##### 



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, 2008
 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
    
    (I.R.S. Employer Identification No.)incorporation or organization)10 Courthouse Square, Warrenton, Virginia
    
    20186(Address of principal executive offices)
    
    (Zip Code)
 (540) 347-2700
 þ 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, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2008 and
2007
    
    
    4Consolidated Statements of Changes in Shareholders Equity (unaudited) for the Three Months
Ended March 31, 2008 and 2007
    
    
    5Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2008
and 2007
    
    
    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
    
    
    28Item 4. Controls and Procedures
    
    
    28Part II. OTHER INFORMATION
    
    
    29Item 1. Legal Proceedings
    
    
    29Item 1A. Risk Factors
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    30Item 4. Submission of Matters to a Vote of Security Holders
    
    
    30Item 5. Other Information
    
    
    30Item 6. Exhibits
    
    
    31SIGNATURES
    
    
    32
  2




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##### 



Part I. FINANCIAL INFORMATION
 
  Fauquier Bankshares, Inc. and Subsidiaries
 
 Consolidated Balance Sheets
 March 31,
    
    
    December 31,2008
    
    
    2007AssetsCash and due from banks
    
    $
    13,896,065
    
    
    $
    16,708,922Interest-bearing deposits in other banks
    
    
    927,538
    
    
    
    823,252Federal funds sold
    
    
    
    
    
    
    2,020,000Securities available for sale
    
    
    38,933,766
    
    
    
    37,376,725Loans, net of allowance for loan losses of $4,195,964
in 2008 and $4,185,209 in 2007
    
    
    411,972,476
    
    
    
    409,107,482Bank premises and equipment, net
    
    
    8,618,887
    
    
    
    7,180,369Accrued interest receivable
    
    
    1,549,528
    
    
    
    1,748,546Other assets
    
    
    14,594,512
    
    
    
    14,930,932Total assets
    
    $
    490,492,772
    
    
    $
    489,896,228Liabilities and Shareholders EquityDeposits:Noninterest-bearing
    
    
    63,332,308
    
    
    
    76,080,935Interest-bearing
    
    
    326,774,501
    
    
    
    328,477,988Total deposits
    
    
    390,106,809
    
    
    
    404,558,923Federal funds purchased
    
    
    5,000,000
    
    
    
    Federal Home Loan Bank advances
    
    
    45,000,000
    
    
    
    35,000,000Company-obligated mandatorily redeemable
capital securities
    
    
    4,124,000
    
    
    
    4,124,000Other liabilities
    
    
    3,807,878
    
    
    
    4,385,553Commitments and Contingencies
    
    
    
    
    
    
    Total liabilities
    
    
    448,038,687
    
    
    
    448,068,476Shareholders EquityCommon stock, par value, $3.13; authorized 8,000,000
shares: issued and outstanding, 2008: 3,572,728 shares
(includes nonvested shares of 40,555); 2007: 3,537,354
shares (includes nonvested shares of 31,190)
    
    
    11,055,702
    
    
    
    10,974,293Retained earnings
    
    
    32,008,085
    
    
    
    31,626,627Accumulated other comprehensive income (loss), net
    
    
    (609,702
    )
    
    
    (773,168
    )Total shareholders equity
    
    
    42,454,085
    
    
    
    41,827,752Total liabilities and shareholders equity
    
    $
    490,492,772
    
    
    $
    489,896,228
  3




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
 
 Consolidated Statements of Income
 For the Three Months in the Period Ended March 31,
 2008
    
    
    2007Interest IncomeInterest and fees on loans
    
    $
    6,798,599
    
    
    $
    7,278,505Interest and dividends on securities available for sale:Taxable interest income
    
    
    327,506
    
    
    
    372,005Interest income exempt from federal income taxes
    
    
    58,224
    
    
    
    13,197Dividends
    
    
    53,002
    
    
    
    50,497Interest on federal funds sold
    
    
    28,841
    
    
    
    42,600Interest on deposits in other banks
    
    
    8,058
    
    
    
    4,790Total interest income
    
    
    7,274,230
    
    
    
    7,761,594Interest ExpenseInterest on deposits
    
    
    2,074,210
    
    
    
    2,418,627Interest on federal funds purchased
    
    
    33,487
    
    
    
    86,843Interest on Federal Home Loan Bank advances
    
    
    412,037
    
    
    
    524,948Distribution on capital securities of subsidiary trusts
    
    
    64,242
    
    
    
    156,101Total interest expense
    
    
    2,583,976
    
    
    
    3,186,519Net interest income
    
    
    4,690,254
    
    
    
    4,575,075Provision for loan losses
    
    
    456,000
    
    
    
