UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2010
 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
    
    54-1288193(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 10 Courthouse Square, Warrenton, Virginia
(Address of principal executive offices)
    
    20186
(Zip Code)
 (540) 347-2700
 þ o
 o o
  Large accelerated filer o
    

Accelerated
filer o
    

Non-accelerated
filer þ
    
    Smaller reporting company o
 o þ




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##### 



FAUQUIER BANKSHARES, INC.
 PagePart I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009
    
    
    3Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2010 and
2009
    
    
    4Consolidated Statements of Changes in Shareholders Equity (unaudited) for the Three Months
Ended
March 31, 2010 and 2009
    
    
    5Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2010
and 2009
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    34Part II. OTHER INFORMATION
    
    
    35Item 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    35Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3. Defaults Upon Senior Securities
    
    
    35Item 4. Removed and Reserved
    
    
    35Item 5. Other Information
    
    
    35Item 6. Exhibits
    
    
    35SIGNATURES
    
    
    37




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##### 



Part I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 Fauquier Bankshares, Inc. and Subsidiaries
 
 Consolidated Balance Sheets
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    6,990,352
    
    
    $
    5,652,617Interest-bearing deposits in other banks
    
    
    16,465,087
    
    
    
    20,546,596Federal funds sold
    
    
    9,032
    
    
    
    9,154Securities available for sale
    
    
    36,973,670
    
    
    
    36,692,094Restricted investments
    
    
    3,774,700
    
    
    
    3,774,700Loans, net of allowance for loan losses of $5,469,531
in 2010 and $5,481,963 in 2009
    
    
    467,429,649
    
    
    
    462,783,962Bank premises and equipment, net
    
    
    14,463,147
    
    
    
    14,025,745Accrued interest receivable
    
    
    1,649,832
    
    
    
    1,495,085Other real estate owned
    
    
    2,029,085
    
    
    
    2,479,860Other assets
    
    
    20,810,756
    
    
    
    21,022,655Total assets
    
    $
    570,595,310
    
    
    $
    568,482,468Liabilities and Shareholders EquityDeposits:Noninterest-bearing
    
    $
    64,845,064
    
    
    $
    68,469,699Interest-bearing:NOW accounts
    
    
    100,797,451
    
    
    
    83,395,687Savings and money market accounts
    
    
    107,909,979
    
    
    
    106,458,563Time certificates of deposit
    
    
    194,243,183
    
    
    
    207,662,808Total interest-bearing
    
    
    402,950,613
    
    
    
    397,517,058Total deposits
    
    
    467,795,677
    
    
    
    465,986,757Federal funds purchased
    
    
    
    
    
    
    Federal Home Loan Bank advances
    
    
    50,000,000
    
    
    
    50,000,000Company-obligated mandatorily redeemable
capital securities
    
    
    4,124,000
    
    
    
    4,124,000Other liabilities
    
    
    5,333,981
    
    
    
    5,732,869Commitments and contingencies
    
    
    
    
    
    
    Total liabilities
    
    
    527,253,658
    
    
    
    525,843,626Shareholders EquityCommon stock, par value, $3.13; authorized 8,000,000
shares: issued and outstanding, 2010: 3,620,544 shares
(includes nonvested shares of 33,772); 2009: 3,594,685 shares
(includes nonvested shares of 47,282)
    
    
    11,226,596
    
    
    
    11,103,371Retained earnings
    
    
    33,743,025
    
    
    
    33,458,933Accumulated other comprehensive income (loss), net
    
    
    (1,627,969
    )
    
    
    (1,923,462
    )Total shareholders equity
    
    
    43,341,652
    
    
    
    42,638,842Total liabilities and shareholders equity
    
    $
    570,595,310
    
    
    $
    568,482,468




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
 
 Consolidated Statements of Income
 (Unaudited)
 For the Three Months Ended March 31, 2010 and 2009
 2010
    
    
    2009Interest IncomeInterest and fees on loans
    
    $
    6,691,277
    
    
    $
    6,381,071Interest and dividends on securities available for sale:Taxable interest income
    
    
    302,656
    
    
    
    356,163Interest income exempt from federal income taxes
    
    
    59,434
    
    
    
    61,461Dividends
    
    
    6,816
    
    
    
    4,463Interest on federal funds sold
    
    
    3
    
    
    
    107Interest on deposits in other banks
    
    
    8,089
    
    
    
    3,669Total interest income
    
    
    7,068,275
    
    
    
    6,806,934Interest ExpenseInterest on deposits
    
    
    1,275,025
    
    
    
    1,558,089Interest on federal funds purchased
    
    
    
    
    
    
    10,446Interest on Federal Home Loan Bank advances
    
    
    273,620
    
    
    
    266,667Distribution on capital securities of subsidiary trusts
    
    
    19,325
    
    
    
    35,835Total interest expense
    
    
    1,567,970
    
    
    
    1,871,037Net interest income
    
    
    5,500,305
    
    
    
    4,935,897Provision for loan losses
    
    
    375,000
    
    
    
    200,000Net interest income after provision for loan losses
    
    
    5,125,305
    
    
    
    4,735,897Other IncomeWealth management income
    
    
    306,568
    
    
    
    249,236Service charges on deposit accounts
    
    
    621,451
    
    
    
    606,677Other service charges, commissions and income
    
    
    426,333
    
    
    
    403,380(Loss) on sale of other real estate owned
    
    
    (16,139
    )
    
    
    (135,759
    )Gain on sale of investments
    
    
    89,106
    
    
    
    Net other than temporary impairment losses on securities
recognized in earnings (includes total other than temporary
impairment losses of $560,548, net of $84,875 loss recognized
in other comprehensive income for the quarter ended March 31,
2010 before tax benefit)
    
    
    (475,673
    )
    
    
    Total other income
    
    
    951,646
    
    
    
    1,123,534Other ExpensesSalaries and benefits
    
    
    2,447,688
    
    
    
    2,354,939Net occupancy expense of premises
    
    
    499,902
    
    
    
    307,067Furniture and equipment
    
    
    317,696
    
    
    
    280,450Marketing expense
    
    
    156,418
    
    
    
    120,978Legal, audit and consulting expense
    
    
    267,231
    
    
    
    335,943Federal Deposit Insurance Corporation expense
    
    
    182,617
    
    
    
    145,050Data processing expense
    
    
    358,105
    
    
    
    348,494Other operating expenses
    
    
    799,328
    
    
    
