##### 



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 June 30, 2006
 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
    
    20186(Address of principal executive offices)
    
    (Zip Code)
 (540) 347-2700
  Not Applicable
  þ o
  o o þ
 o þ




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##### 



FAUQUIER BANKSHARES, INC.
  PagePart I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    2Consolidated Balance Sheets as of June 30, 2006 (unaudited) and December 31, 2005
    
    2Consolidated Statements of Income (unaudited) for the Three Months Ended June 30, 2006 and 2005
    
    3Consolidated Statements of Income (unaudited) for the Six Months Ended June 30, 2006 and 2005
    
    4Consolidated Statements of Changes in Shareholders Equity (unaudited) for the Six Months Ended June 30, 2006 and 2005
    
    5Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2006 and 2005
    
    6Notes to Consolidated Financial Statements
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    30Item 4.
    
    Controls and Procedures
    
    30Part II. OTHER INFORMATION
    
    30Item 1.
    
    Legal Proceedings
    
    30Item 1A.
    
    Risk Factors
    
    30Item 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
    
    32Item 6.
    
    Exhibits
    
    32SIGNATURES
    
    
    32




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##### 



Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Balance Sheets
 Unaudited
    
    
    AuditedJune 30, 2006
    
    
    December 31, 2005AssetsCash and due from banks
    
    $
    16,288,056
    
    
    $
    26,565,702Interest-bearing deposits in other banks
    
    
    556,535
    
    
    
    680,013Federal funds sold
    
    
    9,000
    
    
    
    493,000Securities, at fair value
    
    
    42,537,205
    
    
    
    48,390,771Loans, net of allowance for loan losses of
$4,457,970 in 2006 and $4,238,143 in 2005
    
    
    412,638,311
    
    
    
    381,049,471Bank premises and equipment, net
    
    
    8,002,381
    
    
    
    8,289,581Accrued interest receivable
    
    
    1,613,794
    
    
    
    1,585,849Other assets
    
    
    13,632,813
    
    
    
    14,191,023Total assets
    
    
    495,278,095
    
    
    
    481,245,410LiabilitiesDeposits:Noninterest-bearing
    
    
    88,420,902
    
    
    
    95,411,624Interest-bearing
    
    
    314,884,228
    
    
    
    296,245,545Total deposits
    
    
    403,305,130
    
    
    
    391,657,169Federal funds purchased
    
    
    17,000,000
    
    
    
    5,000,000Dividends payable
    
    
    
    
    
    
    Federal Home Loan Bank advances
    
    
    31,000,000
    
    
    
    42,000,000Company-obligated mandatorily redeemable capital
securities
    
    
    4,124,000
    
    
    
    4,124,000Other liabilities
    
    
    2,777,157
    
    
    
    2,885,096Commitments and contingent liabilities
    
    
    
    
    
    
    Total liabilities
    
    
    458,206,287
    
    
    
    445,666,265Shareholders EquityCommon stock, par value, $3.13; authorized
8,000,000 shares; issued and outstanding, 2006,
3,475,085 shares; 2005, 3,448,786 shares
    
    
    10,877,016
    
    
    
    10,794,700Retained earnings
    
    
    27,031,130
    
    
    
    25,440,838Accumulated other comprehensive income (loss), net
    
    
    (836,338
    )
    
    
    (656,393
    )Total shareholders equity
    
    
    37,071,808
    
    
    
    35,579,145Total liabilities and shareholders equity
    
    $
    495,278,095
    
    
    $
    481,245,410
  2




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Three Months Ended June 30, 2006 and 2005
 2006
    
    
    2005Interest IncomeInterest and fees on loans
    
    $
    6,905,346
    
    
    $
    5,744,799Interest and dividends on securities available for sale:Taxable interest income
    
    
    395,485
    
    
    
    483,732Interest income exempt from federal income taxes
    
    
    13,129
    
    
    
    13,054Dividends
    
    
    74,847
    
    
    
    58,768Interest on federal funds sold
    
    
    2,763
    
    
    
    30,345Interest on deposits in other banks
    
    
    6,303
    
    
    
    1,309Total interest income
    
    
    7,397,873
    
    
    
    6,332,007Interest ExpenseInterest on deposits
    
    
    1,846,576
    
    
    
    1,202,909Interest on federal funds purchased
    
    
    166,650
    
    
    
    1,456Interest on Federal Home Loan Bank advances
    
    
    394,625
    
    
    
    218,565Distribution on capital securities of subsidiary trust
    
    
    87,018
    
    
    
    67,812Total interest expense
    
    
    2,494,869
    
    
    
    1,490,742Net interest income
    
    
    4,903,004
    
    
    
    4,841,265Provision for loan losses
    
    
    180,000
    
    
    
    208,750Net interest income after
provision for loan losses
    
    
    4,723,004
    
    
    
    4,632,515Other IncomeWealth management income
    
    
    336,334
    
    
    
    284,667Service charges on deposit accounts
    
    
    723,513
    
    
    
    660,395Other service charges, commissions and income
    
    
    373,063
    
    
    
    321,976Gain on sale of property rights
    
    
    
    
    
    
    Total other income
    
    
    1,432,910
    
    
    
    1,267,038Other ExpensesSalaries and benefits
    
    
    2,321,056
    
    
    
    2,074,304Net occupancy expense of premises
    
    
    262,648
    
    
    
    230,248Furniture and equipment
    
    
    347,787
    
    
    
    319,841Other operating expenses
    
    
    1,383,916
    
    
    
    1,476,442Loss on sale of securities
    
    
    
    
    
    
    Total other expenses
    
    
    4,315,407
    
    
    
    4,100,835Income before income taxes
    
    
    1,840,507
    
    
    
    1,798,718Income tax expense
    
    
    552,695
    
    
    
