UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] 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. 2-25805
Fauquier Bankshares, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 54-1288193
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 Courthouse Square Warrenton, Virginia 20186
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(Address of principal executive offices) (Zip Code)
(540) 347-2700
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 1,774,811 shares of
common stock, par value $3.13 per share, were outstanding as of April 30, 2000.
<PAGE>
Fauquier Bankshares, Inc.
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION
Page
----
<S> <C>
Item 1. Financial Statements 1
Consolidated Balance Sheets as of March 31, 2000 (unaudited) and December 31, 1999 1
Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Changes in Stockholders' Equity
(unaudited) for the Three Months Ended March 31, 2000 and 1999 3
Consolidated Statements of Cash Flows (unaudited) for the Three
Months Ended March 31, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure of Market Risk 11
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
SIGNATURES
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,431,743 $ 10,697,343
Interest-bearing deposits in other banks 60,088 278,123
Federal funds sold 6,630,000 14,010,000
Securities (fair value: 2000, $17,519,694; 1999, $18,752,504) 17,547,088 18,779,388
Loans, net of allowance for loan losses of $2,538,827
in 2000 and $2,284,348 in 1999 189,081,537 181,503,312
Bank premises and equipment, net 5,438,819 5,594,248
Accrued interest receivable 1,052,326 1,097,562
Other real estate 158,081 --
Other assets 2,050,418 1,247,649
------------- -------------
Total assets $ 229,450,100 $ 233,207,625
============= =============
LIABILITIES
Deposits:
Noninterest-bearing $ 36,361,882 $ 33,045,513
Interest-bearing 156,404,987 154,227,161
------------- -------------
Total deposits $ 192,766,869 $ 187,272,674
Federal Home Loan Bank advances 13,000,000 23,000,000
Dividends payable 266,297 265,770
Other liabilities 1,710,369 1,464,826
Commitments and contingent liabilities -- --
------------- -------------
Total liabilities $ 207,743,535 $ 212,003,270
============= =============
SHAREHOLDERS' EQUITY
Common stock, par value, $3.13; authorized 8,000,000 shares;
issued and outstanding, 2000, 1,774,811 shares; 1999, 1,774,037 shares 5,555,158 5,552,736
Retained earnings 16,498,725 16,019,525
Accumulated other comprehensive (loss) (347,318) (367,906)
------------- -------------
Total shareholders' equity $ 21,706,565 $ 21,204,355
============= ============
Total liabilities and shareholders' equity $ 229,450,100 $ 233,207,625
============= =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,922,066 $3,490,600
Interest on investment securities:
Taxable interest income 43,660 60,786
Interest income exempt from federal income taxes 26,339 29,173
Interest and dividends on securities available for sale:
Taxable interest income 115,163 207,797
Interest income exempt from federal income taxes 13,264 11,747
Dividends 3,541 23,409
Interest on federal funds sold 152,950 169,451
Interest on deposits in other banks 2,455 23,822
---------- ----------
Total interest income 4,279,438 4,016,785
---------- ----------
INTEREST EXPENSE
Interest on deposits 1,149,515 1,330,542
Interest on Federal Home Loan Bank advances 297,572 237,127
---------- ----------
Total interest expense 1,447,087 1,567,669
---------- ----------
Net interest income 2,832,351 2,449,116
PROVISION FOR LOAN LOSSES 167,499 235,000
---------- ----------
Net interest income after
provision for loan losses 2,664,852 2,214,116
---------- ----------
OTHER INCOME
Trust Department income 128,873 180,186
Service charges on deposit accounts 358,790 253,573
Other service charges, commissions and fees 170,791 82,582
---------- ----------
Total other income 658,454 516,341
---------- ----------
OTHER EXPENSES
Salaries and employees' benefits 1,014,108 955,370
Net occupancy expense of premises 106,519 106,956
Furniture and equipment 198,800 211,075
Advertising 26,721 22,147
Bank card 90,957 63,557
Consulting 26,325 64,655
Data processing 152,180 150,748
Non-loan charge-offs 149,897 76,848
Postage 22,046 42,374
Professional fees 112,489 43,765
Supplies 21,265 27,833
Taxes, other than income 59,001 52,104
Telephone 41,117 41,690
Other operating expenses 227,894 230,689
---------- ----------
Total other expenses 2,249,319 2,089,811
---------- ----------
Income before income taxes 1,073,987 640,646
INCOME TAX EXPENSE 341,000 210,000
========== ==========
Net income $ 732,987 $ 430,646
========== ==========
EARNINGS PER SHARE, BASIC $ 0.41 $ 0.24
========== ==========
EARNINGS PER SHARE, ASSUMING DILUTION $ 0.41 $ 0.23
========== ==========
</TABLE>
See Accompanying Notes to Consolidated Fianancial Statements.