    702,046Total other expenses
    
    
    5,028,985
    
    
    
    4,594,967Income before income taxes
    
    
    1,047,966
    
    
    
    1,264,464Income tax expense
    
    
    244,073
    
    
    
    341,555Net Income
    
    $
    803,893
    
    
    $
    922,909Earnings per Share, basic
    
    $
    0.22
    
    
    $
    0.26Earnings per Share, assuming dilution
    
    $
    0.22
    
    
    $
    0.26Dividends per Share
    
    $
    0.20
    
    
    $
    0.20




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##### 



Fauquier Bankshares, Inc. and Subsidiaries



Consolidated Statements of Changes in Shareholders Equity
For the Three Months Ended March 31, 2010 and 2009
 AccumulatedOtherCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Income
    
    
    TotalBalance, December 31, 2008
    
    $
    11,036,687
    
    
    $
    32,668,530
    
    
    $
    (2,217,280
    )
    
    
    
    
    
    $
    41,487,937Comprehensive income:Net income
    
    
    
    
    
    
    922,909
    
    
    
    
    
    
    $
    922,909
    
    
    
    922,909Other comprehensive income net of tax:Unrealized holding losses on securities available
for sale, net of tax benefit of $535,793
    
    
    
    
    
    
    
    
    
    
    (1,040,068
    )
    
    
    (1,040,068
    )
    
    
    (1,040,068
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (117,159
    )Cash dividends ($.20 per share)
    
    
    
    
    
    
    (719,307
    )
    
    
    
    
    
    
    
    
    
    
    (719,307
    )Amortization of unearned compensation,
restricted stock awards
    
    
    
    
    
    
    85,289
    
    
    
    
    
    
    
    
    
    
    
    85,289Issuance of common stock  nonvested
shares (10,585 shares)
    
    
    33,131
    
    
    
    (33,131
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    27,293
    
    
    
    54,484
    
    
    
    
    
    
    
    
    
    
    
    81,777Balance, March 31, 2009
    
    $
    11,097,111
    
    
    $
    32,978,774
    
    
    $
    (3,257,348
    )
    
    
    
    
    
    $
    40,818,537Balance, December 31, 2009
    
    $
    11,103,371
    
    
    $
    33,458,933
    
    
    $
    (1,923,462
    )
    
    
    
    
    
    $
    42,638,842Comprehensive income:Net income
    
    
    
    
    
    
    803,893
    
    
    
    
    
    
    $
    803,893
    
    
    
    803,893Other comprehensive income net of tax:Unrealized holding gains on securities available
for sale, net of tax of $20,791
    
    
    
    
    
    
    
    
    
    
    40,359
    
    
    
    40,359
    
    
    
    40,359Less: gain on sale of securities available for sale, net
net of tax of $30,296
    
    
    
    
    
    
    
    
    
    
    (58,810
    )
    
    
    (58,810
    )
    
    
    (58,810
    )Less: reclassification adjustments for other than
temporary impairment, net of tax of $161,729
    
    
    
    
    
    
    
    
    
    
    313,944
    
    
    
    313,944
    
    
    
    313,944Other comprehensive income net of tax of $152,224
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295,493Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,099,386Cash dividends ($.20 per share)
    
    
    
    
    
    
    (724,109
    )
    
    
    
    
    
    
    
    
    
    
    (724,109
    )Amortization of unearned compensation,
restricted stock awards
    
    
    
    
    
    
    205,260
    
    
    
    
    
    
    
    
    
    
    
    205,260Issuance of common stock  nonvested
shares (28,847 shares)
    
    
    90,291
    
    
    
    (90,291
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of common stock  vested
shares (6,522 shares)
    
    
    20,414
    
    
    
    69,459
    
    
    
    
    
    
    
    
    
    
    
    89,873Exercise of stock options
    
    
    12,520
    
    
    
    19,880
    
    
    
    
    
    
    
    
    
    
    
    32,400Balance, March 31, 2010
    
    $
    11,226,596
    
    
    $
    33,743,025
    
    
    $
    (1,627,969
    )
    
    
    
    
    
    $
    43,341,652




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
 For the Three Months Ended March 31, 2010 and 2009
 (Unaudited)
 2010
    
    
    2009Cash Flows from Operating ActivitiesNet income
    
    $
    803,893
    
    
    $
    922,909Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    313,944
    
    
    
    203,179Provision for loan losses
    
    
    375,000
    
    
    
    200,000Loss on sale of other real estate
    
    
    16,139
    
    
    
    135,759(Gain) on sale of securities
    
    
    (89,106
    )
    
    
    Loss on impairment of securities
    
    
    475,673
    
    
    
    Amortization (accretion) of security premiums, net
    
    
    9,058
    
    
    
    (12,714
    )Amortization of unearned compensation, net of forfeiture
    
    
    205,260
    
    
    
    85,289Changes in assets and liabilities:(Increase) decrease in other assets
    
    
    (96,708
    )
    
    
    356,014(Decrease) increase in other liabilities
    
    
    (398,888
    )
    
    
    254,812Net cash provided by operating activities
    
    
    1,614,265
    
    
    
    2,145,248Cash Flows from Investing ActivitiesProceeds from sale of securities available for sale
    
    
    1,543,439
    
    
    
    Proceeds from maturities, calls and principal
payments of securities available for sale
    
    
    2,340,984
    
    
    
    1,773,795Purchase of securities available for sale
    
    
    (4,112,271
    )
    
    
    (2,978
    )Purchase of premises and equipment
    
    
    (751,346
    )
    
    
    (592,101
    )Purchase proceeds from sale of other bank stock
    
    
    
    
    
    
    (719,900
    )Net (increase) in loans
    
    
    (5,020,687
    )
    
    
    (8,870,845
    )Proceeds from sale of other real estate owned
    
    
    434,636
    
    
    
    869,626Net cash used in investing activities
    
    
    (5,565,245
    )
    
    
    (7,542,403
    )Cash Flows from Financing ActivitiesNet increase (decrease) in demand deposits, NOW accounts
and savings accounts
    
    
    15,228,545
    
    
    
    (1,069,027
    )Net (decrease) increase in certificates of deposit
    
    
    (13,419,625
    )
    
    
    17,056,272Federal Home Loan Bank advances
    
    
    
    
    
    
    80,000,000Federal Home Loan Bank principal repayments
    
    
    
    
    
    
    (65,000,000
    )Purchase of federal funds
    
    
    
