in
interest expenses on Federal Home Loan Bank advances of $221,000.

         PROVISION  FOR LOAN LOSSES.  The provision for loan losses was $225,000
for the three months ended June 30, 1999 and $135,000 for the three months ended
June 30, 1998.  The amount of the provision for loan loss for the second quarter
of 1999 and 1998 was determined based upon management's  continual evaluation of
the adequacy of the allowance  for loan losses,  which  encompasses  the overall
risk  characteristics  of the loan  portfolio,  trends in TFB's  delinquent  and
non-performing loans, and the impact of economic conditions on borrowers.  There
can be no  assurance,  however,  that future  losses  will not exceed  estimated
amounts or that  additional  provisions  for loan losses will not be required in
future periods.

         OTHER  INCOME.  Total other  income  increased by $76,000 or 17.1% from
$443,000  for the three  months  ended June 30, 1998 to  $519,000  for the three
months ended June 30, 1999. Other income is primarily  derived from non-interest
fee income,  which is typically divided into three major categories:  fiduciary,
service charges, and other fee income. The bulk of the increase was derived from
service charges on deposit accounts of $93,000, which more than offset decreases
in other service charges, commission and fees and other operating income.

                                       9


<PAGE>


         OTHER EXPENSES. Other expenses increased 6.2% or $123,000 for the three
months  ended June 30, 1999  compared to the three  months  ended June 30, 1998.
During that same periods  salaries and benefits  increased  $108,000,  while all
other expenses increased $15,000.

         INCOME TAXES.  Income tax expense increased  by  $1,200  for  the three
months ended June 30, 1999 compared to the three months ended June 30, 1998.


COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999
   AND JUNE 30, 1998

         NET INCOME. Net income for the six months ended June 30, 1999 increased
7.5% to $1,222,000  from  $1,136,000 for the six months ended June 30, 1998. The
increase in net income was primarily due to increases in net interest income and
total other income that more than offset  increases in total other  expenses and
provisions for loan losses.

         NET INTEREST INCOME. Net interest income increased $592,000 or 12.4% to
$5.35  million for the six months ended June 30, 1999  compared to $4.76 million
for the six months ended June 30, 1998. The increase was primarily due to growth
in total  interest  income of $1.06  million as compared to an increase in total
interest expense of only $468,000.

         INTEREST  INCOME.  Total interest income grew $1.06 million or 14.4% to
$8.40  million for the six months ended June 30, 1999  compared to $7.34 million
for the six months ended June 30,  1998.  The increase was a result of increases
in loan  originations.  Interest and fees on loans  increased  $1.08  million or
17.5%.

         INTEREST EXPENSE. Total interest expense increased $468,000 or 18.1% to
$3.1  million for the six months  ended June 30, 1999 from $2.6  million for the
six  months  ended June 30,  1998.  This was  primarily  due to an  increase  in
interest expenses on Federal Home Loan Bank advances of $459,000.

         PROVISION  FOR LOAN LOSSES.  The provision for loan losses was $460,000
for the six months  ended June 30, 1999 and  $270,000  for the six months  ended
June 30, 1998.  The amount of the provision for loan loss for the second quarter
of 1999 and 1998 was determined based upon management's  continual evaluation of
the adequacy of the allowance  for loan losses,  which  encompasses  the overall
risk  characteristics  of the loan  portfolio,  trends in TFB's  delinquent  and
non-performing loans, and the impact of economic conditions on borrowers.  There
can be no  assurance,  however,  that future  losses  will not exceed  estimated
amounts or that  additional  provisions  for loan losses will not be required in
future periods.

                                       10

<PAGE>

         OTHER  INCOME.  Total other income  increased by $157,000 or 17.9% from
$878,000 for the six months ended June 30, 1998 to $1,036,000 for the six months
ended June 30, 1999.  Other income is primarily  derived from  non-interest  fee
income,  which is  typically  divided  into three major  categories:  fiduciary,
service charges,  and other fee income.  For the six months ended June 30, 1999,
income in all  categories  increased.  The bulk of the increase was derived from
service  charges on  deposit  accounts,  which  contributed  $101,000  and trust
department income, which contributed $38,000.

         OTHER EXPENSES.  Other expenses increased 11.8% or $443,000 for the six
months  ended June 30,  1999  compared  to the six months  ended June 30,  1998.
During that same period  salaries and  benefits  increased  $240,000,  while all
other expenses increased $203,000.

         INCOME TAXES.  Income  tax  expense  increased  by  $31,000 for the six
months ended June 30, 1999 compared to the six months ended June 30, 1998.