2
<PAGE>
FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
ACCUULATED
OTHER
COMMON CAPITAL RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK SURPLUS EARNINGS INCOME INCOME TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 $5,752,220 $-- $15,432,062 $ (7,446) $21,176,836
Comprehensive income:
Net income -- -- 430,646 -- $430,646 430,646
Other comprehensive income (loss) net of tax:
Unrealized holding losses on securities
available for sale, net of deferred
income taxes of ($30,761) -- -- -- (59,713) (59,713) (59,713)
--------
Total comprehensive income -- -- -- -- $370,933 --
========
Cash dividends -- -- (237,007) -- (237,007)
Acquisition of 14,641 shares of common stock (45,826) -- (239,673) -- (285,499)
------------------------------------------------- -----------
BALANCE, MARCH 31, 1999 $5,706,394 $-- $15,386,028 $ (67,159) $21,025,263
================================================= ===========
BALANCE, DECEMBER 31, 1999 $5,552,736 $-- $16,019,525 $(367,906) $21,204,355
Comprehensive income:
Net income -- -- 732,987 -- $732,987 732,987
Other comprehensive income (loss) net
of tax:
Unrealized holding gains on securities
available for sale, net of deferred
income taxes of $10,606 -- -- -- 20,588 20,588 20,588
--------
Total comprehensive income -- -- -- -- $753,575 --
========
Cash dividends -- -- (266,297) -- (266,297)
Acquisition of 500 shares of common stock (1,565) -- (6,435) -- (8,000)
Exercise of stock options 3,987 -- 18,945 -- 22,932
------------------------------------------------- -----------
BALANCE, MARCH 31, 2000 $5,555,158 $-- $16,498,725 $(347,318) $21,706,565
================================================= ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 732,987 $ 430,646
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 188,281 187,535
Provision for loan losses 167,499 235,000
Provision for other real estate -- 6,000
Net premium amortization on investment
securities 2,716 6,947
Changes in assets and liabilities:
(Increase) in other assets (768,139) (6,781)
Increase (decrease) in other
liabilities 245,543 (8,769)
------------ ------------
Net cash provided by operating
activities 568,887 850,578
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, calls and principal
payments of investment securities 312,318 389,124
Proceeds from maturities, calls and principal
payments of securities available for sale 948,460 1,026,280
Purchase of investment securities
Purchase of securities available for sale -- (755,528)
Purchase of premises and equipment (32,852) (74,895)
Net (increase) in loans (7,903,805) (5,559,958)
------------ ------------
Net cash (used in) investing activities (6,675,879) (4,974,977)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts
and savings accounts 6,612,639 2,848,308
Net increase (decrease) in certificates of deposit (1,118,444) 5,257,513
Net (decrease) in Federal Home Loan Bank advances (10,000,000) --
Cash dividends paid (265,770) (238,910)
Issuance of common stock 22,932 --
Acquisition of common stock (8,000) (285,499)
------------ ------------
Net cash provided by financing activities (4,756,643) 7,581,412
------------ ------------
Increase in cash and cash equivalents (10,863,635) 3,457,013
CASH AND CASH EQUIVALENTS
Beginning 24,985,466 26,730,670
------------ ------------
Ending $ 14,121,831 $ 30,187,683
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for:
Interest $ 1,453,598 $ 1,548,066
============ ============
Income taxes $ 54,120 $ 90,000
============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING ACTIVITIES
Other real estate acquired in settlement of loans $ 158,081 $ --
============ ============
Unrealized gain (loss) on securities available for
sale, net $ 20,588 $ (59,713)
============ ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
FAUQUIER BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated statements include the accounts of Fauquier Bankshares,
Inc. and subsidiaries, The Fauquier Bank and Fauquier Bank Services, Inc.
All significant intercompany balances and transactions have been
eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the financial
positions as of March 31, 2000 and December 31, 1999, and the results of
operations and cash flows for the three months ended March 31, 2000 and
1999.