    120,000Net interest income after
provision for loan losses
    
    
    4,234,254
    
    
    
    4,455,075Other IncomeWealth management income
    
    
    343,416
    
    
    
    338,873Service charges on deposit accounts
    
    
    708,597
    
    
    
    659,791Other service charges, commissions and income
    
    
    428,981
    
    
    
    424,138Gain on sale of securities
    
    
    87,585
    
    
    
    Total other income
    
    
    1,568,579
    
    
    
    1,422,802Other ExpensesSalaries and benefits
    
    
    2,328,224
    
    
    
    2,348,233Net occupancy expense of premises
    
    
    282,395
    
    
    
    268,106Furniture and equipment
    
    
    286,507
    
    
    
    287,600Marketing expense
    
    
    169,742
    
    
    
    120,401Consulting expense
    
    
    280,681
    
    
    
    239,942Data processing expense
    
    
    332,645
    
    
    
    299,681Other operating expenses
    
    
    715,400
    
    
    
    625,216Total other expenses
    
    
    4,395,594
    
    
    
    4,189,179Income before income taxes
    
    
    1,407,239
    
    
    
    1,688,698Income tax expense
    
    
    398,733
    
    
    
    516,218Net Income
    
    $
    1,008,506
    
    
    $
    1,172,480Earnings per Share, basic
    
    $
    0.29
    
    
    $
    0.33Earnings per Share, assuming dilution
    
    $
    0.28
    
    
    $
    0.33Dividends per Share
    
    $
    0.20
    
    
    $
    0.19
  4




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
 
 Consolidated Statements of Changes in Shareholders Equity
 For the Three Months March 31, 2008 and 2007
 AccumulatedOtherCommon
    
    
    Retained
    
    
    Comprehensive
    
    
    ComprehensiveStock
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Income
    
    
    TotalBalance, December 31, 2006 as restated
    
    $
    10,789,521
    
    
    $
    28,962,409
    
    
    $
    (1,217,318
    )
    
    
    
    
    
    $
    38,534,612Comprehensive income:Net income
    
    
    
    
    
    
    1,172,480
    
    
    
    
    
    
    $
    1,172,480
    
    
    
    1,172,480Other comprehensive income net of tax:Unrealized holding gains on securities available
for sale, net of deferred income taxes $55,318
    
    
    
    
    
    
    
    
    
    
    107,382
    
    
    
    107,382
    
    
    
    107,382Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,279,862Cash dividends ($.19 per share)
    
    
    
    
    
    
    (671,751
    )
    
    
    
    
    
    
    
    
    
    
    (671,751
    )Acquisition of 2,435 shares of common stock
    
    
    (7,622
    )
    
    
    (54,505
    )
    
    
    
    
    
    
    
    
    
    
    (62,127
    )Amortization of unearned compensation,
restricted stock awards
    
    
    
    
    
    
    62,595
    
    
    
    
    
    
    
    
    
    
    
    62,595Issuance of common stock  nonvested shares
(11,437 shares)
    
    
    35,797
    
    
    
    (35,797
    )
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    178,942
    
    
    
    291,917
    
    
    
    
    
    
    
    
    
    
    
    470,859Balance, March 31, 2007
    
    $
    10,996,638
    
    
    $
    29,727,348
    
    
    $
    (1,109,936
    )
    
    
    
    
    
    $
    39,614,050Balance, December 31, 2007
    
    $
    10,974,293
    
    
    $
    31,626,627
    
    
    $
    (773,168
    )
    
    
    
    
    
    $
    41,827,752Comprehensive income:
    
    
    
    
    
    
    1,008,506
    
    
    
    
    
    
    $
    1,008,506
    
    
    
    1,008,506Net incomeOther comprehensive income net of tax:Unrealized holding gains on securities available
for sale, net of deferred income taxes $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 FAS158, 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
    )
    
    
    
    
    
    $
    42,454,085
  5




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##### 



Fauquier Bankshares, Inc. and Subsidiaries
 
 Consolidated Statements of Cash Flows
 For the Three Months Ended March 31, 2008 and 2007
 2008
    
    
    2007Cash Flows from Operating ActivitiesNet income
    
    $
    1,008,506
    
    
    $
    1,172,480Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization
    
    
    234,083
    
    
    
    259,195Provision for loan losses
    
    
    456,000
    
    
    
    120,000Gain on sale of securities
    
    
    
    
    
    
    (87,585
    )Amortization (accretion) of security premiums, net
    
    
    32,498
    
    
    
    2,797Amortization of unearned compensation, net of forfeiture
    
    
    63,041
    
    
    