    549,567Net Income
    
    $
    1,287,812
    
    
    $
    1,249,151Earnings per Share, basic
    
    $
    0.37
    
    
    $
    0.36Earnings per Share, assuming dilution
    
    $
    0.36
    
    
    $
    0.35Dividends per Share
    
    $
    0.190
    
    
    $
    0.16
  3




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the Six Months Ended June 30, 2006 and 2005
 2006
    
    
    2005Interest IncomeInterest and fees on loans
    
    $
    13,328,784
    
    
    $
    11,074,630Interest and dividends on securities available for sale:Taxable interest income
    
    
    813,322
    
    
    
    990,477Interest income exempt from federal income taxes
    
    
    26,252
    
    
    
    26,136Dividends
    
    
    121,995
    
    
    
    85,499Interest on federal funds sold
    
    
    17,405
    
    
    
    37,496Interest on deposits in other banks
    
    
    11,278
    
    
    
    2,830Total interest income
    
    
    14,319,036
    
    
    
    12,217,068Interest ExpenseInterest on deposits
    
    
    3,417,674
    
    
    
    2,242,295Interest on federal funds purchased
    
    
    204,450
    
    
    
    26,886Interest on Federal Home Loan Bank advances
    
    
    882,437
    
    
    
    422,103Distribution on capital securities of subsidiary trust
    
    
    172,723
    
    
    
    129,600Total interest expense
    
    
    4,677,284
    
    
    
    2,820,884Net interest income
    
    
    9,641,752
    
    
    
    9,396,184Provision for loan losses
    
    
    300,000
    
    
    
    333,750Net interest income after
provision for loan losses
    
    
    9,341,752
    
    
    
    9,062,434Other IncomeWealth management income
    
    
    663,881
    
    
    
    602,368Service charges on deposit accounts
    
    
    1,359,452
    
    
    
    1,301,520Other service charges, commissions and income
    
    
    725,405
    
    
    
    625,562Gain on sale of property rights
    
    
    250,000
    
    
    
    Total other income
    
    
    2,998,738
    
    
    
    2,529,450Other ExpensesSalaries and benefits
    
    
    4,504,823
    
    
    
    4,132,226Net occupancy expense of premises
    
    
    503,801
    
    
    
    463,318Furniture and equipment
    
    
    679,506
    
    
    
    637,128Other operating expenses
    
    
    2,732,368
    
    
    
    2,687,654Loss on sale of securities
    
    
    82,564
    
    
    
    Total other expenses
    
    
    8,503,062
    
    
    
    7,920,326Income before income taxes
    
    
    3,837,428
    
    
    
    3,671,558Income tax expense
    
    
    1,152,004
    
    
    
    1,112,139Net Income
    
    $
    2,685,424
    
    
    $
    2,559,419Earnings per Share, basic
    
    $
    0.77
    
    
    $
    0.74Earnings per Share, assuming dilution
    
    $
    0.75
    
    
    $
    0.72Dividends per Share
    
    $
    0.365
    
    
    $
    0.31
  4




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
(Unaudited)
For the Six Months Ended June 30, 2006 and 2005
 AccumulatedOtherCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ComprehensiveStock
    
    

Earnings
    
    

Income
(Loss)
    
    

Income
    
    

TotalBalance, December 31, 2004
    
    $
    10,618,775
    
    
    $
    21,320,223
    
    
    $
    (47,934
    )
    
    
    
    
    
    $
    31,891,064Comprehensive income:Net income
    
    
    
    
    
    
    2,559,419
    
    
    
    
    
    
    $
    2,559,419
    
    
    
    2,559,419Other comprehensive income net of tax:Unrealized holding losses on securities available
for sale, net of deferred income taxes of $137,241
    
    
    
    
    
    
    
    
    
    
    (266,410
    )
    
    
    (266,410
    )
    
    
    (266,410
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,293,009
    
    
    
    Cash dividends ($.31 per share)
    
    
    
    
    
    
    (1,065,592
    )
    
    
    
    
    
    
    
    
    
    
    (1,065,592
    )Restricted Stock Forfeiture
    
    
    (3,506
    )
    
    
    (24,494
    )
    
    
    
    
    
    
    
    
    
    
    (28,000
    )Net issuance of restricted stock, stock incentive plan
(10,045 shares)
    
    
    31,441
    
    
    
    218,077
    
    
    
    
    
    
    
    
    
    
    
    249,518Unearned compensation on restricted stock
    
    
    
    
    
    
    (249,518
    )
    
    
    
    
    
    
    
    
    
    
    (249,518
    )Amortization of unearned compensation, restricted stock awards
    
    
    
    
    
    
    157,790
    
    
    
    
    
    
    
    
    
    
    
    157,790Issuance of common stock
    
    
    8,811
    
    
    
    62,736
    
    
    
    
    
    
    
    
    
    
    
    71,547Exercise of stock options
    
    
    115,213
    
    
    
    193,057
    
    
    
    
    
    
    
    
    
    
    
    308,270Balance, June 30, 2005
    
    $
    10,770,734
    
    
    $
    23,171,698
    
    
    $
    (314,344
    )
    
    
    
    
    
    $
    33,628,088Balance, December 31, 2005
    
    $
    10,794,700
    
    
    $
    25,440,838
    
    
    $
    (656,393
    )
    
    
    
    
    
    $
    35,579,146Comprehensive income:Net income
    
    
    
    
    
    
    2,685,424
    
    
    
    
    
    
    $
    2,685,424
    
    
    
    2,685,424Other comprehensive income net of tax:Unrealized holding losses on securities available
for sale, net of deferred income taxes of $293,600
    
    
    
    
    
    
    
    
    
    
    (179,945
    )
    
    
    (179,945
    )
    
    
    (179,945
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,505,479
    
    
    
    Cash dividends ($.365 per share)
    
    
    
    
    
    
    (1,268,073
    )
    