The results of operations for the three months ended March 31, 2000 and
1999 are not necessarily indicative of the results expected for the full
year.
2. SECURITIES
The amortized cost of securities held to maturity, with unrealized gains
and losses follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ------------- -------------- ----------
March 31, 2000
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S.
Government corporations
and agencies $ 2,673,706 $ -- $ (17,534) $ 2,656,172
Obligations of states and political
subdivisions 2,390,765 860 (10,720) 2,380,905
----------- ----------- ----------- -----------
$ 5,064,471 $ 860 $ (28,254) $ 5,037,077
=========== =========== =========== ===========
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ------------- -------------- ----------
December 31, 2000
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S.
Government corporations
and agencies $ 2,885,488 $ -- $ (22,826) $ 2,862,662
Obligations of states and political
subdivisions 2,490,790 1,693 (5,751) 2,486,732
----------- ----------- ----------- -----------
$ 5,376,278 $ 1,693 $ (28,577) $ 5,349,394
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
The amortized cost of securities available for sale, with unrealized
gains and losses follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ------------- -------------- ----------
March 31, 2000
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S.
Government corporations
and agencies $ 9,629,303 $ 3,549 $ (395,486) $ 9,237,366
Obligations of states and political
subdivisions 682,244 567 (1,780) 681,031
Equity securities 487,500 -- -- 487,500
Mutual funds 937,809 -- (133,089) 804,720
Restricted investments:
Federal Home Loan
Bank stock 1,150,000 -- -- 1,150,000
Federal Reserve Bank
stock 72,000 -- -- 72,000
Community Bankers'
Bank stock 50,000 -- -- 50,000
----------------------------------------------------------------------
$ 13,008,856 $ 4,116 $ (530,355) $ 12,482,617
======================================================================
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ------------- -------------- ----------
December 31, 2000
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S.
Government corporations
and agencies $ 11,068,015 $ 5,376 $ (434,339) $ 10,639,052
Obligations of states and political
subdivisions 682,719 327 (894) 682,152
Mutual funds 937,809 -- (127,903) 809,906
Restricted investments:
Federal Home Loan
Bank stock 1,150,000 -- -- 1,150,000
Federal Reserve Bank
stock 72,000 -- -- 72,000
Community Bankers'
Bank stock 50,000 -- -- 50,000
----------------------------------------------------------------------
$ 13,960,543 $ 5,703 $ (563,136) $ 13,403,110
======================================================================
</TABLE>
3. LOANS
A summary of the balances of loans follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
(Thousands)
Real estate loans:
Construction and land development $ 11,446 $ 11,746
Secured by farmland 967 903
Secured by 1-4 family residential 68,180 64,921
Other real estate loans 52,653 50,988
Commercial and industrial loans (except those secured by real estate) 18,095 16,689
Loans to individuals for personal expenditures 35,552 33,787
All other loans 4,826 4,868
-------- --------
Total loans $191,719 $183,902
Less: Unearned income 98 115
Allowance for loan losses 2,539 2,284
-------- --------
Net loans $189,082 $181,503
======== ========
</TABLE>
6
<PAGE>
Analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDING ENDING
MARCH 31, MARCH 31, DECEMBER 31,
2000 1999 1999
------------ -------------- --------------
<S> <C> <C> <C>
(Thousands)
Balance at beginning of period $ 2,284,348 $ 1,853,150 $ 1,853,150
Provision charged to operating expense 167,499 235,000 695,000
Recoveries added to the allowance 167,167 13,566 63,368
Loan losses charged to the allowance (80,187) (17,882) (327,170)
----------- ----------- -----------
Balance at end of period $ 2,538,827 $ 2,083,834 $ 2,284,348
=========== =========== ===========
</TABLE>
Nonperforming assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
(Thousands)
Nonaccrual loans $ 454 $ 125
Restructured loans -- --
-------- --------
Total non-performing loans $ 454 $ 125
Foreclosed real estate 158 --
-------- --------
Total non-performing assets $ 612 $ 125
======== ========
</TABLE>
Total loans past due 90 days or more and still accruing were $368,000
thousand on March 31, 2000 and $170 thousand on December 31, 1999.
4. EARNINGS PER SHARE
The 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 diluted potential common stock. Weighted average number of
shares for all periods reported have been restated giving effect to stock
splits.