    62,595Changes in assets and liabilities:Decrease in other assets
    
    
    468,532
    
    
    
    799,130(Decrease) in other liabilities
    
    
    (633,176
    )
    
    
    (455,285
    )Net cash provided by operating activities
    
    
    1,541,899
    
    
    
    1,960,912Cash Flows from Investing ActivitiesProceeds from sale of securities available for sale
    
    
    9,078,470
    
    
    
    Proceeds from maturities, calls and principal
payments of securities available for sale
    
    
    1,057,190
    
    
    
    987,117Purchase of securities available for sale
    
    
    (10,996,072
    )
    
    
    Purchase of premises and equipment
    
    
    (1,672,601
    )
    
    
    (89,527
    )(Purchase of) proceeds from sale of other bank stock
    
    
    (392,300
    )
    
    
    563,500Net (increase) decrease in loans
    
    
    (3,320,994
    )
    
    
    4,497,470Net cash provided by (used in) investing activities
    
    
    (6,246,307
    )
    
    
    5,958,560Cash Flows from Financing ActivitiesNet (decrease) increase in demand deposits, NOW accounts
and savings accounts
    
    
    (12,977,334
    )
    
    
    (691,634
    )Net (decrease) increase in certificates of deposit
    
    
    (1,474,780
    )
    
    
    (11,853,290
    )Federal Home Loan Bank advances
    
    
    20,000,000
    
    
    
    25,000,000Federal Home Loan Bank principal repayments
    
    
    (10,000,000
    )
    
    
    (37,000,000
    )Purchase (repayment) of federal funds
    
    
    5,000,000
    
    
    
    14,000,000Repayment of trust preferred securities
    
    
    
    
    
    
    (4,124,000
    )Cash dividends paid on common stock
    
    
    (713,662
    )
    
    
    Issuance of common stock
    
    
    187,516
    
    
    
    470,859Acquisition of common stock
    
    
    (45,903
    )
    
    
    (62,127
    )Net cash used in financing activities
    
    
    (24,163
    )
    
    
    (14,260,192
    )(Decrease) in cash and cash equivalents
    
    
    (4,728,571
    )
    
    
    (6,340,720
    )Cash and Cash EquivalentsBeginning
    
    
    19,552,174
    
    
    
    41,679,655Ending
    
    $
    14,823,603
    
    
    $
    35,338,935Supplemental Disclosures of Cash Flow InformationCash payments for:Interest
    
    $
    2,723,453
    
    
    $
    2,436,421Income taxes
    
    $
    
    
    
    $
    Supplemental Disclosures of Noncash Investing ActivitiesUnrealized gain (loss) on securities available for sale, net
of tax effect
    
    $
    163,466
    
    
    $
    107,382FAS 158 change in pension plan measurement dates,
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
  March 31, 2008Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueObligations of U.S.
Government corporations
and agencies
    
    $
    23,992,633
    
    
    $
    406,765
    
    
    $
    
    
    
    $
    24,399,398Obligations of states and political
subdivisions
    
    
    5,294,158
    
    
    
    148,223
    
    
    
    (6,500
    )
    
    
    5,435,881Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (700,000
    )
    
    
    5,300,000Mutual Funds
    
    
    294,668
    
    
    
    
    
    
    
    (3,901
    )
    
    
    290,767FHLMC Preferred Bank Stock
    
    
    441,000
    
    
    
    
    
    
    
    (101,000
    )
    
    
    340,000Restricted investments:Federal Home Loan Bank Stock
    
    
    2,905,800
    
    
    
    
    
    
    
    
    
    
    
    2,905,800Federal Reserve Bank Stock
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000The Bankers Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    39,190,179
    
    
    $
    554,988
    
    
    $
    (811,401
    )
    
    $
    38,933,766
 December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    ValueObligations of U.S.
Government corporations
and agencies
    
    $
    23,080,415
    
    
    $
    30,014
    
    
    $
    (162,347
    )
    
    $
    22,948,082Obligations of states and political
subdivisions
    
    
    5,293,965
    
    
    
    82,166
    
    
    
    (3,948
    )
    
    
    5,372,183Corporate Bonds
    
    
    6,000,000
    
    
    
    
    
    
    
    (348,750
    )
    
    
    5,651,250Mutual Funds
    
    
    291,581
    
    
    
    
    
    
    
    (5,791
    )
    
    
    285,790FHLMC Preferred Bank Stock
    
    
    441,000
    
    
    
    
    
    
    
    (97,000
    )
    
    
    344,000Restricted investments:Federal Home Loan Bank Stock
    
    
    2,513,500
    
    
    
    
    
    
    
    
    
    
    