    
    
    
    (18,275,000
    )Cash dividends paid on common stock
    
    
    (724,109
    )
    
    
    (719,307
    )Issuance of common stock
    
    
    122,273
    
    
    
    81,777Net cash provided by financing activities
    
    
    1,207,084
    
    
    
    12,074,715Increase (decrease) in cash and cash equivalents
    
    
    (2,743,896
    )
    
    
    6,677,560Cash and Cash EquivalentsBeginning
    
    
    26,208,367
    
    
    
    11,023,162Ending
    
    $
    23,464,471
    
    
    $
    17,700,722Supplemental Disclosures of Cash Flow InformationCash payments for:Interest
    
    $
    1,557,869
    
    
    $
    1,967,496Income taxes
    
    $
    
    
    
    $
    Supplemental Disclosures of Noncash Investing ActivitiesUnrealized gain (loss) on securities available for sale, net
of tax effect
    
    $
    (18,451
    )
    
    $
    (1,040,068
    )




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##### 



FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 Note 1. General
   Recent Accounting Pronouncements
  ,
  Accounting for Various Topics  Technical
Corrections to SEC Paragraphs
  7




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##### 



Note 2. Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueMarch 31, 2010Obligations of U.S. Government
corporations and agencies
    
    $
    28,142,404
    
    
    $
    842,125
    
    
    $
    (16,494
    )
    
    $
    28,968,035Obligations of states and political
subdivisions
    
    
    5,569,835
    
    
    
    276,408
    
    
    
    (1,449
    )
    
    
    5,844,794Corporate Bonds
    
    
    4,865,613
    
    
    
    
    
    
    
    (3,038,031
    )
    
    
    1,827,582Mutual Funds
    
    
    318,577
    
    
    
    
    
    
    
    (818
    )
    
    
    317,759FHLMC Preferred Bank Stock
    
    
    18,500
    
    
    
    
    
    
    
    (3,000
    )
    
    
    15,500$
    38,914,929
    
    
    $
    1,118,533
    
    
    $
    (3,059,792
    )
    
    $
    36,973,670
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueDecember 31, 2009Obligations of U.S. Government
corporations and agencies
    
    $
    27,837,619
    
    
    $
    916,798
    
    
    $
    (25,592
    )
    
    $
    28,728,825Obligations of states and political
subdivisions
    
    
    5,569,586
    
    
    
    163,021
    
    
    
    (8,758
    )
    
    
    5,723,849Corporate Bonds
    
    
    5,341,286
    
    
    
    
    
    
    
    (3,428,830
    )
    
    
    1,912,456Mutual Funds
    
    
    315,715
    
    
    
    
    
    
    
    (3,451
    )
    
    
    312,264FHLMC Preferred Bank Stock
    
    
    18,500
    
    
    
    
    
    
    
    (3,800
    )
    
    
    14,700$
    39,082,706
    
    
    $
    1,079,819
    
    
    $
    (3,470,431
    )
    
    $
    36,692,094
  8




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##### 



March 31, 2010Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    316,300
    
    
    $
    317,600Due after one year through five years
    
    
    128,740
    
    
    
    132,525Due after five years through ten years
    
    
    8,773,814
    
    
    
    9,151,247Due after ten years
    
    
    29,358,998
    
    
    
    27,039,039Equity securities
    
    
    337,077
    
    
    
    333,259$
    38,914,929
    
    
    $
    36,973,670
    March 31, 2010
    
    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
    
    $
    6,019,556
    
    
    $
    (16,494
    )
    
    $
    
    
    
    $
    
    
    
    $
    6,019,556
    
    
    $
    (16,494
    )Obligations of states and political
subdivisions
    
    
    
    
    
    
    
    
    
    
    282,616
    
    
    
    (1,449
    )
    
    
    282,616
    
    
    
    (1,449
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    1,827,581
    
    
    
    (3,038,031
    )
    
    
    1,827,581
    
    
    
    (3,038,031
    )Subtotal, debt securities
    
    
    6,019,556
    
    
    
    (16,494
    )
    
    
    2,110,197
    
    
    
    (3,039,480
    )
    
    
    8,129,753
    
    
    
    (3,055,974
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    317,759
    
    
    
    (818
    )
    
    
    317,759
    
    
    
    (818
    )FHLMC preferred bank stock
    
    
    
    
    
    
    
    
    
    
    15,500
    
    
    
    (3,000
    )
    
    
    15,500
    
    
    
    (3,000
    )Total temporary impaired securities
    
    $
    6,019,556
    
    
    $
    (16,494
    )
    
    $
    2,443,456
    
    
    $
    (3,043,298
    )
    
    $
    8,463,012
    
    
    $
    (3,059,792
    )
 December 31, 2009
    
    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
    
    $
    3,030,782
    
    
    $
    (25,592
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,030,782
    
    
    $
    (25,592
    )Obligations of states and political
subdivisions
    
    
    312,667
    
    
    
    (174
    )
    
    
    275,475
    
    
    
    (8,584
    )
    
    
    588,142
    
    
    
    (8,758
    )Corporate bonds
    
    
    
    
    
    
    
    
    
    
    1,912,456
    
    
    
    (3,428,830
    )
    
    
    1,912,456
    
    
    
    (3,428,830
    )Subtotal, debt securities
    
    
    3,343,449
    
    
    
    (25,766
    )
    
    
    2,187,931
    
    
    
    (3,437,414
    )
    
    
    5,531,380
    
    
    
    (3,463,180
    )Mutual funds
    
    
    
    
    
    
    
    
    
    
    312,263
    
    
    
    (3,451
    )
    
    
    312,263
    
    
    
    (3,451
    )FHLMC preferred bank stock
    
    
    14,700
    
    
    
    (3,800
    )
    
    
    
    
    
    
    
    
    
    
    14,700
    
    
    
    (3,800
    )Total temporary impaired securities
    
    $
    3,358,149
    
    
    $
    (29,566
    )
    
    $
    2,500,194
    
    
    $
    (3,440,865
    )
    
    $
    5,858,343
    
    
    $
    (3,470,431
    )
 9




---



##### 



Percent of
    
    
    
    
    
    
    
    
    
    
    EstimatedUnderlying
    
    
    Percent of
    
    
    Percent of
    
    
    incremental
    
    
    
    
    
    
    
    
    