    
    
    
    
    
    
    
    
    
    (1,268,073
    )Net issuance of restricted stock, stock incentive plan
(10,347 shares)
    
    
    32,386
    
    
    
    228,772
    
    
    
    
    
    
    
    
    
    
    
    261,158Unearned compensation on restricted stock
    
    
    
    
    
    
    (261,158
    )
    
    
    
    
    
    
    
    
    
    
    (261,158
    )Amortization of unearned compensation, restricted stock awards
    
    
    
    
    
    
    102,879
    
    
    
    
    
    
    
    
    
    
    
    102,879Issuance of common stock
    
    
    10,993
    
    
    
    75,688
    
    
    
    
    
    
    
    
    
    
    
    86,680Exercise of stock options
    
    
    38,937
    
    
    
    26,760
    
    
    
    
    
    
    
    
    
    
    
    65,697Balance, June 30, 2006
    
    $
    10,877,016
    
    
    $
    27,031,131
    
    
    $
    (836,338
    )
    
    
    
    
    
    $
    37,071,808
 5




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 2006 and 2005
 2006
    
    
    2005Cash Flows from Operating ActivitiesNet income
    
    $
    2,685,424
    
    
    $
    2,559,419Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    604,154
    
    
    
    591,207Provision for loan losses
    
    
    300,000
    
    
    
    333,750Amortization of security premiums, net
    
    
    14,830
    
    
    
    30,175Amortization of unearned compensation
    
    
    102,879
    
    
    
    157,790Changes in assets and liabilities:Decrease (Increase) in other assets
    
    
    622,964
    
    
    
    (427,128
    )(Decrease) Increase in other liabilities
    
    
    (107,939
    )
    
    
    (719,674
    )Net cash provided by operating activities
    
    
    4,222,312
    
    
    
    2,525,539Cash Flows from Investing ActivitiesProceeds from sale of securities available for sale
    
    
    3,024,745
    
    
    
    Proceeds from maturities, calls and principal
payments of securities available for sale
    
    
    2,150,247
    
    
    
    7,712,216Purchase of securities available for sale
    
    
    
    
    
    
    (258,199
    )Purchase of premises and equipment
    
    
    (316,954
    )
    
    
    (453,605
    )Proceeds (Purchase) of other investment
    
    
    391,100
    
    
    
    (461,300
    )Net Decrease (Increase) in loans
    
    
    (31,888,840
    )
    
    
    (14,869,394
    )Net cash (used in) investing activities
    
    
    (26,639,702
    )
    
    
    (8,330,282
    )Cash Flows from Financing ActivitiesNet (Decrease) Increase in demand deposits, NOW accounts
and savings accounts
    
    
    (15,411,318
    )
    
    
    (8,587,708
    )Net (Decrease) Increase in certificates of deposit
    
    
    27,059,281
    
    
    
    18,830,478Federal Home Loan Bank advances
    
    
    
    
    
    
    8,000,000Federal Home Loan Bank principal repayments
    
    
    (11,000,000
    )
    
    
    (5,000,000
    )Purchase (Repayment) of Federal Funds
    
    
    12,000,000
    
    
    
    5,000,000Cash dividends paid on common stock
    
    
    (1,268,073
    )
    
    
    (1,574,479
    )Issuance of common stock
    
    
    152,376
    
    
    
    379,817Acquisition of common stock
    
    
    
    
    
    
    (28,000
    )Net cash
provided by (used in) financing activities
    
    
    11,532,266
    
    
    
    17,020,108Increase
(Decrease) in cash and cash equivalents
    
    
    (10,885,124
    )
    
    
    11,215,365Cash and Cash EquivalentsBeginning
    
    
    27,738,715
    
    
    
    9,166,574Ending
    
    $
    16,853,591
    
    
    $
    20,381,939Supplemental Disclosures of Cash Flow InformationCash payments for:Interest
    
    $
    3,251,617
    
    
    $
    2,693,981Income taxes
    
    $
    808,000
    
    
    $
    1,290,000Supplemental Disclosures of Noncash Investing ActivitiesUnrealized gain (loss) on securities available for sale, net
    
    $
    272,644
    
    
    $
    (403,652
    )
  6




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##### 



Fauquier Bankshares, Inc. and Subsidiaries  Notes to Consolidated Financial Statements
 1.   General
   2.   Securities
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueJune 30, 2006Obligations of U.S.
Government corporations
and agencies
    
    $
    33,535,551
    
    
    $
    1,368
    
    
    $
    (1,169,125
    )
    
    $
    32,367,794Obligations of states and political
subdivisions
    
    
    962,375
    
    
    
    47,222
    
    
    
    
    
    
    
    1,009,597Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (86,250
    )
    
    
    5,913,750Mutual Funds
    
    
    273,537
    
    
    
    
    
    
    
    (15,393
    )
    
    
    258,144FHLMC Preferred Bank Stock
    
    
    441,000
    
    
    
    
    
    
    
    (45,000
    )
    
    
    396,000Restricted investments:Federal Home Loan Bank Stock
    
    
    2,357,000
    
    
    
    
    
    
    
    
    
    
    
    2,357,000Federal Reserve Bank Stock
    
    
    72,000
    
    
    
    
    
    
    
    
    
    
    
    72,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000The Bankers Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    43,804,383
    
    
    $
    48,590
    
    
    $
    (1,315,768
    )
    
    $
    42,537,205
 7




---



##### 



Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueDecember 31, 2005Obligations of U.S.
Government corporations
and agencies
    
    $
    38,731,324
    
    
    $
    10,072
    
    
    $
    (943,127
    )
    
    $
    37,798,269Obligations of states and political
subdivisions
    
    
    962,013
    
    
    
    57,516
    
    
    
    
    
    
    
    1,019,529Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (98,750
    )
    