<TABLE>
<CAPTION>
MARCH 31, 2000 DECEMBER 31, 1999
PER SHARE PER SHARE
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Basic earnings per share 1,774,766 $ 0.41 1,802,165 $ 1.46
====== ======
Effect of dilutive securities, stock options 12,067 15,967
--------- ---------
Diluted earnings per share 1,786,833 $ 0.41 1,818,132 $ 1.45
========= ====== ========= ======
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
Fauquier Bankshares, Inc. ("Bankshares") was incorporated under the laws of the
Commonwealth of Virginia on January 13, 1984. Bankshares is a registered bank
holding company and owns all of the voting shares of The Fauquier Bank ("TFB").
Bankshares engages in its business through TFB, a Virginia state-chartered bank
that commenced operations in 1902. Bankshares has no significant operations
other than owning the stock of TFB. Bankshares has issued and outstanding
1,774,811 shares of commons stock, par value $3.13 per share, held by
approximately 430 shareholders of record on March 31, 2000.
TFB has six full service branch offices located in the Virginia communities of
Warrenton, Catlett, The Plains, Manassas and New Baltimore, in addition to the
main office branch located in Warrenton, Virginia. The executive offices of
Bankshares and the main office of TFB are located at 10 Courthouse Square,
Warrenton, Virginia 20186
TFB provides a range of consumer and commercial banking services to individuals,
businesses, and industries. The deposits of TFB are insured up to applicable
limits by the Bank Insurance Fund of the Federal Deposit Insurance Fund. The
basic services offered by TFB include: demand interest bearing and non-interest
bearing accounts, money market deposit accounts, NOW accounts, time deposits,
safe deposit services, credit cards, cash management, direct deposits, notary
services, money orders, night depository, traveler's checks, cashier's checks,
domestic collections, savings bonds, bank drafts, automated teller services,
drive-in tellers, internet banking, and banking by mail. In addition, TFB makes
secured and unsecured commercial and real estate loans, issues stand-by letters
of credit and grants available credit for installment, unsecured and secured
personal loans, residential mortgages and home equity loans, as well as
automobile and other consumer financing. TFB provides automated teller machine
(ATM) cards, as a part of the Honor and Plus ATM networks, thereby permitting
customers to utilize the convenience of larger ATM networks. TFB operates an
Investments and Trust Services Division that was established in 1919. It is
staffed with nine professionals that provide personalized services that include
investment management, trust, estate settlement, retirement, and brokerage
services.
The revenues of TFB are primarily derived from interest on, and fees received in
connection with, real estate and other loans, and from interest and dividends
from investment and mortgage-backed securities, and short-term investments. The
principal sources of funds for TFB's lending activities are its deposits,
repayment of loans, and the sale and maturity of investment securities, and
borrowings from the Federal Home Loan Bank of Atlanta. The principal expenses of
TFB are the interest paid on deposits, and operating and general administrative
expenses.
TFB's general market area principally includes Fauquier County and neighboring
communities and is located approximately sixty (60) miles southwest of
Washington, D.C.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies, and expectations of
Bankshares, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project" or similar expressions.
Bankshares' ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
affect on the operations and future prospects of Bankshares include, but are not
limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Board of Governors
of the Federal Reserve System, the quality or composition of the loan or
investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in Bankshares' market area and accounting
principles,
8
<PAGE>
policies and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements.
COMPARISION OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND
MARCH 31, 1999
NET INCOME. Net income for the three months ended March 31, 2000 increased 70.2%
to $733,000 from $431,000 for the three months ended March 31, 1999. The
increase in net income was due to increases in both net interest income and
total other income that combined with a decrease in provision for loan losses
more than offset an increase in total other expenses.
NET INTEREST INCOME. Growth in interest income and a decline in interest expense
resulted in an increase in net interest income of $383,000 or 15.6% to $2.83
million for the three months ended March 31, 2000 compared to $2.45 million for
the three months ended March 31, 1999. Total interest income grew $263,000 or
6.5% to $4.28 million for the three months ended March 31, 2000 compared to
$4.02 million for the three months ended March 31, 1999. The increase was a
result of increases in loan originations, with increased interest and fees on
loans of $431,000 or 12.4%, which was partially offset by a $131,000 reduction
in interest income from the securities portfolio. Securities were reduced in
part to fund loan growth. Total interest expense decreased $121,000 or 7.7% to
$1.45 million for the three months ended March 31, 2000 from $1.57 million for
the three months ended March 31, 1999. This was due to a $181,000 decrease in
interest expense on deposits which was partially offset by an increase in
interest expenses on Federal Home Loan Bank advances.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $167,000 for the
three months ended March 31, 2000 compared to $235,000 for the three months
ended March 31, 1999. The amount of the provision for loan loss for the first
quarter of 2000 and 1999 was determined based upon management's continual
evaluation of the adequacy of the allowance for loan losses, which encompasses
the overall risk characteristics of the loan portfolio, trends in TFB's
delinquent and non-performing loans, and the impact of economic conditions on
borrowers. There can be no assurance, however, that future losses will not
exceed estimated amounts or that additional provisions for loan losses will not
be required in future periods.
