FY false 0001083643 2019 --12-31 true true true P3Y P3M P1M P3M us-gaap:OtherLiabilitiesMember 0001083643 2020-01-01 2020-12-31 iso4217:USD 0001083643 2020-06-30 xbrli:shares 0001083643 2021-03-26 0001083643 2020-12-31 0001083643 2019-12-31 iso4217:USD xbrli:shares 0001083643 2019-01-01 2019-12-31 0001083643 2018-01-01 2018-12-31 0001083643 us-gaap:FiduciaryAndTrustMember 2020-01-01 2020-12-31 0001083643 us-gaap:FiduciaryAndTrustMember 2019-01-01 2019-12-31 0001083643 us-gaap:FiduciaryAndTrustMember 2018-01-01 2018-12-31 0001083643 us-gaap:DepositAccountMember 2020-01-01 2020-12-31 0001083643 us-gaap:DepositAccountMember 2019-01-01 2019-12-31 0001083643 us-gaap:DepositAccountMember 2018-01-01 2018-12-31 0001083643 us-gaap:CreditAndDebitCardMember 2020-01-01 2020-12-31 0001083643 us-gaap:CreditAndDebitCardMember 2019-01-01 2019-12-31 0001083643 us-gaap:CreditAndDebitCardMember 2018-01-01 2018-12-31 0001083643 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2017-12-31 0001083643 us-gaap:RetainedEarningsMember 2017-12-31 0001083643 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001083643 2017-12-31 0001083643 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2018-01-01 2018-12-31 0001083643 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0001083643 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-12-31 0001083643 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2018-12-31 0001083643 us-gaap:RetainedEarningsMember 2018-12-31 0001083643 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001083643 2018-12-31 0001083643 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2019-01-01 2019-12-31 0001083643 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0001083643 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0001083643 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2019-12-31 0001083643 us-gaap:RetainedEarningsMember 2019-12-31 0001083643 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001083643 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2020-01-01 2020-12-31 0001083643 us-gaap:RetainedEarningsMember 2020-01-01 2020-12-31 0001083643 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-12-31 0001083643 us-gaap:CommonStockIncludingAdditionalPaidInCapitalMember 2020-12-31 0001083643 us-gaap:RetainedEarningsMember 2020-12-31 0001083643 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 fbss:Office 0001083643 fbss:VirginiaNationalBanksharesCorporationMember fbss:MergerAgreementMember 2020-10-01 2020-10-01 0001083643 srt:MinimumMember 2020-01-01 2020-12-31 0001083643 srt:MaximumMember 2020-01-01 2020-12-31 0001083643 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember srt:MinimumMember 2020-01-01 2020-12-31 0001083643 us-gaap:SoftwareAndSoftwareDevelopmentCostsMember srt:MaximumMember 2020-01-01 2020-12-31 xbrli:pure 0001083643 us-gaap:AccountingStandardsUpdate201813Member 2020-12-31 0001083643 fbss:AccountingStandardsUpdate202004Member 2020-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember 2020-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember 2019-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember 2019-12-31 fbss:Security 0001083643 us-gaap:DebtSecuritiesMember 2020-12-31 fbss:Loan 0001083643 fbss:SmallBusinessAdministrationCARESActPaycheckProtectionProgramMember 2020-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0001083643 fbss:ConstructionAndLandMember 2019-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember 2019-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:HomeEquityMember 2019-12-31 0001083643 us-gaap:UnallocatedFinancingReceivablesMember 2019-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember 2020-01-01 2020-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-01-01 2020-12-31 0001083643 fbss:ConstructionAndLandMember 2020-01-01 2020-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember 2020-01-01 2020-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember 2020-01-01 2020-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember 2020-01-01 2020-12-31 0001083643 us-gaap:HomeEquityMember 2020-01-01 2020-12-31 0001083643 us-gaap:UnallocatedFinancingReceivablesMember 2020-01-01 2020-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-12-31 0001083643 fbss:ConstructionAndLandMember 2020-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember 2020-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember 2020-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:HomeEquityMember 2020-12-31 0001083643 us-gaap:UnallocatedFinancingReceivablesMember 2020-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember 2018-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember 2018-12-31 0001083643 fbss:ConstructionAndLandMember 2018-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember 2018-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember 2018-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember 2018-12-31 0001083643 us-gaap:HomeEquityMember 2018-12-31 0001083643 us-gaap:UnallocatedFinancingReceivablesMember 2018-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember 2019-01-01 2019-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-01-01 2019-12-31 0001083643 fbss:ConstructionAndLandMember 2019-01-01 2019-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember 2019-01-01 2019-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember 2019-01-01 2019-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember 2019-01-01 2019-12-31 0001083643 us-gaap:HomeEquityMember 2019-01-01 2019-12-31 0001083643 us-gaap:UnallocatedFinancingReceivablesMember 2019-01-01 2019-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember 2017-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember 2017-12-31 0001083643 fbss:ConstructionAndLandMember 2017-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember 2017-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember 2017-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember 2017-12-31 0001083643 us-gaap:HomeEquityMember 2017-12-31 0001083643 us-gaap:UnallocatedFinancingReceivablesMember 2017-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember 2018-01-01 2018-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember 2018-01-01 2018-12-31 0001083643 fbss:ConstructionAndLandMember 2018-01-01 2018-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember 2018-01-01 2018-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember 2018-01-01 2018-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember 2018-01-01 2018-12-31 0001083643 us-gaap:HomeEquityMember 2018-01-01 2018-12-31 0001083643 us-gaap:UnallocatedFinancingReceivablesMember 2018-01-01 2018-12-31 0001083643 us-gaap:PassMember us-gaap:CommercialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:PassMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-12-31 0001083643 us-gaap:PassMember fbss:ConstructionAndLandMember 2020-12-31 0001083643 us-gaap:PassMember us-gaap:ConsumerPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:PassMember fbss:StudentUsGovernmentGuaranteedMember 2020-12-31 0001083643 us-gaap:PassMember us-gaap:ResidentialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:PassMember us-gaap:HomeEquityMember 2020-12-31 0001083643 us-gaap:PassMember 2020-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:CommercialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-12-31 0001083643 us-gaap:SpecialMentionMember fbss:ConstructionAndLandMember 2020-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:ConsumerPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:SpecialMentionMember fbss:StudentUsGovernmentGuaranteedMember 2020-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:ResidentialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:HomeEquityMember 2020-12-31 0001083643 us-gaap:SpecialMentionMember 2020-12-31 0001083643 us-gaap:SubstandardMember us-gaap:CommercialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:SubstandardMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-12-31 0001083643 us-gaap:SubstandardMember fbss:ConstructionAndLandMember 2020-12-31 0001083643 us-gaap:SubstandardMember us-gaap:ConsumerPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:SubstandardMember fbss:StudentUsGovernmentGuaranteedMember 2020-12-31 0001083643 us-gaap:SubstandardMember us-gaap:ResidentialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:SubstandardMember us-gaap:HomeEquityMember 2020-12-31 0001083643 us-gaap:SubstandardMember 2020-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:CommercialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-12-31 0001083643 us-gaap:DoubtfulMember fbss:ConstructionAndLandMember 2020-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:ConsumerPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:DoubtfulMember fbss:StudentUsGovernmentGuaranteedMember 2020-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:ResidentialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:HomeEquityMember 2020-12-31 0001083643 us-gaap:DoubtfulMember 2020-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:CommercialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember fbss:ConstructionAndLandMember 2020-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:ConsumerPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember fbss:StudentUsGovernmentGuaranteedMember 2020-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:ResidentialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:HomeEquityMember 2020-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember 2020-12-31 0001083643 us-gaap:PassMember us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:PassMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0001083643 us-gaap:PassMember fbss:ConstructionAndLandMember 2019-12-31 0001083643 us-gaap:PassMember us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:PassMember fbss:StudentUsGovernmentGuaranteedMember 2019-12-31 0001083643 us-gaap:PassMember us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:PassMember us-gaap:HomeEquityMember 2019-12-31 0001083643 us-gaap:PassMember 2019-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0001083643 us-gaap:SpecialMentionMember fbss:ConstructionAndLandMember 2019-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:SpecialMentionMember fbss:StudentUsGovernmentGuaranteedMember 2019-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:SpecialMentionMember us-gaap:HomeEquityMember 2019-12-31 0001083643 us-gaap:SpecialMentionMember 2019-12-31 0001083643 us-gaap:SubstandardMember us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:SubstandardMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0001083643 us-gaap:SubstandardMember fbss:ConstructionAndLandMember 2019-12-31 0001083643 us-gaap:SubstandardMember us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:SubstandardMember fbss:StudentUsGovernmentGuaranteedMember 2019-12-31 0001083643 us-gaap:SubstandardMember us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:SubstandardMember us-gaap:HomeEquityMember 2019-12-31 0001083643 us-gaap:SubstandardMember 2019-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0001083643 us-gaap:DoubtfulMember fbss:ConstructionAndLandMember 2019-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:DoubtfulMember fbss:StudentUsGovernmentGuaranteedMember 2019-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:DoubtfulMember us-gaap:HomeEquityMember 2019-12-31 0001083643 us-gaap:DoubtfulMember 2019-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:CommercialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:CommercialRealEstatePortfolioSegmentMember 2019-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember fbss:ConstructionAndLandMember 2019-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:ConsumerPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember fbss:StudentUsGovernmentGuaranteedMember 2019-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:ResidentialPortfolioSegmentMember 2019-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember us-gaap:HomeEquityMember 2019-12-31 0001083643 us-gaap:UnlikelyToBeCollectedFinancingReceivableMember 2019-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-12-31 0001083643 fbss:ConstructionAndLandMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-12-31 0001083643 us-gaap:HomeEquityMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-12-31 0001083643 us-gaap:FinancingReceivables30To59DaysPastDueMember 2020-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-12-31 0001083643 fbss:ConstructionAndLandMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-12-31 0001083643 us-gaap:HomeEquityMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-12-31 0001083643 us-gaap:FinancingReceivables60To89DaysPastDueMember 2020-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-12-31 0001083643 fbss:ConstructionAndLandMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-12-31 0001083643 us-gaap:HomeEquityMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-12-31 0001083643 us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0001083643 fbss:ConstructionAndLandMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0001083643 us-gaap:HomeEquityMember us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0001083643 us-gaap:FinancingReceivables30To59DaysPastDueMember 2019-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0001083643 fbss:ConstructionAndLandMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0001083643 us-gaap:HomeEquityMember us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0001083643 us-gaap:FinancingReceivables60To89DaysPastDueMember 2019-12-31 0001083643 us-gaap:CommercialPortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2019-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2019-12-31 0001083643 fbss:ConstructionAndLandMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2019-12-31 0001083643 us-gaap:ConsumerPortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2019-12-31 0001083643 fbss:StudentUsGovernmentGuaranteedMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2019-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2019-12-31 0001083643 us-gaap:HomeEquityMember us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2019-12-31 0001083643 us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2019-12-31 0001083643 us-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMember 2020-01-01 2020-12-31 fbss:Property 0001083643 us-gaap:LandMember 2020-12-31 0001083643 us-gaap:LandMember 2019-12-31 0001083643 us-gaap:BuildingAndBuildingImprovementsMember 2020-12-31 0001083643 us-gaap:BuildingAndBuildingImprovementsMember 2019-12-31 0001083643 fbss:FurnitureAndFixturesAndEquipmentMember 2020-12-31 0001083643 fbss:FurnitureAndFixturesAndEquipmentMember 2019-12-31 0001083643 us-gaap:LeaseholdImprovementsMember 2020-12-31 0001083643 us-gaap:LeaseholdImprovementsMember 2019-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember 2020-01-01 2020-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember 2019-01-01 2019-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember 2018-01-01 2018-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember 2019-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember 2018-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember 2017-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember 2020-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember srt:ManagementMember 2020-01-01 2020-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember srt:ManagementMember 2019-01-01 2019-12-31 0001083643 us-gaap:SupplementalEmployeeRetirementPlanDefinedBenefitMember srt:ManagementMember 2018-01-01 2018-12-31 fbss:Hour fbss:Installment fbss:Director 0001083643 fbss:FormerKeyEmployeeMember 2020-01-01 2020-12-31 0001083643 fbss:FormerKeyEmployeeMember 2019-01-01 2019-12-31 0001083643 fbss:FormerKeyEmployeeMember 2018-01-01 2018-12-31 0001083643 fbss:FormerKeyEmployeeMember 2020-12-31 0001083643 fbss:FormerKeyEmployeeMember 2019-12-31 fbss:Contract 0001083643 fbss:CoreDataProcessingMember 2020-01-01 2020-12-31 0001083643 fbss:CoreDataProcessingMember 2019-01-01 2019-12-31 0001083643 fbss:CoreDataProcessingMember 2018-01-01 2018-12-31 0001083643 fbss:InterchangeProcessingMember 2020-01-01 2020-12-31 0001083643 fbss:InterchangeProcessingMember 2019-01-01 2019-12-31 0001083643 fbss:InterchangeProcessingMember 2018-01-01 2018-12-31 0001083643 fbss:StockIncentivePlanMember 2020-12-31 0001083643 fbss:StockIncentivePlanMember us-gaap:RestrictedStockMember 2020-01-01 2020-12-31 0001083643 fbss:StockIncentivePlanMember srt:DirectorMember us-gaap:RestrictedStockMember 2020-01-01 2020-12-31 0001083643 fbss:StockIncentivePlanMember srt:DirectorMember us-gaap:RestrictedStockMember 2019-01-01 2019-12-31 0001083643 fbss:StockIncentivePlanMember srt:DirectorMember us-gaap:RestrictedStockMember 2018-01-01 2018-12-31 0001083643 us-gaap:RestrictedStockMember 2020-12-31 0001083643 us-gaap:RestrictedStockMember fbss:StockIncentivePlanMember 2019-12-31 0001083643 us-gaap:RestrictedStockMember fbss:StockIncentivePlanMember 2020-12-31 0001083643 fbss:StockIncentivePlanMember us-gaap:RestrictedStockMember 2018-12-31 0001083643 fbss:StockIncentivePlanMember us-gaap:RestrictedStockMember 2019-01-01 2019-12-31 0001083643 srt:ExecutiveOfficerMember fbss:StockIncentivePlanMember fbss:PerformanceBasedRestrictedStockUnitsMember 2020-01-01 2020-12-31 0001083643 srt:ExecutiveOfficerMember fbss:StockIncentivePlanMember fbss:PerformanceBasedRestrictedStockUnitsMember 2019-01-01 2019-12-31 0001083643 srt:ExecutiveOfficerMember fbss:StockIncentivePlanMember fbss:PerformanceBasedRestrictedStockUnitsMember 2018-01-01 2018-12-31 0001083643 fbss:StockIncentivePlanMember fbss:PerformanceBasedRestrictedStockUnitsMember 2020-12-31 0001083643 us-gaap:PerformanceSharesMember fbss:StockIncentivePlanMember 2019-12-31 0001083643 us-gaap:PerformanceSharesMember fbss:StockIncentivePlanMember 2020-01-01 2020-12-31 0001083643 us-gaap:PerformanceSharesMember fbss:StockIncentivePlanMember 2020-12-31 0001083643 us-gaap:PerformanceSharesMember fbss:StockIncentivePlanMember 2018-12-31 0001083643 us-gaap:PerformanceSharesMember fbss:StockIncentivePlanMember 2019-01-01 2019-12-31 0001083643 us-gaap:FederalHomeLoanBankAdvancesMember 2020-12-31 0001083643 us-gaap:FederalHomeLoanBankAdvancesMember 2019-12-31 0001083643 us-gaap:FederalHomeLoanBankAdvancesMember srt:WeightedAverageMember 2020-12-31 0001083643 us-gaap:FederalHomeLoanBankAdvancesMember srt:WeightedAverageMember 2019-12-31 0001083643 us-gaap:ResidentialPortfolioSegmentMember 2020-12-31 0001083643 us-gaap:HomeEquityMember srt:MinimumMember 2020-12-31 0001083643 us-gaap:HomeEquityMember srt:MaximumMember 2020-12-31 0001083643 us-gaap:CommercialRealEstatePortfolioSegmentMember 2020-12-31 0001083643 fbss:LineOfCreditWithCommercialBanksMember 2020-12-31 0001083643 fbss:FederalReserveBankOfRichmondMember 2020-12-31 0001083643 us-gaap:LetterOfCreditMember 2020-12-31 0001083643 us-gaap:CommitmentsToExtendCreditMember 2020-12-31 0001083643 us-gaap:CommitmentsToExtendCreditMember 2019-12-31 0001083643 us-gaap:FinancialStandbyLetterOfCreditMember 2020-12-31 0001083643 us-gaap:FinancialStandbyLetterOfCreditMember 2019-12-31 0001083643 us-gaap:InterestRateSwapMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember 2020-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember 2019-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember 2018-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember srt:MinimumMember 2016-06-23 2016-06-24 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember srt:MaximumMember 2016-06-23 2016-06-24 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember 2019-01-01 2019-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember 2018-01-01 2018-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember us-gaap:CashFlowHedgingMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember us-gaap:CashFlowHedgingMember 2019-01-01 2019-12-31 0001083643 fbss:InterestRateSwapsOnJuniorSubordinatedDebtDueTwoThousandThirtySixMember us-gaap:CashFlowHedgingMember 2018-01-01 2018-12-31 fbss:Derivative 0001083643 fbss:InterestRateSwapsForCommercialLoansMember 2020-12-31 0001083643 fbss:InterestRateSwapsForCommercialLoansMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapsForCommercialLoansMember 2019-01-01 2019-12-31 0001083643 fbss:InterestRateSwapsForCommercialLoansMember 2018-01-01 2018-12-31 0001083643 fbss:InterestRateSwapsForCommercialLoansMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapsForCommercialLoansMember srt:MinimumMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapsForCommercialLoansMember srt:MaximumMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapsForCommercialLoansMember 2020-07-28 0001083643 fbss:InterestRateSwapsForCommercialLoansMember 2020-07-28 2020-07-28 0001083643 us-gaap:InterestRateSwapMember 2020-12-31 0001083643 us-gaap:InterestRateSwapMember 2019-12-31 0001083643 fbss:InterestRateSwapThrough2031Member us-gaap:CashFlowHedgingMember 2020-12-31 0001083643 fbss:InterestRateSwapThrough2022Member us-gaap:FairValueHedgingMember 2020-12-31 0001083643 fbss:InterestRateSwapThrough2031Member us-gaap:CashFlowHedgingMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapThrough2022Member us-gaap:FairValueHedgingMember 2020-01-01 2020-12-31 0001083643 fbss:InterestRateSwapThrough2031Member us-gaap:CashFlowHedgingMember us-gaap:OtherLiabilitiesMember 2020-12-31 0001083643 fbss:InterestRateSwapThrough2022Member us-gaap:FairValueHedgingMember us-gaap:OtherLiabilitiesMember 2020-12-31 0001083643 fbss:InterestRateSwapThrough2020Member us-gaap:CashFlowHedgingMember 2019-12-31 0001083643 fbss:InterestRateSwapThrough2031Member us-gaap:CashFlowHedgingMember 2019-12-31 0001083643 fbss:InterestRateSwapThrough2025Member us-gaap:FairValueHedgingMember 2019-12-31 0001083643 fbss:InterestRateSwapThrough2022Member us-gaap:FairValueHedgingMember 2019-12-31 0001083643 fbss:InterestRateSwapThrough2020Member us-gaap:CashFlowHedgingMember 2019-01-01 2019-12-31 0001083643 fbss:InterestRateSwapThrough2031Member us-gaap:CashFlowHedgingMember 2019-01-01 2019-12-31 0001083643 fbss:InterestRateSwapThrough2025Member us-gaap:FairValueHedgingMember 2019-01-01 2019-12-31 0001083643 fbss:InterestRateSwapThrough2022Member us-gaap:FairValueHedgingMember 2019-01-01 2019-12-31 0001083643 fbss:InterestRateSwapThrough2020Member us-gaap:CashFlowHedgingMember us-gaap:OtherLiabilitiesMember 2019-12-31 0001083643 fbss:InterestRateSwapThrough2031Member us-gaap:CashFlowHedgingMember us-gaap:OtherLiabilitiesMember 2019-12-31 0001083643 fbss:InterestRateSwapThrough2025Member us-gaap:FairValueHedgingMember us-gaap:OtherLiabilitiesMember 2019-12-31 0001083643 fbss:InterestRateSwapThrough2022Member us-gaap:FairValueHedgingMember us-gaap:OtherLiabilitiesMember 2019-12-31 0001083643 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2017-12-31 0001083643 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-12-31 0001083643 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2017-12-31 0001083643 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 2018-12-31 0001083643 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-01-01 2018-12-31 0001083643 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-01-01 2018-12-31 0001083643 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2018-12-31 0001083643 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0001083643 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2018-12-31 0001083643 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-01-01 2019-12-31 0001083643 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-12-31 0001083643 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-01-01 2019-12-31 0001083643 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-12-31 0001083643 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-12-31 0001083643 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2019-12-31 0001083643 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2020-01-01 2020-12-31 0001083643 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-01-01 2020-12-31 0001083643 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-01-01 2020-12-31 0001083643 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2020-12-31 0001083643 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-12-31 0001083643 us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember 2020-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:USTreasuryAndGovernmentMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0001083643 fbss:MortgageLoansHeldForSaleMember us-gaap:FairValueMeasurementsNonrecurringMember 2020-01-01 2020-12-31 0001083643 fbss:MortgageLoansHeldForSaleMember us-gaap:FairValueMeasurementsNonrecurringMember 2019-01-01 2019-12-31 0001083643 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2020-01-01 2020-12-31 0001083643 us-gaap:FairValueMeasurementsNonrecurringMember 2020-12-31 0001083643 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsNonrecurringMember 2020-12-31 0001083643 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsNonrecurringMember 2020-12-31 0001083643 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2020-12-31 0001083643 us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001083643 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001083643 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001083643 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001083643 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member fbss:ImpairedLoansMember fbss:DiscountedAppraisedValueMember 2020-12-31 0001083643 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member fbss:OtherRealEstateOwnedMember fbss:DiscountedAppraisedValueMember 2020-12-31 0001083643 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member fbss:ImpairedLoansMember fbss:DiscountedAppraisedValueMember 2020-01-01 2020-12-31 0001083643 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member fbss:OtherRealEstateOwnedMember fbss:DiscountedAppraisedValueMember 2020-01-01 2020-12-31 0001083643 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member srt:WeightedAverageMember fbss:ImpairedLoansMember fbss:DiscountedAppraisedValueMember 2020-12-31 0001083643 us-gaap:FairValueMeasurementsNonrecurringMember us-gaap:FairValueInputsLevel3Member srt:WeightedAverageMember fbss:OtherRealEstateOwnedMember fbss:DiscountedAppraisedValueMember 2020-12-31 0001083643 fbss:ImpairedLoansMember fbss:DiscountedAppraisedValueMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001083643 fbss:OtherRealEstateOwnedMember fbss:DiscountedAppraisedValueMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001083643 fbss:ImpairedLoansMember fbss:DiscountedAppraisedValueMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-01-01 2019-12-31 0001083643 fbss:OtherRealEstateOwnedMember fbss:DiscountedAppraisedValueMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-01-01 2019-12-31 0001083643 srt:WeightedAverageMember fbss:ImpairedLoansMember fbss:DiscountedAppraisedValueMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001083643 srt:WeightedAverageMember fbss:OtherRealEstateOwnedMember fbss:DiscountedAppraisedValueMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0001083643 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2020-12-31 0001083643 us-gaap:FairValueInputsLevel1Member 2020-12-31 0001083643 us-gaap:FairValueInputsLevel2Member 2020-12-31 0001083643 us-gaap:FairValueInputsLevel3Member 2020-12-31 0001083643 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2020-12-31 0001083643 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-12-31 0001083643 us-gaap:FairValueInputsLevel1Member 2019-12-31 0001083643 us-gaap:FairValueInputsLevel2Member 2019-12-31 0001083643 us-gaap:FairValueInputsLevel3Member 2019-12-31 0001083643 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-12-31 0001083643 srt:SubsidiariesMember 2020-12-31 0001083643 srt:SubsidiariesMember 2019-12-31 0001083643 fbss:FloatingRateCapitalSecuritiesMember fbss:WhollyOwnedConnecticutStatutoryBusinessTrustMember 2006-09-21 0001083643 fbss:FloatingRateJuniorSubordinatedDeferrableInterestDebenturesDue2036Member 2020-12-31 0001083643 fbss:FloatingRateJuniorSubordinatedDeferrableInterestDebenturesDue2036Member 2020-01-01 2020-12-31 0001083643 us-gaap:LondonInterbankOfferedRateLIBORMember fbss:FloatingRateCapitalSecuritiesMember 2020-01-01 2020-12-31 0001083643 srt:ParentCompanyMember 2020-12-31 0001083643 srt:ParentCompanyMember 2019-12-31 0001083643 srt:ParentCompanyMember 2020-01-01 2020-12-31 0001083643 srt:ParentCompanyMember 2019-01-01 2019-12-31 0001083643 srt:ParentCompanyMember 2018-01-01 2018-12-31 0001083643 srt:ParentCompanyMember 2018-12-31 0001083643 srt:ParentCompanyMember 2017-12-31 0001083643 us-gaap:OtherAssetsMember 2020-12-31 0001083643 us-gaap:OtherAssetsMember 2019-12-31 0001083643 us-gaap:OtherLiabilitiesMember 2020-12-31 0001083643 us-gaap:OtherLiabilitiesMember 2019-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2020