    
    5,901,250Mutual Funds
    
    
    267,947
    
    
    
    
    
    
    
    (7,144
    )
    
    
    260,803FHLMC Preferred Bank Stock
    
    
    441,000
    
    
    
    
    
    
    
    (13,100
    )
    
    
    427,900Restricted investments:Federal Home Loan Bank Stock
    
    
    2,748,100
    
    
    
    
    
    
    
    
    
    
    
    2,748,100Federal Reserve Bank Stock
    
    
    72,000
    
    
    
    
    
    
    
    
    
    
    
    72,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000The Bankers Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    49,385,304
    
    
    $
    67,588
    
    
    $
    (1,062,121
    )
    
    $
    48,390,771
  June 30, 2006Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    
    
    
    $
    Due after one year through five years
    
    
    17,937,593
    
    
    
    17,374,440Due after five years through ten years
    
    
    2,218,144
    
    
    
    2,145,976Due after ten years
    
    
    20,342,189
    
    
    
    19,770,725Equity Securities
    
    
    3,306,457
    
    
    
    3,246,064$
    43,804,383
    
    
    $
    42,537,205
 8




---



##### 



Less than 12 Months
    
    
    12 Months or More
    
    
    TotalDescription of Securities
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)
    
    
    Fair Value
    
    
    Unrealized (Losses)Obligations of U.S. Government
corporations and agencies
    
    $
    2,847,333
    
    
    $
    (76,802
    )
    
    $
    29,253,744
    
    
    $
    (1,092,323
    )
    
    $
    32,101,077
    
    
    $
    (1,169,125
    )Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    5,913,750
    
    
    
    (86,250
    )
    
    
    5,913,750
    
    
    
    (86,250
    )Subtotal, debt securities
    
    
    2,847,333
    
    
    
    (76,802
    )
    
    
    35,167,494
    
    
    
    (1,178,573
    )
    
    
    38,014,827
    
    
    
    (1,255,375
    )Preferred Stock
    
    
    
    
    
    
    
    
    
    
    441,000
    
    
    
    (45,000
    )
    
    
    441,000
    
    
    
    (45,000
    )Mutual Fund
    
    
    
    
    
    
    
    
    
    
    273,537
    
    
    
    (15,393
    )
    
    
    273,537
    
    
    
    (15,393
    )Total temporary impaired securities
    
    $
    2,847,333
    
    
    $
    (76,802
    )
    
    $
    35,882,031
    
    
    $
    (1,238,966
    )
    
    $
    38,729,364
    
    
    $
    (1,315,768
    )
     9




---



##### 



3.
    
    LoansA summary of the balances of loans follows:
 June 30,
    
    
    December 31,2006
    
    
    2005(Thousands)Real estate loans:Construction
    
    $
    31,686
    
    
    $
    27,302Secured by farmland
    
    
    638
    
    
    
    535Secured by 1 - to - 4 family residential
    
    
    161,797
    
    
    
    153,997Other real estate loans
    
    
    134,905
    
    
    
    120,416Commercial and industrial loans (not secured by real estate)
    
    
    42,624
    
    
    
    35,497Consumer installment loans
    
    
    34,238
    
    
    
    38,677All other loans
    
    
    11,734
    
    
    
    9,386Total loans
    
    $
    417,622
    
    
    $
    385,810Unearned income
    
    
    (526
    )
    
    
    (523
    )Allowance for loan losses
    
    
    4,458
    
    
    
    4,238Net loans
    
    $
    412,638
    
    
    $
    381,049
  Six Months
    
    
    Six Months
    
    
    Twelve MonthsEnded
    
    
    Ended
    
    
    EndedJune, 30
    
    
    June, 30
    
    
    December 31,2006
    
    
    2005
    
    
    2005Balance at beginning of period
    
    $
    4,238,143
    
    
    $
    4,060,321
    
    
    $
    4,060,321Provision charged to operating expense
    
    
    300,000
    
    
    
    333,750
    
    
    
    472,917Recoveries added to the allowance
    
    
    48,347
    
    
    
    32,920
    
    
    
    53,331Loan losses charged to the allowance
    
    
    (128,520
    )
    
    
    (138,060
    )
    
    
    (348,426
    )Balance at end of period
    
    $
    4,457,970
    
    
    $
    4,288,931
    
    
    $
    4,238,143
  June 30,
    
    
    December 31,2006
    
    
    2005(Thousands)Nonaccrual loans
    
    $
    1,706
    
    
    $
    13Restructured loans
    
    
    
    
    
    
    Total nonperforming loans
    
    
    1,706
    
    
    
    13Foreclosed property
    
    
    67
    
    
    
    182Total nonperforming assets
    
    $
    1,773
    
    
    $
    195
  10




---



##### 



4.
    
    Company-Obligated Mandatorily Redeemable Capital Securities of Subsidiary TrustOn March 26, 2002, the Companys wholly-owned Connecticut statutory business trust privately
issued $4 million face amount of the trusts Floating Rate Capital Securities (Capital Securities) in a pooled capital
securities offering. Simultaneously, the trust used the proceeds of that sale to purchase $4 million principal amount of the Companys
Floating Rate Junior Subordinated Deferrable Interest Debentures due 2032 (Subordinated Debentures). Both the Capital
Securities and the Subordinated Debentures are callable at any time after five years from the issue date. The Subordinated Debentures
are an unsecured obligation of the Company and are junior in right of payment to all present and future senior indebtedness of
the Company. The Capital Securities are guaranteed by the Company on a subordinated basis.The Capital Securities are presented in the consolidated balance sheets of the Company under
the caption Company-obligated mandatorily redeemable capital securities. The Company records distributions payable on the
Capital Securities as an Interest Expense in its consolidated statements of income. The cost of issuance of the Capital
Securities was approximately $128,000. This cost is being amortized over a five year period from the issue date.
 5.
    