TOTAL OTHER INCOME. Total other income increased by $142,000 or 27.5% from
$516,000 for the three months ended March 31, 1999 to $658,000 for the three
months ended March 31, 2000. Other income is primarily derived from non-interest
fee income, which is typically divided into three major categories: fiduciary,
service charges, and other fee income. The increase in the first quarter
resulted from increases in loan fees, net service charges on deposit accounts,
and other service charges of $193,000 that were partially offset by a reduction
in trust department income of $51,000.
TOTAL OTHER EXPENSES. Total other expenses increased 7.6% or $160,000 for the
three months ended March 31, 2000 compared to the three months ended March 31,
1999. The increase was primarily because salaries and benefits increased
$59,000, professional fees rose $69,000, and nonloan chargeoffs increased
$73,000.
COMPARISON OF MARCH 31, 2000 AND DECEMBER 31, 1999 FINANCIAL CONDITION
Assets totaled $229 million at March 31, 2000, a decrease of 1.6% or $3.8
million from $233 million at December 31, 1999. Balance sheet categories
reflecting significant changes include loans, federal funds sold, deposits, and
Federal Home Loan advances. Each of these categories is discussed below.
LOANS. Net loans were $189.1 million at March 31, 2000, which is an increase of
$7.6 million or 4.2% from $181.5 million at December 31, 1999.
FEDERAL FUNDS SOLD. Federal funds sold were $6.6 million at March 31, 2000,
compared to $14.0 million at December 31, 1999, representing a decrease of $7.4
million. The reduction was primarily used to fund new loans and reduce
borrowings.
9
<PAGE>
DEPOSITS. On March 31, 2000, total deposits reflected an increase of $5.5
million or 2.9% to $192.8 million from $187.3 million at December 31, 1999. The
growth was in both non-interest bearing demand deposits, which increased $3.3
million, and time deposits, which rose $2.1 million.
FEDERAL HOME LOAN BANK ADVANCES. Federal Home Loan Bank advances were $13
million at March 31, 2000, which represents a decrease of $10 million or 43.5%
from $23 million at December 31, 1999. Advances were repaid primarily from a
reduction in cash and due from banks, being held for potential Y2K needs, and
reduced federal funds sold.
SHAREHOLDERS EQUITY
Total shareholders equity was $21.7 million at March 31, 2000 compared to $21.2
million at December 31, 1999, an increase of $502,000 or 2.4%. This was due
primarily to an increase in retained earnings of $479,000 to $16.5 million at
March 31, 2000 from $16.0 million at December 31, 1999. The increase was
primarily the result of income for the quarter, net of dividends paid to
shareholders.
CAPITAL RESOURCES AND LIQUIDITY
The primary sources of funds are deposits, repayment of loans, maturities of
investments, funds provided from operations and advances from the Federal Home
Loan Bank of Atlanta.
While scheduled repayments of loans and maturities of investment securities are
predictable sources of funds, deposit flows and loan repayments are greatly
influenced by the general level of interest rates, economic conditions and
competition. TFB uses its funds for existing and future loan commitments,
maturing certificates of deposit and demand deposit withdrawals, to invest in
other interest-earning assets, to maintain liquidity, and to meet operating
expenses. Management monitors projected liquidity needs and determines the
desirable level based in part on TFB's commitments to make loans and
management's assessment of TFB's ability to generate funds. Cash and amounts due
from depository institutions, interest-bearing deposits in other banks and
federal funds sold totaled $14.1 million at March 31, 2000. These assets provide
the primary source of liquidity for TFB. In addition, management has designated
a substantial portion of the investment portfolio, as available for sale and has
an available line of credit with the Federal Home Loan Bank of Atlanta with a
borrowing limit of approximately $37 million at March 31, 2000 to provide
additional sources of liquidity.