    
    Cumulative OtherCurrent
    
    
    Underlying
    
    
    Underlying
    
    
    defaults
    
    
    Current
    
    
    Cumulative
    
    
    CompreshensiveCost, net of
    
    
    

    
    
    
    Collateral
    
    
    Collateral in
    
    
    Collateral in
    
    
    required to
    
    
    Moody's
    
    
    Amount of
    
    
    Loss, net of taxOTTI loss
    
    
    Fair Value
    
    
    Performing
    
    
    Deferral
    
    
    Default
    
    
    break yield (1)
    
    
    Rating
    
    
    OTTI Loss
    
    
    benefit$

    359,294
    
    
    $
    102,362
    
    
    
    56.6%
    
    
    
    28.6%
    
    
    
    14.8%
    
    
    broken
    
    Ca
    
    $
    640,706
    
    
    $
    169,5751,822,050
    
    
    
    746,034
    
    
    
    76.3%
    
    
    
    11.7%
    
    
    
    12.0%
    
    
    broken
    
    Ca
    
    
    177,950
    
    
    
    710,1711,899,350
    
    
    
    779,749
    
    
    
    77.9%
    
    
    
    18.3%
    
    
    
    3.8%
    
    
    broken
    
    Ca
    
    
    100,650
    
    
    
    738,937784,919
    
    
    
    199,436
    
    
    
    73.9%
    
    
    
    14.7%
    
    
    
    11.4%
    
    
    broken
    
    Ca
    
    
    215,081
    
    
    
    386,419$

    4,865,613
    
    
    $
    1,827,581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,134,387
    
    
    $
    2,005,102
 
 (1)
    
    A break in yield for a given tranche investment means that defaults and/or deferrals
have reached such a level that the specific tranche would not receive all of the
contractual principal and interest cash flow by its maturity, resulting in not a temporary
shortfall, but an actual loss. This column represents the percentage of additional defaults
among the currently performing collateral that would result in other than temporary
impairment and loss.    10




---



##### 



Available for saleBeginning balance as of December 31, 2009
    
    $
    658,734Add: Amount related to the credit loss for which an other-than- temporary impairment was
not previously recognized
    
    
    100,650Add: Increases to the amount related to the credit loss for which an other-than temporary
impairment was previously recognized
    
    
    375,003Less: Realized losses for securities sold
    
    
    Less: Securities for which the amount previously recognized in other comprehensive income
was recognized in earnings because the Company intends to sell the security or more likely
than not will be required to sell the security before recovery of its amortized cost basis
    
    
    Less: Increases in cash flows expected to be collected that are recognized over the remaining
life of the security (See FASB ASC 320-10-35-35)
    
    
    Ending balance as of March 31, 2010
    
    $
    1,134,387
   March 31, 2010Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueRestricted investments:Federal Home Loan Bank Stock
    
    $
    3,625,700
    
    
    $
    
    
    
    $
    
    
    
    $
    3,625,700Federal Reserve Bank Stock
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000$
    3,774,700
    
    
    $
    
    
    
    $
    
    
    
    $
    3,774,700
 December 31, 2009Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueRestricted investments:Federal Home Loan Bank Stock
    
    $
    3,625,700
    
    
    $
    
    
    
    $
    
    
    
    $
    3,625,700Federal Reserve Bank Stock
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000$
    3,774,700
    
    
    $
    
    
    
    $
    
    
    
    $
    3,774,700
  11




---



##### 



Note 3. Loans
  March 31,
    
    
    December 31,2010
    
    
    2009(Thousands)Real estate loans:Construction
    
    $
    30,027
    
    
    $
    33,003Secured by farmland
    
    
    1,093
    
    
    
    948Secured by 1 - to - 4 family residential
    
    
    193,650
    
    
    
    193,709Other real estate loans
    
    
    192,780
    
    
    
    186,463Commercial and industrial loans (not secured by real estate)
    
    
    27,941
    
    
    
    29,286Consumer installment loans
    
    
    13,354
    
    
    
    10,390All other loans
    
    
    14,105
    
    
    
    14,559Total loans
    
    $
    472,950
    
    
    $
    468,358Unearned income
    
    
    (51
    )
    
    
    (92
    )Allowance for loan losses
    
    
    (5,470
    )
    
    
    (5,482
    )Net loans
    
    $
    467,429
    
    
    $
    462,784
  Note 4. Allowance for Loan Losses
  Three Months
    
    
    Three Months
    
    
    Twelve MonthsEnded March
    
    
    Ended March
    
    
    Ended December31, 2010
    
    
    31, 2009
    
    
    31, 2009Balance at beginning of year
    
    $
    5,481,963
    
    
    $
    4,779,662
    
    
    $
    4,779,662Provision for loan losses
    
    
    375,000
    
    
    
    200,000
    
    
    
    1,710,000Recoveries of loans previously charged-off
    
    
    15,370
    
    
    
    13,462
    
    
    
    81,106Loan losses charged-off
    
    
    (402,802
    )
    
    
    (120,553
    )
    
    
    (1,088,805
    )Balance at end of year
    
    $
    5,469,531
    
    
    $
    4,872,571
    
    
    $
    5,481,963
  March 31,
    
    
    December 31,
    
    
    March 31,(Dollars in thousands)
    
    2010
    
    
    2009
    
    
    2009Non-accrual loans
    
    $
    3,420
    
    
    $
    3,410
    
    
    $
    1,573Restructured loans
    
    
    
    
    
    
    
    
    
    
    Other real estate owned
    
    
    2,029
    
    
    
    2,480
    
    
    $
    2,029Other repossessed assets owned
    
    
    61
    
    
    
    54
    
    
    
    36Non-performing corporate bond investments, at fair value
    
    
    1,828
    
    
    
    1,126
    
    
    
    Total nonperforming assets
    
    $
    7,338
    
    
    $
    7,070
    
    
    $
    3,638Allowance for loan losses to total loans, period end
    
    
    1.16
    %
    
    
    1.17
    %
    
    
    1.08
    %Non-accrual loans to total loans, period end
    
    
    0.72
    %
    
    
    0.73
    %
    
    
    0.35
    %Allowance for loan losses to non-accrual loans, period end
    
    
    159.83
    %
    
    
    160.76
    %
    
    
    309.79
    %Non-performing assets to total assets, period end
    
    
    1.29
    %
    
    
    1.24
    %
    
    
    0.69
    %




---



##### 



March 31, 2010
    
    
    December 31, 2009
    
    
    March 31, 2009Impaired loans for which an allowance has been provided
    
    $
    3,059,542
    
    
    $
    3,213,516
    
    
    $
    1,629,725Impaired loans for which no allowance has been provided
    
    
    607,256
    
    
    