☐	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.

(Exact name of registrant as specified in its charter)


Virginia		54-1288193
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

10 Courthouse Square, Warrenton, Virginia		20186
(Address of principal executive offices)		(Zip Code)

(540) 347-2700

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $3.13 per share	FBSS	The Nasdaq Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the registrant’s common shares held by non-affiliates of the registrant at June 30, 2020, was $50.8 million.

The registrant had 3,807,659 shares of common stock outstanding as of March 25, 2021.

TABLE OF CONTENTS

			Page
PART I

	Item 1.	Business	2

	Item 1A.	Risk Factors	11

	Item 1B.	Unresolved Staff Comments	21

	Item 2.	Properties	21

	Item 3.	Legal Proceedings	21

	Item 4.	Mine Safety Disclosures	21

PART II

	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22

	Item 6.	Selected Financial Data	23

	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	40

	Item 8.	Financial Statements and Supplementary Data	41

	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	79

	Item 9A.	Controls and Procedures	79

	Item 9B.	Other Information	79

PART III

	Item 10	Directors, Executive Officers and Corporate Governance	80

	Item 11.	Executive Compensation	83

	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	94

	Item 13.	Certain Relationships and Related Transactions, and Director Independence	96

	Item 14.	Principal Accounting Fees and Services	97

PART IV

	Item 15.	Exhibits and Financial Statement Schedules	98

	Item 16.	10-K Summary Signatures	99

Table of Contents

PART I

ITEM 1.BUSINESS

GENERAL

Fauquier Bankshares, Inc. (“Fauquier” or the “Company”) was incorporated under the laws of the Commonwealth of Virginia on January 13, 1984. The Company is a registered bank holding company and owns all of the voting shares of The Fauquier Bank (the “Bank”). The Company engages in its business through the Bank, a Virginia state-chartered bank that commenced operations in 1902. The Company has no significant operations other than owning the stock of the Bank.

Merger between the Company and Virginia National Bankshares Corporation (“Virginia National”).

On October 1, 2020 the Company and Virginia National announced a definitive agreement to combine in a strategic merger (the “Merger Agreement”) pursuant to which the Company will merge with and into Virginia National (the “Merger”). Upon consummation of the Merger, the holders of shares of the Company's common stock will be converted into the right to receive 0.675 shares of Virginia National common stock for each share of the Company's common stock held immediately prior to the effective date of the Merger, plus cash in lieu of fractional shares. The transaction is expected to be completed in the second quarter of 2021. The companies have received regulatory and shareholder approvals, and the transaction remains subject to other customary closing conditions.

THE FAUQUIER BANK

The Bank’s general market area principally includes Fauquier County, Prince William County and neighboring communities, and is located approximately 50 miles southwest of Washington, D.C. The Bank provides a full range of financial services, including internet banking, mobile banking, commercial, retail, insurance, wealth management, and financial planning services through eleven banking offices throughout Fauquier and Prince William counties in Virginia.

The Bank provides retail banking services to individuals and businesses. These services include various types of interest and noninterest-bearing checking accounts, money market and savings accounts, and time deposits. In addition, the Bank provides secured and unsecured commercial and real estate loans, standby letters of credit, secured and unsecured lines of credit, personal loans, residential mortgages and home equity loans, automobile and other types of consumer financing.

The Bank operates a Wealth Management Services (“WMS” or “Wealth Management”) division that began with the granting of trust powers to the Bank in 1919. The WMS division offers a full range of personalized services that include investment management, financial planning, trust, estate settlement, retirement, insurance and brokerage services.

The Bank, through its subsidiary Fauquier Bank Services, Inc., has equity ownership interests in Bankers Insurance, LLC, a Virginia independent insurance company, and Bankers Title Shenandoah, LLC, a title insurance company which are owned by a consortium of Virginia community banks. Fauquier Bank Services, Inc. also previously had an equity ownership interest in Infinex Investments, Inc., a full service broker/dealer owned by banks and banking associations in various states, whose ownership was sold by Fauquier Bank Services, Inc. in January 2019.

The revenues of the Bank are primarily derived from interest and fees received on loans, and from interest and dividends from investment securities. The principal sources of funds for the Bank’s lending activities are its deposits, repayment of loans, the sale and maturity of investment securities, and borrowings from the Federal Home Loan Bank of Atlanta (“FHLB”). Additional revenues are derived from fees for deposit and WMS related services.