As of March 31, 2000 the appropriate regulatory authorities have categorized
Bankshares and TFB as well capitalized under the regulatory framework for prompt
corrective action.
CAPITAL REQUIREMENTS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies. The resulting capital ratios represent
qualifying capital as a percentage of total risk-weighted assets and off-balance
sheet items. The guidelines are minimums, and the federal regulators have noted
that banks and bank holding companies contemplating significant expansion
programs should not allow expansion to diminish their capital ratios and should
maintain all ratios well in excess of the minimums. The current guidelines
require all bank holding companies and federally regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier 1 capital. Tier 1 capital includes common stockholder's equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
excludes the allowance for loan and lease losses. Tier 2 capital includes the
excess of any preferred stock not included in Tier 1 capital, mandatory
convertible securities, hybrid capital instruments, subordinated debt and
intermediate term-preferred stock, and general reserves for loan and lease
losses up to 1.25% of risk-weighted assets. As of March 31, 2000 (i) Bankshares'
Tier 1 and total risk-based capital ratios were 12.4% and 13.7%, respectively,
and (ii) TFB's Tier 1 and total risk-based capital ratios were 12.4% and 13.7%,
respectively.
10
<PAGE>
FDICIA contains "prompt corrective action" provisions pursuant to which banks
are to be classified into one of five categories based upon capital adequacy,
ranging from "well capitalized" to "critically undercapitalized" and which
require (subject to certain exceptions) the appropriate federal banking agency
to take prompt corrective action with respect to an institution which becomes
"significantly undercapitalized" or "critically undercapitalized".
The FDIC has issued regulations to implement the "prompt corrective action"
provisions of FDICIA. In general, the regulations define the five capital
categories as follows: (i) an institution is "well capitalized" if it has a
total risk-based capital ratio of 10% or greater, has a Tier 1 risk-based
capital ratio of 6% or greater, has a leverage ratio of 5% or greater and is not
subject to any written capital order or directive to meet and maintain a
specific capital level for any capital measures; (ii) an institution is
"adequately capitalized" if it has a total risk-based capital ratio of 8% or
greater, has a Tier 1 risk-based capital ratio of 4% or greater, and has a
leverage ratio of 4% or greater; (iii) an institution is "undercapitalized" if
it has a total risk-based capital ratio of less than 8%, has a Tier 1 risk-based
capital ratio that is less than 4% or has a leverage ratio that is less than 4%;
(iv) an institution is "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio
that is less than 3% or a leverage ratio that is less than 3%; and (v) an
institution is "critically undercapitalized" if its "tangible equity" is equal
to or less than 2% of its total assets. The FDIC also, after an opportunity for
a hearing, has authority to downgrade an institution from "well capitalized" to
"adequately capitalized" or to subject an "adequately capitalized" or
"under-capitalized" institution to the supervisory actions applicable to the
next lower category, for supervisory concerns. As of March 31, 2000, TFB had a
total risk-based capital ratio of 13.7%, a Tier 1 risk-based capital ratio of
12.4%, and a leverage ratio of 9.5%. TFB was notified by the Federal Reserve
Bank of Richmond that, at March 31, 2000, TFB was "well capitalized" under the
regulatory framework for prompt corrective action.
Additionally, FDICIA requires, among other things, that (i) only a "well
capitalized" depository institution may accept brokered deposits without prior
regulatory approval and (ii) the appropriate federal banking agency annually
examine all insured depository institutions, with some exceptions for small,
"well capitalized" institutions and state-chartered institutions examined by
state regulators. FDICIA also contains a number of consumer banking provisions,
including disclosure requirements and substantive contractual limitations with
respect to deposit accounts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
An important component of both earnings performance and liquidity is management
of interest rate sensitivity. Interest rate sensitivity reflects the potential
effect on net interest income of a movement in market interest rates. TFB is
subject to interest rate sensitivity to the degree that its interest-earning
assets mature or reprice at a different time interval from that of its
interest-bearing liabilities. However, TFB is not subject to any of the other
major categories of market risk such as foreign currency exchange rate risk or
commodity price risk.
TFB uses a number of tools to manage its interest rate risk, including
simulating net interest income under various scenarios, monitoring the present
value change in equity under the same scenarios, and monitoring the difference
or gap between rate sensitive assets and rate sensitive liabilities over various
time periods. Management believes that rate risk is best measured by simulation
modeling.