    Earnings Per ShareThe following table shows the weighted average number of shares used in computing earnings per
share and the effect on weighted average number of shares of dilutive potential common stock. Dilutive
potential common stock had no effect on income available to common shareholders.
 Three Months Ended
    
    
    Six Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2005Per Share
    
    
    
    
    
    
    Per Share
    
    
    
    
    
    
    Per ShareShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountBasic earnings per share
    
    
    3,475,064
    
    
    $
    0.37
    
    
    
    3,466,540
    
    
    $
    0.77
    
    
    
    3,421,009
    
    
    $
    0.74Effect of dilutive securities, stock options
    
    
    112,986
    
    
    
    
    
    
    
    112,686
    
    
    
    
    
    
    
    128,854Diluted earnings per share
    
    
    3,588,050
    
    
    $
    0.36
    
    
    
    3,579,226
    
    
    $
    0.75
    
    
    
    3,549,863
    
    
    $
    0.72
 11




---



##### 



6.
    
    Stock-Based Compensation
 At June 30, 2006, the Company has a stock-based compensation plan. Effective January 1, 2006,
the Company adopted the provisions of FASB Statement No. 123(R), Share-Based Payment, which
requires that the Company recognize expense related to the fair value of stock-based compensation
awards in net income. Prior to January 1, 2006, the Company accounted for its stock-based
compensation under the recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. Accordingly, stock compensation expense
was not recognized in net income, as all stock options granted had an exercise price equal to the
market value of the underlying common stock on the date of grant. However, prior years financial
statements included pro forma disclosures of the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based compensation.The following table illustrates the effect on net income and earnings per share for the Company had
the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, been applied to stock-based compensation for six months ended June 30, 2006 and 2005.
 June 30,
    
    
    June 30,2006
    
    
    2005Net Income, as reported
    
    $
    2,685,424
    
    
    $
    2,559,419Deduct: Total stock-based employee compensation
expense determined based on fair value
method of awards, net of tax
    
    
    
    
    
    
    Pro forma net income
    
    $
    2,685,424
    
    
    $
    2,559,419Earnings per share:Basic  as reported
    
    $
    0.77
    
    
    $
    0.74Basic  pro forma
    
    
    0.77
    
    
    
    0.74Diluted  as reported
    
    
    0.75
    
    
    
    0.72Diluted  pro forma
    
    
    0.75
    
    
    
    0.72
 12




---



##### 



7.
    
    Employee Benefit Plan
 The following table provides a reconciliation of the changes in the defined benefit pension
plans obligations for the six months ended June 30, 2006 and 2005.
 Six Months EndedJune 30,2006
    
    
    2005Service cost
    
    $
    346,254
    
    
    $
    287,240Interest cost
    
    
    187,994
    
    
    
    170,240Expected return on plan assets
    
    
    (197,920
    )
    
    
    (150,858
    )Amortization of transition obligation/(asset)
    
    
    (9,490
    )
    
    
    (9,490
    )Amortization of prior service cost
    
    
    3,884
    
    
    
    3,884Recognized net actuarial loss
    
    
    30,478
    
    
    
    31,156Net periodic benefit cost
    
    $
    361,200
    
    
    $
    332,172
 The Company previously disclosed in its financial statements for the year ended December 31,
2005, that it expected to contribute $790,709 to its pension plan in 2006. As of June 30, 2006,
contributions totaling $424,456 have been made. This contribution fully funds the pension plan
for 2006. The Company presently anticipates no additional contributions.
 13




---



##### 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
  GENERAL
    14




---



##### 



CRITICAL ACCOUNTING POLICIES
  15




---



##### 



EXECUTIVE OVERVIEW
   16




---



##### 



COMPARISION OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND JUNE 30, 2005
 NET INCOME.
 NET INTEREST INCOME.
 17




---



##### 



18




---



##### 



Three Months Ended June 30, 2006
    
    
    Three Months Ended June 30, 2005Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    397,433
    
    
    $
    6,806
    
    
    
    6.78
    %
    
    $
    343,860
    
    
    $
    5,659
    
    
    
    6.52
    %Tax-exempt (1)
    
    
    8,390
    
    
    
    151
    
    
    
    7.10
    %
    
    
    7,167
    
    
    
    130
    
    
    
    7.16
    %Nonaccrual
    
    
    1,114
    
    
    
    
    
    
    
    
    
    
    
    177
    
    
    
    Total Loans
    
    
    406,937
    
    
    
    6,957
    
    
    
    6.77
    %
    
    
    351,204
    
    
    
    5,789
    
    
    
    6.53
    %SecuritiesTaxable
    
    
    42,322
    
    
    
    470
    
    
    
    4.45
    %
    
    
    52,953
    
    
    
    542
    
    
    
    4.10
    %Tax-exempt (1)
    
    
    1,016
    
    
    
    20
    
    
    
    7.75
    %
    
    
    1,018
    
    
    
    20
    
    
    
    7.77
    %Total securities
    
    
    43,338
    
    
    
    490
    
    
    
    4.52
    %
    
    
    53,971
    
    
    
    562
    
    
    
    4.17
    %Deposits in banks
    
    
    622
    
    
    
    6
    
    
    
    4.01
    %
    
    
    263
    
    
    
    2
    
    
    
    1.97
    %Federal funds sold
    
    
    397
    
    
    
    3
    
    
    
    2.75
    %
    
    
    4,321
    
    
    
    30
    
    
    
    2.78
    %Total earning assets
    
    
    451,294
    
    
    
    7,456
    
    
    
    6.55
    %
    
    
    409,759
    
    
    
    6,383
    
    
    
    6.18
    %Less: Reserve for loan losses
    
    
    (4,369
    )
    
    
    
    
    
    
    
    
    
    
    (4,232
    )Cash and due from banks
    
    
    16,368
    
    
    