COMPARISON OF JUNE 30, 1999 AND DECEMBER 31, 1998 FINANCIAL CONDITION

         Total assets were $231 million at June 30, 1999, an increase of 5.0% or
$11 million from $220 million at December 31,  1998.  Balance  sheet  categories
reflecting significant changes include securities,  loans, and deposits. Each of
these categories is discussed below.

         SECURITIES.  The carrying  value of investment  securities  held by TFB
amounted  to $32.9  million at June 30,  1999,  reflecting  an increase of $10.1
million from $22.8 million at December 31, 1998 due to management's intention of
transferring  excess  fed funds and cash and due from  banks to higher  yielding
investments.

         LOANS. Net loans were $172.8 million at June 30, 1999, which represents
an increase of $10.6 million or 6.5% from $162.2 million at December 31, 1998.

         DEPOSITS.  On June 30, 1999, total deposits had increased $10.8 million
or 6.0% to $190.0 million from $179.2 million at December 31, 1998.  Most of the
growth was in savings and interest-bearing demand deposits, which increased $7.0
million and time deposits, which grew $3.2 million.

         SHAREHOLDER'S  EQUITY.  Total shareholders  equity was $21.0 million at
June 30,  1999  compared  to $21.2  million at  December  31, 1998 a decrease of
$207,000  or 0.94%.  The  decrease  in equity  reflects  management's  desire to
increase shareholders' return on equity by minimizing growth in equity. This was
accomplished through the acquisition of 39,023 shares of common stock.

CAPITAL RESOURCES AND LIQUIDITY

         The  primary  sources  of  funds  are  deposits,  repayment  of  loans,
maturities of investments,  funds provided from operations and advances from the
FHLB  of  Atlanta.

                                       11

<PAGE>

While scheduled repayments of loans and maturities of investment  securities are
predictable  sources of funds,  deposit  flows and loan  repayments  are greatly
influenced  by the general  level of interest  rates,  economic  conditions  and
competition.  TFB uses its funds  for  existing  and  future  loan  commitments,
maturing  certificates of deposit and demand deposit  withdrawals,  to invest in
other  interest-earning  assets,  to maintain  liquidity,  and to meet operating
expenses.  Management  monitors  projected  liquidity  needs and  determines the
desirable  level  based  in  part  on  TFB's   commitments  to  make  loans  and
management's assessment of TFB's ability to generate funds. Cash and amounts due
from  depository  institutions,  interest-bearing  deposits  in other  banks and
federal funds sold totaled $16.3 million at June 30, 1999.  These assets provide
the primary source of liquidity for TFB. In addition,  management has designated
a substantial portion of the investment portfolio, as available for sale and has
an  available  line of credit with the Federal  Home Loan Bank of Atlanta with a
borrowing  limit  of  approximately  $31  million  at June 30,  1999 to  provide
additional sources of liquidity.

         As of  June  30,  1999  the  appropriate  regulatory  authorities  have
categorized  Bankshares  and  TFB  as  well  capitalized  under  the  regulatory
framework for prompt corrective action.

CAPITAL REQUIREMENTS

     The federal bank regulatory  authorities  have adopted  risk-based  capital
guidelines  for banks  and bank  holding  companies  that are  designed  to make
regulatory  capital  requirements  more sensitive to differences in risk profile
among banks and bank holding  companies.  The resulting capital ratios represent
qualifying capital as a percentage of total risk-weighted assets and off-balance
sheet items. The guidelines are minimums,  and the federal regulators have noted
that  banks  and bank  holding  companies  contemplating  significant  expansion
programs  should not allow expansion to diminish their capital ratios and should
maintain  all ratios  well in excess of the  minimums.  The  current  guidelines
require all bank holding  companies and federally  regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier 1 capital. Tier 1 capital includes common stockholder's equity,  qualifying
perpetual  preferred  stock,  and  minority  interests  in  equity  accounts  of
consolidated subsidiaries,  but excludes goodwill and most other intangibles and
excludes the allowance for loan and lease  losses.  Tier 2 capital  includes the
excess  of any  preferred  stock  not  included  in  Tier 1  capital,  mandatory
convertible  securities,  hybrid  capital  instruments,  subordinated  debt  and
intermediate  term-preferred  stock,  and  general  reserves  for loan and lease
losses up to 1.25% of risk-weighted  assets. As of June 30, 1999 (i) Bankshares'
Tier 1 and total risk-based capital ratios were 12.06% and 13.31%, respectively,
and (ii)  TFB's  Tier 1 and total  risk-based  capital  ratios  were  12.07% and
13.32%, respectively.

