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, 2009
 or
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
 For the transition period from  to
 Commission File No.: 000-25805
 Fauquier Bankshares, Inc.
  Virginia
(State or other jurisdiction of 
incorporation or organization)
    
    54-1288193
(I.R.S. Employer Identification No.)10 Courthouse Square, Warrenton, Virginia
(Address of principal executive offices)
    
    20186
(Zip Code)
 (540) 347-2700
 þ o
 o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
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, 2009 (unaudited) and December 31, 2008
    
    
    3Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2009 and 2008
    
    
    4Consolidated
Statements of Changes in Shareholders Equity (unaudited) for the Three Months Ended March 31, 2009 and 2008
    
    
    5Consolidated
Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2009 and 2008
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    30Item 4.
    
    Controls and Procedures
    
    
    30Part II. OTHER INFORMATION
    
    
    31Item 1.
    
    Legal Proceedings
    
    
    31Item 1A.
    
    Risk Factors
    
    
    31Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3.
    
    Defaults Upon Senior Securities
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31Item 5.
    
    Other Information
    
    
    31Item 6.
    
    Exhibits
    
    
    32SIGNATURES
    
    
    32
 2




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##### 



Part I. FINANCIAL INFORMATION
 
  
 Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
 March 31,
    
    
    December 31,2009
    
    
    2008(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    6,631,246
    
    
    $
    7,698,661Interest-bearing deposits in other banks
    
    
    8,065,476
    
    
    
    3,324,501Federal funds sold
    
    
    3,004,000
    
    
    
    Securities available for sale
    
    
    35,225,310
    
    
    
    37,839,375Loans, net of allowance for loan losses of $4,872,571
in 2009 and $4,779,662 in 2008
    
    
    443,349,278
    
    
    
    434,678,433Bank premises and equipment, net
    
    
    9,010,139
    
    
    
    8,621,217Accrued interest receivable
    
    
    1,534,335
    
    
    
    1,549,597Other real estate owned
    
    
    2,029,085
    
    
    
    3,034,470Other assets
    
    
    17,964,020
    
    
    
    17,768,978Total assets
    
    $
    526,812,889
    
    
    $
    514,515,232Liabilities and Shareholders EquityDeposits:Noninterest-bearing
    
    $
    65,287,928
    
    
    $
    69,065,944Interest-bearing:NOW accounts
    
    
    77,205,178
    
    
    
    74,555,901Savings and money market accounts
    
    
    102,870,470
    
    
    
    102,810,758Time certificates of deposit
    
    
    170,917,300
    
    
    
    153,861,028Total interest-bearing
    
    
    350,992,948
    
    
    
    331,227,687Total deposits
    
    
    416,280,876
    
    
    
    400,293,631Federal funds purchased
    
    
    
    
    
    
    18,275,000Federal Home Loan Bank advances
    
    
    60,000,000
    
    
    
    45,000,000Company-obligated mandatorily redeemable
capital securities
    
    
    4,124,000
    
    
    
    4,124,000Other liabilities
    
    
    5,589,476
    
    
    
    5,334,664Commitments and contingencies
    
    
    
    
    
    
    Total liabilities
    
    
    485,994,352
    
    
    
    473,027,295Shareholders EquityCommon stock, par value, $3.13; authorized 8,000,000
shares: issued and outstanding, 2009: 3,596,537 shares
(includes nonvested shares of 51,134); 2008: 3,564,317 shares
(includes nonvested shares of 38,219)
    
    
    11,097,111
    
    
    
    11,036,687Retained earnings
    
    
    32,978,774
    
    
    
    32,668,530Accumulated other comprehensive income (loss), net
    
    
    (3,257,348
    )
    
    
    (2,217,280
    )Total shareholders equity
    
    
    40,818,537
    
    
    
    41,487,937Total liabilities and shareholders equity
    
    $
    526,812,889
    
    
    $
    514,515,232
  3




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended March 31, 2009 and 2008
 2009
    
    
    2008Interest IncomeInterest and fees on loans
    
    $
    6,360,231
    
    
    $
    6,798,599Interest and dividends on securities available for sale:Taxable interest income
    
    
    356,163
    
    
    
    327,506Interest income exempt from federal income taxes
    
    
    61,461
    
    
    
    58,224Dividends
    
    
    4,463
    
    
    
    53,002Interest on federal funds sold
    
    
    107
    
    
    
    28,841Interest on deposits in other banks
    
    
    3,669
    
    
    
    8,058Total interest income
    
    
    6,786,094
    
    
    
    7,274,230Interest ExpenseInterest on deposits
    
    
    1,558,776
    
    
    
    2,074,210Interest on federal funds purchased
    
    
    10,446
    
    
    
    33,487Interest on Federal Home Loan Bank advances
    
    
    266,667
    
    
    