LENDING ACTIVITIES

The Bank offers a range of lending services, including real estate and commercial loans, to individuals, as well as, small-to-medium sized businesses and other organizations that are located in or conduct a substantial portion of their business in the Bank’s market area. The majority of the Bank’s loans are made on a secured basis. The interest rates charged on loans vary with the degree of risk, maturity, and amount of the loan, and are further subject to competitive pressures, money market rates, availability of funds and government regulations. The Bank has no foreign loans, subprime loans or loans for highly leveraged transactions.

The Bank’s general market area for lending consists of Fauquier and Prince William Counties, Virginia and neighboring communities. There is no assurance that this area will experience economic growth. Deteriorating economic conditions, including as a result of the novel coronavirus (“COVID-19”) pandemic, as well as declines in the market value of local commercial and/or residential real estate, may have an adverse effect on the Company and the Bank.

Table of Contents

The Bank’s loan portfolio includes the following segments: commercial and industrial, commercial real estate, construction and land, consumer and student, residential real estate and home equity lines of credit.

COMMERCIAL AND INDUSTRIAL LOANS

Commercial loans include loans for working capital, equipment purchases, SBA-backed loans including PPP loans, and various other business purposes. Business assets are the primary collateral for the Bank’s commercial loan portfolio. Commercial loans have variable or fixed rates of interest. Commercial lines of credit are typically granted on a one-year basis. Other commercial loans with terms or amortization schedules longer than one year will normally carry interest rates that vary based on financial indices and are generally payable in three to five years.

Loan originations are derived from a number of sources, including existing customers and borrowers, walk-in customers, advertising, and direct solicitation by the Bank’s loan officers. Inherent risks within this portfolio include interest rate and prepayment risks, risks resulting from uncertainties in the future value of collateral and changes in economic and industry conditions. In particular, longer maturities increase the risk that economic conditions will change and adversely affect the Bank's ability to collect. The Bank attempts to minimize loan losses by including the debtors’ cash flow as the source of repayment and, secondarily, the value of the underlying collateral. In addition, the Bank attempts to utilize shorter loan terms in order to reduce the risk of a decline in the value of such collateral.

COMMERCIAL REAL ESTATE LOANS

Loans secured by commercial real estate consist principally of commercial loans for which real estate constitutes the primary source of collateral. Commercial real estate loans generally involve a greater degree of risk because repayment may be more vulnerable to adverse conditions in the real estate market or the economy.

CONSTRUCTION AND LAND LOANS

The majority of the Bank’s construction and land loans are made to individuals to construct a primary residence. Such loans have a maximum term of twelve months, a fixed rate of interest, and loan-to-value ratios of 80% or less of the appraised value upon completion. The Bank requires that permanent financing, with the Bank or some other lender, be in place prior to closing. Construction loans are generally considered to involve a higher degree of credit risk because the risk of loss is dependent largely upon the accuracy of the initial estimate of the property’s value at completion. The Bank also provides construction loans and lines of credit to developers to acquire the necessary land, develop the site and construct the residential units. Such loans generally have maximum loan-to-value ratios of 80% of the appraised value upon completion with a fixed rate of interest. The majority of these construction loans are made to selected developers for the building of single-family dwellings on either a pre-sold or speculative basis. The Bank limits the number of unsold units under construction at one time. Loan proceeds are disbursed in stages after inspections of the project indicate that such disbursements are for costs already incurred and that have added to the value of the project.

CONSUMER AND STUDENT LOANS

The Bank’s consumer loans include loans to individuals such as auto loans, credit card loans and overdraft loans. The Bank also has U.S. Government guaranteed student loans, which were purchased through and serviced by a third-party and have a variable rate of interest.

RESIDENTIAL REAL ESTATE LOANS

The Bank’s 1-4 family residential real estate loan portfolio primarily consists of conventional loans, generally with fixed interest rates with 15 or 30-year terms, and balloon loans with fixed interest rates, and 5, 10, or 15 year maturities utilizing amortization schedules of 30 years. The majority of the Bank’s 1-4 family residential mortgage loans are secured by properties located in the Bank’s market area.

HOME EQUITY LINES OF CREDIT

Home equity lines of credit consist of conventional loans, generally with variable interest rates that are tied to the Wall Street Journal prime rate with 10 year terms. The majority of the Bank’s home equity lines of credit are secured by properties located in the Bank’s market area. The Bank allows a maximum loan-to-value ratio of 85% of the value of the property held as collateral at the time of origination.

DEPOSIT ACTIVITIES

Deposits are the major source of the Bank’s funds for lending and other investment activities. The deposits of the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the Federal Deposit Insurance Corporation (“FDIC”). The Bank considers interest and noninterest-bearing checking accounts, savings and money market accounts, and nonbrokered time deposits under $100,000 to be core deposits. Generally, the Bank attempts to maintain the rates paid on its deposits at a competitive level. The Bank is a member of the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep Service (“ICS”), to provide customers multi-

Table of Contents

million dollar FDIC insurance on certificate of deposit investments and deposit sweeps through the transfer and/or exchange with other FDIC insured institutions. CDARS and ICS are registered service marks of Promontory Interfinancial Network, LLC.

INVESTMENTS

The Bank invests a portion of its assets in U.S. Government-sponsored corporation and agency obligations, state, county and municipal obligations, corporate obligations, and mutual funds. The Bank’s investments are managed in relation to loan demand and deposit growth, and are generally used to provide for the investment of excess funds, while also providing liquidity. The Bank’s restricted investments include holdings of FHLB stock and stock of the Federal Reserve Bank of Richmond (the “Reserve Bank”).

RESPONSE TO THE COVID-19 PANDEMIC

Following the outbreak of the COVID-19 pandemic in early 2020, the business environment in which the Company operates has been subject to numerous changes as a result of public health measures, economic disruption, government intervention and changes in regulation, which have affected the Company’s businesses operationally, including how it serves customers, as well as financially. The Company has implemented safe and healthy practices of social distancing and enhanced cleaning to protect employees and customers, and has increased options for certain employees to work remotely. The Company is working proactively with borrowers affected by the pandemic, including by offering short-term modifications, such as payment deferrals or interest only periods, to borrowers who are temporarily unable to make loan payments.

The federal government and federal regulatory agencies have introduced numerous initiatives in response to the pandemic. For example, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020, included provisions that, among other things, (i) established the Paycheck Protection Program (the “PPP”) to provide loans guaranteed by the Small Business Administration (the “SBA”) to businesses affected by the pandemic, (ii) established the Paycheck Protection Program Lending Facility (the “PPPLF”) to provide funding to eligible financial institutions through the Federal Reserve Board system to facilitate lending under the PPP, (iii) provided certain forms of economic stimulus, including direct payments to certain U.S. households, enhanced unemployment benefits, certain income tax benefits intended to assist businesses in surviving the economic crisis, and delayed the required implementation of certain new accounting standards for some entities, and (iv) provided limited regulatory relief to banking institutions. The federal banking agencies have eased certain bank capital requirements and reporting requirements in response to the pandemic, and have encouraged banking institutions to work prudently with borrowers affected by the pandemic by offering loan modifications that can improve borrowers’ capacity to service debt, increase the potential for financially stressed residential borrowers to keep their homes, and facilitate financial institutions’ ability to collect on their loans. The Consolidated Appropriations Act, 2021, enacted on December 27, 2020, expanded on some of the benefits made available under the CARES Act, including the PPP program, and provided further economic stimulus.

The Company continues to monitor and respond to developments related to the COVID-19 pandemic and will continue to find ways to improve customer service while continuing to protect customers and employees.

GOVERNMENT SUPERVISION AND REGULATION

Bank holding companies and banks are extensively regulated under both federal and state law. The following summary addresses certain provisions of federal and state laws that apply to the Company or the Bank. This summary does not purport to be complete and is qualified in its entirety by reference to the particular statutory or regulatory provisions.

EFFECT OF GOVERNMENTAL MONETARY POLICIES. The earnings and business of the Company and the Bank are affected by the economic and monetary policies of various regulatory authorities of the United States, especially the Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Federal Reserve, among other things, regulates the supply of credit and money and sets interest rates in order to influence general economic conditions within the United States. The instruments of monetary policy employed by the Federal Reserve for those purposes influence in various ways the overall level of investments, loans, other extensions of credit, and deposits, and the interest rates paid on liabilities and received on assets. Federal Reserve monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future.

SARBANES-OXLEY ACT OF 2002. The Company is subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the filing of annual, quarterly, and other reports with the Securities and Exchange Commission (the “SEC”). As an Exchange Act reporting company, the Company is directly affected by the Sarbanes-Oxley Act of 2002 (“SOX”), which is aimed at improving corporate governance, internal controls and reporting procedures. The Company is complying with applicable SEC and other rules and regulations implemented pursuant to SOX.

Table of Contents

BANK HOLDING COMPANY REGULATION. The Company is a one-bank holding company, registered with the Federal Reserve under the Bank Holding Company Act of 1956 (the “BHC Act”). As such, the Company is subject to the supervision, examination, and reporting requirements of the BHC Act and the regulations of the Federal Reserve. The Company is required to furnish to the Federal Reserve an annual report of its operations at the end of each fiscal year and such additional information as the Federal Reserve may require pursuant to the BHC Act. The BHC Act generally prohibits the Company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those activities determined by the Federal Reserve to be sufficiently related to banking or managing or controlling banks. With some limited exceptions, the BHC Act requires every bank holding company to obtain the prior approval of the Federal Reserve before: acquiring substantially all the assets of any bank; acquiring direct or indirect ownership or control of any voting shares of any bank if after such acquisition it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares); or merging or consolidating with another bank holding company. In addition, and subject to some exceptions, the BHC Act and the Change in Bank Control Act, together with the regulations promulgated thereunder, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company.

BANK REGULATION. The Bank is chartered under the laws of the Commonwealth of Virginia and is a member of the Federal Reserve System. The Bank is subject to comprehensive regulation, examination and supervision by the Federal Reserve and the Virginia State Corporation Commission and to other laws and regulations applicable to banks. These regulations include limitations on loans to a single borrower and to the Bank’s directors, officers and employees; requirements on the opening and closing of branch offices; requirements regarding the maintenance of prescribed regulatory capital and liquidity ratios; requirements to grant credit under equal and fair conditions; and requirements to disclose the costs and terms of such credit. The FDIC insures the deposits of the Bank’s customers to the maximum extent provided by law and, as a result, the Bank is also subject to regulation by the FDIC. The Bank’s regulators have broad enforcement powers over the Bank, including the power to impose fines and other civil or criminal penalties and to appoint a receiver in order to conserve the Bank’s assets for the benefit of depositors and other creditors.

The Bank is also subject to the provisions of the Community Reinvestment Act of 1977 (“CRA”). Under the terms of the CRA, the appropriate federal bank regulatory agency is required, in connection with its examination of a bank, to assess the bank’s record in meeting the credit needs of the community served by that bank, including low-and moderate-income neighborhoods. The regulatory agency’s assessment of a bank’s record is made available to the public. Such assessment is required of any bank that has applied to (i) charter a national bank, (ii) obtain deposit insurance coverage for a newly chartered institution, (iii) establish a new branch office that will accept deposits, (iv) relocate an office, or (v) merge or consolidate with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve will assess the record of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application. The Bank received a rating of “satisfactory” at its last CRA performance evaluation as of May 20, 2019.

In December 2019, the FDIC and the Office of the Comptroller of the Currency jointly proposed rules that would significantly change existing CRA regulations. The proposed rules are intended to increase bank activity in low- and moderate-income communities where there is significant need for credit, more responsible lending, greater access to banking services, and improvements to critical infrastructure. The proposals change four key areas: (i) clarifying what activities qualify for CRA credit; (ii) updating where activities count for CRA credit; (iii) providing a more transparent and objective method for measuring CRA performance; and (iv) revising CRA-related data collection, record keeping, and reporting. The Company is evaluating what impact this proposed rule may have on its operations if the rule is implemented and applicable to Federal Reserve member banks.

DIVIDENDS. Dividends from the Bank constitute the primary source of funds for dividends to be paid by the Company. There are various statutory and contractual limitations on the ability of the Bank to pay dividends, extend credit, or otherwise supply funds to the Company, including the requirement under Virginia banking laws that cash dividends only be paid out of net undivided profits and only if such dividends would not impair the capital of the Bank. The Federal Reserve also has the general authority to limit the dividends paid by bank holding companies and state member banks, if the payment of dividends is deemed to constitute an unsafe and unsound practice. The Federal Reserve has indicated that banking organizations should generally pay dividends only if (i) the organization’s net income available to common shareholders over the past year has been sufficient to fund fully the dividends and (ii) the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Bank does not expect any of these laws, regulations or policies to materially impact its ability to pay dividends to the Company.

DEPOSIT INSURANCE. Each of the Bank’s depository accounts is insured by the FDIC against loss to the depositor to the maximum extent permitted by applicable law, and federal law and regulatory policy impose a number of obligations and restrictions on the Company and the Bank to reduce potential loss exposure to depositors and to the DIF. The deposit insurance assessment is based on average total

Table of Contents

assets minus average tangible equity, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

The FDIC utilizes a “financial ratios method” based on the CAMELS composite ratings to determine assessment rates for small established institutions with less than $10 billion in assets, such as the Bank. The CAMELS rating system is a supervisory rating system designed to reflect financial and operational risks that a bank may face, including capital adequacy, asset quality, management capability, earnings, liquidity and sensitivity to market risk (“CAMELS”). CAMELS composite ratings set a maximum assessment for CAMELS 1 and 2 rated banks, and set minimum assessments for lower rated institutions.

During 2016, the FDIC raised the DIF’s minimum reserve ratio from 1.15% to 1.35%, as required by the Dodd-Frank Act. The FDIC imposed a 4.5 basis point annual surcharge on insured depository institutions with total consolidated assets of $10 billion or more. The rule granted credits to smaller banks, such as the Bank, for the portion of their regular assessments that contribute to increasing the reserve ratio from 1.15% to 1.35%. The minimum reserve ratio reached 1.35% in the third quarter of 2018; therefore, the Bank has not been required to pay such a surcharge thereafter.

CAPITAL REQUIREMENTS. Federal bank regulators have issued substantially similar guidelines requiring banks and bank holding companies to maintain capital at certain levels. In addition, regulators may from time to time require that a banking organization maintain capital above the minimum levels because of its financial condition or actual or anticipated growth. Failure to meet minimum capital requirements can trigger certain mandatory and discretionary actions by regulators that could have a direct material effect on the Company’s financial condition and results of operations.

The Federal Reserve and the FDIC have adopted rules to implement the Basel III capital framework as outlined by the Basel Committee on Banking Supervision (the “Basel Committee”) and certain provisions of the Dodd-Frank Act (the “Basel III Capital Rules”). For the purposes of the Basel III Capital Rules, (i) common equity Tier 1 capital consists principally of common stock (including surplus) and retained earnings; (ii) Tier 1 capital consists principally of common equity Tier 1 capital plus noncumulative preferred stock and related surplus, and certain grandfathered cumulative preferred stocks and trust preferred securities; and (iii) Tier 2 capital consists principally of Tier 1 capital plus qualifying subordinated debt and preferred stock, and limited amounts of an institution’s allowance for loan losses. Each regulatory capital classification is subject to certain adjustments and limitations, as implemented by the Basel III Capital Rules. The Basel III Capital Rules also establish risk weightings that are applied to many classes of assets held by community banks, including applying higher risk weightings to certain commercial real estate loans.