         FDICIA contains "prompt corrective action" provisions pursuant to which
banks  are to be  classified  into one of five  categories  based  upon  capital
adequacy,  ranging from "well capitalized" to "critically  undercapitalized" and
which require  (subject to certain  exceptions) the appropriate  federal banking
agency to take prompt  corrective  action with respect to an  institution  which
becomes "significantly undercapitalized" or "critically undercapitalized".

                                      12

<PAGE>

         The FDIC has issued  regulations  to implement  the "prompt  corrective
action"  provisions  of FDICIA.  In  general,  the  regulations  define the five
capital  categories as follows:  (i) an institution is "well  capitalized" if it
has a total risk-based capital ratio of 10% or greater,  has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not
subject  to any  written  capital  order or  directive  to meet and  maintain  a
specific  capital  level  for  any  capital  measures;  (ii) an  institution  is
"adequately  capitalized"  if it has a total  risk-based  capital ratio of 8% or
greater,  has a Tier 1  risk-based  capital  ratio of 4% or  greater,  and has a
leverage ratio of 4% or greater;  (iii) an institution is  "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv)  an  institution  is  "significantly  undercapitalized"  if it has a  total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less  than 3% or a  leverage  ratio  that is less  than  3%;  and (v) an
institution is "critically  undercapitalized"  if its "tangible equity" is equal
to or less than 2% of its total assets.  The FDIC also, after an opportunity for
a hearing,  has authority to downgrade an institution from "well capitalized" to
"adequately   capitalized"   or  to  subject  an  "adequately   capitalized"  or
"under-capitalized"  institution to the  supervisory  actions  applicable to the
next lower category,  for supervisory  concerns.  As of June 30, 1999, TFB had a
total risk-based  capital ratio of 13.32%, a Tier 1 risk-based  capital ratio of
12.07%,  and a leverage ratio of 9.25%.  TFB was notified by the Federal Reserve
Bank of Richmond  that, at December 31, 1998, TFB was "well  capitalized"  under
the regulatory framework for prompt corrective action.

         Additionally,  FDICIA  requires,  among other  things,  that (i) only a
"well capitalized"  depository  institution may accept brokered deposits without
prior  regulatory  approval  and (ii) the  appropriate  federal  banking  agency
annually examine all insured depository  institutions,  with some exceptions for
small, "well capitalized" institutions and state-chartered institutions examined
by  state  regulators.  FDICIA  also  contains  a  number  of  consumer  banking
provisions,   including  disclosure  requirements  and  substantive  contractual
limitations with respect to deposit accounts.

YEAR 2000 COMPLIANCE

         A great  deal of  information  has been  disseminated  about the global
computer crash that may occur in the Year 2000. Many computer  programs that can
only distinguish the final two digits of the year entered (a common  programming
practice in earlier years) are expected to read entries for the Year 2000 as the
year 1900 and compute payment,  interest or delinquency  based on the wrong date
or are expected to be unable to compute payment, interest or delinquency.  Rapid
and accurate  data  processing  is  essential  to the  operation of TFB. TFB has
initiated a Year 2000 plan and has closely monitored the situation by thoroughly
assessing systems and programs that may be date sensitive.

         In early 1997, TFB began planning its strategy to address the issue. In
June 1998 a cross-functional  project team was formed to assess and address both
internal and

                                       13

<PAGE>

external risks associated with Y2K. A readiness plan was developed consisting of
six phases:

         In the  first  phase,  the  Board  adopted  policies,  procedures,  and
schedules to address the issue.  The Board and senior managers have been updated
on their  implementation  since June. Officers and associates have been provided
an internal  newsletter  outlining TFB's progress and containing  information to
assist them in responding to customers' questions.

         In the second  phase,  a complete  inventory,  including  all hardware,
software,  networks and other  equipment that may have imbedded  computer chips,
such as heating and air conditioning,  security  systems,  vaults and elevators,
was  developed  and each item  identified as either  mission  critical,  mission
necessary,  mission  desirable  or  non-critical.  The  team  continues  to meet
regularly to update the status of each item on the inventory.

         Vendors and  correspondent  organizations'  readiness has been assessed
and  evaluations  will continue until  readiness is assured.  Every new vendor's
readiness is evaluated before  contracting.  Approximately  95% of TFB's vendors
for critical  applications  have informed TB that they are fully complaint.  The
remaining  vendors have advised TFB that they are in the testing and  validation
state of the process.

         TFB's  credit risk  related to current  commercial  customers  has been
assessed.  Organizations  with  relationships  of $100,000 or more with TFB have
been contacted and their  compliance  status  evaluated.  Their progress will be
evaluated  on an  on-going  basis  to  insure  compliance.  All  new  commercial
customers are evaluated as a regular part of the lending process.