    2,513,500Federal Reserve Bank Stock
    
    
    99,000
    
    
    
    
    
    
    
    
    
    
    
    99,000Community Bankers Bank Stock
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    50,000The Bankers Bank Stock
    
    
    112,920
    
    
    
    
    
    
    
    
    
    
    
    112,920$
    37,882,381
    
    
    $
    112,180
    
    
    $
    (617,836
    )
    
    $
    37,376,725
  7




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##### 



March 31, 2008Amortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    27,237
    
    
    $
    27,401Due after one year through five years
    
    
    1,242,618
    
    
    
    1,253,025Due after five years through ten years
    
    
    4,706,196
    
    
    
    4,779,688Due after ten years
    
    
    29,310,740
    
    
    
    29,075,165Equity securities
    
    
    3,903,388
    
    
    
    3,798,487$
    39,190,179
    
    
    $
    38,933,766
   March 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
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Obligations of states and political
subdivisions
    
    
    403,739
    
    
    
    (6,500
    )
    
    
    
    
    
    
    
    
    
    
    403,739
    
    
    
    (6,500
    )Corporate Bonds
    
    
    3,532,500
    
    
    
    (467,500
    )
    
    
    1,767,500
    
    
    
    (232,500
    )
    
    
    5,300,000
    
    
    
    (700,000
    )Subtotal, debt securities
    
    
    3,936,239
    
    
    
    (474,000
    )
    
    
    1,767,500
    
    
    
    (232,500
    )
    
    
    5,703,739
    
    
    
    (706,500
    )Mutual Funds
    
    
    
    
    
    
    
    
    
    
    290,767
    
    
    
    (3,901
    )
    
    
    290,767
    
    
    
    (3,901
    )FHLMC Preferred Bank Stock
    
    
    340,000
    
    
    
    (101,000
    )
    
    
    
    
    
    
    
    
    
    
    340,000
    
    
    
    (101,000
    )Total temporary impaired securities
    
    $
    4,276,239
    
    
    $
    (575,000
    )
    
    $
    2,058,267
    
    
    $
    (236,401
    )
    
    $
    6,334,506
    
    
    $
    (811,401
    )
 December 31, 2007
    
    Less than 12 Months
    
    
    12 Months or More
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedDescription of Securities
    
    Fair Value
    
    
    (Losses)
    
    
    Fair Value
    
    
    (Losses)
    
    
    Fair Value
    
    
    (Losses)Obligations of U.S. Government,
corporations and agencies
    
    $
    
    
    
    $
    
    
    
    $
    17,798,157
    
    
    $
    (162,347
    )
    
    $
    17,798,157
    
    
    $
    (162,347
    )Obligations of states and political
subdivisions
    
    
    899,333
    
    
    
    (3,948
    )
    
    
    
    
    
    
    
    
    
    
    899,333
    
    
    
    (3,948
    )Corporate Bonds
    
    
    3,770,000
    
    
    
    (230,000
    )
    
    
    1,881,250
    
    
    
    (118,750
    )
    
    
    5,651,250
    
    
    
    (348,750
    )Subtotal, debt securities
    
    
    4,669,333
    
    
    
    (233,948
    )
    
    
    19,679,407
    
    
    
    (281,097
    )
    
    
    24,348,740
    
    
    
    (515,045
    )Mutual Funds
    
    
    
    
    
    
    
    
    
    
    291,581
    
    
    
    (5,791
    )
    
    
    291,581
    
    
    
    (5,791
    )FHLMC Preferred Bank Stock
    
    
    344,000
    
    
    
    (97,000
    )
    
    
    
    
    
    
    
    
    
    
    344,000
    
    
    
    (97,000
    )Total temporary impaired securities
    
    $
    5,013,333
    
    
    $
    (330,948
    )
    
    $
    19,970,988
    
    
    $
    (286,888
    )
    
    $
    24,984,321
    
    
    $
    (617,836
    )
  8




---



##### 



Note 3. Loans
  March 31,
    
    
    December 31,2008
    
    
    2007(Thousands)Real estate loans:Construction
    
    $
    37,770
    
    
    $
    37,204Secured by farmland
    
    
    1,853
    
    
    
    1,365Secured by 1 - to - 4 family residential
    
    
    171,999
    
    
    
    170,983Other real estate loans
    
    
    134,143
    
    
    
    132,918Commercial and industrial loans (not secured by real estate)
    
    
    38,147
    
    
    
    38,203Consumer installment loans
    
    
    21,424
    
    
    
    24,133All other loans
    
    
    11,170
    
    
    
    8,824Total loans
    
    $
    416,506
    
    
    $
    413,630Unearned income
    
    
    (338
    )
    