    412,037Distribution on capital securities of subsidiary trusts
    
    
    35,835
    
    
    
    64,242Total interest expense
    
    
    1,871,724
    
    
    
    2,583,976Net interest income
    
    
    4,914,370
    
    
    
    4,690,254Provision for loan losses
    
    
    200,000
    
    
    
    456,000Net interest income after provision for loan losses
    
    
    4,714,370
    
    
    
    4,234,254Other IncomeWealth management income
    
    
    251,456
    
    
    
    343,416Service charges on deposit accounts
    
    
    607,176
    
    
    
    708,597Other service charges, commissions and income
    
    
    422,188
    
    
    
    428,981Gain on sale of securities
    
    
    
    
    
    
    87,585(Loss) on sale of other real estate owned
    
    
    (135,759
    )
    
    
    Total other income
    
    
    1,145,061
    
    
    
    1,568,579Other ExpensesSalaries and benefits
    
    
    2,354,939
    
    
    
    2,328,224Net occupancy expense of premises
    
    
    307,067
    
    
    
    282,395Furniture and equipment
    
    
    280,450
    
    
    
    286,507Advertising expense
    
    
    120,978
    
    
    
    169,742Consulting expense
    
    
    335,943
    
    
    
    280,681Data processing expense
    
    
    348,494
    
    
    
    332,645Other operating expenses
    
    
    847,096
    
    
    
    715,400Total other expenses
    
    
    4,594,967
    
    
    
    4,395,594Income before income taxes
    
    
    1,264,464
    
    
    
    1,407,239Income tax expense
    
    
    341,555
    
    
    
    398,733Net Income
    
    $
    922,909
    
    
    $
    1,008,506Earnings per Share, basic
    
    $
    0.26
    
    
    $
    0.29Earnings per Share, assuming dilution
    
    $
    0.26
    
    
    $
    0.28Dividends per Share
    
    $
    0.20
    
    
    $
    0.20
  4




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
For the Three Months Ended March 31, 2009 and 2008
 AccumulatedOtherCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Income
    
    
    TotalBalance, December 31, 2007
    
    $
    10,974,293
    
    
    $
    31,626,627
    
    
    $
    (773,168
    )
    
    
    
    
    
    $
    41,827,752Comprehensive income:Net income
    
    
    
    
    
    
    1,008,506
    
    
    
    
    
    
    $
    1,008,506
    
    
    
    1,008,506Other comprehensive income net of tax:Unrealized holding gains on securities available
for sale, net of deferred income taxes of $113,989
    
    
    
    
    
    
    
    
    
    
    221,272
    
    
    
    221,272Less: reclassification adjustments, net of tax
benefit of $29,779
    
    
    
    
    
    
    
    
    
    
    (57,806
    )
    
    
    (57,806
    )Other comprehensive income net of tax of $84,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,466
    
    
    
    163,466Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,171,972Effects of changing pension plan measurement date,
pursuant to FAS 158, net of deferred income tax
benefit of $12,437
    
    
    
    
    
    
    (24,144
    )
    
    
    
    
    
    
    
    
    
    
    (24,144
    )Initial implementation of EITF 06-4, net of income tax
benefit of $6,433
    
    
    
    
    
    
    (12,487
    )
    
    
    
    
    
    
    
    
    
    
    (12,487
    )Cash dividends ($.20 per share)
    
    
    
    
    
    
    (713,662
    )
    
    
    
    
    
    
    
    
    
    
    (713,662
    )Acquisition of 2,680 shares of common stock
    
    
    (8,388
    )
    
    
    (37,515
    )
    
    
    
    
    
    
    
    
    
    
    (45,903
    )Amortization of unearned compensation,
restricted stock awards
    
    
    
    
    
    
    77,012
    
    
    
    
    
    
    
    
    
    
    
    77,012Restricted Stock forfeiture
    
    
    
    
    
    
    (13,971
    )
    
    
    
    
    
    
    
    
    
    
    (13,971
    )Issuance of common stock  nonvested shares
(9,763 shares)
    
    
    30,558
    
    
    
    (30,558
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    59,239
    
    
    
    128,277
    
    
    
    
    
    
    
    
    
    
    
    187,516Balance, March 31, 2008
    
    $
    11,055,702
    
    
    $
    32,008,085
    
    
    $
    (609,702
    )
    
    
    
    
    
    $
    42,454,085Balance, 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
    )
    
    
    
    
    
    $
    40,818,537
  5




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
 2009
    
    
    2008Cash Flows from Operating ActivitiesNet income
    
    $
    922,909
    
    
    $
    1,008,506Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    203,179
    
    
    
    234,083Provision for loan losses
    
    
    200,000
    
    
    
    456,000Loss on sale of other real estate
    
    
    135,759
    
    
    
    (Gain) on sale of securities
    
    
    
    
    