         Customers  are being  kept  informed  of TFB's  progress  by way of the
Internet web site, communications in statements mailed to the customers, updates
at branch  offices,  teller  receipts,  messages on telephone  voice systems and
seminars.  A special Y2K mailing is being sent to all customers and shareholders
in September  1999. TFB plans to place  advertisements  in the local  newspapers
beginning in October 1999.

         The  impact of the Year  2000  issue on TFB  depends  not only on TFB's
corrective action,  but also on the corrective action of governmental  agencies,
utilities,  businesses and other third parties that provide services or data to,
or  receive  services  or  data  from  TFB,  or  whose  financial  condition  or
operational  capability  is important to TFB. To reduce this  exposure,  TFB has
identified,  and  continues to contact  these  significant  parties to determine
their Year 2000 plans and target dates.

         In the third phase,  upgrades and replacement  systems for all hardware
and software were ordered. Ninety-nine percent are in place and operational. The
remainder will be put into service prior to September 30, 1999.

         Through  June  30,  1999,  approximately  $225,000  was  spent  on  Y2K
remediation  efforts. It is expected that an additional $25,000 will be required
to complete this project.

                                       14

<PAGE>

         Contingency  plans for all  critical  applications  were  developed  to
prepare for unforeseen situations.  TFB used the same contingency formula on the
data processing  systems as has been used  successfully in previous major system
conversions.

         In the  fourth  phase,  in-house  testing on the  upgrades  to the data
processing systems was completed  successfully in the current  environment.  M&I
Data Services,  TFB's outsource  service  provider,  has completed proxy testing
under the Y2K environment.  Specific testing of transmittals between TFB and M&I
Data Services using the Y2K simulated environment is scheduled.  Sungard,  TFB's
Trust Services outsource  partner,  has assured TFB that it is Y2K compliant and
has provided  proxy-testing  results.  Both vendors have provided TFB with third
party validation test results.

         Integration testing has been successfully completed on TFB's electronic
funds and  reporting  systems.  The testing of  networking  system  upgrades and
replacements has been substantially  accomplished,  and were totally in-place by
June 30, 1999. Other non-critical  applications have been  substantially  tested
and found to be  compliant.  TFB  continues to monitor its vendors'  testing and
compliance status.

         In the fifth  phase,  TFB was  reviewed by  regulatory  authorities  to
ensure that it has been  proceeding  with a prudent plan of action for Year 2000
readiness. TFB is on schedule in accordance with regulatory guidelines.  TFB has
submitted  substantial data to the Federal Reserve reporting  contingency plans,
business resumption plans,  liquidity plans,  customer awareness  planning,  and
testing results for an off-site examination in August 1999.

         In the sixth phase,  which is being implemented  throughout the balance
of 1999,  systems,  contingency  plans,  and business  resumption  plans will be
re-tested and refined.

         Liquidity  alternatives  have been  evaluated,  and sources  identified
insure  alternative  funding  for  a  worst-case  scenario  of  funds  shortage.
Liquidity  will be  monitored  on a regular  basis.  Insurance  risks  have been
evaluated and discussed with TFB's insurance carriers.

ITEM 3.           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         An important  component of both earnings  performance  and liquidity is
management of interest rate sensitivity.  Interest rate sensitivity reflects the
potential  effect on net interest income of a movement in market interest rates.
TFB  is  subject  to  interest   rate   sensitivity   to  the  degree  that  its
interest-earning assets mature or reprice at a different time interval from that
of its interest-bearing  liabilities.  However, TFB is not subject to any of the
other major  categories  of market risk such as foreign  currency  exchange rate
risk or commodity price risk.

         TFB uses a number of tools to manage its interest rate risk,  including
simulating net interest income under various  scenarios,  monitoring the present
value change in

                                       15

<PAGE>

equity under the same  scenarios,  and  monitoring the difference or gap between
rate sensitive assets and rate sensitive  liabilities over various time periods.
Management believes that rate risk is best measured by simulation modeling.

         The  earnings  simulation  model  forecasts  annual net income  under a
variety of scenarios that incorporate  changes in the absolute level of interest
rates,  changes in the shape of the yield  curve and  changes in  interest  rate
relationships.  Management  evaluates  the  effect on net  interest  income  and
present value equity under varying market rate assumptions.

         TFB  monitors  exposure  to gradual  change in rates of up to 200 basis
points up or down over a rolling  12-month  period.  TFB's  policy limit for the
maximum negative impact on net interest income and change in equity from gradual
changes in interest rates of 200 basis points over 12 months is 15%.  Management
has maintained a risk position well within these guideline levels during 1999.

