Fauquier Bankshares Announces Third Quarter 2009 Earnings

WARRENTON, Va., Nov. 4 /PRNewswire-FirstCall/ --

• Net income increases 2% from third quarter 2008
• Net interest income up 11.2% from third quarter 2008
• Loans and deposits increased 7.6% and 7.4%, respectively, over last 12 months
• Non-performing assets totaled $7.1 million or 1.29% of total assets
  

Fauquier Bankshares, Inc. (Nasdaq: FBSS) today reported net income of $956,000 for the quarter ended September 30, 2009 as compared with $935,000 for the same quarter in 2008, representing an increase of 2%. Earnings for the third quarter were boosted by several items, the most significant being a $551,000 or 11% increase in net interest income. Earnings per share were $0.26 on a diluted basis for the quarter ended September 30, 2009, as compared with $0.26 per diluted share for the same quarter in 2008.

The positive performance was mostly offset by a $246,000 impairment loss on corporate bond investments and increased assessments of $145,000 by the Federal Deposit Insurance Corporation (FDIC) in the just completed quarter.

Randy K. Ferrell, president and chief executive officer, said, "The third quarter provided some good news when it comes to the performance of the bank, but we continue to pay dramatically increased fees to the FDIC, reflecting the costs of over 100 new bank failures in 2009."

For the nine months ended September 30, 2009, net income was $2,603,000, or $0.72 per diluted share, compared with $2,886,000, or $0.81 per diluted share for the first nine months of 2008, a decrease of 9.8%. The decline in net income for the first nine months of 2009 compared to the first nine months of 2008 was due to several items, the most significant being increased assessments by the FDIC, charges associated with a proxy contest with dissident shareholders, and an impairment loss on corporate bond investments and equity shares held in Silverton Bank.

"We've again presented data showing how the bank would have performed without the proxy contest and the increased assessments from the FDIC as a way of helping our shareholders and prospective investors understand the significant impact of these unusual expenses," Ferrell said.

The following table reconciles various non-GAAP adjustments to net income for the first nine months on a GAAP basis.

         RECONCILIATION BETWEEN GAAP AND NON-GAAP FINANCIAL INFORMATION
                  For the Nine Months Ended September 30, 2009
                     (in thousands, except per share data)

                                                                    Per Fully-
                                                                      Diluted
                         Before Taxes    Tax Expense    After Taxes    Share
                         ------------    -----------    -----------   -------

    Net income on GAAP basis   $3,539          $937          $2,603    $0.723
       Plus:  Proxy contest
         expense                  291            99             192     0.053
       Plus:  FDIC special
         assessment               240            82             158     0.044
    Income excluding non-GAAP
     adjustments               $4,070        $1,118          $2,953    $0.820
                               ======        ======          ======    ======

    *Tax expense is computed using a federal tax rate of 34%.

Loans, net of reserve, totaling $455.4 million at September 30, 2009, increased 4.8% when compared with December 31, 2008, and increased 7.6% when compared with September 30, 2008. Deposits, totaling $435.6 million at September 30, 2009, increased 8.8% compared with year-end 2008, and increased 7.4% when compared with September 30, 2008.

The net interest margin for the third quarter of 2009 was 4.32% compared with 4.15% for the same quarter in 2008. This represents the difference between the interest income generated through loans and investments and the costs the Fauquier Bank incurs in obtaining the deposits and other funds to lend and invest.

Return on average assets (ROAA) was 0.70% and return on average equity (ROAE) was 8.87% for the third quarter of 2009, a decrease from 0.73% but an increase from 8.85%, respectively, from the third quarter of 2008. For the nine-month period ended September 30, 2009, Fauquier Bankshares' return on average assets was 0.66% and return on average equity was 8.26%, compared with 0.77% and 9.04%, respectively, for 2008.

The Bank's non-performing loans and repossessed assets totaled $6.4 million or 1.39% of total loans and repossessed assets, including real estate owned, at September 30, 2009, as compared with $4.3 million or 0.97% of total loans and repossessed assets at December 31, 2008, and $4.6 million or 1.07% of total loans and repossessed assets at September 30, 2008. The Bank's non-performing assets totaled $7.1 million or 1.29% of total assets at September 30, 2009, as compared with $4.3 million or 0.81% of total assets at December 31, 2008, and $4.6 million or 0.92% of total assets at September 30, 2008. Included in non-performing assets at September 30, 2009 are $634,000 of non-performing pooled trust-preferred corporate bonds. The provision for loan losses was $920,000 for the first nine months of 2009 compared with $1.72 million for the first nine months of 2008. Loan charge-offs, net of recoveries, totaled $479,000 or 0.11% of total average loans for the first nine months of 2009, compared with $1.22 million or 0.29% of total average loans for the first nine months of 2008. The $801,000 decrease in the provision for loan losses from the first nine months of 2008 to the first nine months of 2009 was largely in response to the $743,000 decline in net charge-offs for the respective nine month periods. Total allowance for loan losses was $5.2 million or 1.13% of total loans at September 30, 2009 compared with $4.8 million or 1.08% of loans at December 31, 2008 and $4.7 million or 1.10% of loans at September 30, 2008.