    
    (87,585
    )Amortization (accretion) of security premiums, net
    
    
    (12,714
    )
    
    
    32,498Amortization of unearned compensation, net of forfeiture
    
    
    85,289
    
    
    
    63,041Changes in assets and liabilities:Decrease in other assets
    
    
    356,014
    
    
    
    468,532(Decrease) increase in other liabilities
    
    
    254,812
    
    
    
    (633,176
    )Net cash provided by operating activities
    
    
    2,145,248
    
    
    
    1,541,899Cash Flows from Investing ActivitiesProceeds from sale of securities available for sale
    
    
    
    
    
    
    9,078,470Proceeds from maturities, calls and principal
payments of securities available for sale
    
    
    1,773,795
    
    
    
    1,057,190Purchase of securities available for sale
    
    
    (2,978
    )
    
    
    (10,996,072
    )Purchase of premises and equipment
    
    
    (592,101
    )
    
    
    (1,672,601
    )(Purchase) proceeds from sale of other bank stock
    
    
    (719,900
    )
    
    
    (392,300
    )Net (increase) decrease in loans
    
    
    (8,870,845
    )
    
    
    (3,320,994
    )Proceeds from sale of other real estate owned
    
    
    869,626
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (7,542,403
    )
    
    
    (6,246,307
    )Cash Flows from Financing ActivitiesNet (decrease) increase in demand deposits, NOW accounts
and savings accounts
    
    
    (1,069,027
    )
    
    
    (12,977,334
    )Net (decrease) increase in certificates of deposit
    
    
    17,056,272
    
    
    
    (1,474,780
    )Federal Home Loan Bank advances
    
    
    80,000,000
    
    
    
    20,000,000Federal Home Loan Bank principal repayments
    
    
    (65,000,000
    )
    
    
    (10,000,000
    )Purchase of federal funds
    
    
    (18,275,000
    )
    
    
    5,000,000Cash dividends paid on common stock
    
    
    (719,307
    )
    
    
    (713,662
    )Issuance of common stock
    
    
    81,777
    
    
    
    187,516Acquisition of common stock
    
    
    
    
    
    
    (45,903
    )Net cash provided by financing activities
    
    
    12,074,715
    
    
    
    (24,163
    )Increase (decrease) in cash and cash equivalents
    
    
    6,677,560
    
    
    
    (4,728,571
    )Cash and Cash EquivalentsBeginning
    
    
    11,023,162
    
    
    
    19,552,174Ending
    
    $
    17,700,722
    
    
    $
    14,823,603Supplemental Disclosures of Cash Flow InformationCash payments for:Interest
    
    $
    1,967,496
    
    
    $
    2,723,453Income taxes
    
    $
    
    
    
    $
    Supplemental Disclosures of Noncash Investing ActivitiesUnrealized gain (loss) on securities available for sale, net
of tax effect
    
    $
    (1,040,068
    )
    
    $
    163,466FAS 158 Pension Liability Implementation Adjustment,
net of tax effect
    
    $
    
    
    
    $
    (24,144
    )Implementation of EITF 06-4, net of tax effect
    
    $
    
    
    
    $
    (12,487
    )
  6




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##### 



FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 Note 1. General
   Note 2. Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueMarch 31, 2009Obligations of U.S. Government
corporations and agencies
    
    $
    23,451,199
    
    
    $
    750,530
    
    
    $
    
    
    
    $
    24,201,729Obligations of states and political
subdivisions
    
    
    5,574,990
    
    
    
    60,253
    
    
    
    (53,076
    )
    
    
    5,582,167Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (4,758,940
    )
    
    
    1,241,060Mutual Funds
    
    
    306,867
    
    
    
    
    
    
    
    (2,833
    )
    
    
    304,034FHLMC Preferred Bank Stock
    
    
    18,500
    
    
    
    
    
    
    
    (9,800
    )
    
    
    8,700Restricted investments:Federal Home Loan Bank Stock
    
    
    3,625,700
    
    
    
    
    
    
    
    
    
    
    
    3,625,700Federal Reserve Bank Stock
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Silverton Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    39,239,176
    
    
    $
    810,783
    
    
    $
    (4,824,649
    )
    
    $
    35,225,310
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueDecember 31, 2008Obligations of U.S. Government
corporations and agencies
    
    $
    25,212,561
    
    
    $
    561,884
    
    
    $
    (2,030
    )
    
    $
    25,772,415Obligations of states and political
subdivisions
    
    
    5,574,709
    
    
    
    29,033
    
    
    
    (146,019
    )
    
    
    5,457,723Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (2,861,903
    )
    
    
    3,138,097Mutual Funds
    
    
    303,889
    
    
    
    
    
    
    
    (5,969
    )
    
    
    297,920FHLMC Preferred Bank Stock
    
    
    18,500
    
    
    
    
    
    
    