                           PART II. OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS.

         There is no pending or  threatened  litigation  that, in the opinion of
management, may materially impact the financial condition of Bankshares or TFB.

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS.

         None.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES.

         None.

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

         Bankshares held its Annual Meeting of Shareholders on April 20, 1999. A
quorum of shareholders were present,  consisting of a total of 1,512,468 shares,
all represented by proxy. At the Annual Meeting,  the Shareholders  approved and
ratified the acts and proceedings of all officers,  directors, and committees of
Bankshares  since April 21, 1998. Class III directors  Alexander G. Green,  Jr.,
Douglas C. Larson, D. Harcourt Lees, Jr., and Randolph T. Minter were elected to
three-year  terms.  The  following  Class I and Class II  directors  whose terms
expire in years 2000 and  2001continued  in office:  Stanley  C.  Haworth,  C.H.
Lawrence,  Jr.,  Brian S.  Montgomery,  H. Paul Neale,  Pat H.  Nevill,  John J.
Norman, Jr., Henry M. Ross and C. Hunton Tiffany. The shareholders also ratified
the  appointment of Yount,  Hyde & Barbour,  CPA as independent  auditors of the
Bank for the year ending December 31, 1999.

                     The vote on each matter was as follows.

                                       16
<PAGE>



1.  Ratifying acts and proceedings since April 21, 1998.
                                                                      TOTAL
                                                                      -----

                                                                       1,512,468

2.  For Directors
                                                                       TOTAL
                                                                       -----
                      Alexander G. Green, Jr.                          1,502,528
                      Douglas C. Larson                                1,507,248
                      D. Harcourt Lees, Jr.                            1,502,528
                      Randolph T. Minter                               1,492,688

3.  Ratification  of the  appointment  of  Yount,  Hyde &  Barbour,  CPA  as the
    independent auditors for the Bank.
                                                                           TOTAL
                                                                           -----

                                                                       1,512,468

Item 5.           Other Information.

         None.

Item 6.           Exhibits and Reports on Form 8-K.

         (a) Exhibit (3)(i) - Articles of Incorporation of Fauquier  Bankshares,
Inc. (including amendments),  incorporated by reference to Bankshares Securities
Exchange Act of 1934 ("Exchange Act")  Registration  Statement on Form 10, filed
with the Securities and Exchange Commission on April 16, 1999.

                  Exhibit  (3)(ii)  -  Bylaws  of  Fauquier  Bankshares,   Inc.,
incorporated by reference to Bankshares  Exchange Act Registration  Statement on
Form 10, filed with the Securities and Exchange Commission on April 16, 1999.

                  Exhibit (10)

                           Fauquier Bankshares, Inc. Non-Employee Director Stock
Option Plan,  incorporated by reference to Bankshares  Exchange Act Registration
Statement on Form 10, filed with the Securities and Exchange Commission on April
16, 1999.

                           Fauquier    Bankshares,    Inc.   Director   Deferred
Compensation  Plan,   incorporated  by  reference  to  Bankshares  Exchange  Act
Registration  Statement  on Form 10,  filed  with the  Securities  and  Exchange
Commission on April 16, 1999.

                           Fauquier Bankshares, Inc. Omnibus Stock Ownership and
Long Term Incentive Plan,  incorporated by reference to Bankshares  Exchange Act
Registration  Statement  on Form 10,  filed  with the  Securities  and  Exchange
Commission on April 16, 1999.

                           Agreement  with C. Hunton  Tiffany,  incorporated  by
reference to Bankshares  Exchange Act  Registration  Statement on Form 10, filed
with the Securities and Exchange Commission on April 16, 1999.

                  Exhibit (11) -    Not applicable

                  Exhibit (21) - Subsidiaries of the Registrant, incorporated by
reference to Bankshares Exchange Act Registration Statement on
Form 10, filed with the Securities and Exchange Commission on April 16, 1999.

                  Exhibit (27) -    Financial Data Schedule

         (b)      Reports on Form 8-K:

                  None.

                                       17
<PAGE>


SIGNATURES

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


                                            FAUQUIER BANKSHARES, INC.

Date: August 16, 1999               By      /s/ C. Hunton Tiffany
                                           -----------------
                                           C. Hunton Tiffany
                                           President and Chief Executive Officer


Date: August 16, 1999               By     /s/ Diane B. Coppage
                                           -----------------
                                           Diane B. Coppage
                                           Senior Vice President and Treasurer