"We continue to be active in serving our community's needs with a prudent approach to lending," Ferrell said. "While the current economy has impacted our credit quality numbers, we continue to compare favorably with other Virginia banks. We are steadfast in working with our customers to help them grow, as we keep a watchful eye on economic conditions."

Assets under Wealth Management Service, totaling $303.1 million in market value at September 30, 2009, increased 10.7% from $273.7 million in market value at September 30, 2008. During the same period, stocks measured in the Standard & Poors' 500 index declined by approximately 9.4%

Fauquier Bankshares and The Fauquier Bank had combined assets of $548.4 million and total shareholders' equity of $42.6 million at September 30, 2009. The Fauquier Bank's regulatory capital ratios continue to be deemed "Well Capitalized," the highest category assigned by the Federal Reserve Bank of Richmond. At September 30, 2009, the Company's leverage ratio, an important indicator of financial health, was 8.84%, compared with 9.38% one year earlier.

The Fauquier Bank is an independent, locally-owned, community bank offering a full range of financial services, including internet banking, commercial, retail, insurance, wealth management, and financial planning services through nine banking offices throughout Fauquier and Prince William counties in Virginia. The new Bristow branch opened its doors on July 13, 2009 and celebrated the Grand Opening on August 8, 2009. The Fauquier Bank is continuing to move forward with its plans to open a branch in Haymarket during late 2009 or early 2010. Later this year, the Broadview Avenue View Tree Branch will move to a new 9,600-square-foot office at the intersection of West Lee Highway and Fletcher Drive. Fauquier Bankshares' stock price closed at $14.00 per share on November 2, 2009. Additional information, including a more extensive investor presentation, is available at www.fauquierbank.com or by calling (800) 638-3798.

This news release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company's management uses these "non-GAAP" measures in their analysis of the Corporation's performance. The Company's management believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods as well as demonstrating the effects of significant gains and charges in the current period. The Company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. The Company's management believes that investors may use these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the Company's underlying performance. Where incorporated into our disclosures, these non-GAAP measures will be clearly identified as such. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

This news release may contain "forward-looking statements" as defined by federal securities laws. These statements address issues that involve risks, uncertainties, estimates and assumptions made by management, and actual results could differ materially from the results contemplated by these forward-looking statements. Factors that could have a material adverse effect on our operations and future prospects include, but are not limited to, changes in: interest rates and the shape of the interest rate yield curve, general economic conditions, legislative/regulatory policies, monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, The FDIC and the Board of Governors of the Federal Reserve System, the quality or composition of the loan and/or investment portfolios, demand for loan products, deposit flows, competition, demand for financial services in our market area, our plans to expand our branch network and increase our market share, and accounting principles, policies and guidelines. Other risk factors are detailed from time to time in our Securities and Exchange Commission filings. Readers should consider these risks and uncertainties in evaluating our forward-looking statements and should not place undue reliance on such statements. We undertake no obligation to update these statements following the date of this news release.

                        FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
                                SELECTED FINANCIAL DATA

                                   For the Quarter Ended,
                Sep. 30,    Jun. 31,      Mar. 31,      Dec. 31,      Sep. 30,
                 2009        2009          2009          2008          2008
                --------    --------      --------      --------      --------
    (Dollars in thousands,
    except per share data)

    EARNINGS
    STATEMENT
    DATA:
    Interest
     income      $7,092      $6,902        $6,846        $7,099        $7,268
    Interest
     expense      1,624       1,712         1,872         2,258         2,351
                  -----       -----         -----         -----         -----
    Net interest
     income       5,468       5,190         4,974         4,841         4,917
    Provision
     for loan
     losses         360         360           200         1,506           431
                    ---         ---           ---        ------           ---
    Net interest
     income after
     provision for
     loan losses  5,108       4,830         4,774         3,335         4,486
    Noninterest
     income       1,438       1,356         1,085         1,366         1,482
    Securities
     gains
     (losses)      (246)       (166)            -             -          (298)
    Noninterest
     expense      5,021       5,024         4,594         3,792         4,256
                  -----       -----         -----         -----         -----
    Income
     before
     income
     taxes        1,279         996         1,265           909         1,414
       Income
        taxes       323         272           342           142           479
                    ---         ---           ---           ---           ---
    Net income     $956        $724          $923          $767          $935
                   ====        ====          ====          ====          ====