    
    (338
    )Allowance for loan losses
    
    
    (4,196
    )
    
    
    (4,185
    )Net loans
    
    $
    411,972
    
    
    $
    409,107
 Note 4. Allowance for Loan Losses
  Three Months
    
    
    Three Months
    
    
    Twelve MonthsEnded March 31,
    
    
    Ended March 31,
    
    
    Ended December2008
    
    
    2007
    
    
    31, 2007Balance at beginning of year
    
    $
    4,185,209
    
    
    $
    4,470,533
    
    
    $
    4,470,533Provision for loan losses
    
    
    456,000
    
    
    
    120,000
    
    
    
    717,000Recoveries of loans previously charged-off
    
    
    23,382
    
    
    
    7,707
    
    
    
    60,616Loan losses charged-off
    
    
    (468,627
    )
    
    
    (79,362
    )
    
    
    (1,062,940
    )Balance at end of year
    
    $
    4,195,964
    
    
    $
    4,518,878
    
    
    $
    4,185,209
  March 31,
    
    
    December 31,
    
    
    March 31,(Dollars in thousands)
    
    2008
    
    
    2007
    
    
    2007Nonaccrual loans
    
    $
    1,961
    
    
    $
    1,906
    
    
    $
    1,629Restructured loans
    
    
    
    
    
    
    
    
    
    
    Total nonperforming loans
    
    $
    1,961
    
    
    $
    1,906
    
    
    $
    1,629Foreclosed property
    
    
    64
    
    
    
    222
    
    
    
    135Total nonperforming assets
    
    $
    2,025
    
    
    $
    2,128
    
    
    $
    1,764
 9




---



##### 



March 31, 2008
    
    
    December 31, 2007Impaired loans for which an allowance has been provided
    
    $
    2,966,225
    
    
    $
    2,688,501Impaired loans for which no allowance has been provided
    
    
    1,103,215
    
    
    
    1,247,461$
    4,069,440
    
    
    $
    3,935,962Allowance provided for impaired loans, included in the
allowance for loan losses
    
    $
    1,351,098
    
    
    $
    1,392,236
 For the Quarter
    
    
    For the YearMarch 31, 2008
    
    
    December 31, 2007Average balance in impaired loans
    
    $
    3,962,818
    
    
    $
    4,359,817Interest income recognized on impaired loans
    
    $
    34,119
    
    
    $
    261,257
    10




---



##### 



Note 5. Company-Obligated Mandatorily Redeemable Capital Securities
     Note 6. Earnings Per Share
  Three Months
    
    
    Three MonthsEnded
    
    
    EndedMarch 31, 2008
    
    
    March 31, 2007Per Share
    
    
    
    
    
    
    Per ShareShares
    
    
    Amount
    
    
    Shares
    
    
    AmountBasic earnings per share
    
    
    3,515,475
    
    
    $
    0.287
    
    
    
    3,522,550
    
    
    $
    0.333Effect of dilutive securities, stock-based awards
    
    
    36,451
    
    
    
    
    
    
    
    72,6033,551,926
    
    
    $
    0.284
    
    
    
    3,595,153
    
    
    $
    0.326
 11




---



##### 



Note 7. Stock-Based Compensation
     Three Months EndedMarch 31, 2008WeightedAverage
    
    
    AverageNumber of
    
    
    Exercise
    
    
    IntrinsicShares
    
    
    Price
    
    
    Value (1)Outstanding at January 1
    
    
    96,100
    
    
    $
    9.85Granted
    
    
    Exercised
    
    
    (18,920
    )
    
    
    9.91Forfeited
    
    
    Outstanding at March 31,
    
    
    77,180
    
    
    $
    9.84
    
    
    $
    630,150Exercisable at end of quarter
    
    
    77,180
    
    
    $
    9.84
    
    
    $
    630,150Weighted-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, 2008
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, 2008. This amount changes based on the
changes in the market value of the Companys stock.   Three Months EndedMarch 31, 2008WeightedAverageNumber of
    
    
    ExerciseShares
    
    
    PriceNonvested at January 1, 2008
    
    
    31,190Granted
    
    
    19,692
    
    
    $
    17.70Vested
    
    
    (9,769
    )Forfeited, nonvested
    
    
    (276
    )Forfeited, vested
    
    
    (282
    )
    
    $
    24.84Novested at March 31, 2008
    
    
    40,555
  12




---



##### 



Note 8. Employee Benefit Plan
  Three Months EndedMarch 31,2008
    
    
    2007Service cost
    
    $
    111,081
    
    
    $
    167,680Interest cost
    
    
    77,352
    
    
    