The Basel III Capital Rules require banks and bank holding companies to comply with the following minimum capital ratios: (i) a ratio of common equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7%); (ii) a ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum Tier 1 capital ratio of 8.5%); (iii) a ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (effectively resulting in a minimum total capital ratio of 10.5%); and (iv) a leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average for each quarter of the month-end ratios for the quarter). The phase-in of the capital conservation buffer requirement began on January 1, 2016, at 0.625% of risk-weighted assets, increasing by the same amount each year until it was fully implemented at 2.5% on January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking organizations with a ratio of common equity Tier 1 capital to risk-weighted assets above the minimum but below the conservation buffer face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.

In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”). Among other things, these standards revise the standardized approach for credit risk (including by recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provide a new standardized approach for operational risk capital. Under the proposed framework, these standards will generally be effective on January 1, 2022, with an aggregate output floor phasing-in through January 1, 2027. Under the current capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company. The impact of Basel IV on the Company and the Bank will depend on the manner in which it is implemented by the federal bank regulatory agencies.

The Company meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement (the “SBHC Policy Statement”). On August 28, 2018, the Federal Reserve issued an interim final rule required by the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, which was signed into law on May 24, 2018 (the

Table of Contents

“EGRRCPA”), that expands the applicability of the SBHC Policy Statement to bank holding companies with total consolidated assets of less than $3 billion (up from the prior $1 billion threshold). Under the SBHC Policy Statement, qualifying bank holding companies, such as the Company, have additional flexibility in the amount of debt they can issue and are also exempt from the Basel III Capital Rules. The SBHC Policy Statement does not apply to the Bank and the Bank must comply with the Basel III Capital Rules. The Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act, as described below.

On September 17, 2019, the federal banking agencies jointly issued a final rule required by the EGRRCPA that permits qualifying banks and bank holding companies that have less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio that would be applied using less complex leverage calculations (commonly referred to as the community bank leverage ratio or “CBLR”). Under the rule, which became effective on January 1, 2020, banks and bank holding companies that opt into the CBLR framework and maintain a CBLR of greater than 9% are not subject to other risk-based and leverage capital requirements under the Basel III Capital Rules and would be deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. The CBLR will be available for banking organizations to use as of March 31, 2020 (with the flexibility for banking organizations to subsequently opt into or out of the CBLR, as applicable).

PROMPT CORRECTIVE ACTION. Federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institution in question is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” These terms are defined under uniform regulations issued by each of the federal banking agencies regulating these institutions. An insured depository institution which is less than adequately capitalized must adopt an acceptable capital restoration plan, is subject to increased regulatory oversight and is increasingly restricted in the scope of its permissible activities.

To be well capitalized under these regulations, a bank must have the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of at least 6.5%; (ii) a Tier 1 capital to risk-weighted assets ratio of at least 8.0%; (iii) a total capital to risk-weighted assets ratio of at least 10.0%; and (iv) a leverage ratio of at least 5.0%. As of December 31, 2020, the Bank was considered “well capitalized.”

As described above, on September 17, 2019, the federal banking agencies jointly issued a final rule required by the EGRRCPA that permits qualifying banks and bank holding companies that have less than $10 billion in consolidated assets to opt into the CBLR framework. Banks opting into the CBLR framework and maintaining a CBLR of greater than 9% are deemed to have met the well capitalized ratio requirements under the “prompt corrective action” framework. The CBLR will be available for banking organizations to use as of March 31, 2020 (with the flexibility for banking organizations to subsequently opt into or out of the CBLR, as applicable).

SOURCE OF STRENGTH. Federal Reserve policy has historically required bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. The Dodd-Frank Act codified this policy as a statutory requirement. Under this requirement, the Company is expected to commit resources to support the Bank, including at times when the Company may not be in a financial position to provide such resources. Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to depositors and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

FEDERAL HOME LOAN BANK OF ATLANTA. The Bank is a member of the FHLB, which provides funding to their members for making housing loans as well as loans for affordable housing and community development lending. FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from proceeds derived from the sale of consolidated obligations of the FHLB system. It makes loans to its members (i.e., advances) in accordance with policies and procedures established by the Board of Directors of the FHLB. As a member, the Bank is required to purchase and maintain stock in the FHLB in an amount equal to at least 5% of the aggregate outstanding advances made by the FHLB to the Bank. In addition, the Bank is required to pledge collateral for outstanding advances. The borrowing agreement with the FHLB provides for the pledge by the Bank of various forms of securities and commercial and mortgage loans as collateral.

USA PATRIOT ACT. The USA PATRIOT Act provides for the facilitation of information sharing among governmental entities and financial institutions for the purpose of combating terrorism and money laundering. Among other provisions, the USA PATRIOT Act permits financial institutions, upon providing notice to the United States Treasury, to share information with one another in order to better identify and report to the federal government concerning activities that may involve money laundering or terrorists’ activities. The USA PATRIOT Act is considered a significant banking law in terms of information disclosure regarding certain customer transactions. Certain

Table of Contents

provisions of the USA PATRIOT Act impose the obligation to establish anti-money laundering programs, including the development of a customer identification program, and the screening of all customers against any government lists of known or suspected terrorists. Although it does create a reporting obligation and a cost of compliance, the USA PATRIOT Act has not materially affected the Bank’s products, services, or other business activities.

OFFICE OF FOREIGN ASSETS CONTROL. The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) is responsible for administering and enforcing economic and trade sanctions against specified foreign parties, including countries and regimes, foreign individuals and other foreign organizations and entities. OFAC publishes lists of prohibited parties that are regularly consulted by the Company in the conduct of its business in order to assure compliance. The Company is responsible for, among other things, blocking accounts of, and transactions with, prohibited parties identified by OFAC, avoiding unlicensed trade and financial transactions with such parties and reporting blocked transactions after their occurrence. Failure to comply with OFAC requirements could have serious legal, financial and reputational consequences for the Company.

MORTGAGE BANKING REGULATION. The Bank’s mortgage banking activities are subject to the rules and regulations of, and examination by the Department of Housing and Urban Development, the Federal Housing Administration, the Department of Veterans Affairs and state regulatory authorities with respect to originating, processing and selling mortgage loans. Those rules and regulations, among other things, establish standards for loan origination, prohibit discrimination, provide for inspections and appraisals of property, require credit reports on prospective borrowers and, in some cases, restrict certain loan features, and fix maximum interest rates and fees. In addition to other federal laws, mortgage origination activities are subject to the Equal Credit Opportunity Act, Truth-in-Lending Act, Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, Home Ownership Equity Protection Act, the Secure and Fair Enforcement for Mortgage Licensing Act (S.A.F.E. Act), and the regulations promulgated under these acts. These laws prohibit discrimination, require the disclosure of certain basic information to mortgagors concerning credit and settlement costs, limit payment for settlement services to the reasonable value of the services rendered and require the maintenance and disclosure of information regarding the disposition of mortgage applications based on race, gender, geographical distribution and income level.

CONSUMER LAWS AND REGULATIONS. The Bank is subject to certain consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth herein is not exhaustive, these laws and regulations include the Truth-in-Lending Act, the Truth-in-Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Housing Act, and regulations issued under such acts, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans to or engaging in other types of transactions with such customers.

The Dodd-Frank Act centralized responsibility for consumer financial protection by creating the Consumer Financial Protection Bureau (the “CFPB”), and giving it responsibility for implementing, examining, and enforcing compliance with federal consumer protection laws. The CFPB focuses on (i) risks to consumers and compliance with the federal consumer financial laws, (ii) the markets in which firms operate and risks to consumers posed by activities in those markets, (iii) depository institutions that offer a wide variety of consumer financial products and services, and (iv) non-depository companies that offer one or more consumer financial products or services.

The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial law in order to impose a civil penalty or injunction.

ABILITY-TO-REPAY AND QUALIFIED MORTGAGE RULE. The Dodd-Frank Act authorized the CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower's ability-to-repay, and allows borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the Dodd-Frank Act and CFPB regulations. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Qualified mortgages that are “higher-priced” (e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g. prime loans) are given a safe harbor of compliance. The Company is predominantly an originator of compliant qualified mortgages.

LOANS TO INSIDERS. The Federal Reserve Act and related regulations impose specific restrictions on loans to directors, executive officers and principal shareholders of banks. Specifically, loans to a director, an executive officer and to a principal shareholder of a bank, and some affiliated entities of any of the foregoing, may not exceed, together with all other outstanding loans to such person and affiliated

Table of Contents

entities, the bank’s loan-to-one borrower limit. Loans in the aggregate to insiders and their related interests as a class may not exceed the Bank’s unimpaired capital and unimpaired surplus. Loans exceeding these amounts are prohibited, unless such loan is approved in advance by a majority of the board of directors of the bank with any “interested” director not participating in the voting. The FDIC has prescribed the loan amount, which includes all other outstanding loans to such person, as to which such prior board of director approval is required, as being the greater of $25,000 or 5% of capital and surplus (up to $500,000). Loans to directors, executive officers and principal shareholders are required to be made on terms and underwriting standards substantially the same as offered in comparable transactions to other persons.

CYBERSECURITY. Federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution’s board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third-parties in the provision of financial products and services. The federal banking agencies expect financial institutions to establish lines of defense and ensure that their risk management processes also address the risk posed by compromised customer credentials, and also expect financial institutions to maintain sufficient business continuity planning processes to ensure rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack. If the financial institution fails to meet the expectations set forth in this regulatory guidance, the institution could be subject to various regulatory actions, including financial penalties, and any remediation efforts may require significant resources.

INCENTIVE COMPENSATION. Federal bank regulatory agencies issued guidance intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Federal Reserve will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Bank, that are not “large, complex banking organizations.” The findings will be included in reports of examination, and deficiencies will be incorporated into the organization’s supervisory ratings. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies. As of December 31, 2020, the Company is not aware of any instances of noncompliance with the guidance.

COVID-19 RELATED REGULATORY RELIEF. In response to the COVID-19 pandemic, federal banking agencies issued a joint statement on March 22, 2020 encouraging banking institutions to work with borrowers affected by the COVID-19 pandemic, including offering short-term loan modifications to borrowers unable to meet their contractual payment obligations. Under this interagency guidance, certain loans that have been modified are exempt from being reported as past due or as troubled debt restructurings (“TDRs”). Further, the CARES Act provided additional exemptions from TDR reporting for certain loans that have been modified for reasons related to the COVID-19 pandemic. Regulatory agencies also issued an interim final rule on April 7, 2020 which provides relief in bank regulatory capital requirements that allow loans originated under the PPP to be excluded from risk-weighted assets, and to be excluded from total assets for purposes of bank leverage ratio requirements if they are pledged as collateral to the PPPLF.

Congress also enacted the Consolidated Appropriations Act, 2021, on December 27, 2020, which included (i) the Economic Aid to Hard-Hit Small Businesses, Non-profits, and Venues Act, (ii) the COVID-Related Tax Relief Act of 2020, and (iii) the Taxpayer Certainty and Disability Relief Act of 2020. These laws include significant clarifications and modifications to PPP, which had terminated on August 8, 2020. In particular, Congress revived the PPP and allocated an additional $284.45 billion in PPP funds for 2021. As a result, the SBA has modified prior guidance and promulgated new regulations and guidance to conform with and implement the new provisions during the first quarter of 2021. As a participating PPP lender, the Bank continues to monitor legislative, regulatory, and supervisory developments related thereto.

FUTURE REGULATORY UNCERTAINTY. Congress may enact legislation from time to time that affects the regulation of the financial services industry, and state legislatures may enact legislation from time to time affecting the regulation of financial institutions chartered by or operating in those states. Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied. The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation could impact the regulatory structure under which the Company and the Bank operate and may significantly increase costs, impede the efficiency of internal business processes, require an increase in regulatory capital, require modifications to business strategy, and limit the ability to pursue business opportunities in an efficient manner. A change in statutes, regulations or regulatory policies applicable to the Company or the Bank could have a material, adverse effect on the business, financial condition and results of operations of the Company and the Bank.

Table of Contents

COMPETITION

The Company encounters strong competition both in making loans and in attracting deposits. In one or more aspects of its business, the Bank competes with other commercial banks, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, financial technology (“fintech”) companies, and other financial intermediaries. Most of these competitors, some of which are affiliated with bank holding companies, have substantially greater resources and lending limits, and may offer certain services that the Bank does not currently provide. In addition, many of the Bank’s nonbank competitors are not subject to the same level of federal regulation that governs bank holding companies and federally insured banks. Recent federal and state legislation has heightened the competitive environment in which financial institutions must conduct their business, and the potential for competition among financial institutions of all types has increased significantly. To compete, the Bank relies upon specialized services, responsive handling of customer needs, and personal contacts by its officers, directors, and staff. Large multi-branch banking institutions tend to compete based primarily on price and the number and location of branches while smaller financial institutions, like the Company, tend to compete primarily on price and personal service.

EMPLOYEES

As of December 31, 2020, the Company and the Bank employed approximately 140 full-time equivalent employees. No employee is represented by a collective bargaining unit. The Company and the Bank consider relations with employees to be good.

The Company is a small community bank and customer service is an important differentiator. The Company’s senior officers have personal relationships with many of the Company’s key customers, and attracting and retaining these senior officers is critical to the Company’s success. The Company’s compensation programs encourage performance consistent with strategic and business plans approved by the Company’s Board of Directors, while ensuring that the financial costs of current or proposed compensation and benefits are reasonable and consistent with industry standards and shareholders’ interests. See “PART III – ITEM 11. EXECUTIVE COMPENSATION” of this Annual Report on Form 10-K for a description of the types of plans and programs that Fauquier maintains for its senior officers.

AVAILABLE INFORMATION

The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. The Company’s SEC filings are filed electronically and are available to the public over the internet at the SEC’s website at http://www.sec.gov. The Company’s website is https://www.tfb.bank. The Company makes its SEC filings available free of charge through this website under “About Us” “Investor Relations,” “Financial Information” “Documents” as soon as practicable after filing or furnishing the material to the SEC. Copies of documents can also be obtained free of charge by writing to the Company's secretary at 10 Courthouse Square, Warrenton, Virginia 20186 or by calling 800-638-3798. The information on the Company’s website is not incorporated into this report or any other filing the Company makes with the SEC.

The Company’s transfer agent and registrar is American Stock Transfer & Trust Company, LLC and can be contacted by writing to 6201 15th Avenue, Brooklyn, New York 11209 or by phone 800-937-5449. Their website is www.astfinancial.com.