    (13,000
    )
    
    
    5,500Restricted investments:Federal Home Loan Bank Stock
    
    
    2,905,800
    
    
    
    
    
    
    
    
    
    
    
    2,905,800Federal Reserve Bank Stock
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000Silverton Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    40,277,379
    
    
    $
    590,917
    
    
    $
    (3,028,921
    )
    
    $
    37,839,375
 7




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##### 



March 31, 2009Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    Due after one year through five years
    
    
    921,958
    
    
    
    932,512Due after five years through ten years
    
    
    9,715,436
    
    
    
    9,976,579Due after ten years
    
    
    24,388,815
    
    
    
    20,115,885Equity securities
    
    
    4,212,967
    
    
    
    4,200,334$
    39,239,176
    
    
    $
    35,225,310
    March 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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Obligations of states and
political
subdivisions
    
    
    1,990,531
    
    
    
    (46,582
    )
    
    
    402,768
    
    
    
    (6,494
    )
    
    
    2,393,299
    
    
    
    (53,076
    )Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    1,241,060
    
    
    
    (4,758,940
    )
    
    
    1,241,060
    
    
    
    (4,758,940
    )Subtotal, debt securities
    
    
    1,990,531
    
    
    
    (46,582
    )
    
    
    1,643,828
    
    
    
    (4,765,434
    )
    
    
    3,634,359
    
    
    
    (4,812,016
    )Mutual Funds
    
    
    
    
    
    
    
    
    
    
    304,034
    
    
    
    (2,833
    )
    
    
    304,034
    
    
    
    (2,833
    )FHLMC Preferred Bank Stock
    
    
    8,700
    
    
    
    (9,800
    )
    
    
    
    
    
    
    
    
    
    
    8,700
    
    
    
    (9,800
    )Total temporary impaired
securities
    
    $
    1,999,231
    
    
    $
    (56,382
    )
    
    $
    1,947,862
    
    
    $
    (4,768,267
    )
    
    $
    3,947,093
    
    
    $
    (4,824,649
    )
 December 31, 2008
    
    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
    
    $
    785,744
    
    
    $
    (2,030
    )
    
    $
    
    
    
    $
    
    
    
    
    785,744
    
    
    $
    (2,030
    )Obligations of states and
political
subdivisions
    
    
    4,181,657
    
    
    
    (146,019
    )
    
    
    
    
    
    
    
    
    
    
    4,181,657
    
    
    
    (146,019
    )Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    3,138,097
    
    
    
    (2,861,903
    )
    
    
    3,138,097
    
    
    
    (2,861,903
    )Subtotal, debt securities
    
    
    4,967,401
    
    
    
    (148,049
    )
    
    
    3,138,097
    
    
    
    (2,861,903
    )
    
    
    8,105,498
    
    
    
    (3,009,952
    )Mutual Funds
    
    
    
    
    
    
    
    
    
    
    297,920
    
    
    
    (5,969
    )
    
    
    297,920
    
    
    
    (5,969
    )FHLMC Preferred Bank Stock
    
    
    5,500
    
    
    
    (13,000
    )
    
    
    
    
    
    
    
    
    
    
    5,500
    
    
    
    (13,000
    )Total temporary impaired
securities
    
    $
    4,972,901
    
    
    $
    (161,049
    )
    
    $
    3,436,017
    
    
    $
    (2,867,872
    )
    
    $
    8,408,918
    
    
    $
    (3,028,921
    )
 8




---



##### 



Estimate in amountof additionaldeferrals/defaultsPercent of
    
    Percent of
    
    Percent of
    
    
    
    
    
    before temporaryUnderlying
    
    Underlying
    
    Underlying
    
    Current
    
    or permanentCollateral
    
    Collateral in
    
    Collateral in
    
    Moodys
    
    shortfall inCost
    
    Fair Value
    
    Performing
    
    Deferral
    
    Default
    
    Rating
    
    cashflow$
    1,000,000
    
    
    
    205,129
    
    
    
    82.1
    %
    
    
    15.0
    %
    
    
    2.9
    %
    
    Ca
    
    
    7
    %2,000,000
    
    
    
    400,849
    
    
    
    89.7
    %
    
    
    9.7
    %
    
    
    0.6
    %
    
    Ca
    
    
    14
    %2,000,000
    
    
    
    517,962
    
    
    
    91.0
    %
    
    
    9.0
    %
    
    
    0.0
    %
    
    Ca
    
    
    8
    %1,000,000
    
    
    
    117,120
    
    
    
    85.5
    %
    
    
    9.4
    %
    
    
    5.1
    %
    
    Ca
    
    
    2
    %
    9




---



##### 



Note 3. Loans
  March 31,
    
    
    December 31,2009
    
    
    2008(Thousands)Real estate loans:Construction
    
    $
    41,313
    
    
    $
    38,037Secured by farmland
    
    
    1,281
    
    
    