    175,429
    
    
    
    228,496$
    3,666,798
    
    
    $
    3,388,945
    
    
    $
    1,858,221Allowance provided for impaired loans, included in the
allowance for loan losses
    
    $
    1,054,000
    
    
    $
    1,163,072
    
    
    $
    776,777
 Three Months
    
    
    Twelve Months
    
    
    Three MonthsEnded March 31,
    
    
    Ended
    
    
    Ended March 31,2010
    
    
    December 31, 2009
    
    
    2009Average balance in impaired loans
    
    $
    3,725,047
    
    
    $
    3,631,937
    
    
    $
    1,871,016Interest income recognized on impaired loans
    
    $
    11,740
    
    
    $
    148,490
    
    
    $
    14,757
    Note 5. Company-Obligated Mandatorily Redeemable Capital Securities
   13




---



##### 



Note 6. Earnings Per Share
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2010
    
    
    March 31, 2009Per Share
    
    
    
    
    
    
    Per ShareShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBasic earnings per share
    
    
    3,602,776
    
    
    $
    0.22
    
    
    
    3,535,817
    
    
    $
    0.26Effect of dilutive securities, stock-based awards
    
    
    15,356
    
    
    
    
    
    
    
    18,9503,618,132
    
    
    $
    0.22
    
    
    
    3,554,767
    
    
    $
    0.26
  Note 7. Stock-Based Compensation
 Stock Incentive Plan (2009)
   Nonemployee Director Stock Option Plan
    14




---



##### 



Three Months EndedMarch 31, 2010WeightedAverage
    
    
    AverageNumber of
    
    
    Exercise
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value (1)Outstanding at January 1, 2010
    
    
    62,480
    
    
    $
    9.96Granted
    
    
    Exercised
    
    
    (4,000
    )
    
    
    8.10Forfeited
    
    
    Outstanding at March 31, 2010
    
    
    58,480
    
    
    $
    10.09Exercisable at end of quarter
    
    
    58,480
    
    
    
    
    
    
    $
    279,168Weighted-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 March 31, 2010 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 March 31, 2010. This amount changes based on the changes in the market
value of the Companys stock.   Three Months EndedMarch 31, 2010WeightedNumber of
    
    
    AverageShares
    
    
    PriceNonvested at January 1, 2010
    
    
    47,282Granted
    
    
    15,337
    
    
    $
    13.78Vested
    
    
    (28,847
    )Nonvested at March 31, 2010
    
    
    33,772




---



##### 



Note 8. Employee Benefit Plan
  Three Months EndedMarch 31,2010
    
    
    2009Service cost
    
    $
    
    
    
    $
    62,707Interest cost
    
    
    79,523
    
    
    
    73,827Expected return on plan assets
    
    
    (64,176
    )
    
    
    (65,029
    )Amortization of transition (asset)
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    Recognized net actuarial (gain) loss
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    15,347
    
    
    $
    71,505
    Note 9. Fair Value Measurement
   Level 1 
    
    Valuation is based on quoted prices in active markets for
identical assets and liabilities.Level 2 
    
    Valuation is based on observable inputs including quoted
prices in active markets for similar assets and
liabilities, quoted prices for identical or similar
assets and liabilities in less active markets, and
model-based valuation techniques for which significant
assumptions can be derived primarily from or corroborated
by observable data in the market.
 16




---



##### 



Level 3 
    
    Valuation is based on model-based techniques that use one
or more significant inputs or assumptions that are
unobservable in the market.
    Fair Value Measurements at UsingQuoted Prices(In Thousands)
    
    
    
    
    
    in Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    InputsDescription
    
    Balance
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets at March 31, 2010
Available-for-sale securities
    
    $
    36,974
    
    
    $
    35,146
    
    
    $
    
    
    
    $
    1,828Assets at December 31, 2009
Available-for-sale securities
    
    $
    36,692
    
    
    $
    34,780
    
    
    $

    
    
    
    $
    1,912
 Change in Level 3 Fair Value
  Total Gains (Losses)Realized/UnrealizedBalance
    
    
    
    
    
    
    Included in Other
    
    
    Transfers inJanuary 1,
    
    
    Included in
    
    
    Comprehensive
    
    
    and/or out of
    
    
    Balance March 31,2010
    
    
    earnings
    
    
    Income
    
    
    Level 3
    
    
    2010Available for sale securities
    
    $
    1,912
    
    
    $
    (476
    )
    
    $
    (84
    )
    
    $
    476
    
    
    $
    1,828
    17




---



##### 



Carrying value at March 31, 2010Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantBalance as of
    
    
    Identical
    
    
    Observable
    
    
    Unobservable(In Thousands)
    
    March 31,
    
    
    Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Impaired loans, net
    
    $
    2,006
    
    
    
    
    
    
    $
    799
    
    
    $
    1,207Other real estate owned
    
    
    2,029
    
    
    
    
    
    
    
    2,029
    
    
    
    
 Carrying value at December 31, 2009Quoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantBalance as of
    
    
    Identical
    
    
    Observable
    
    
    Unobservable(In Thousands)

    
    December 31,
    
    
    Assets
    
    
    Inputs
    
    
    InputsDescription
    
    2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Impaired loans, net
    
    $
    2,050
    
    
    
    
    
    
    $
    794
    
    
    $
    1,256Other real estate owned
    
    
    451
    
    
    
    
    
    
    
    451
    
    
    