    100,343Expected return on plan assets
    
    
    (149,050
    )
    
    
    (111,378
    )Amortization of transition (asset)
    
    
    (4,745
    )
    
    
    1,942Amortization of prior service cost
    
    
    1,942
    
    
    
    (4,745
    )Recognized net actuarial loss
    
    
    
    
    
    
    5,258Net periodic benefit cost
    
    $
    36,580
    
    
    $
    159,100
   13




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
   GENERAL
      14




---



##### 



CRITICAL ACCOUNTING POLICIES
    15




---



##### 



EXECUTIVE OVERVIEW
      16




---



##### 



NET INCOME
  NET INTEREST INCOME AND EXPENSE
     17




---



##### 



18




---



##### 



AVERAGE BALANCES, INCOME AND EXPENSES, AND AVERAGE YIELDS AND RATES
(Dollars in Thousands)
 3 Months Ended March 31, 2008
    
    
    3 Months Ended March 31, 2007Average
    
    
    Income/
    
    
    Average
    
    
    Average
    
    
    Income/
    
    
    AverageBalances
    
    
    Expense
    
    
    Rate
    
    
    Balances
    
    
    Expense
    
    
    RateASSETS:LoansTaxable
    
    $
    401,352
    
    
    $
    6,711
    
    
    
    6.63
    %
    
    $
    411,798
    
    
    $
    7,185
    
    
    
    6.99
    %Tax-exempt (1)
    
    
    7,347
    
    
    
    133
    
    
    
    7.17
    %
    
    
    7,849
    
    
    
    141
    
    
    
    7.18
    %Nonaccrual (2)
    
    
    1,877
    
    
    
    
    
    
    
    
    
    
    
    1,634
    
    
    
    Total Loans
    
    
    410,576
    
    
    
    6,844
    
    
    
    6.61
    %
    
    
    421,281
    
    
    
    7,326
    
    
    
    6.96
    %SecuritiesTaxable
    
    
    31,927
    
    
    
    381
    
    
    
    4.77
    %
    
    
    38,285
    
    
    
    423
    
    
    
    4.41
    %Tax-exempt (1)
    
    
    5,447
    
    
    
    88
    
    
    
    6.48
    %
    
    
    1,009
    
    
    
    20
    
    
    
    7.93
    %Total securities
    
    
    37,374
    
    
    
    469
    
    
    
    5.02
    %
    
    
    39,294
    
    
    
    443
    
    
    
    4.50
    %Deposits in banks
    
    
    982
    
    
    
    8
    
    
    
    3.25
    %
    
    
    1,888
    
    
    
    5
    
    
    
    1.01
    %Federal funds sold
    
    
    4,389
    
    
    
    29
    
    
    
    2.60
    %
    
    
    3,329
    
    
    
    43
    
    
    
    5.12
    %Total earning assets
    
    
    453,321
    
    
    
    7,350
    
    
    
    6.43
    %
    
    
    465,792
    
    
    
    7,817
    
    
    
    6.72
    %Less: Reserve for loan losses
    
    
    (4,165
    )
    
    
    
    
    
    
    
    
    
    
    (4,488
    )Cash and due from banks
    
    
    15,542
    
    
    
    
    
    
    
    
    
    
    
    14,377Bank premises and equipment, net
    
    
    7,465
    
    
    
    
    
    
    
    
    
    
    
    7,518Other assets
    
    
    16,436
    
    
    
    
    
    
    
    
    
    
    
    15,726Total Assets
    
    $
    488,599
    
    
    
    
    
    
    
    
    
    
    $
    498,925LIABILITIES &
SHAREHOLDERS EQUITY:DepositsDemand deposits
    
    $
    66,716
    
    
    
    
    
    
    
    
    
    
    $
    74,309Interest-bearing depositsNOW accounts
    
    
    85,597
    
    
    
    270
    
    
    
    1.27
    %
    
    
    70,559
    
    
    
    201
    
    
    
    1.15
    %Money market accounts
    
    
    24,581
    
    
    
    89
    
    
    
    1.45
    %
    
    
    28,646
    
    
    
    102
    
    
    
    1.45
    %Premium money market accounts
    
    
    74,592
    
    
    
    543
    
    
    
    2.93
    %
    
    
    58,062
    
    
    
    576
    
    
    
    4.03
    %Savings accounts
    
    
    30,442
    
    
    
    34
    
    
    
    0.45
    %
    
    
    34,212
    
    
    
    34
    
    
    
    0.41
    %Time deposits
    
    
    110,797
    
    
    
    1,138
    
    
    
    4.13
    %
    
    
    134,258
    
    
    