    1,293Secured by 1 - to - 4 family residential
    
    
    180,921
    
    
    
    175,791Other real estate loans
    
    
    165,942
    
    
    
    160,443Commercial and industrial loans (not secured by real estate)
    
    
    35,128
    
    
    
    39,985Consumer installment loans
    
    
    14,255
    
    
    
    15,695All other loans
    
    
    10,016
    
    
    
    8,934Total loans
    
    $
    448,856
    
    
    $
    440,178Unearned income
    
    
    (634
    )
    
    
    (720
    )Allowance for loan losses
    
    
    (4,873
    )
    
    
    (4,780
    )Net loans
    
    $
    443,349
    
    
    $
    434,678
  Note 4. Allowance for Loan Losses
  Twelve MonthsThree Months
    
    
    Three Months
    
    
    EndedEnded March
    
    
    Ended March
    
    
    December 31,31, 2009
    
    
    31, 2008
    
    
    2008Balance at beginning of year
    
    $
    4,779,662
    
    
    $
    4,185,209
    
    
    $
    4,185,209Provision for loan losses
    
    
    200,000
    
    
    
    456,000
    
    
    
    3,227,269Recoveries of loans previously charged-off
    
    
    13,462
    
    
    
    23,382
    
    
    
    72,298Loan losses charged-off
    
    
    (120,553
    )
    
    
    (468,627
    )
    
    
    (2,705,114
    )Balance at end of year
    
    $
    4,872,571
    
    
    $
    4,195,964
    
    
    $
    4,779,662
  March 31,
    
    
    December 31,
    
    
    March 31,(Dollars in thousands)
    
    2009
    
    
    2008
    
    
    2008Nonaccrual loans
    
    $
    1,573
    
    
    $
    1,208
    
    
    $
    1,961Restructured loans
    
    
    
    
    
    
    
    
    
    
    Total nonperforming loans
    
    $
    1,573
    
    
    $
    1,208
    
    
    $
    1,961Other real estate owned
    
    $
    2,029
    
    
    
    3,034Foreclosed property
    
    
    36
    
    
    
    33
    
    
    
    64Total nonperforming assets
    
    $
    3,638
    
    
    $
    4,275
    
    
    $
    2,025Allowance for loan losses to period end loans and other
repossessed assets owned
    
    
    1.08
    %
    
    
    1.08
    %
    
    
    1.01
    %Non-performing assets to period end loans and other
repossessed assets owned
    
    
    0.81
    %
    
    
    0.97
    %
    
    
    0.49
    %
 10




---



##### 



March 31, 2009
    
    
    December 31, 2008
    
    
    March 31, 2008Impaired loans for which an allowance has been provided
    
    $
    1,629,725
    
    
    $
    809,221
    
    
    $
    2,966,225Impaired loans for which no allowance has been provided
    
    
    228,496
    
    
    
    81,604
    
    
    
    1,103,215$
    1,858,221
    
    
    $
    890,825
    
    
    $
    4,069,440Allowance provided for impaired loans, included in the
allowance for loan losses
    
    $
    776,777
    
    
    $
    720,395
    
    
    $
    1,351,098Three Months
    
    
    Twelve Months
    
    
    Three MonthsEnded March 31,
    
    
    Ended
    
    
    Ended March 31,2009
    
    
    December 31, 2008
    
    
    2008Average balance in impaired loans
    
    $
    1,871,016
    
    
    $
    1,308,909
    
    
    $
    3,962,818Interest income recognized on impaired loans
    
    $
    14,757
    
    
    $
    35,940
    
    
    $
    34,119
    Note 5. Company-Obligated Mandatorily Redeemable Capital Securities
   11




---



##### 



Note 6. Earnings Per Share
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2009
    
    
    March 31, 2008Per Share
    
    
    
    
    
    
    Per ShareShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBasic earnings per share
    
    
    3,535,817
    
    
    $
    0.26
    
    
    
    3,515,475
    
    
    $
    0.29Effect of dilutive securities, stock-based awards
    
    
    18,950
    
    
    
    
    
    
    
    36,4513,554,767
    
    
    $
    0.26
    
    
    
    3,551,926
    
    
    $
    0.28
  Note 7. Stock-Based Compensation
     Three Months EndedMarch 31, 2009WeightedAverage
    
    
    AverageNumber of
    
    
    Exercise
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value (1)Outstanding at January 1, 2009
    
    
    77,180
    
    
    $
    9.84Granted
    
    
    Exercised
    
    
    (8,720
    )
    
    
    9.38Forfeited
    
    
    Outstanding at March 31, 2009
    
    
    68,460
    
    
    $
    9.89Exercisable at end of quarter
    
    
    68,460
    
    
    $
    9.89
    
    
    $
    75,991Weighted-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, 2009
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, 2009. This amount changes based on the
changes in the market value of the Companys stock.  12