    
  18




---



##### 



Cash and cash equivalents
 The carrying amounts of cash and short-term instruments approximate fair value.
 Securities
 For securities and marketable equity securities held for investment purposes, fair
values are based on quoted market prices or dealer quotes. For other securities
held as investments, fair value equals quoted market price, if available. If a
quoted market price is not available, fair values are based on quoted market prices
for similar securities. See Note 2 Securities of the Notes to Consolidated
Financial Statements for further discussion on determining fair value for pooled
trust preferred securities.
 Loan Receivables
 For variable-rate loans that reprice frequently and with no significant change in
credit risk, fair values are based on carrying values. Fair values for certain
mortgage loans (e.g., one-to-four family residential), credit card loans, and other
consumer loans are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences in loan
characteristics. Fair values for other loans (i.e., commercial real estate and
investment property mortgage loans, commercial and industrial loans) are estimated
using discounted cash flow analyses, using interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. Fair values
for nonperforming loans are estimated using discounted cash flow analyses or
underlying collateral values, where applicable.
 Accrued Interest
 The carrying amounts of accrued interest approximate fair value.
 Deposit Liabilities
 The fair values disclosed for demand deposits (i.e., interest and non-interest
bearing checking, statement savings and money market accounts) are, by definition,
equal to the amount payable at the reporting date (that is, their carrying
amounts). Fair values of fixed rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered to a schedule of aggregated expected monthly maturities on time deposits.
 Federal Funds Purchased
 The carrying amounts of the Companys federal funds purchased are
approximate fair value.
 Federal Home Loan Bank Advances
 The fair values of the Companys FHLB advances are estimated using discounted cash
flow analyses based on the Companys current incremental borrowing rates for
similar types of borrowing arrangements.
 Off-Balance-Sheet Financial Instruments
 The fair value of commitments to extend credit is estimated using the fees
currently charged to
enter similar agreements, taking into account the remaining terms of the agreements
and the present credit worthiness of the counterparties. For fixed-rate loan
commitments, fair value also
considers the difference between current levels of
interest rates and the committed rates.
 19




---



##### 



The fair value of standby letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise settle
the obligations with the counterparties at the reporting date.At March 31, 2010 and 2009, the fair value of loan commitments and standby letters
of credit were deemed immaterial.The estimated fair values of the Companys financial instruments are as follows:
 March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair(In Thousands)
    
    Amount
    
    
    Value
    
    
    Amount
    
    
    ValueFinancial assets:Cash and
short-term investments
    
    $
    23,455
    
    
    $
    23,455
    
    
    $
    26,199
    
    
    $
    26,199Federal funds sold
    
    
    9
    
    
    
    9
    
    
    
    9
    
    
    
    9Securities
    
    
    40,748
    
    
    
    40,748
    
    
    
    36,692
    
    
    
    36,692Loans, net
    
    
    467,430
    
    
    
    475,807
    
    
    
    462,784
    
    
    
    477,100Accrued interest receivable
    
    
    1,650
    
    
    
    1,650
    
    
    
    1,495
    
    
    
    1,495Financial liabilities:Deposits
    
    $
    467,796
    
    
    $
    457,656
    
    
    $
    465,987
    
    
    $
    467,600FHLB advances
    
    
    50,000
    
    
    
    50,786
    
    
    
    50,000
    
    
    
    50,477Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Company
obligated mandatorily redeemable capital securities
    
    
    4,124
    
    
    
    2,919
    
    
    
    4,124
    
    
    
    2,673Accrued interest payable
    
    
    623
    
    
    
    623
    
    
    
    613
    
    
    
    613
  Note 10. Subsequent Event
   20




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   GENERAL
    21




---



##### 



CRITICAL ACCOUNTING POLICIES
   22




---



##### 



The Washington Post, The Fauquier Times Democrat The Bull Run
Observer Federal
Reserve Beige Book for the Richmond Federal Reserve District Global Insight
  EXECUTIVE OVERVIEW
   23




---



##### 



COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND MARCH 31, 2009
 NET INCOME
  NET INTEREST INCOME AND EXPENSE
  24




---



##### 



25




---



##### 



AVERAGE BALANCES, INCOME AND EXPENSES, AND AVERAGE YIELDS AND RATES
(Dollars in Thousands)
 Three Months Ended March 31,2010
    
    
    Three Months Ended March 31, 2009Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    449,292
    
    
    $
    6,529
    
    
    
    5.82
    %
    
    $
    433,102
    
    
    $
    6,285
    
    
    
    5.81
    %Tax-exempt (1)
    
    
    14,127
    
    
    
    245
    
    
    
    6.95
    %
    
    
    8,534
    
    
    
    145
    
    
    
    6.80
    %Nonaccrual (2)
    
    
    3,732
    
    
    
    
    
    
    
    
    
    
    
    1,531
    
    
    
    
    
    
    
    Total Loans
    
    
    467,151
    
    
    
    6,774
    
    
    
    5.81
    %
    
    
    443,167
    
    
    
    6,430
    
    
    
    5.81
    %SecuritiesTaxable
    
    
    35,616
    
    
    
    309
    
    
    
    3.48
    %
    
    
    31,946
    
    
    
    361
    
    
    
    4.52
    %Tax-exempt (1)
    
    
    5,766
    
    
    
    91
    
    
    
    6.25
    %
    
    
    5,672
    
    
    
    93
    
    
    
    6.57
    %Total securities
    
    
    41,382
    
    
    
    400
    
    
    
    3.86
    %
    
    
    37,618
    
    
    
    454
    
    
    
    4.82
    %Deposits in banks
    
    
    17,181
    
    
    
    8
    
    
    
    0.19
    %
    
    
    4,595
    
    
    
    4
    
    
    
    0.32
    %Federal funds sold
    
    
    9
    
    
    
    
    
    
    
    0.15
    %
    
    
    170
    
    
    
    0.1
    
    
    
    0.26
    %Total earning assets
    
    
    525,723
    
    
    
    7,182
    
    
    
    5.47
    %
    
    
    485,550
    
    
    
    6,888
    
    
    
    5.68
    %Less: Reserve for loan losses
    
    
    (5,492
    )
    
    
    
    
    
    
    
    
    
    
    (4,883
    )Cash and due from banks
    
    
    5,729
    
    
    
    
    
    
    
    
    
    
    
    7,529Bank premises and equipment, net
    
    
    14,481
    
    
    
    
    
    
    
    
    
    
    
    8,857Other assets
    
    
    24,978
    
    
    
    
    
    
    
    
    
    
    
    22,265Total Assets
    
    $
    565,419
    
    
    
    
    
    
    
    
    
    
    $
    519,318LIABILITIES &
SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    63,722
    
    
    
    
    
    
    
    
    
    
    $
    64,226Interest-bearing depositsNOW accounts
    
    
    90,863
    
    
    
    133
    
    
    
    0.59
    %
    
    
    75,465
    
    
    
    81
    
    
    
    0.43
    %Money market accounts
    
    
    59,331
    
    
    
    110
    
    
    
    0.75
    %
    
    
    71,878
    
    
    
    173
    
    
    
    0.97
    %Savings accounts
    
    
    48,651
    
    
    