Table of Contents

ITEM 1A. RISK FACTORS

An investment in the Company’s securities involves risks and uncertainties. In addition to the other information contained in this report, including the information addressed under “Forward-Looking Statements,” investors in the Company’s securities should carefully consider the factors discussed below. These factors could materially and adversely affect the Company’s business, financial condition, liquidity, results of operations, and capital position and could cause the Company’s actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this report, in which case the trading price of the Company’s securities could decline.

Risk Factors Related to the COVID-19 Pandemic.

The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.

In March 2020, the World Health Organization declared COVID-19 a pandemic. On March 12, 2020, the former President of the United States declared the COVID-19 outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark federal funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are encouraging, or in some cases requiring, lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers through the issuance of an interagency statement, and federal legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 pandemic. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of COVID-19 has caused the Company to modify business practices, including branch operations, employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. The Company may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, clients and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on the Company or its business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Company could be subject to any of the following risks, any of which could have a material adverse effect on our business, financial condition, liquidity, and results of operations:

•

demand for products and services may decline, making it difficult to grow assets and income;

•

if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges, additions to the allowance for loan losses, and reduced income, among other impacts;

•

collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

•

the allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect net income;

•

the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments;

•

as the result of the decline in the Federal Reserve’s target federal funds rate, the yield on the Company’s assets may decline to a greater extent than the decline in its cost of interest-bearing liabilities, reducing its net interest margin and spread and reducing net income;

•

a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of the Company’s quarterly cash dividend;

•

the Company’s wealth management and trust revenues may decline with continuing market turmoil;

•

the Company relies on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect the Company and its operations; and

•

FDIC premiums may increase if the agency experiences additional resolution costs.

Moreover, the Company’s future success and profitability substantially depends on the management skills of our executive officers. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate the Company’s business or

Table of Contents

execute its business strategy. The Company may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact the Company’s business, financial condition and results of operations and prospects.

As a participating lender in the PPP, the Company and the Bank are subject to additional risks of litigation from the Bank’s clients or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.

On March 27, 2020, the former President of the United States signed the CARES Act, which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. There continues to be some ambiguity in the laws, regulations and administrative guidance related to the PPP. In addition, since the opening of the PPP, several large banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company and the Bank may be exposed to the risk of similar litigation, from both clients and non-clients that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP. If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.

The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Bank, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company or the Bank.

Risk Factors Related to the Merger Agreement with Virginia National

Combining Virginia National and the Company may be more difficult, costly or time-consuming than expected.

The success of the Merger will depend, in part, on Virginia National’s ability after the Merger to realize the anticipated benefits and cost savings from combining the businesses of Virginia National and the Company and to combine the businesses of Virginia National and the Company in a manner that permits growth opportunities and cost savings to be realized without materially disrupting the existing customer relationships of the Company or decreasing revenues due to loss of customers. If Virginia National is not able to achieve these objectives, the anticipated benefits and cost savings of the Merger may not be realized fully or at all or may take longer to realize than expected.

Virginia National and the Company have operated, and, until the completion of the Merger, will continue to operate, independently. To realize these anticipated benefits of the Merger, after the completion of the Merger, Virginia National expects to integrate the Company’s business into its own. The integration process in the Merger could result in the loss of key employees, the disruption of each party’s ongoing business, inconsistencies in standards, controls, procedures and policies that affect adversely either party’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the Merger. The loss of key employees could adversely affect Virginia National’s ability to successfully conduct its business in the markets in which the Company now operates, which could have an adverse effect on Virginia National’s financial results and the value of its common stock. If Virginia National experiences difficulties with the integration process, the anticipated benefits of the Merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be disruptions that cause Virginia National and the Company to lose customers or cause customers to withdraw their deposits from the Company’s or Virginia National’s banking subsidiaries, or other unintended consequences that could have a material adverse effect on Virginia National’s results of operations or financial condition after the Merger. These integration matters could have an adverse effect on the Company during this transition period and on Virginia National for an undetermined period after consummation of the Merger.

Because the market price of Virginia National common stock will fluctuate, the value of the consideration to be received by the Company’s shareholders in the Merger may change.

Pursuant to the Merger Agreement, each share of the Company’s common stock, except for certain shares of the Company’s common stock owned by the Company or Virginia National, that is issued and outstanding immediately prior to the effective time of the Merger

Table of Contents

will be converted into the right to receive 0.6750 shares of common stock of Virginia National. The closing price of Virginia National common stock on the date that the Merger is completed may vary from the closing price of Virginia National common stock on the date the Company and Virginia National announced the signing of the Merger Agreement. Because the Merger consideration is determined by a fixed exchange ratio, at the time of the Company’s special meeting, the Company’s shareholders will not know or be able to calculate the value of the shares of Virginia National common stock they will receive upon completion of the Merger. Any change in the market price of Virginia National common stock prior to completion of the Merger may affect the value of the Merger consideration that the Company’s shareholders will receive upon completion of the Merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the companies’ respective businesses, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of the Company and Virginia National. The Company’s shareholders should obtain current market quotations for shares of Virginia National common stock and the Company’s common stock before voting their shares at the Company’s special meeting of shareholders.

The Merger may distract management of the Company from its other responsibilities.

The Merger could cause the management of the Company to focus its time and energies on matters related to the Merger that otherwise would be directed to its business and operations. Any such distraction on the part of the Company’s management, if significant, could affect its ability to service existing business and develop new business and may adversely affect the business and earnings of the Company before the Merger, or the business and earnings of Virginia National after the Merger.

Termination of the Merger Agreement could negatively impact the Company.

Each of the Company’s and Virginia National’s obligation to consummate the Merger remains subject to a number of conditions, and there can be no assurance that all of the conditions will be satisfied, or that the Merger will be completed on the proposed terms, within the expected timeframe, or at all. Any delay in completing the Merger could cause the Company not to realize some or all of the benefits that the Company expects to achieve if the Merger is successfully completed within its expected timeframe. If the Merger Agreement is terminated, the Company’s business may be impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger. Additionally, if the Merger Agreement is terminated, the market price of the Company’s common stock could decline to the extent that the current market prices reflect a market assumption that the Merger will be completed. If the Merger Agreement is terminated under certain circumstances, including circumstances involving a change in recommendation by the Company's board of directors, the Company may be required to pay to Virginia National a termination fee of $2.5 million.

In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the Merger Agreement. If the Merger is not completed, the Company would have to recognize these expenses and would have committed substantial time and resources by management, without realizing the expected benefits of the Merger. In addition, failure to consummate the Merger also may result in negative reactions from the financial markets or from the Company’s customers, vendors and employees. If the Merger is not completed, these risks may materialize and could have a material adverse effect on the Company’s stock price, business and cash flows, financial condition and results of operations.

The Merger Agreement limits the ability of the Company to pursue alternatives to the Merger.

The Merger Agreement contains “no-shop” provisions that, subject to limited exceptions, limits the ability of the Company to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of the Company. In addition, under certain circumstances, if the Merger Agreement is terminated and the Company, subject to certain restrictions, consummates a similar transaction other than the Merger, the Company must pay to Virginia National a fee of $2.5 million. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of the Company from considering or proposing the acquisition even if it were prepared to pay consideration, with respect to the Company, with a higher per share market price than that proposed in the Merger.

The Company will be subject to business uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on the Company. These uncertainties may impair the Company’s ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers and others that deal with the Company to seek to change existing business relationships with the Company. Retention of certain employees by the Company may be challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles with the Company or the combined company following the Merger. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the Company or the combined company following the Merger, the Company’s business, or the business of the combined company following the Merger, could be harmed. In addition, the Company has agreed to operate its business in the ordinary course prior to the closing of the Merger and from taking certain specified actions until the

Table of Contents

Merger occurs, and the Merger Agreement restricts the Company from taking other specified actions until the merger occurs without the consent of Virginia National. These restrictions may prevent the Company from pursuing attractive business opportunities that may arise prior to the completion of the merger.

Risk Factors Related to the Company’s Lending Activities

The Company’s business is subject to various lending and other economic risks that could adversely affect its financial condition and results of operations.

The Company’s business is directly affected by general economic and market conditions; broad trends in industry and finance; legislative and regulatory changes; changes in governmental monetary and fiscal policies; and inflation, all of which are beyond the Company’s control. A deterioration in economic conditions, in particular a prolonged economic slowdown within the Company’s geographic region, could result in the following consequences which could adversely affect the Company’s business: an increase in loan delinquencies; an increase in problem assets and foreclosures; a decline in demand for products and services; and a deterioration in the value of collateral for loans.

The Company’s focus on lending to small to mid-sized community-based businesses may increase its credit risk.

Most of the Company’s commercial business and commercial real estate loans are made to small business or middle market customers. These businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities and have a heightened vulnerability to economic conditions. Additionally, these loans may increase concentration risk as to industry or collateral securing the loans. If general economic conditions in the market areas in which the Company operates negatively impact this important customer sector, the Company’s results of operations and financial condition may be adversely affected. Moreover, a portion of these loans have been made by the Company in recent years and the borrowers may not have experienced a complete business or economic cycle. The deterioration of the borrowers’ businesses may hinder their ability to repay their loans with the Company, which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company’s credit standards and on-going credit assessment processes might not protect it from significant credit losses.

The Company takes credit risk by virtue of making loans and extending loan commitments and letters of credit. Credit risk is managed through a program of underwriting standards, the review of certain credit decisions and an ongoing process of assessment of the quality of the credit already extended. In addition, the Company’s credit administration function employs risk management techniques intended to promptly identify problem loans. While these procedures are designed to provide the Company with the information needed to implement policy adjustments where necessary and to take appropriate corrective actions, there can be no assurance that such measures will be effective in avoiding future undue credit risk, and credit losses may occur in the future.

If the Company’s allowance for loan losses becomes inadequate, its financial condition and results of operations may be adversely affected.

Making loans is an essential element of the Company’s business. The risk of nonpayment is affected by a number of factors, including but not limited to: the duration of the credit; credit risks of a particular customer; changes in economic and industry conditions; and, in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral. Although the Company seeks to mitigate risks inherent in lending by adhering to specific underwriting practices, loans may not be repaid. The Company attempts to maintain an appropriate allowance for loan losses to provide for losses in the loan portfolio. The allowance for loan losses is determined by analyzing numerous factors about the loan portfolio including historical loan losses for relevant periods of time, current trends in delinquencies and charge-offs, current economic conditions that may affect a borrower’s ability to repay and the value of collateral, changes in the size and composition of the loan portfolio and industry information. Also included are qualitative considerations with respect to the effect of potential economic events, the outcomes of which are uncertain.

Because any estimate of loan losses is subjective and the accuracy depends on the outcome of future events, charge-offs in future periods may exceed the allowance for loan losses and additional increases in the allowance for loan losses may be required. Additions to the allowance for loan losses would result in a decrease of profitability. Although management believes the allowance for loan losses is adequate to absorb losses that are inherent in the loan portfolio, the Company cannot predict such losses or that the allowance will be adequate in the future.

In addition, the adoption of Accounting Standards Update (“ASU”) No. 2016-13, as amended, could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. As a smaller reporting company, the Company has elected to defer adoption of ASU No. 2016-13 until January 1, 2023.

Table of Contents

For information regarding recent accounting pronouncements and their effect on the Company, see “Recent Accounting Pronouncements and Other Regulatory Statements” in Note 1 “Nature of Banking Activities and Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” contained in Item 8 of this Form 10 K. Any increases in the allowance for loan losses will result in a decrease in net income and, possibly capital, and may have a material adverse effect on the Company’s financial condition and results of operations.

Nonperforming assets take significant time to resolve and adversely affect the Company’s financial condition and results of operations.

Nonperforming assets adversely affect net income in various ways. The Company does not record interest income on nonaccruing loans, which adversely affects income and increases credit administration costs. When the Company receives collateral through foreclosures and similar proceedings, it is required to mark the related loan to the then fair market value of the collateral less estimated selling costs, which may result in a loss. An increased level of nonperforming assets also increases the Company’s risk profile and may impact the capital levels regulators believe are appropriate in light of such risks. The Company utilizes various techniques such as workouts, restructurings and loan sales to manage problem assets. Increases in, or negative adjustments in, the value of these problem assets, the underlying collateral, or in the borrowers’ performance or financial condition, could adversely affect the Company’s financial condition and results of operations. In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including generation of new loans. There can be no assurance that the Company will avoid increases in nonperforming assets in the future.

The Company’s real estate lending business can result in increased costs associated with other real estate owned (“OREO”).

Because the Company originates loans secured by real estate, the Company may have to foreclose on the collateral property and may thereafter own and operate such property. The amount that may be realized after a default is dependent upon factors outside of the Company’s control, including, but not limited to, general or local economic conditions, environmental cleanup liability, neighborhood values, interest rates, real estate tax rates, operating expenses of the mortgaged properties, and supply of and demand for properties. Certain expenditures associated with the ownership of income-producing real estate, principally real estate taxes and maintenance costs, may adversely affect the net cash flows generated by the real estate. Therefore, the cost of operating income-producing real property may exceed the rental income earned, if any, from such property, and the Company may have to advance funds in order to protect its investment or may be required to dispose of the real property at a loss.

Risks Related to the Company’s Business, Industry and Markets

Adverse changes in economic conditions in the Company’s market areas or adverse conditions in industries on which such markets are dependent could adversely affect the Company’s financial condition and results of operations.

The Company provides full service banking and other financial services in Fauquier and Prince William counties in Virginia. The Company’s loan and deposit activities are directly affected by economic conditions within these markets, as well as conditions in the industries on which those markets are economically dependent. A deterioration in local economic conditions or in the condition of an industry on which a local market depends could adversely affect such factors as unemployment rates, business formations and expansions, and housing market conditions. Adverse developments in any of these factors could result in, among other things, a decline in loan demand, a reduction in the number of creditworthy borrowers seeking loans, an increase in delinquencies, defaults and foreclosures, an increase in classified and nonaccrual loans, a decrease in the value of loan collateral, and a decline in the financial condition of borrowers and guarantors, any of which could adversely affect the Company’s financial condition and results of operations.

Competition from other financial institutions and financial intermediaries may adversely affect the Company’s profitability.

The Company faces competition in originating loans and in attracting deposits principally from other banks, mortgage banking companies, consumer finance companies, savings associations, credit unions, brokerage firms, insurance companies, fintech companies and other institutional lenders and purchasers of loans. Advancements in technology and other changes have lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks. In particular, the activity of fintech companies has grown significantly over recent years and is expected to continue to grow. Fintech companies have and may continue to offer bank or bank-like products and some fintech companies have applied for bank charters. Other fintech companies have partnered with existing banks to allow them to offer deposit products to their customers. Additionally, banks and other financial institutions with larger capitalization and financial intermediaries not subject to bank regulatory restrictions have larger lending limits and are thereby able to serve the credit needs of larger clients. These institutions may be able to offer the same loan products and services that the Company offers at more competitive rates and prices. Increased competition could require the Company to increase the rates paid on deposits or lower the rates offered on loans, which could adversely affect profitability.

Table of Contents

Weakness in the secondary residential mortgage loan markets will adversely affect noninterest income.