    PER SHARE DATA:
    Net income per
     share,
     basic        $0.27       $0.20         $0.26         $0.22         $0.26
    Net income
     per share,
     diluted      $0.26       $0.20         $0.26         $0.22         $0.26
    Cash
     dividends    $0.20       $0.20         $0.20         $0.20         $0.20
    Average
     basic shares
     outstand-
     ing      3,597,602   3,596,537     3,535,817     3,526,380     3,529,347
    Average
     diluted
     shares
     outstand-
     ing      3,610,160   3,606,529     3,554,757     3,553,655     3,560,531
    Book value
     at period
     end         $11.84      $11.51        $11.35        $11.64        $11.38

    BALANCE SHEET
    DATA:
    Total
     Assets    $548,384    $530,834      $526,813      $514,515      $499,760
    Loans, net  455,391     452,132       443,349       434,678       423,077
    Investment
     securities  38,275      36,385        35,225        37,839        35,284
    Deposits    435,567     412,601       416,281       400,294       405,623
    Transaction
     Deposits
     (Demand
     Deposit and
     NOW
     accounts)  145,644     132,902       142,493       143,622       142,581
    Shareholders'
     equity      42,601      41,389        40,819        41,488        40,591

    PERFORMANCE
     RATIOS:
    Net interest
     margin(1)     4.32%       4.21%         4.17%         4.08%         4.15%
    Return on
     average
     assets        0.70%       0.55%         0.72%         0.60%         0.73%
    Return on
     average
     equity        8.87%       6.99%         8.89%         7.45%         8.85%
    Efficiency
     ratio(2)     74.48%      77.78%        73.21%        60.22%        68.81%

    ASSET QUALITY
     RATIOS:
    Nonaccrual
     loans       $4,332      $1,139        $1,573        $1,208        $4,457
    Restructured
     Loans            -           -             -             -             -
                -------     -------       -------       -------       -------
      Total
       nonperforming
       loans     $4,332      $1,139        $1,573        $1,208        $4,457
    Other real
     estate
     owned        2,029       2,029         2,029         3,034             -
    Foreclosed
     Property        68          51            36            33           133
    Nonperforming
     corporate
     bond investments,
     at fair value  634           -             -             -             -
                   ----        ----          ----          ----          ----
    Total non-
     performing
     assets      $7,061      $3,219        $3,638        $4,275        $4,590
                 ======      ======        ======        ======        ======
    Nonperforming
     loans and
     repossessed
     assets to
     period-end
     loans and
     other
     repossessed
     assets        1.39%       0.70%         0.81%         0.97%         1.07%
    Nonperforming
     assets to
     period end
     total assets  1.29%       0.61%         0.69%         0.81%         0.92%

    Allowance for
     loan losses $5,221      $5,091        $4,873        $4,780        $4,684
    Allowance for
     loan losses
     to period-
     end loans     1.13%       1.11%         1.08%         1.08%         1.10%
    Net loan charge-
     offs for
     the quarter   $230        $142          $107        $1,411           $66
    Net charge-
     offs to
     average loans 0.05%       0.06%         0.02%         0.32%         0.02%

    CAPITAL RATIOS:
    Leverage
     Ratio         8.84%       9.14%         9.26%         9.37%         9.38%
    Tangible
     equity to
     total assets  7.77%       7.80%         7.75%         8.06%         8.12%

                                For the Nine Month Period Ended,
                                  Sep. 30,             Sep. 30,
                                    2009                 2008
                                  --------             --------
    EARNINGS STATEMENT DATA:
    Interest income                $20,801             $21,740
    Interest expense                 5,208               7,129
                                     -----               -----
    Net interest income             15,593              14,611
    Provision for loan losses          920               1,721
                                       ---               -----
    Net interest income after
      provision for loan losses     14,673              12,890
    Noninterest income               3,918               4,690
    Securities gains (losses)         (412)               (423)
    Noninterest expense             14,640              13,047
                                    ------              ------
    Income before income taxes       3,539               4,110
         Income taxes                  936               1,224
                                       ---               -----
    Net income                      $2,603              $2,886
                                    ======              ======

    PER SHARE DATA:
    Net income per share, basic      $0.72               $0.82
    Net income per share, diluted    $0.72               $0.81
    Cash dividends                   $0.60               $0.60
    Average basic shares
     outstanding                 3,591,796           3,525,633
    Average diluted shares
     outstanding                 3,600,864           3,559,017

    PERFORMANCE RATIOS:
    Net interest margin(1)            4.22%               4.21%
    Return on average assets          0.66%               0.77%
    Return on average equity          8.26%               9.04%
    Efficiency ratio(2)              75.87%              68.26%

    Net loan charge-offs year
     to date                          $479              $1,222
    Net charge-offs to
     average loans                    0.11%               0.29%

    (1) Net margin is calculated as fully taxable equivalent net interest
        income divided by average earning assets and represents the Company's
        net yield on its earning assets.
    (2) Efficiency ratio is computed by dividing non-interest expense by the
        sum of fully taxable equivalent net interest income and non-interest
        income.