    59
    
    
    
    0.49
    %
    
    
    32,234
    
    
    
    25
    
    
    
    0.31
    %Time deposits
    
    
    199,572
    
    
    
    973
    
    
    
    1.98
    %
    
    
    159,486
    
    
    
    1,280
    
    
    
    3.26
    %Total interest-bearing deposits
    
    
    398,417
    
    
    
    1,275
    
    
    
    1.30
    %
    
    
    339,063
    
    
    
    1,559
    
    
    
    1.86
    %Federal funds purchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,914
    
    
    
    10
    
    
    
    0.86
    %Federal Home Loan Bank advances
    
    
    50,000
    
    
    
    274
    
    
    
    2.19
    %
    
    
    59,556
    
    
    
    267
    
    
    
    1.79
    %Capital securities of subsidiary trust
    
    
    4,124
    
    
    
    19
    
    
    
    1.87
    %
    
    
    4,124
    
    
    
    36
    
    
    
    3.84
    %Total interest-bearing liabilities
    
    
    452,541
    
    
    
    1,568
    
    
    
    1.40
    %
    
    
    407,656
    
    
    
    1,872
    
    
    
    1.86
    %Other liabilities
    
    
    5,583
    
    
    
    
    
    
    
    
    
    
    
    5,346Shareholders equity
    
    
    43,573
    
    
    
    
    
    
    
    
    
    
    
    42,090Total Liabilities & Shareholders Equity
    
    $
    565,419
    
    
    
    
    
    
    
    
    
    
    $
    519,318Net interest spread
    
    
    
    
    
    $
    5,614
    
    
    
    4.07
    %
    
    
    
    
    
    $
    5,017
    
    
    
    3.82
    %Interest expense as a percent of average earning assets
    
    
    
    
    
    
    
    
    
    
    1.20
    %
    
    
    
    
    
    
    
    
    
    
    1.56
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.27
    %
    
    
    
    
    
    
    
    
    
    
    4.12
    %
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%.(2)
    
    Nonaccrual loans are included in the average balance of total loans and total earning assets. 26




---



##### 



RATE/VOLUME ANALYSIS
  RATE / VOLUME VARIANCE
(In Thousands)
 Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOME
    
    
    
    
    
    
    
    
    
    
    Loans; taxable
    
    $
    244
    
    
    $
    235
    
    
    
    9Loans; tax-exempt (1)
    
    
    100
    
    
    
    95
    
    
    
    5Securities; taxable
    
    
    (52
    )
    
    
    41
    
    
    
    (93
    )Securities; tax-exempt (1)
    
    
    (2
    )
    
    
    2
    
    
    
    (4
    )Deposits in banks
    
    
    4
    
    
    
    11
    
    
    
    (7
    )Federal funds sold
    
    
    
    
    
    
    
    
    
    
    Total Interest Income
    
    
    294
    
    
    
    384
    
    
    
    (90
    )INTEREST EXPENSENOW accounts
    
    
    52
    
    
    
    17
    
    
    
    35Money market accounts
    
    
    (63
    )
    
    
    (30
    )
    
    
    (33
    )Savings accounts
    
    
    34
    
    
    
    13
    
    
    
    21Time deposits
    
    
    (307
    )
    
    
    322
    
    
    
    (629
    )Federal funds purchased and securities
sold under agreements to repurchase
    
    
    (10
    )
    
    
    (10
    )
    
    
    Federal Home Loan Bank advances
    
    
    7
    
    
    
    (43
    )
    
    
    50Capital securities of subsidiary trust
    
    
    (17
    )
    
    
    
    
    
    
    (17
    )Total Interest Expense
    
    
    (304
    )
    
    
    269
    
    
    
    (573
    )Net Interest Income
    
    $
    598
    
    
    $
    115
    
    
    $
    483
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%. PROVISION FOR LOAN LOSSES, ALLOWANCE FOR LOAN LOSSES, AND ASSET QUALITY
   OTHER INCOME
  27




---



##### 



OTHER EXPENSE
       28




---



##### 



INCOME TAXES
  COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2010 AND DECEMBER 31, 2009
      29




---



##### 



ASSET QUALITY
      Age Analysis of Past Due Financing Receivables(In thousands)At March 31, 2010Past due as30-59 Days Past
    
    
    60-89 Days Past
    
    
    Greater than 90
    

    
    
    
    
    
    
    
    
    Percentage ofDue
    
    
    Due
    
    
    Days
    
    
    Total Past Due
    
    
    Total Loans
    
    
    LoansSecured by real estate:Construction
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    30,027
    
    
    
    0.00
    %Farmland
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,093
    
    
    
    0.00
    %1-4 Family Residential
    
    
    2,890
    
    
    
    505
    
    
    
    238
    
    
    
    3,633
    
    
    
    193,634
    
    
    
    1.88
    %Commercial Real Estate
    
    
    500
    
    
    
    
    
    
    
    2,177
    
    
    
    2,677
    
    
    
    192,731
    
    
    
    1.39
    %Commercial and Industrial
    
    
    837
    
    
    
    47
    
    
    
    593
    
    
    
    1,477
    
    
    
    27,989
    
    
    
    5.28
    %Consumer
    
    
    172
    
    
    
    18
    
    
    
    99
    
    
    
    289
    
    
    
    13,353
    
    
    
    2.16
    %Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,123
    
    
    
    0.00
    %Total
    
    $
    4,399
    
    
    $
    570
    
    
    $
    3,107
    
    
    $
    8,076
    
    
    $
    472,950
    
    
    
    1.71
    %At December 31, 2009Past due as30-59 Days Past
    
    
    60-89 Days Past
    
    
    Greater than 90
    
    
    
    
    
    
    
    
    
    
    Percentage ofDue
    
    
    Due
    
    
    Days
    
    
    Total Past Due
    
    
    Total Loans
    
    
    LoansSecured by real estate:Construction
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    33,003
    
    
    
    0.00
    %Farmland
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948
    
    
    
    0.00
    %1-4 Family Residential
    
    
    1,978
    
    
    
    469
    
    
    
    432
    
    
    
    2,879
    
    
    
    193,709
    
    
    
    1.49
    %Commercial Real Estate
    
    
    354
    
    
    
    123
    
    
    
    1,720
    
    
    
    2,197
    
    
    
    186,463
    
    
    
    1.18
    %Commercial and Industrial
    
    
    781
    
    
    