One of the components of the Company’s strategic plan is to generate noninterest income from loans originated for sale into the secondary market. Interest rates, low housing inventory, cash buyers, new mortgage lending regulations and other market conditions could have an adverse effect on loan originations across the industry which would reduce our noninterest income.

The Company relies on deposits obtained from customers in the Company’s market area to provide liquidity and to support growth.

The Company’s business strategies are based on access to funding from local customer deposits. Deposit levels may be affected by a number of factors, including interest rates paid by competitors, general interest rate levels, returns available to customers on alternative investments and general economic conditions. If deposit levels fall, the Company could lose a relatively low-cost source of funding and interest expense would likely increase as alternative funding to replace lost deposits may be necessary. If local customer deposits are not sufficient to fund the Company’s normal operations and growth, the Company will look to outside sources, such as borrowings from the FHLB, which is a secured funding source. The Company’s ability to access borrowings from the FHLB will be dependent upon whether and the extent to which collateral to secure FHLB borrowings can be provided. The Company may also look to federal funds purchased and brokered deposits. The Company may also seek to raise funds through the issuance of shares of its common stock, or other equity or equity-related securities, or debt securities including subordinated notes as additional sources of liquidity. If the Company is unable to access funding sufficient to support business operations and growth strategies or is only able to access such funding on unattractive terms, the Company may not be able to implement its business strategies which may negatively affect financial performance.

Risk Factors Related to the Company’s Operations and Technology

The Company relies on dividends from the Bank for substantially all of its revenue.

The Company is a bank holding company that conducts substantially all of its operations through the Bank. As a result, the Company relies on dividends from the Bank for substantially all of its revenues. There are various regulatory restrictions on the ability of the Bank to pay dividends or make other payments to the Company, and the Company’s right to participate in a distribution of assets upon the Bank’s liquidation or reorganization is subject to the prior claims of the Bank’s creditors. If the Bank is unable to pay dividends to the Company, the Company may not be able to service its outstanding borrowings and other debt, pay its other obligations or pay a cash dividend to the holders of the Company’s common stock, and the Company’s business, financial condition and results of operations may be adversely affected. Further, although the Company has historically paid cash dividends to holders of its common stock, these holders are not entitled to receive dividends and regulatory or economic factors may cause the Company’s Board of Directors to consider, among other actions, the reduction of dividends paid on the Company’s common stock even if the Bank continues to pay dividends to the Company.

The Company’s risk management framework may not be effective in mitigating risk and loss.

The Company maintains an enterprise risk management program that is designed to identify, quantify, monitor, report and control the risks it faces including, but not limited to, interest rate, credit, liquidity, operational, reputation, legal, compliance, economic and litigation risk. Although the risk management program is assessed on an ongoing basis, the Company gives no assurance that the risk management framework and related controls will effectively mitigate the risks listed above or limit losses that may occur. If the Company’s risk management program or controls do not function effectively, the Company’s financial condition and results of operations may be adversely affected.

The Company’s operations may be adversely affected by cybersecurity risks.

In the ordinary course of business, the Company collects and stores sensitive data, including proprietary business information and personally identifiable information of its customers and employees in systems and on networks. The secure processing, maintenance, and use of this information is critical to operations and the Company’s business strategy. The Company has invested in accepted technologies, and continually reviews processes and practices that are designed to protect its networks, computers, and data from damage or unauthorized access. Despite these security measures, the Company’s computer systems and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. A breach of any kind could compromise systems and the information stored there could be accessed, damaged or disclosed. A breach in security could result in legal claims, regulatory penalties, disruption in operations, and damage to the Company’s reputation, which could adversely affect its business and financial condition. Furthermore, as cyber threats continue to evolve and increase, the Company may be required to expend significant additional financial and operational resources to modify or enhance its protective measures, or to investigate and remediate any identified information security vulnerabilities.

In addition, multiple major U.S. retailers have experienced data systems incursions reportedly resulting in the thefts of credit and debit card information, online account information and other financial or privileged data. Retailer incursions affect cards issued and deposit

Table of Contents

accounts maintained by many banks, including the Bank. Although the Company’s systems are not breached in retailer incursions, these events can cause it to reissue a significant number of cards and take other costly steps to avoid significant theft loss to the Company and its customers. In some cases, the Company may be required to reimburse customers for the losses they incur. Other possible points of intrusion or disruption not within the Company’s control include internet service providers, electronic mail portal providers, social media portals, distant-server (cloud) service providers, electronic data security providers, telecommunications companies, and smart phone manufacturers. Additionally, in recent years banking regulators have focused on the responsibilities of financial institutions to supervise vendors and other third-party service providers. The Company may have to dedicate significant resources to manage risks and regulatory burdens, including the Company’s data processing and cybersecurity service providers.

Furthermore, because some of our employees are working remotely from their homes due to the COVID-19 pandemic, there is an increased risk of disruption to our operations because they are utilizing residential networks and infrastructure which may not be as secure as in our office environment.

Business counterparties, over which the Company may have limited or no control, may experience disruptions that could adversely affect the Company.

Multiple major U.S. retailers and a major consumer credit reporting agency have experienced data systems incursions in recent years reportedly resulting in the thefts of credit and debit card information, online account information, and other personal and financial data of hundreds of millions of individuals. Retailer incursions may affect debit cards issued and deposit accounts maintained by many banks. Although the Company is not aware of any instance in which the Bank’s systems have been breached in a retailer incursion, these events can cause the Bank to reissue a significant number of cards and take other costly steps to avoid significant theft loss to the Bank and its customers. In some cases, the Bank may be required to reimburse customers for losses they incur. Credit reporting agency intrusions affect the Bank’s customers and can require these customers and the Bank to increase monitoring and take remedial action to prevent unauthorized account activity or access. Other possible points of intrusion or disruption outside the Company’s control include internet service providers, electronic mail portal providers, social media portals, distant-server (or “cloud”) service providers, electronic data security providers, telecommunications companies and smart phone manufacturers.

The Company is technology dependent and an inability to invest in technological improvements may adversely affect its financial condition and results of operations.

The financial services industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services, which may require substantial capital expenditures to modify or adapt existing products and services. In addition to enhancing customer service, the effective use of technology increases efficiency and results in reduced costs, although a financial institution’s initial investment in a technology product or service may represent a significant incremental cost. The Company’s future success will depend, in part, upon the ability to create synergies in operations through the use of technology and to facilitate the ability of customers to engage in financial transactions in a manner that enhances the customer experience. The Company cannot assure that technological improvements will increase operational efficiency or that the Company will be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to customers, which may cause the Company to lose market share or incur additional expense.

Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on the Company’s financial condition and results of operations.

Effective internal and disclosure controls are necessary to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. As part of the Company’s ongoing monitoring of internal control, it may discover material weaknesses or significant deficiencies in its internal control that require remediation. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. Any failure to maintain effective controls or to timely effect any necessary improvement of the Company’s internal and disclosure controls could, among other things, result in losses from fraud or error, harm the Company’s reputation or cause investors to lose confidence in the Company’s reported financial information, all of which could have a material adverse effect on the Company’s financial condition and results of operations.

The Company relies heavily on its management team and the unexpected loss of key officers may adversely affect operations.

The Company believes that growth and future success will depend in large part on the skills and experience of its executive officers and on their relationships with the communities it serves. The loss of the services of one or more of these officers could disrupt operations and impair the Company’s ability to implement its business strategy, which could adversely affect the Company’s financial condition and results of operations.

Table of Contents

The success of the Company’s business strategies depends on its ability to identify and recruit individuals with experience and relationships in its primary markets.

The successful implementation of the Company’s business strategy will require the Company to continue to attract, hire, motivate and retain skilled personnel to develop new customer relationships as well as new financial products and services. The market for qualified management personnel is competitive. In addition, the process of identifying and recruiting individuals with the combination of skills and attributes required to carry out the Company’s strategy is often lengthy, and the Company may not be able to effectively integrate these individuals into its operations. The Company’s inability to identify, recruit and retain talented personnel to manage its operations effectively and in a timely manner could limit growth, which could materially adversely affect the Company’s business.

The Company’s corporate culture has contributed to its success, and if the Company cannot maintain this culture, the Company could lose the beneficial aspects fostered by this culture, which could harm business.

The Company believes that a critical contributor to its success has been its corporate culture, which focuses on building personal relationships with its customers. As the Company grows, and more complex organizational management structures are required, the Company may find it increasingly difficult to maintain the beneficial aspects of this corporate culture, which could negatively affect the Company’s future success.

Risks Related to Market Interest Rates

The Company is subject to interest rate risk and fluctuations in interest rates may negatively affect its financial performance.

The Company’s profitability depends, in part, on its net interest margin, which is the difference between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits and borrowings divided by total interest-earning assets. Changes in interest rates will affect the Company’s net interest margin in diverse ways, including the pricing of loans and deposits, the levels of prepayments and asset quality. The Company is unable to predict actual fluctuations of market interest rates because many factors influencing interest rates are beyond the Company’s control. Management believes that the Company’s current interest rate exposure is manageable and does not indicate any significant exposure to interest rate changes. The Company expects continued pressure on its net interest margin due to continued low market rates and intense competition for loans and deposits from both local and national financial institutions. Continued pressure on net interest margin could adversely affect the Company’s financial condition and results of operations.

The Bank may be required to transition from the use of the London Interbank Offered Rate (“LIBOR”) index in the future.

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate LIBOR. On November 30, 2020, the ICE Benchmark Administration Limited, the administrator of the LIBOR, announced that it would consult on its plan to cease the publication of one-week and two-month LIBOR immediately after December 31, 2021 and to cease the publications of the remaining tenors of LIBOR (one, three, six, and 12-month) immediately after June 30, 2023. The Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC also issued a statement encouraging banks to transition away from LIBOR as soon as practicable. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. As a result, the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. At this time, it is impossible to predict whether and to what extent banks will continue to provide submissions for the calculation of LIBOR. Similarly, it is impossible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what rate or rates may become accepted alternatives to LIBOR, or what effects any such changes in views or alternatives may have on the markets for LIBOR-indexed financial instruments.

Regulators, industry groups, and others have, among other things, published recommended replacement language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., the Secured Overnight Financing Rate), and proposed implementations of the recommended alternatives in floating rate instruments. There is not yet any consensus on what recommendations and proposals will be broadly accepted.

The Company has loans and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create additional costs and additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition could change the Company’s market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process with customers could adversely impact the Company’s reputation. Although the Company is currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have an adverse effect on the Company’s financial condition and results of operations.

Table of Contents

Risks Related to the Regulation of the Company

Compliance with laws, regulations and supervisory guidance, both new and existing, may adversely affect the Company’s financial condition and results of operations.

The Company is subject to numerous laws, regulations and supervision from both federal and state agencies. Failure to comply with these laws and regulations could result in financial, structural and operational penalties, including receivership. In addition, establishing systems and processes to achieve compliance with these laws and regulations may increase costs and/or place limits on pursuing certain business opportunities.

The legislative and regulatory environment is beyond the Company’s control, may change rapidly and unpredictably and may negatively influence profitability and capital levels. The Company’s success depends on its ability to maintain compliance with both existing and new laws and regulations.

Future legislation, regulation and government policy could affect the banking industry as a whole, including the Company’s results of operations, in ways that are difficult to predict. In addition, the Company’s results of operations could be adversely affected by changes in the way in which existing statutes and regulations are interpreted or applied by courts and government agencies.

The CFPB may increase the Company’s regulatory compliance burden and could affect consumer financial products and services that the Company offers.

The CFPB is reshaping the consumer financial laws through rulemaking and enforcement of the Dodd-Frank Act’s prohibitions against unfair, deceptive and abusive consumer finance products or practices, which are directly affecting the business operations of financial institutions offering consumer financial products or services. This agency’s broad rulemaking authority includes identifying practices or acts that are unfair, deceptive or abusive in connection with any consumer financial transaction, financial product or service. Although the CFPB has jurisdiction over banks with $10 billion or greater in assets, rules, regulations and policies issued by the CFPB may also apply to the Company by virtue of the adoption of such policies and best practices by the Federal Reserve and the FDIC. Further, the CFPB may include its own examiners in regulatory examinations by the Company’s primary regulators. The total costs and limitations related to this additional regulatory agency and the limitations and restrictions that will be placed upon the Company with respect to consumer products and services have yet to be determined in their entirety. However, these costs, limitations and restrictions are producing, and may continue to produce, significant, material effects on the Company’s financial condition and results of operations.

Regulatory capital standards, including the Basel III Capital Rules, require the Company and the Bank to maintain higher levels of capital and liquid assets, which could adversely affect the Company’s profitability and return on equity.

The Basel III Capital Rules and related changes to the standardized calculations of risk-weighted assets are complex and created additional compliance burdens, especially for community banks. The Basel III Capital Rules require bank holding companies and their subsidiaries to maintain significantly more capital as a result of higher required capital levels and more demanding regulatory capital risk weightings and calculations. While the Company is exempt from these capital requirements under the SBHC Policy Statement, the Bank is not exempt and must comply. The Bank must also comply with the capital requirements set forth in the “prompt corrective action” regulations pursuant to Section 38 of the Federal Deposit Insurance Act. Satisfying capital requirements may require the Company or the Bank to limit its banking operations, retain net income or reduce dividends to improve regulatory capital levels, which could negatively affect its business, financial condition and results of operations. The EGRRCPA amended the Dodd-Frank Act to, among other things, provide relief from certain of these requirements. The Company does not expect the EGRRCPA and the related rulemakings to materially reduce the impact of capital requirements on its business.

The Company’s earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies.

The policies of the Federal Reserve affect the Company significantly. The Federal Reserve regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments. Those policies determine, to a significant extent, the cost of funds for lending and investing. Changes in those policies are beyond the Company’s control and are difficult to predict. Federal Reserve policies can also affect the Company’s borrowers, potentially increasing the risk that they may fail to repay their loans. This could adversely affect the borrower’s earnings and ability to repay a loan, which could have a material adverse effect on the Company’s financial condition and results of operations.

Table of Contents

The Company’s deposit insurance premiums could increase in the future, which may adversely affect future financial performance.

The FDIC insures deposits at FDIC insured financial institutions, including the Bank. The FDIC charges insured financial institutions premiums to maintain the DIF at a certain level. Economic conditions that began with the financial crisis of 2008 increased the rate of bank failures through 2014, requiring the FDIC to make payments for insured deposits from the DIF and prepare for future payments from the DIF. A depository institution’s deposit insurance assessment is calculated based on the institution’s total assets less tangible equity, rather than the previous base of total deposits. The Bank’s FDIC insurance premiums could increase in future periods if the Bank’s asset size increases, if the FDIC raises base assessment rates, or if the FDIC takes other actions to replenish the DIF.

General Risk Factors

Changes in accounting standards and management’s selection of accounting methods, including assumptions and estimates, could materially affect the Company’s financial statements.