The earnings simulation model forecasts annual net income under a variety of
scenarios that incorporate changes in the absolute level of interest rates,
changes in the shape of the yield curve and changes in interest rate
relationships. Management evaluates the effect on net interest income and
present value equity under varying market rate assumptions.
TFB monitors exposure to gradual change in rates of up to 200 basis points up or
down over a rolling 12-month period. TFB's policy limit for the maximum negative
impact on net interest income and change in equity from gradual changes in
interest rates of 200 basis points over 12 months is 15% and 10%,
11
<PAGE>
respectively. Management has maintained a risk position well within these
guideline levels during the first quarter of 2000.
There have been no material changes in market risk since 1999 year end.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There is no pending or threatened litigation that, in the opinion of management,
may materially impact the financial condition of Bankshares or TFB.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(3)(i) Articles of Incorporation of Fauquier Bankshares, Inc.
(including amendments)*
(3)(ii) Bylaws of Fauquier Bankshares, Inc.*
(10)(i) Fauquier Bankshares, Inc. Omnibus Stock Ownership and
Long Term Incentive Plan, Amended and Restated
Effective January 1, 2000**
(11) Statement regarding computation of per share earnings
(27) Financial Data Schedule (filed herewith)
* Incorporated by reference to Bankshares' Securities Exchange Act of 1934
("Exchange Act") Registration Statement on Form 10, filed with the Securities
and Exchange Commission on April 16, 1999.
** Incorporated by reference to Bankshares' definitive proxy statement for the
2000 annual meeting of shareholders, filed with the Securities and Exchange
Commission on April 14, 2000.
(b) Reports on Form 8-K:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAUQUIER BANKSHARES, INC.
Dated: May 19, 2000 /s/ C. Hunton Tiffany
-------------------------------------------------
C. Hunton Tiffany
President and Chief Executive Officer
Dated: May 19, 2000 /s/ Randy K. Ferrell
-------------------------------------------------
Randy K. Ferrell
Senior Vice President and Chief Financial Officer
Exhibit 11
Weighted Average Shares Outstanding
and Earnings Per Share Worksheet
<TABLE>
<CAPTION>
2000 1999
Shares Shares
Outstanding Outstanding
----------- -----------
<S> <C> <C> <C>
January 1,775,311 1,833,404
February 1,774,811 1,824,659
March 1,774,811 1,823,129
April 1,803,459
May 1,798,747
June 1,798,747
July 1,794,797
August 1,791,047
September 1,784,997
October 1,783,987
November 1,777,177
December 1,774,037
Weighted average shares outstanding* 1,774,766 1,802,165
Net income $ 732,987 $ 2,638,940
Basic earnings per share $ 0.41 $ 1.46
------------ ------------
Effect of dilutive securities, stock options 12,067 15,967
Diluted earnings per share $ 0.41 $ 1.45
------------ ------------
</TABLE>
* Weighted average shares outstanding are computed on a daily basis
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001083643
<NAME> Fauquier Bankshares, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 7,432
<INT-BEARING-DEPOSITS> 60
<FED-FUNDS-SOLD> 6,630
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,483
<INVESTMENTS-CARRYING> 5,064
<INVESTMENTS-MARKET> 5,037
<LOANS> 191,621
<ALLOWANCE> 2,539
<TOTAL-ASSETS> 229,450
<DEPOSITS> 192,767
<SHORT-TERM> 13,000
<LIABILITIES-OTHER> 1,977
<LONG-TERM> 0
<COMMON> 5,555
0
0
<OTHER-SE> 16,151
<TOTAL-LIABILITIES-AND-EQUITY> 229,450
<INTEREST-LOAN> 3,922
<INTEREST-INVEST> 202
<INTEREST-OTHER> 155
<INTEREST-TOTAL> 4,279
<INTEREST-DEPOSIT> 1,150
<INTEREST-EXPENSE> 298
<INTEREST-INCOME-NET> 2,832
<LOAN-LOSSES> 167
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 658
<INCOME-PRETAX> 1,074
<INCOME-PRE-EXTRAORDINARY> 1,074
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 733
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> 5.16
<LOANS-NON> 454
<LOANS-PAST> 368
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,284
<CHARGE-OFFS> 80
<RECOVERIES> 167
<ALLOWANCE-CLOSE> 2,539
<ALLOWANCE-DOMESTIC> 2,539
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