    168
    
    
    
    764
    
    
    
    1,713
    
    
    
    29,286
    
    
    
    5.85
    %Consumer
    
    
    137
    
    
    
    30
    
    
    
    41
    
    
    
    208
    
    
    
    10,390
    
    
    
    2.00
    %Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,559
    
    
    
    0.00
    %Total
    
    $
    3,250
    
    
    $
    790
    
    
    $
    2,957
    
    
    $
    6,997
    
    
    $
    468,358
    
    
    
    1.49
    %At March 31, 2009Past due as30-59 Days Past
    
    
    60-89 Days Past
    
    
    Greater than 90
    
    
    
    
    
    
    
    
    
    
    Percentage ofDue
    
    
    Due
    
    
    Days
    
    
    Total Past Due
    
    
    Total Loans
    
    
    LoansSecured by real estate:Construction
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    41,313
    
    
    
    0.00
    %Farmland
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,281
    
    
    
    0.00
    %1-4 Family Residential
    
    
    753
    
    
    
    576
    
    
    
    460
    
    
    
    1,789
    
    
    
    180,921
    
    
    
    0.99
    %Commercial Real Estate
    
    
    
    
    
    
    1,470
    
    
    
    
    
    
    
    1,470
    
    
    
    165,942
    
    
    
    0.89
    %Commercial and Industrial
    
    
    1,886
    
    
    
    507
    
    
    
    228
    
    
    
    2,621
    
    
    
    35,128
    
    
    
    7.46
    %Consumer
    
    
    181
    
    
    
    25
    
    
    
    127
    
    
    
    333
    
    
    
    14,255
    
    
    
    2.34
    %Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,016
    
    
    
    0.00
    %Total
    
    $
    2,820
    
    
    $
    2,578
    
    
    $
    815
    
    
    $
    6,213
    
    
    $
    448,856
    
    
    
    1.38
    %
 30




---



##### 



CONTRACTUAL OBLIGATIONS
  OFF-BALANCE SHEET ARRANGEMENTS
  CAPITAL
   31




---



##### 



RISK BASED CAPITAL RATIOS
(Dollars in Thousands)
 March 31,
    
    
    December 31,2010
    
    
    2009Tier 1 Capital:Shareholders Equity
    
    $
    43,342
    
    
    $
    42,639Plus:
Unrealized loss on securities available for sale/defined benefit
retirement obligations, net
    
    
    1,625
    
    
    
    1,923Less: Unrealized loss on equity securities, net
    
    
    (3
    )
    
    
    (4
    )Plus: Company-obligated madatorily
redeemable capital securities
    
    
    4,000
    
    
    
    4,000Total Tier 1 Capital
    
    
    48,964
    
    
    
    48,558Tier 2 Capital:Allowable Allowance for Loan Losses
    
    
    5,470
    
    
    
    5,485Total Capital:
    
    
    54,434
    
    
    
    54,043Risk Weighted Assets:
    
    $
    448,976
    
    
    $
    442,658Regulatory Capital Ratios:Leverage Ratio
    
    
    8.66
    %
    
    
    8.68
    %Tier 1 to Risk Weighted Assets
    
    
    10.91
    %
    
    
    10.97
    %Total Capital to Risk Weighted Assets
    
    
    12.12
    %
    
    
    12.21
    %
 CAPITAL RESOURCES AND LIQUIDITY
     32




---



##### 



LIQUIDITY SOURCES AND USES
(Dollars in Thousands)
 March 31, 2010
    
    
    December 31, 2009Total
    
    
    In Use
    
    
    Available
    
    
    Total
    
    
    In Use
    
    
    AvailableSources:Federal funds borrowing lines of credit
    
    $
    69,562
    
    
    $
    
    
    
    $
    69,562
    
    
    $
    72,563
    
    
    $
    
    
    
    $
    72,563Federal Home Loan Bank advances
    
    
    122,222
    
    
    
    50,000
    
    
    
    72,222
    
    
    
    108,310
    
    
    
    50,000
    
    
    
    58,310Federal funds sold and interest-bearing
deposits in other banks, excluding
requirements
    
    
    
    
    
    
    
    
    
    
    7,799
    
    
    
    
    
    
    
    
    
    
    
    13,617Securities, available for sale and unpledged
at fair value
    
    
    
    
    
    
    
    
    
    
    14,271
    
    
    
    
    
    
    
    
    
    
    
    10,730Total short-term funding sources
    
    
    
    
    
    
    
    
    
    $
    163,854
    
    
    
    
    
    
    
    
    
    
    $
    155,220Uses:Unfunded loan commitments and
lending lines of credit
    
    
    
    
    
    
    
    
    
    $
    76,584
    
    
    
    
    
    
    
    
    
    
    $
    71,523Letters of credit
    
    
    
    
    
    
    
    
    
    
    6,558
    
    
    
    
    
    
    
    
    
    
    
    8,585Total potential short-term funding uses
    
    
    
    
    
    
    
    
    
    $
    83,142
    
    
    
    
    
    
    
    
    
    
    $
    80,108Ratio of short-term funding sources to
potential short-term funding uses
    
    
    
    
    
    
    
    
    
    
    197.1
    %
    
    
    
    
    
    
    
    
    
    
    193.8
    %
 IMPACT OF INFLATION AND CHANGING PRICES
  33




---



##### 



ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   34




---



##### 



PART II, OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4.
    
    (REMOVED AND RESERVED)
 
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
 Exhibit
    
    ExhibitNumber
    
    Description3.1
    
    Articles of Incorporation of Fauquier Bankshares, Inc., as amended, incorporated by reference
to Exhibit 3.1 to Form 10-K filed March 15, 2010.3.2
    
    Bylaws of Fauquier Bankshares, Inc., as amended and restated, incorporated by reference to
Exhibit 3.2 to Form 8-K filed November 15, 2007.
 35




---



##### 



Exhibit
    
    ExhibitNumber
    
    Description31.1
    
    Certification of CEO pursuant to Rule 13a-14(a).31.2
    
    Certification of CFO pursuant to Rule 13a-14(a).32.1
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350.
 36




---



##### 



FAUQUIER BANKSHARES, INC.
(Registrant)/s/ Randy K. FerrellRandy K. FerrellPresident & Chief Executive OfficerDated: May 10, 2010/s/ Eric P. GraapEric P. GraapExecutive Vice President & Chief Financial OfficerDated: May 10, 2010 37