    1,506
    
    
    
    4.55
    %Total interest-bearing deposits
    
    
    326,009
    
    
    
    2,074
    
    
    
    2.56
    %
    
    
    325,737
    
    
    
    2,419
    
    
    
    3.01
    %Federal funds purchased
    
    
    3,088
    
    
    
    33
    
    
    
    4.36
    %
    
    
    6,276
    
    
    
    87
    
    
    
    5.61
    %Federal Home Loan Bank advances
    
    
    42,018
    
    
    
    412
    
    
    
    3.88
    %
    
    
    41,322
    
    
    
    525
    
    
    
    5.08
    %Capital securities of subsidiary trust
    
    
    4,124
    
    
    
    64
    
    
    
    6.16
    %
    
    
    8,156
    
    
    
    156
    
    
    
    7.66
    %Total interest-bearing liabilities
    
    
    375,239
    
    
    
    2,583
    
    
    
    2.76
    %
    
    
    381,491
    
    
    
    3,187
    
    
    
    3.38
    %Other liabilities
    
    
    3,862
    
    
    
    
    
    
    
    
    
    
    
    3,541Shareholders equity
    
    
    42,781
    
    
    
    
    
    
    
    
    
    
    
    39,584Total Liabilities & Shareholders Equity
    
    $
    488,599
    
    
    
    
    
    
    
    
    
    
    $
    498,925Net interest spread
    
    
    
    
    
    $
    4,767
    
    
    
    3.67
    %
    
    
    
    
    
    $
    4,630
    
    
    
    3.34
    %Interest expense as a percent of average earning assets
    
    
    
    
    
    
    2.28
    %
    
    
    
    
    
    
    
    
    
    
    2.77
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.15
    %
    
    
    
    
    
    
    
    
    
    
    3.95
    %
 
 (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. RATE/VOLUME ANALYSIS
  19




---



##### 



RATE / VOLUME VARIANCE
(In Thousands)
 Due to
    
    
    Due toChange
    
    
    Volume
    
    
    RateINTEREST INCOMELoans; taxable
    
    $
    (474
    )
    
    $
    (293
    )
    
    
    (181
    )Loans; tax-exempt (1)
    
    
    (8
    )
    
    
    (9
    )
    
    
    1Securities; taxable
    
    
    (42
    )
    
    
    (63
    )
    
    
    21Securities;
tax-exempt (1)
    
    
    68
    
    
    
    88
    
    
    
    (20
    )Deposits in banks
    
    
    3
    
    
    
    (2
    )
    
    
    5Federal funds sold
    
    
    (14
    )
    
    
    14
    
    
    
    (28
    )Total Interest Income
    
    
    (467
    )
    
    
    (265
    )
    
    
    (202
    )INTEREST EXPENSENOW accounts
    
    
    69
    
    
    
    43
    
    
    
    26Premium NOW accounts
    
    
    (34
    )
    
    
    164
    
    
    
    (198
    )Money market accounts
    
    
    (13
    )
    
    
    (13
    )
    
    
    Savings accounts
    
    
    
    
    
    
    (4
    )
    
    
    4Time deposits
    
    
    (367
    )
    
    
    (263
    )
    
    
    (104
    )Federal funds purchased and securities
sold under agreements to repurchase
    
    
    (53
    )
    
    
    (44
    )
    
    
    (9
    )Federal Home Loan Bank advances
    
    
    (113
    )
    
    
    9
    
    
    
    (122
    )Capital securities of subsidiary trust
    
    
    (92
    )
    
    
    (77
    )
    
    
    (15
    )Total Interest Expense
    
    
    (603
    )
    
    
    (185
    )
    
    
    (418
    )Net Interest Income
    
    $
    136
    
    
    $
    (80
    )
    
    $
    216
 
 (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
   NON-INTEREST INCOME
   20




---



##### 



NON-INTEREST EXPENSE
       21




---



##### 



INCOME TAXES
  COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2008 AND DECEMBER 31, 2007
        22




---



##### 



ASSET QUALITY
        23




---



##### 



CONTRACTUAL OBLIGATIONS
   OFF-BALANCE SHEET ARRANGEMENTS
  CAPITAL
   RISK BASED CAPITAL RATIOS
(Dollars in Thousands)
 Mar. 31,
    
    
    Dec. 31,2008
    
    
    2007Tier 1 Capital:Shareholders Equity
    
    $
    42,454
    
    
    $
    41,828Plus: Unrealized loss on securities
available for sale/FAS 158 and EITF 06-4
    
    
    609
    
    
    
    773Less: Intangible assets, net
    
    
    (105
    )
    