---



##### 



Three Months EndedMarch 31, 2009WeightedNumber of
    
    AverageShares
    
    PriceNonvested at January 1, 2009
    
    
    38,219Granted
    
    
    23,500
    
    
    $
    10.05Vested
    
    
    (10,585
    )Nonvested at March 31, 2009
    
    
    51,134
  Note 8. Employee Benefit Plan
  Three Months EndedMarch 31,2009
    
    
    2008Service cost
    
    $
    62,707
    
    
    $
    111,081Interest cost
    
    
    73,827
    
    
    
    77,352Expected return on plan assets
    
    
    (65,029
    )
    
    
    (149,050
    )Amortization of transition (asset)
    
    
    
    
    
    
    (4,745
    )Amortization of prior service cost
    
    
    
    
    
    
    1,942Recognized net actuarial loss
    
    
    
    
    
    
    Net periodic benefit cost
    
    $
    71,505
    
    
    $
    36,580
    13




---



##### 



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.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 March 31, 2009 Using Quoted Pricesin Active
    
    SignificantMarkets for
    
    Other
    
    SignificantBalance at
    
    Identical
    
    Observable
    
    Unobservable(In Thousands)
    
    March 31,
    
    Assets
    
    Inputs
    
    InputsDescription
    
    2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)AssetsAvailable-for-sale securities
    
    $
    35,225
    
    
    $
    33,984
    
    
    $
    1,241
    
    
    $
    
  14




---



##### 



Carrying value at March 31, 2009Quoted Pricesin Active
    
    SignificantMarkets for
    
    Other
    
    SignificantBalance as of
    
    Identical
    
    Observable
    
    Unobservable(In Thousands)
    
    March 31,
    
    Assets
    
    Inputs
    
    InputsDescription
    
    2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)Assets:Impaired
loans,
net of
reserve for
losses
    
    $
    853
    
    
    
    
    
    
    $
    776
    
    
    $
    77Other real
estate owned
    
    $
    2,029
    
    
    
    
    
    
    $
    2,029
    
    
    
    
  15




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   GENERAL
   16




---



##### 



17




---



##### 



CRITICAL ACCOUNTING POLICIES
    18




---



##### 



EXECUTIVE OVERVIEW
        19




---



##### 



COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND MARCH 31, 2008
 NET INCOME
  NET INTEREST INCOME AND EXPENSE
       20




---



##### 



AVERAGE BALANCES, INCOME AND EXPENSES, AND AVERAGE YIELDS AND RATES
(Dollars in Thousands)
 Three Months Ended March 31, 2009
    
    
    Three Months Ended March 31, 2008Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    433,103
    
    
    $
    6,264
    
    
    
    5.80
    %
    
    $
    401,352
    
    
    $
    6,711
    
    
    
    6.63
    %Tax-exempt (1)
    
    
    8,534
    
    
    
    145
    
    
    
    6.80
    %
    
    
    7,347
    
    
    
    133
    
    
    
    7.17
    %Nonaccrual (2)
    
    
    1,530
    
    
    
    
    
    
    
    
    
    
    
    1,877
    
    
    
    Total Loans
    
    
    443,167
    
    
    
    6,409
    
    
    
    5.79
    %
    
    
    410,576
    
    
    
    6,844
    
    
    
    6.61
    %SecuritiesTaxable
    
    
    31,946
    
    
    
    361
    
    
    
    4.52
    %
    
    
    31,927
    
    
    
    381
    
    
    
    4.77
    %Tax-exempt (1)
    
    
    5,672
    
    
    
    93
    
    
    
    6.57
    %
    
    
    5,447
    
    
    
    88
    
    
    
    6.48
    %Total securities
    
    
    37,618
    
    
    
    454
    
    
    
    4.82
    %
    
    
    37,374
    
    
    
    469
    
    
    
    5.02
    %Deposits in banks
    
    
    4,594
    
    
    
    4
    
    
    
    0.32
    %
    
    
    982
    
    
    
    8
    
    
    
    3.25
    %Federal funds sold
    
    
    170
    
    
    
    0.1
    
    
    
    0.26
    %
    
    
    4,389
    
    
    
    29
    
    
    
    2.60
    %Total earning assets
    
    
    485,550
    
    
    
    6,867
    
    
    
    5.67
    %
    
    
    453,321
    
    
    
    7,350
    
    
    
    6.43
    %Less: Reserve for loan losses
    
    
    (4,883
    )
    
    
    
    
    
    
    
    
    
    
    (4,165
    )Cash and due from banks
    
    
    7,529
    
    
    
    
    
    
    
    
    
    
    
    15,542Bank premises and equipment, net
    
    
    8,857
    
    
    
    
    
    
    
    
    