From time to time, the SEC and Financial Accounting Standards Board (the “FASB”) change the financial accounting and reporting standards that govern the preparation of the Company’s financial statements. These changes can be hard to predict and can materially affect how the Company records and reports its financial condition and results of operations. In some cases, the Company could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results, or a cumulative charge to retained earnings. In addition, management is required to use certain assumptions and estimates in preparing financial statements, including determining the fair value of certain assets and liabilities, among other items. If the assumptions or estimates are incorrect, the Company may experience unexpected material consequences.

The Company’s common stock price may be volatile, which could result in losses to investors.

The Company’s common stock price has been volatile in the past, and several factors could cause the price to fluctuate in the future. These factors include, but are not limited to, actual or anticipated variations in earnings, changes in analysts’ recommendations or projections, operations and stock performance of other peer companies, and reports of trends and concerns and other issues related to the financial services industry. Fluctuations in the Company’s common stock price may be unrelated to performance. General market declines or market volatility in the future, especially in the financial institutions sector, could adversely affect the price of the Company’s common stock, and the current market price may not be indicative of future market prices.

Future sales of the Company’s common stock by shareholders or the perception that those sales could occur may cause the Company’s common stock price to decline.

Although the Company’s common stock is listed for trading on the Nasdaq Capital Market, the trading volume may be lower than that of other larger financial institutions. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control. Given the potential for lower relative trading volume, significant sales of the common stock in the public market, or the perception that those sales may occur, could cause the trading price of the Company’s common stock to decline or to be lower than it otherwise might be in the absence of these sales or perceptions.

Future issuances of the Company’s common stock could adversely affect the market price and could be dilutive.

The Company may issue additional shares of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, shares of the Company’s common stock. Issuances of a substantial number of shares of common stock, or the expectation that such issuances might occur, could adversely affect the market price of the shares of common stock and could be dilutive to shareholders. Any decision the Company makes to issue common stock in the future will depend on market conditions and other factors, and the Company cannot predict or estimate the amount, timing, or nature of possible future issuances. Accordingly, the Company’s shareholders bear the risk that future issuances could reduce the market price of the common stock and dilute their stock holdings in the Company.

The Company’s dividends may not be sustained.

Although the Company has historically paid cash dividends to holders of its common stock, holders of common stock are not entitled to receive dividends. Financial, regulatory or economic factors may cause the Company’s Board of Directors to consider, among other actions, the suspension or reduction of dividends paid on the Company’s common stock. Furthermore, the Company is a bank holding company that conducts substantially all of its operations through its subsidiaries, including the Bank. As a result, the Company relies on dividends from the Bank for substantially all of its revenues. There are various regulatory restrictions on the ability of the Bank to pay

Table of Contents

dividends or make other payments to the Company. If the Bank is unable to pay dividends to the Company, the Company may not be able to pay a cash dividend to the holders of the Company’s common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

The following describes the location and general character of the physical properties of the Company.

The Bank owns two buildings located in the Town of Warrenton at 10 Courthouse Square, Warrenton, Virginia. These buildings house the Company’s executive offices and the Bank’s main office, loan operations, information technology and Wealth Management.

The Bank owns a building located in the Town of Warrenton at 87 W. Lee Highway, Warrenton, Virginia which houses a retail banking branch and the Bank’s deposit operations department.

The Bank owns four retail banking branches located in Fauquier County: 6464 Main Street, The Plains, Virginia; 5119 Lee Highway, New Baltimore, Virginia; 3543 Catlett Road, Catlett, Virginia; and 6207 Station Drive, Bealeton, Virginia.

The Bank owns two retail banking branches located in Prince William County: 7485 Limestone Drive, Gainesville, Virginia; and 8780 Centreville Road, Manassas, Virginia.

The Bank leases three retail banking branches located in Prince William County: 15240 Washington Street, Haymarket, Virginia; 10260 Bristow Center Drive, Bristow, Virginia; and 8091 Sudley Road, Manassas, Virginia.

The Company believes all of its properties are in good operating condition and are adequate for its present and anticipated future needs.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, the Company and the Bank are parties to various legal proceedings. There is no pending or threatened legal proceedings to which the Company or the Bank is a party or to which the property of either the Company or the Bank is subject that, in the opinion of management, may materially impact the financial condition of either entity.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

Table of Contents

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Holders

The Company’s common stock trades on the Nasdaq Capital Market (“Nasdaq”) under the symbol “FBSS”. As of March 26, 2021, there were 3,807,659 shares outstanding of the Company’s common stock, which is the Company’s only class of stock outstanding. These shares were held by approximately 313 holders of record. As of March 26, 2021, the market price of the Company’s common stock was $20.70.

Dividends

The Company declared a quarterly cash dividend of $0.125 per share in 2020. The Company declared a quarterly cash dividend of $0.12 per share in the first, second and third quarters of 2019. In the fourth quarter of 2019, the Company declared a quarterly cash dividend of $0.125 per share.

The Company’s future dividend policy is subject to the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, financial condition, cash and capital requirements, and general business conditions. The Company’s ability to pay cash dividends will depend upon the Bank’s ability to pay dividends to the Company. Transfers of funds from the Bank to the Company in the form of loans, advances and cash dividends are restricted by federal and state banking laws and regulations.

Stock Repurchases

On an annual basis, the Company’s Board of Directors authorizes the number of shares of common stock that can be repurchased. On January 16, 2020, the Board of Directors authorized the Company to repurchase up to 113,512 shares (3% of the shares of common stock outstanding on January 1, 2020) beginning January 1, 2020. During the year ended December 31, 2020, 2,007 shares of common stock were repurchased at an average price of $19.21 per share. No shares were repurchased during the fourth quarter of 2020.

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this report. The historical results are not necessarily indicative of results to be expected for any future period.

	For the Year Ended December 31,
(Dollars in thousands, except per share data)	2020			2019			2018		2017		2016
EARNINGS STATEMENT DATA:
Interest income	$	28,312		$	29,170		$	26,698	$	23,320	$	21,574
Interest expense		2,541			4,520			3,233		2,049		1,843
Net interest income		25,771			24,650			23,465		21,271		19,731
Provision for (recovery of) loan losses		1,773			346			507		520		(508	)
Net interest income after provision for (recovery of) loan losses		23,998			24,304			22,958		20,751		20,239
Noninterest income		5,474			5,895			5,236		5,468		5,296
Gain on sale and call of securities		992			79			838		-		1
Noninterest expense		23,520			22,454			22,151		20,844		20,925
Income before income taxes		6,944			7,824			6,881		5,375		4,611
Income taxes		1,067			1,004			746		2,879		937
Net income	$	5,877		$	6,820		$	6,135	$	2,496	$	3,674
PER SHARE DATA:
Net income per share, basic	$	1.55		$	1.80		$	1.63	$	0.66	$	0.98
Net income per share, diluted	$	1.55		$	1.80		$	1.62	$	0.66	$	0.98
Cash dividends	$	0.50		$	0.485		$	0.48	$	0.48	$	0.48
Weighted average shares outstanding, basic		3,793,366			3,783,322			3,772,421		3,764,690		3,753,757
Weighted average shares outstanding, diluted		3,798,816			3,790,718			3,779,366		3,773,010		3,763,929
Book value	$	19.08		$	17.74		$	15.90	$	14.92	$	14.51
BALANCE SHEET DATA:
Total assets	$	867,173		$	722,171		$	730,805	$	644,613	$	624,445
Loans, net		609,879			544,999			544,188		497,705		458,608
Securities, including restricted investments		84,683			81,799			74,124		73,699		51,755
Deposits		766,119			622,155			635,638		570,023		546,157
Shareholders' equity		72,461			67,122			60,007		56,142		54,451
PERFORMANCE RATIOS:
Net interest margin⁽¹⁾		3.46	%		3.74	%	3.81%		3.66%		3.50%
Return on average assets		0.73	%		0.96	%	0.92%		0.39%		0.60%
Return on average equity		8.31	%		10.64	%	10.64%		4.44%		6.82%
Dividend payout		32.26	%		26.94	%	29.63%		72.44%		49.07%
Efficiency ratio (GAAP)		72.96	%		73.32	%	74.99%		77.95%		83.61%
ASSET QUALITY RATIOS:
Allowance for loan losses to total loans		1.11	%		0.95	%	0.94%		1.01%		0.98%
Allowance for loan losses to nonperforming loans		67.41	%		102.57	%	78.65%		56.43%		38.72%
Nonperforming assets to total assets		1.87	%		0.89	%	1.09%		1.60%		2.10%
Nonaccrual loans to total loans		0.20	%		0.18	%	0.36%		0.63%		0.76%
Net charge-offs (recoveries) to average loans		0.02	%		0.05	%	0.08%		(0.01%)		(0.19%)
CAPITAL RATIOS:
Leverage		8.54	%		9.40	%	9.39%		9.17%		9.23%
Common equity Tier 1 capital ratio		12.67	%		12.58	%	11.89%		11.43%		12.22%
Tier 1 capital ratio		12.67	%		12.58	%	11.89%		11.43%		12.22%
Total capital ratio		13.87	%		13.54	%	12.85%		12.41%		13.17%

⁽¹⁾	Net interest 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.

Table of Contents

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about (i) the benefits, expenses and expected completion date of the merger between Virginia National and Fauquier; (ii) Fauquier’s plans, objectives, expectations and intentions and other statements contained in this report that are not historical facts; and (iii) other statements identified by words such as “may”, “assumes”, “approximately”, “will”, “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “targets”, “projects”, or words of similar meaning generally intended to identify forward-looking statements. These forward-looking statements are based upon the current beliefs and expectations of the management of Fauquier and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Company. In addition, these forward-looking statements are subject to various risks, uncertainties and assumptions with respect to future business strategies and decisions that are subject to change and difficult to predict with regard to timing, extent, likelihood and degree of occurrence. As a result, although Fauquier believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, actual results may differ materially from any projected future results performance or achievements expressed or implied by such forward-looking statements.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: (1) the businesses of Virginia National and Fauquier may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; (2) the expected growth opportunities or cost savings from the Merger may not be fully realized or may take longer to realize than expected; (3) deposit attrition, operating costs, customer losses and business disruption following the Merger, including adverse effects on relationships with employees and customers, may be greater than expected; (4) the regulatory approvals required for the Merger may not be obtained on the proposed terms or on the anticipated schedule; (5) the shareholders of Virginia National or Fauquier may fail to approve the Merger; (6) economic, legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which Virginia National and Fauquier are engaged; (7) the interest rate environment may further compress margins and adversely affect net interest income; (8) results may be adversely affected by continued diversification of assets and adverse changes to credit quality; (9) competition from other financial services companies in Virginia National’s and Fauquier’s markets could adversely affect operations; (10) an economic slowdown could adversely affect credit quality and loan originations; (11) general economic conditions, including unemployment levels and slowdowns in economic growth, and particularly related to further and sustained economic impacts of the COVID-19 pandemic; (12) monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of Treasury and the Federal Reserve; (13) cyber threats, attacks or events; (14) accounting principles, policies and guidelines and elections made by Fauquier thereunder; (15) competition from other financial institutions and financial-intermediaries; (16) the novel COVID-19 pandemic is adversely affecting Virginia National, Fauquier, and their respective customers, employees and third-party service providers; the adverse impacts of the pandemic on their respective business, financial position, operations and prospects have been material, and it is not possible to accurately predict the extent, severity or duration of the pandemic or when normal economic and operation conditions will return; (17) potential claims, damages and fines related to litigation or government actions, including litigation or actions arising from Fauquier or Virginia National’s participation in and administration of programs related to COVID-19, including, among other things, the PPP under the CARES Act, as subsequently extended; and (18) other factors that may affect future results of Virginia National and Fauquier, including: changes in asset quality and credit risk; the inability to sustain revenue and earnings growth; changes in interest rates and capital markets; inflation; customer borrowing, repayment, investment and deposit practices; the impact, extent and timing of technological changes; capital management activities; and other actions of the bank regulatory agencies and legislative and regulatory actions and reforms. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in Fauquier’s reports (such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed with the SEC and available on the SEC’s Internet site (http://www.sec.gov).

Readers are cautioned not to rely too heavily on the forward-looking statements contained in this report. Forward-looking statements speak only as of the date they are made and Fauquier does not undertake any obligation to update, revise or clarify these forward-looking statements, whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES

GENERAL. The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information contained within the Company’s statements is, to a significant extent, based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value

Table of Contents

that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that the Company uses in its estimates. In addition, GAAP itself may change from one previously acceptable accounting method to another method. Although the economics of the Company’s transactions would be the same, the timing of the recognition of the Company’s transactions could change.

ALLOWANCE FOR LOAN LOSSES. The Company establishes the allowance for loan losses through charges to earnings in the form of a provision for loan losses. Loan losses are charged against the allowance when it is believed that the collection of the principal is unlikely. Subsequent recoveries of losses previously charged against the allowance are credited to the allowance. The allowance represents an amount that, in management’s judgment, will be adequate to absorb probable losses inherent in the loan portfolio. Management’s judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower’s ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. Note 1 to the Consolidated Financial Statements presented in Item 8, Financial Statements and Supplementary Data provides additional information related to the allowance for loan losses.

The Company employs an independent outsourced loan review function, which annually substantiates and/or adjusts internally generated risk ratings. This independent review function reports directly to the Company’s Board of Directors’ audit committee, and the results of this review are factored into the calculation of the allowance for loan losses.

OTHER-THAN-TEMPORARY IMPAIRMENT (“OTTI”) FOR SECURITIES. Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (i) the Company intends to sell the security or (ii) it is more-likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis. If, however, the Company does not intend to sell the security and it is not more-likely-than-not that the Company will be required to sell the security before recovery, the Company must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no OTTI. If there is a credit loss, OTTI exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income (loss). For equity securities, impairment is considered to be other-than-temporary based on the Company’s ability and intent to hold the investment until recovery of fair value. OTTI of an equity security results in a write-down that must be included in net income. The Company regularly reviews each investment security for OTTI based on criteria that includes the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, the best estimate of the present value of cash flows expected to be collected from debt securities, the intention with regard to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery.

IMPACT OF COVID-19

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic as a result of the global spread of the illness. In response to the outbreak, federal and state authorities in the U.S. introduced various measures to try to limit or slow the spread of COVID-19, including travel restrictions, nonessential business closures, stay-at-home orders and strict social distancing.

To the extent the economic impacts of COVID-19 continue for a prolonged period and conditions stagnate or worsen, the Company’s provision for loan losses, net interest income and overall profitability may be adversely affected.

Business Continuity

The Company remains committed to adhering to health and safety-related requirements and best practices across all locations by taking proactive and disciplined steps to promote safety and overall wellbeing of employees, clients, shareholders and communities. The Company’s Enterprise Risk Management framework, which is overseen by the Board of Directors, the Company’s Business Continuity Plan and the Bank’s Incident Response Plan remain integral parts of monitoring day to day business activities. The Company has not furloughed nor does the Company expect to furlough any employees. Management continues to closely monitor business activities and has or will adjust accordingly as the health and safety of all constituents continues to be the priority.