    
    
    
    
    
    
    
    
    17,263Bank premises and equipment, net
    
    
    8,136
    
    
    
    
    
    
    
    
    
    
    
    8,426Other assets
    
    
    14,823
    
    
    
    
    
    
    
    
    
    
    
    15,366Total Assets
    
    $
    486,252
    
    
    
    
    
    
    
    
    
    
    $
    446,582LIABILITIES AND SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    90,285
    
    
    
    
    
    
    
    
    
    
    $
    86,020Interest-bearing depositsNOW accounts
    
    
    66,620
    
    
    
    85
    
    
    
    0.47
    %
    
    
    103,930
    
    
    
    246
    
    
    
    0.95
    %Money market accounts
    
    
    38,634
    
    
    
    133
    
    
    
    1.38
    %
    
    
    57,095
    
    
    
    179
    
    
    
    1.26
    %Premium money market accounts
    
    
    50,522
    
    
    
    489
    
    
    
    3.88
    %
    
    
    1,574
    
    
    
    12
    
    
    
    3.00
    %Savings accounts
    
    
    38,612
    
    
    
    33
    
    
    
    0.34
    %
    
    
    43,138
    
    
    
    36
    
    
    
    0.33
    %Time deposits
    
    
    115,328
    
    
    
    1,114
    
    
    
    3.88
    %
    
    
    95,010
    
    
    
    731
    
    
    
    3.08
    %Total interest-bearing deposits
    
    
    309,716
    
    
    
    1,854
    
    
    
    2.39
    %
    
    
    300,747
    
    
    
    1,204
    
    
    
    1.60
    %Federal funds purchased and securities
sold under agreements to repurchase
    
    
    12,071
    
    
    
    167
    
    
    
    5.46
    %
    
    
    220
    
    
    
    1
    
    
    
    2.66
    %Federal Home Loan Bank advances
    
    
    30,176
    
    
    
    395
    
    
    
    5.17
    %
    
    
    20,473
    
    
    
    219
    
    
    
    4.22
    %Capital Securities of Subsidiary Trust
    
    
    4,124
    
    
    
    87
    
    
    
    8.35
    %
    
    
    4,124
    
    
    
    68
    
    
    
    6.51
    %Total interest-bearing liabilities
    
    
    356,087
    
    
    
    2,503
    
    
    
    2.80
    %
    
    
    325,564
    
    
    
    1,492
    
    
    
    1.83
    %Other liabilities
    
    
    2,656
    
    
    
    
    
    
    
    
    
    
    
    1,859Shareholders equity
    
    
    37,224
    
    
    
    
    
    
    
    
    
    
    
    33,139Total Liabilities & Shareholders
Equity
    
    $
    486,252
    
    
    
    
    
    
    
    
    
    
    $
    446,582Net interest spread
    
    
    
    
    
    $
    4,953
    
    
    
    3.75
    %
    
    
    
    
    
    $
    4,891
    
    
    
    4.35
    %Interest expense as a percent of
average earning assets
    
    
    
    
    
    
    
    
    
    
    2.21
    %
    
    
    
    
    
    
    
    
    
    
    1.46
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.34
    %
    
    
    
    
    
    
    
    
    
    
    4.72
    %
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%. 19




---



##### 



RATE/VOLUME ANALYSIS
  
 Three Months Ended June 30,2006 Compared toThree Months Ended June 30, 2005Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOMELoans; taxable
    
    $
    1,147
    
    
    $
    890
    
    
    $
    257Loans; tax-exempt (1)
    
    
    21
    
    
    
    22
    
    
    
    (1
    )Securities; taxable
    
    
    (72
    )
    
    
    (105
    )
    
    
    33Securities; tax-exempt (1)
    
    
    
    
    
    
    
    
    
    
    Deposits in banks
    
    
    5
    
    
    
    2
    
    
    
    3Federal funds sold
    
    
    (27
    )
    
    
    (27
    )
    
    
    Total Interest Income
    
    
    1,074
    
    
    
    782
    
    
    
    292INTEREST EXPENSENOW accounts
    
    
    (168
    )
    
    
    (59
    )
    
    
    (109
    )Money market accounts
    
    
    (46
    )
    
    
    (57
    )
    
    
    11Premium money market
accounts
    
    
    477
    
    
    
    391
    
    
    
    86Savings accounts
    
    
    (3
    )
    
    
    (4
    )
    
    
    1Time deposits
    
    
    384
    
    
    
    178
    
    
    
    206Federal funds purchased
and securities
sold under agreements
to repurchase
    
    
    165
    
    
    
    98
    
    
    
    67Federal Home Loan Bank
Advances
    
    
    176
    
    
    
    112
    
    
    
    64Capital Securities of
Subsidiary Trust
    
    
    19
    
    
    
    
    
    
    
    19Total Interest Expense
    
    
    1,004
    
    
    
    659
    
    
    
    345Net Interest Income
    
    $
    70
    
    
    $
    123
    
    
    $
    (53
    )
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%.  20




---



##### 



PROVISION FOR LOAN LOSSES.
 TOTAL OTHER INCOME.
   21




---



##### 



COMPARISION OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND JUNE 30, 2005
 NET INCOME.
 NET INTEREST INCOME.
  22
      Six Months Ended
    
    
    Six Months EndedJune 30, 2006
    
    
    June 30, 2005Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    389,581
    
    
    $
    13,130
    
    
    
    6.71
    %
    
    $
    341,493
    
    
    $
    10,903
    
    
    
    6.36
    %Tax-exempt (1)
    
    
    8,030
    
    
    
    301
    
    
    
    7.45
    %
    
    
    7,216
    
    
    
    259
    
    
    
    7.15
    %Nonaccrual
    
    
    918
    
    
    
    
    
    
    
    
    
    
    
    141
    
    
    