    
    
    7,465Other assets
    
    
    22,265
    
    
    
    
    
    
    
    
    
    
    
    16,436Total Assets
    
    $
    519,318
    
    
    
    
    
    
    
    
    
    
    $
    488,599LIABILITIES &
SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    64,226
    
    
    
    
    
    
    
    
    
    
    $
    66,716Interest-bearing depositsNOW accounts
    
    
    75,465
    
    
    
    81
    
    
    
    0.43
    %
    
    
    85,597
    
    
    
    270
    
    
    
    1.27
    %Money market accounts
    
    
    19,938
    
    
    
    35
    
    
    
    0.71
    %
    
    
    24,581
    
    
    
    89
    
    
    
    1.45
    %Premium money market accounts
    
    
    51,940
    
    
    
    138
    
    
    
    1.07
    %
    
    
    74,592
    
    
    
    543
    
    
    
    2.93
    %Savings accounts
    
    
    32,234
    
    
    
    25
    
    
    
    0.31
    %
    
    
    30,442
    
    
    
    34
    
    
    
    0.45
    %Time deposits
    
    
    159,486
    
    
    
    1,281
    
    
    
    3.26
    %
    
    
    110,797
    
    
    
    1,138
    
    
    
    4.13
    %Total interest-bearing deposits
    
    
    339,063
    
    
    
    1,559
    
    
    
    1.86
    %
    
    
    326,009
    
    
    
    2,074
    
    
    
    2.56
    %Federal funds purchased
    
    
    4,914
    
    
    
    10
    
    
    
    0.86
    %
    
    
    3,088
    
    
    
    33
    
    
    
    4.36
    %Federal Home Loan Bank advances
    
    
    59,556
    
    
    
    267
    
    
    
    1.79
    %
    
    
    42,018
    
    
    
    412
    
    
    
    3.88
    %Capital securities of subsidiary trust
    
    
    4,124
    
    
    
    36
    
    
    
    3.48
    %
    
    
    4,124
    
    
    
    64
    
    
    
    6.16
    %Total interest-bearing liabilities
    
    
    407,656
    
    
    
    1,872
    
    
    
    1.86
    %
    
    
    375,239
    
    
    
    2,583
    
    
    
    2.76
    %Other liabilities
    
    
    5,346
    
    
    
    
    
    
    
    
    
    
    
    3,863Shareholders equity
    
    
    42,090
    
    
    
    
    
    
    
    
    
    
    
    42,781Total Liabilities & Shareholders Equity
    
    $
    519,318
    
    
    
    
    
    
    
    
    
    
    $
    488,599Net interest spread
    
    
    
    
    
    $
    4,995
    
    
    
    3.81
    %
    
    
    
    
    
    $
    4,767
    
    
    
    3.67
    %Interest expense as a percent of average earning assets
    
    
    
    
    
    
    
    
    
    
    1.56
    %
    
    
    
    
    
    
    
    
    
    
    2.28
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.11
    %
    
    
    
    
    
    
    
    
    
    
    4.15
    %
 
 (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. 21




---



##### 



RATE/VOLUME ANALYSIS
  RATE / VOLUME VARIANCE
(In Thousands)
 
 Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOMELoans; taxable
    
    $
    (447
    )
    
    $
    525
    
    
    
    (972
    )Loans; tax-exempt (1)
    
    
    12
    
    
    
    22
    
    
    
    (10
    )Securities; taxable
    
    
    (20
    )
    
    
    3
    
    
    
    (23
    )Securities; tax-exempt (1)
    
    
    5
    
    
    
    4
    
    
    
    1Deposits in banks
    
    
    (4
    )
    
    
    30
    
    
    
    (34
    )Federal funds sold
    
    
    (29
    )
    
    
    (28
    )
    
    
    (1
    )Total Interest Income
    
    
    (483
    )
    
    
    556
    
    
    
    (1,039
    )INTEREST EXPENSENOW accounts
    
    
    (189
    )
    
    
    (32
    )
    
    
    (157
    )Money market accounts
    
    
    (54
    )
    
    
    (17
    )
    
    
    (37
    )Premium money market accounts
    
    
    (405
    )
    
    
    (165
    )
    
    
    (240
    )Savings accounts
    
    
    (9
    )
    
    
    3
    
    
    
    (12
    )Time deposits
    
    
    143
    
    
    
    501
    
    
    
    (358
    )Federal funds purchased and
securities
sold under agreements to repurchase
    
    
    (23
    )
    
    
    20
    
    
    
    (43
    )Federal Home Loan Bank advances
    
    
    (146
    )
    
    
    172
    
    
    
    (318
    )Capital securities of subsidiary trust
    
    
    (28
    )
    
    
    
    
    
    
    (28
    )Total Interest Expense
    
    
    (711
    )
    
    
    482
    
    
    