    
    (103
    )Plus: Company-obligated madatorily
redeemable capital securities
    
    
    4,000
    
    
    
    4,000Total Tier 1 Capital
    
    
    46,958
    
    
    
    46,498Tier 2 Capital:Allowable Allowance for Loan Losses
    
    
    4,196
    
    
    
    4,185Total Capital:
    
    
    51,154
    
    
    
    50,683Risk Weighted Assets:
    
    $
    387,012
    
    
    $
    390,597Regulatory Capital Ratios:Leverage Ratio
    
    
    9.61
    %
    
    
    9.49
    %Tier 1 to Risk Weighted Assets
    
    
    12.13
    %
    
    
    11.90
    %Total Capital to Risk Weighted Assets
    
    
    13.22
    %
    
    
    12.98
    %
 24




---



##### 



CAPITAL RESOURCES AND LIQUIDITY
        25




---



##### 



LIQUIDITY SOURCES AND USES
(Dollars in Thousands)
 March 31, 2008
    
    
    December 31, 2007Total
    
    
    In Use
    
    
    Available
    
    
    Total
    
    
    In Use
    
    
    AvailableSources:Federal funds borrowing lines of credit
    
    $
    62,024
    
    
    $
    5,000
    
    
    $
    57,024
    
    
    $
    52,036
    
    
    $
    
    
    
    $
    52,036Federal Home Loan Bank advances
    
    
    134,577
    
    
    
    45,000
    
    
    
    89,577
    
    
    
    136,159
    
    
    
    35,000
    
    
    
    101,159Federal funds sold
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,020Securities, available for sale and unpledged
at fair value
    
    
    
    
    
    
    
    
    
    
    28,715
    
    
    
    
    
    
    
    
    
    
    
    23,632Total short-term funding sources
    
    
    
    
    
    
    
    
    
    $
    175,316
    
    
    
    
    
    
    
    
    
    
    $
    178,847Uses:Unfunded loan commitments and
lending lines of credit
    
    
    
    
    
    
    
    
    
    $
    67,558
    
    
    
    
    
    
    
    
    
    
    $
    72,503Letters of credit
    
    
    
    
    
    
    
    
    
    
    6,481
    
    
    
    
    
    
    
    
    
    
    
    6,749Total potential short-term funding uses
    
    
    
    
    
    
    
    
    
    $
    74,039
    
    
    
    
    
    
    
    
    
    
    $
    79,252Ratio of short-term funding sources to
potential short-term funding uses
    
    
    
    
    
    
    
    
    
    
    236.8
    %
    
    
    
    
    
    
    
    
    
    
    225.7
    %
  IMPACT OF INFLATION AND CHANGING PRICES
  CHANGES IN ACCOUNTING PRINCIPLES
  26




---



##### 



FAIR VALUE MEASUREMENTS
 Fair Value Measurements
 
    
    Level 1
    
    inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
    
    Level 2
    
    inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the
financial instrument.
    
    Level 3
    
    inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
  Securities
  Loans held for sale
  Impaired loans
 Accounting by Creditors for Impairment of a Loan
 Other Real Estate Owned
  27




---



##### 



RECENT ACCOUNTING PROUNCEMENTS
    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  28




---



##### 



PART II
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities
 Total Number of
    
    Maximum NumberShares Purchased
    
    of Shares that Mayas Part of Publically
    
    Yet Be PurchasedTotal Number of
    
    Average Price
    
    Announced Plan
    
    Under the PlanShares Purchased
    
    Paid per Share
    
    (1)
    
    (1)January 1  31, 2008
    
    
    1,600
    
    
    $
    16.36
    
    
    
    1,600
    
    
    
    210,641February 1  29, 2008
    
    
    860
    
    
    $
    18.26
    
    
    
    860
    
    
    
    209,781March 1  31, 2008
    
    
    220
    
    
    $
    18.31
    
    
    
    220
    
    
    
    209,561Total
    
    
    2,680
    
    
    
    
    
    
    
    2,680
 
 (1)
    
    In September 1998, the Company announced an open market buyback program for its common stock.
Annually, the Board resets the amount of shares authorized to be repurchased during the year
under the buyback program. On January 17, 2008, the Board authorized the Company to repurchase
up to 212,241 shares (6% of the shares of common stock outstanding on January 1, 2008)
beginning January 1, 2008 and continuing until the next Board reset. 29




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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  30




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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.
 31




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/s/ Randy K. FerrellRandy K. FerrellPresident & Chief Executive Officer Dated: May 9, 2008 /s/ Eric P. GraapEric P. GraapExecutive Vice President & Chief Financial Officer Dated: May 9, 2008 32