Table of Contents

Paycheck Protection Program

On March 27, 2020, the CARES Act was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by COVID-19. The CARES Act included the creation of the PPP through the SBA. Loans provided by the Bank through the PPP may be forgiven based on the borrowers’ compliance with the terms of the program. The SBA provides a 100% guaranty to the lender of principal and interest, unless the lender violates an obligation under the agreement. As loan losses are expected to be immaterial, if any at all, due to the SBA guaranty, there is no provision allocated for PPP loans within the allowance for loan loss calculation. The Company disbursed $53.1 million in PPP loans to 549 borrowers and has forgiven 223 PPP loans with an aggregate principal balance of $22.6 million in aggregate principal loan balances through December 31, 2020. During the first quarter of 2021, the Company disbursed $28.6 million in PPP loans to 346 borrowers and has forgiven 126 PPP loans with an aggregate principal balance of $9.2 million.

The following table summarizes the details of the Company’s PPP loans:

(Dollars in thousands)	December 31, 2020
PPP loans originated	$	53,082
PPP loans forgiven	$	22,555
Average PPP loans outstanding	$	34,672
PPP average loan size outstanding	$	82
PPP interest income	$	347
PPP fee income, net	$	879
PPP outstanding unearned fees	$	963
PPP weighted average processing fee		4.00	%
Average yield on PPP loans		3.54	%

Short-term Loan Modifications

Under the provisions of the CARES Act, the Company established a short-term loan modification program, allowing the deferral of scheduled payments for a 90-day period beginning in April 2020. Modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief were not considered trouble debt restructurings (“TDRs”). Borrowers who were considered current were ones whose loans were less than 30 days past due on their contractual payments at the time the modification was entered. The CARES Act and interagency guidance provided financial institutions the option to temporarily suspend certain accounting requirements related to TDRs with respect to loan modifications, including the deferral of scheduled payments. The following table summarizes loans modifications and loan payment deferrals, by loan segment, as of December 31, 2020.

	December 31, 2020
(Dollars in thousands)	Balance		Loan Deferrals		Loan Modifications		Loan Deferrals and Modifications to Total Loans
Commercial and industrial	$	68,390	$	147	$	-		0.02	%
Commercial real estate		200,690	229			2,576		0.45	%
Construction and land		73,966		-		-		-
Consumer		6,355		-		-		-
Student		6,971		-		-		-
Residential real estate		230,885		72		-		0.01	%
Home equity lines of credit		29,492		-		-		-
Total	$	616,749	$	448	$	2,576		0.49	%

Borrowers whose industries are expected to be stressed by COVID-19, include, but are not limited to, religious organizations, hospitality, childcare and restaurants. The following table summarizes these industries as it relates to the Company’s loan portfolio at December 31, 2020:

Table of Contents

(Dollars in thousands)	December 31, 2020
Loan Category	Balance		Percent of Total Loans
Religious Organizations	$	25,625		4.15	%
Hospitality		15,691		2.54	%
Childcare		14,407		2.34	%
Restaurants		11,189		1.81	%
	$	66,912		10.85	%

Net interest income

While net interest income was significantly impacted by the lower interest rate environment during 2020, the Company’s interest income benefited from PPP loans and related processing fees. PPP loans carry a fixed rate of 1.0% with a two-year contractual maturity. For the year ended December 31, 2020, PPP loans contributed approximately $1.2 million to the Company’s net interest income, with the average yield of 3.54%.

EXECUTIVE OVERVIEW

This discussion is intended to focus on certain financial information regarding the Company and the Bank and may not contain all the information that is important to the reader. The purpose of this discussion is to provide the reader with a more thorough understanding of the Company’s financial statements. As such, this discussion should be read carefully in conjunction with the consolidated financial statements and accompanying notes contained elsewhere in this report.

The Company’s primary financial objectives are to maximize earnings and to deploy capital in profitable growth initiatives that will enhance long-term shareholder value. The Company monitors the following financial performance metrics towards achieving these goals: (i) return on average assets (“ROA”), (ii) return on average equity (“ROE”), and (iii) growth in earnings. The Company also actively manages capital through growth and dividends, while considering the need to maintain a strong regulatory capital position.

Future trends regarding net interest income are dependent on the absolute level of market interest rates, the shape of the yield curve, the amount of lost income from nonperforming assets, loan prepayments, the mix and amount of various deposit types, and many other factors, as well as the overall volume of interest-earning assets. Many of these factors are individually difficult to predict, and when factored together, the uncertainty of future trends compounds.

For the year ended December 31, 2020, the Company’s ROE and ROA were 8.31% and 0.73%, respectively, compared to 10.64% and 0.96%, respectively, for the year ended December 31, 2019.

Total assets were $867.2 million on December 31, 2020 compared to $722.2 million on December 31, 2019. Net loans were $609.9 million on December 31, 2020 compared to $545.0 million on December 31, 2019. Total deposits were $766.1 million on December 31, 2020 compared to $622.2 million on December 31, 2019, respectively. Low cost transaction deposits (demand and interest checking accounts) increased to $449.2 million on December 31, 2020, from $366.0 on December 31, 2019.

The Company had net income of $5.9 million, or $1.55 per diluted share, in 2020 compared to $6.8 million, or $1.80 per diluted share for 2019. Net interest margin was 3.46% for the year ended December 31, 2020 compared to 3.74% for the year ended December 31, 2019. Net interest income for the year ended December 31, 2020 was $25.8 million compared to $24.7 million for the year ended December 31, 2019.

On October 1, 2020, the Company and Virginia National announced the Merger Agreement pursuant to which the Company and Virginia National will engage in the “Merger. Upon consummation of the Merger, the holders of shares of the Company's common stock will be converted into the right to receive 0.675 shares of Virginia National common stock for each share of the Company's common stock held immediately prior to the effective date of the Merger, plus cash in lieu of fractional shares. The transaction is expected to be completed in the second quarter of 2021. The companies have received regulatory and shareholder approvals, and the transaction remains subject to other customary closing conditions.

Table of Contents

The following table presents a quarterly summary of consolidated net income for the last two years.

	For the Quarter Ended								For the Quarter Ended
(Dollars in thousands, except per share data)	December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019		September 30, 2019		June 30, 2019		March 31, 2019
Interest income	$	7,406	$	6,841	$	7,008	$	7,057	$	7,350	$	7,362	$	7,279	$	7,179
Interest expense		502		547		624		868		1,108		1,171		1,195		1,046
Net interest income		6,904		6,294		6,384		6,189		6,242		6,191		6,084		6,133
Provision for loan losses		167		345		911		350		91		-		205		50
Net interest income after provision for loan losses		6,737		5,949		5,473		5,839		6,151		6,191		5,879		6,083
Gains on sales of securities available for sale, net		992		-		-		-		-		-		-		-
Other noninterest income		1,438		1,478		1,216		1,342		1,484		1,610		1,400		1,480
Noninterest expense		7,357		5,670		4,889		5,605		5,808		5,419		5,509		5,718
Income before income taxes		1,810		1,757		1,800		1,576		1,827		2,382		1,770		1,845
Income tax expense		454		210		222		180		255		330		206		213
Net income	$	1,356	$	1,547	$	1,578	$	1,396	$	1,572	$	2,052	$	1,564	$	1,632

Net income per share, basic	$	0.36	$	0.41	$	0.42	$	0.37	$	0.42	$	0.54	$	0.41	$	0.43
Net income per share, diluted	$	0.36	$	0.41	$	0.42	$	0.37	$	0.42	$	0.54	$	0.41	$	0.43

RESULTS OF OPERATIONS

NET INTEREST INCOME

2020 COMPARED WITH 2019

Net interest income increased to $25.8 million for the year ended December 31, 2020 from $24.7 million for the same period of 2019. The net interest margin was 3.46% for the year ended December 31, 2020 compared to 3.74% for the same period in 2019.

Interest income decreased while average earning assets increased from $660.8 million in 2019 to $747.4 million in 2020. The decrease of 63 basis points (“bp”) in the average yield on assets from 4.43% in 2019 to 3.80% in 2020 was primarily the result of:

•

Average loans increased $60.0 million from $544.9 million in 2019 to $604.9 million in 2020. The tax-equivalent yield on loans decreased to 4.33% in 2020 compared to 4.84% in 2019. Together, interest and fee income from loans decreased $206,000 for 2020 compared with 2019. While average loan balances increased as a result of organic loan growth as well as approximately $34.7 million of average outstanding loan balances related to PPP loans, loan yields decreased as a result of the lower interest rate environment and the fixed rate of 1% on PPP loans.

•

Average securities increased $9.2 million from $74.8 million in 2019 to $84.0 million in 2020. The tax-equivalent yield on securities decreased to 2.52% in 2020 compared to 2.81% in 2019. Tax-equivalent interest and dividend income on securities remained relatively unchanged at $2.1 million for 2020 and 2019.

Total interest expense decreased $2.0 million from $4.5 million in 2019 to $2.5 million in 2020, resulting in the average rate on total interest-bearing liabilities decreasing from 0.88% in 2019 to 0.46% in 2020, and cost of funds decreasing from 0.71% in 2019 to 0.35% in 2020. As described below, the decreases in the cost of funds were the result of the Company’s response to interest rate trends and the reduction of rates on certain interest-bearing transaction accounts, and lower funding costs on FHLB advances. The decrease in interest expense from 2019 to 2020 was due primarily to the following:

•

Average interest-bearing deposits increased $50.8 million from $481.9 million in 2019 to $532.8 million in 2020. The average rate paid on interest-bearing deposits decreased from 0.75% in 2019 to 0.39% in 2020. This resulted in a decrease in interest paid on deposits of $1.5 million from $3.6 million in 2019 to $2.1 million in 2020. The increase in interest-bearing deposit balances was primarily the result of organic deposit growth from new and existing personal and business clients.

•

Average FHLB advances decreased $6.3 million from $27.6 million in 2019 to $21.3 million in 2020. Interest expense on FHLB advances decreased $421,000 from $712,000 in 2019 to $291,000 in 2020.

The Company believes that, given the current interest rate environment, net interest income and the net interest margin could decrease in future periods.

Table of Contents

2019 COMPARED WITH 2018

Net interest income increased to $24.7 million for the year ended December 31, 2019 from $23.5 million for the same period of 2018. The net interest margin was 3.74% for the year ended December 31, 2019 compared to 3.81% for the same period in 2018.

Interest income increased as the result of an overall increase in average earning assets from $619.1 million in 2018 to $660.8 million in 2019, a direct result of management’s emphasis on growing the loan and securities portfolios. The increase of 10 bps in the average yield on assets from 4.33% in 2018 to 4.43% in 2019 was primarily the result of:

•

Average loans increased $27.2 million from $517.7 million in 2018 to $544.9 million in 2019. The tax-equivalent yield on loans increased to 4.84% in 2019 compared to 4.69% in 2018. Together, interest and fee income from loans increased $2.1 million for 2019 compared with 2018.

•

Average securities increased $184,000 from $74.6 million in 2018 to $74.8 million in 2019. The tax-equivalent yield on investments remained unchanged at 2.81% in 2019 compared to 2018. Tax-equivalent interest and dividend income on securities decreased $11,000 from 2018 to 2019.

Total interest expense increased $1.3 million from $3.2 million in 2018 to $4.5 million in 2019, resulting in the average rate on total interest-bearing liabilities increasing from 0.67% in 2018 to 0.88% in 2019, due primarily to the following:

•

Average interest-bearing deposits increased $27.8 million from $454.0 million in 2018 to $481.9 million in 2019. The average rate paid on interest-bearing deposits increased from 0.54% in 2018 to 0.75% in 2019. This resulted in an increase in interest paid on deposits of $1.1 million from $2.4 million in 2018 to $3.6 million in 2019.

•

Average FHLB advances increased $4.3 million from $23.3 million in 2018 to $27.6 million in 2019. Interest expense on FHLB advances increased $171,000 from $541,000 in 2018 to $712,000 in 2019.

Table of Contents

The following table sets forth, on a tax-equivalent basis, information relating to the Company’s average balance sheet and reflects the average yield on assets and average cost of liabilities for the years ended December 31, 2020, 2019 and 2018 and the average yields and rates paid for the periods indicated. These yields and costs are derived by dividing income or expense by the average daily balances of assets and liabilities, respectively, for the periods presented.

	December 31, 2020								December 31, 2019								December 31, 2018
(Dollars in thousands)	Average			Income/		Average			Average			Income/		Average			Average			Income/		Average
Assets	Balances			Expense		Rate			Balances			Expense		Rate			Balances			Expense		Rate
Loans
Taxable	$	603,810		$	26,192		4.34	%	$	543,111		$	26,398		4.86	%	$	514,958		$	24,291		4.72	%
Nonaccrual ⁽²⁾		1,125			-		-			1,834			-		-			2,770			-		-
Total loans		604,935			26,192		4.33	%		544,945			26,398		4.84	%		517,728			24,291		4.69	%
Securities
Taxable		65,949			1,554		2.38	%		60,847			1,631		2.71	%		60,560			1,622		2.68	%
Tax-exempt ⁽¹⁾		18,041			545		3.02	%		13,956			454		3.25	%		14,059			474		3.37	%
Total securities		83,990			2,099		2.52	%		74,803			2,085		2.81	%		74,619			2,096		2.81	%
Deposits in other banks		58,460			135		0.23	%		41,077			782		1.90	%		26,777			410		1.53	%
Federal funds sold		14			-		0.35	%		14			-		2.31	%		14			-		1.59	%
Total earning assets		747,399			28,426		3.80	%		660,839			29,265		4.43	%		619,138			26,797		4.33	%
Less: Allowance for loan losses		(6,149	)							(5,429	)							(5,317	)
Total nonearning assets		59,367								57,000								50,848
Total Assets	$	800,617							$	712,410							$	664,669
Liabilities and Shareholders' Equity
Deposits
Demand	$	159,668							$	121,910							$	117,422
Interest-bearing
NOW		252,648		$	493		0.20	%		230,081		$	1,028		0.45	%		231,819		$	893		0.39	%
Money market		105,218			420		0.40	%		78,097			645		0.83	%		59,400			310		0.52	%
Savings		102,862			94		0.09	%		87,478			281		0.32	%		89,103			235		0.26	%
Time deposits		72,095			1,057		1.47	%		86,205			1,641		1.90	%		73,717			1,009		1.37	%
Total interest-bearing deposits		532,823			2,064		0.39	%		481,861			3,595		0.75	%		454,039			2,447		0.54	%
Federal funds purchased		1			—		1.05	%		494			14		2.90	%		2,044			46		2.26	%
FHLB advances		21,324			291		1.37	%		27,611			712		2.58	%		23,315			541		2.32	%
Junior subordinated debt		4,124			186		4.50	%		4,124			199		4.83	%		4,124			199		4.83	%
Total interest-bearing liabilities		558,272			2,541		0.46	%		514,090			4,520		0.88	%		483,522			3,233		0.67	%
Other liabilities		11,968								12,331								6,088
Shareholders' equity		70,709								64,079								57,637
Total Liabilities and Shareholders' Equity	$	800,617							$	712,410							$	664,669

FAUQUIER BANKSHARES, INC. 10-K