    (1,193
    )Net Interest Income
    
    $
    228
    
    
    $
    74
    
    
    $
    154
 
 (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
   22




---



##### 



OTHER INCOME
     OTHER EXPENSE
      23




---



##### 



INCOME TAXES
  COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2009 AND DECEMBER 31, 2008
      24




---



##### 



ASSET QUALITY
       25




---



##### 



CONTRACTUAL OBLIGATIONS
   OFF-BALANCE SHEET ARRANGEMENTS
  CAPITAL
   RISK BASED CAPITAL RATIOS
(Dollars in Thousands)
 March 31,
    
    
    December 31,2009
    
    
    2008Tier 1 Capital:Shareholders Equity
    
    $
    40,819
    
    
    $
    41,488Plus: Unrealized loss on securities
available for sale/FAS 158, net
    
    
    3,257
    
    
    
    2,217Less: Unrealized loss on equity securities, net
    
    
    (8
    )
    
    
    (13
    )Plus: Company-obligated madatorily
redeemable capital securities
    
    
    4,000
    
    
    
    4,000Total Tier 1 Capital
    
    
    48,068
    
    
    
    47,692Tier 2 Capital:Allowable Allowance for Loan Losses
    
    
    4,873
    
    
    
    4,780Total Capital:
    
    
    52,941
    
    
    
    52,472Risk Weighted Assets:
    
    $
    430,809
    
    
    $
    419,265Regulatory Capital Ratios:Leverage Ratio
    
    
    9.26
    %
    
    
    9.37
    %Tier 1 to Risk Weighted Assets
    
    
    11.16
    %
    
    
    11.38
    %Total Capital to Risk Weighted Assets
    
    
    12.29
    %
    
    
    12.52
    %
 26




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##### 



CAPITAL RESOURCES AND LIQUIDITY
       27




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##### 



LIQUIDITY SOURCES AND USES
(Dollars in Thousands)
 March 31, 2009
    
    
    December 31, 2008Total
    
    
    In Use
    
    
    Available
    
    
    Total
    
    
    In Use
    
    
    AvailableSources:Federal funds borrowing lines of credit
    
    $
    82,540
    
    
    $
    
    
    
    $
    82,540
    
    
    $
    88,195
    
    
    $
    18,275
    
    
    $
    69,920Federal Home Loan Bank advances
    
    
    115,323
    
    
    
    60,000
    
    
    
    55,323
    
    
    
    115,214
    
    
    
    45,000
    
    
    
    70,214Federal funds sold
    
    
    3,004
    
    
    
    
    
    
    
    3,004Securities, available for sale and
unpledged at fair value
    
    
    
    
    
    
    
    
    
    
    5,114
    
    
    
    
    
    
    
    
    
    
    
    8,428Total short-term funding sources
    
    
    
    
    
    
    
    
    
    $
    145,981
    
    
    
    
    
    
    
    
    
    
    $
    148,562Uses:Unfunded loan commitments and
lending lines of credit
    
    
    
    
    
    
    
    
    
    $
    89,979
    
    
    
    
    
    
    
    
    
    
    $
    74,023Letters of credit
    
    
    
    
    
    
    
    
    
    
    6,873
    
    
    
    
    
    
    
    
    
    
    
    5,366Total potential short-term funding uses
    
    
    
    
    
    
    
    
    
    $
    96,852
    
    
    
    
    
    
    
    
    
    
    $
    79,389Ratio of short-term funding sources to
potential short-term funding uses
    
    
    
    
    
    
    
    
    
    
    150.7
    %
    
    
    
    
    
    
    
    
    
    
    187.1
    %
  IMPACT OF INFLATION AND CHANGING PRICES
  28




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##### 



CHANGES IN ACCOUNTING PRINCIPLES
   RECENT ACCOUNTING PROUNCEMENTS
 Recent Accounting Pronouncements
    29




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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   30




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##### 



ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
     
 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  31




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##### 



ITEM 6. EXHIBITS
 Exhibit
    
    ExhibitNumber
    
    Description3.1
    
    Articles of Incorporation of Fauquier Bankshares, Inc., as amended, incorporated by reference
to Exhibit 3(i) to registration statement on Form 10 filed April 16, 1999.3.2
    
    Bylaws of Fauquier Bankshares, Inc., as amended and restated, incorporated by reference to
Exhibit 3.2 to Form 8-K filed November 15, 2007.11
    
    Refer to Part I, Item 1, Note 6 to the Consolidated Financial Statements.31.1
    
    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.
 
   FAUQUIER BANKSHARES, INC.
(Registrant)/s/ Randy K. FerrellRandy K. FerrellPresident & Chief Executive OfficerDated: May 6, 2009/s/ Eric P. GraapEric P. GraapExecutive Vice President & Chief Financial OfficerDated: May 6, 2009 32