    Total Loans
    
    
    398,529
    
    
    
    13,431
    
    
    
    6.71
    %
    
    
    348,850
    
    
    
    11,162
    
    
    
    6.38
    %SecuritiesTaxable
    
    
    44,046
    
    
    
    935
    
    
    
    4.24
    %
    
    
    54,583
    
    
    
    1,076
    
    
    
    3.94
    %Tax-exempt (1)
    
    
    1,018
    
    
    
    40
    
    
    
    7.81
    %
    
    
    1,020
    
    
    
    40
    
    
    
    7.76
    %Total securities
    
    
    45,064
    
    
    
    975
    
    
    
    4.33
    %
    
    
    55,603
    
    
    
    1,116
    
    
    
    4.01
    %Deposits in banks
    
    
    678
    
    
    
    11
    
    
    
    3.31
    %
    
    
    179
    
    
    
    3
    
    
    
    3.20
    %Federal funds sold
    
    
    785
    
    
    
    17
    
    
    
    4.41
    %
    
    
    2,731
    
    
    
    37
    
    
    
    2.73
    %Total earning assets
    
    
    445,056
    
    
    
    14,434
    
    
    
    6.46
    %
    
    
    407,363
    
    
    
    12,318
    
    
    
    6.03
    %Less: Reserve for loan losses
    
    
    (4,336
    )
    
    
    
    
    
    
    
    
    
    
    (4,289
    )Cash and due from banks
    
    
    17,280
    
    
    
    
    
    
    
    
    
    
    
    19,814Bank premises and equipment, net
    
    
    8,198
    
    
    
    
    
    
    
    
    
    
    
    8,396Other assets
    
    
    15,082
    
    
    
    
    
    
    
    
    
    
    
    12,142Total Assets
    
    $
    481,280
    
    
    
    
    
    
    
    
    
    
    $
    443,426LIABILITIES AND SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    89,586
    
    
    
    
    
    
    
    
    
    
    $
    85,085Interest-bearing depositsNOW accounts
    
    
    70,449
    
    
    
    190
    
    
    
    0.54
    %
    
    
    105,459
    
    
    
    524
    
    
    
    1.00
    %Money market accounts
    
    
    39,795
    
    
    
    272
    
    
    
    1.38
    %
    
    
    60,595
    
    
    
    349
    
    
    
    1.16
    %Premium money market accounts
    
    
    45,569
    
    
    
    879
    
    
    
    3.89
    %
    
    
    792
    
    
    
    12
    
    
    
    3.00
    %Savings accounts
    
    
    38,330
    
    
    
    63
    
    
    
    0.33
    %
    
    
    42,814
    
    
    
    71
    
    
    
    0.33
    %Time deposits
    
    
    110,275
    
    
    
    2,013
    
    
    
    3.68
    %
    
    
    88,296
    
    
    
    1,286
    
    
    
    2.94
    %Total interest-bearing deposits
    
    
    304,418
    
    
    
    3,417
    
    
    
    2.26
    %
    
    
    297,956
    
    
    
    2,242
    
    
    
    1.52
    %Federal funds purchased and securities
sold under agreements to repurchase
    
    
    7,769
    
    
    
    204
    
    
    
    5.31
    %
    
    
    2,066
    
    
    
    27
    
    
    
    2.62
    %Federal Home Loan Bank advances
    
    
    35,785
    
    
    
    882
    
    
    
    4.90
    %
    
    
    19,608
    
    
    
    422
    
    
    
    4.28
    %Capital Securities of Subsidiary Trust
    
    
    4,124
    
    
    
    173
    
    
    
    8.33
    %
    
    
    4,124
    
    
    
    130
    
    
    
    6.25
    %Total interest-bearing liabilities
    
    
    352,096
    
    
    
    4,676
    
    
    
    2.67
    %
    
    
    323,754
    
    
    
    2,821
    
    
    
    1.75
    %Other liabilities
    
    
    2,636
    
    
    
    
    
    
    
    
    
    
    
    1,865Shareholders equity
    
    
    36,962
    
    
    
    
    
    
    
    
    
    
    
    32,722Total Liabilities & Shareholders
Equity
    
    $
    481,280
    
    
    
    
    
    
    
    
    
    
    $
    443,426Net interest spread
    
    
    
    
    
    $
    9,758
    
    
    
    3.79
    %
    
    
    
    
    
    $
    9,497
    
    
    
    4.28
    %Interest expense as a percent of
average earning assets
    
    
    
    
    
    
    
    
    
    
    2.11
    %
    
    
    
    
    
    
    
    
    
    
    1.39
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.35
    %
    
    
    
    
    
    
    
    
    
    
    4.64
    %
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a federal tax rate of 34%. 23
      RATE/VOLUME ANALYSIS
  
 Six Months Ended June 30, 2006 Compared toSix Months Ended June 30, 2005Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOMELoans; taxable
    
    $
    2,227
    
    
    $
    1,561
    
    
    $
    666Loans; tax-exempt (1)
    
    
    41
    
    
    
    29
    
    
    
    12Securities; taxable
    
    
    (141
    )
    
    
    (201
    )
    
    
    60Securities; tax-exempt (1)
    
    
    
    
    
    
    
    
    
    
    Deposits in banks
    
    
    8
    
    
    
    8
    
    
    
    Federal funds sold
    
    
    (20
    )
    
    
    (24
    )
    
    
    4Total Interest Income
    
    
    2,115
    
    
    
    1,373
    
    
    
    742INTEREST EXPENSENOW accounts
    
    
    (334
    )
    
    
    (124
    )
    
    
    (210
    )Money market accounts
    
    
    (77
    )
    
    
    (110
    )
    
    
    33Premium money market accounts
    
    
    867
    
    
    
    712
    
    
    
    155Savings accounts
    
    
    (8
    )
    
    
    (7
    )
    
    
    (1
    )Time deposits
    
    
    727
    
    
    
    361
    
    
    
    366Federal funds purchased and
securities sold under
agreements to repurchase
    
    
    177
    
    
    
    105
    
    
    
    72Federal Home Loan Bank Advances
    
    
    460
    
    
    
    359
    
    
    
    101Capital Securities of
Subsidiary Trust
    
    
    43
    
    
    
    
    
    
    
    43Total Interest Expense
    
    
    1,855
    
    
    
    1,296
    
    
    
    559Net Interest Income
    
    $
    260
    
    
    $
    77
    
    
    $
    183
 
 (1)
    
    Income and rates on non-taxable assets are computed on a tax equivalent basis using a
federal tax rate of 34%.  24
      PROVISION FOR LOAN LOSSES.
 TOTAL OTHER INCOME.
  COMPARISON OF JUNE 30, 2006 AND DECEMBER 31, 2005 FINANCIAL CONDITION
  CASH AND DUE FROM BANKS.
 25
      LOANS.
 DEPOSITS
 FEDERAL FUNDS PURCHASED FEDERAL HOME LOAN ADVANCES.
 ASSET QUALITY
    26
      CONTRACTUAL OBLIGATIONS
  OFF-BALANCE SHEET ARRANGEMENTS
  CAPITAL RESOURCES
     27
      June 30, 2006
    
    
    December 31, 2005Tier 1 Capital:Shareholders Equity
    
    $
    37,072
    
    
    $
    35,579Plus: Unrealized loss on securities available for sale
    
    
    776
    
    
    
    636Less: Intangible assets, net
    
    
    (19
    )
    
    
    (32
    )Plus: Company-obligated madatorily redeemable capital
securities
    
    
    4,000
    
    
    
    4,000Total Tier 1 Capital
    
    
    41,829
    
    
    
    40,183Tier 2 Capital:Allowable Allowance for Loan Losses
    
    
    4,458
    
    
    
    4,238Total Capital
    
    $
    46,287
    
    
    $
    44,421Risk Weighted Assets:
    
    $
    388,738
    
    
    $
    371,193Regulatory Capital Ratios:Leverage Ratio
    
    
    8.60
    %
    
    
    8.66
    %Tier 1 to Risk Weighted Assets
    
    
    10.76
    %
    
    
    10.83
    %Total Capital to Risk Weighted Assets
    
    
    11.91
    %
    
    
    11.97
    %
 LIQUIDITY
   28
      June 30, 2006
    
    
    December 31, 2005Total
    
    
    In Use
    
    
    Available
    
    
    Total
    
    
    In Use
    
    
    AvailableSources:Federal funds borrowing lines of credit
    
    $
    51,957
    
    
    $
    17,000
    
    
    $
    34,957
    
    
    $
    52,020
    
    
    $
    5,000
    
    
    $
    47,020Federal Home Loan Bank advances
    
    
    119,886
    
    
    
    31,000
    
    
    
    88,886
    
    
    
    106,420
    
    
    
    42,000
    
    
    
    64,420Federal funds sold
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    493Securities, available for sale and
unpledged at fair value
    
    
    
    
    
    
    
    
    
    
    24,414
    
    
    
    
    
    
    
    
    
    
    
    27,090Total short-term funding sources
    
    $
    171,843
    
    
    $
    48,000
    
    
    $
    148,266
    
    
    $
    158,440
    
    
    $
    47,000
    
    
    $
    139,023Uses:Unfunded loan commitments and
lending lines of credit
    
    
    
    
    
    
    
    
    
    $
    104,777
    
    
    
    
    
    
    
    
    
    
    $
    106,542Letters of credit
    
    
    
    
    
    
    
    
    
    
    9,803
    
    
    
    
    
    
    
    
    
    
    
    5,839Total potential short-term funding uses
    
    
    
    
    
    
    
    
    
    $
    114,580
    
    
    
    
    
    
    
    
    
    
    $
    112,381Ratio of short-term funding sources to potential short-term
funding uses
    
    
    
    
    
    
    
    
    
    
    129.4
    %
    
    
    
    
    
    
    
    
    
    
    123.7
    %
      29
      Part II. OTHER INFORMATION
     30
      FOR
    
    WITHHELDJohn B. Adams, Jr.
    
    
    2,644,524.95
    
    
    
    17,850C.H. Lawrence, Jr.
    
    
    2,650,174.95
    
    
    
    12,200John J. Norman, Jr.
    
    
    2,622,955.95
    
    
    
    34,419C. Hunton Tiffany
    
    
    2,638,417.16
    
    
    
    23,957.79
  FOR
    
    AGAINST
    
    ABSTAIN
    
    BROKER NON-VOTE2,640,738.95
    
    
    16,210
    
    
    
    5,426
    
    
    
    0
 31
      3.1
    
    Articles of Incorporation of Fauquier Bankshares, Inc., as amended,
incorporated by reference to Exhibit 3(i) to registration statement on Form 10 filed
April 16, 19993.2
    
    Amended and Restated Bylaws of Fauquier Bankshares, Inc., incorporated
by reference to Exhibit 3.2 to Form 8-K filed March 22, 200611
    
    Refer to Part I, Item 1, Footnote 5 to the Consolidated Financial Statements14
    
    Code of Business Conduct and Ethics (as amended May 18, 2006)31.1
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)31.2
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350 of Chief Executive Officer32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350 of Chief Financial Officer
   FAUQUIER BANKSHARES, INC. 
          (Registrant)Date: August 11, 2006
    /s/ Randy K. FerrellRandy K. FerrellPresident and Chief Executive Officer
(principal executive officer)Date: August 11, 2006
    /s/ Eric P. GraapEric P. GraapSenior Vice President and Chief Financial Officer
(principal financial and accounting officer) 32