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**SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

**FORM 10-Q**
| **ý** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d)****OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|-------------------------------------------------------------------------------------------------|
|       |                                                                                            |
|       | **For the quarterly period ended June 30, 2001**                                                |
|       | **OR**                                                                                          |
|       |                                                                                            |
| **o**      | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**   |

**Commission file number 0-12638**

**F&M BANCORP***(*Exact name of registrant asspecified in its charter*)*

| **Maryland**                                          | **52-1316473**      |
|-------------------------------------------------------|---------------------|
| (State or other jurisdiction of                       | (I.R.S. Employer    |
| incorporation or organization)                        | Identification No.) |
|                                                  |                |
| **110 Thomas Johnson Drive**                          |                |
| **Frederick, Maryland**                               | **21702**           |
| (Address of principal  executive offices)             | (Zip Code)          |
|                                                  |                |
| **(301) 694-4000**                                    |
| (Registrant's telephone number, including area  code) |

Securitiesregistered pursuant to Section 12(b) of the Act:**NONE**

Securitiesregistered pursuant to Section 12(g) of the Act:**CommonStock ($5 par value)**(Title of class)

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  Yes ý  No o

Common Stock of 11,002,937 shares outstanding as ofAugust 2, 2001.

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F&MBANCORPTABLE OF CONTENTS

| PART  I  |                                                                                                                        | FINANCIAL  INFORMATION |
|----------|-----------------------------------------------------------------------------------------------------------------------------|------------------------|
|     |                                                                                                                        |
|     | Consolidated Balance  Sheets, June 30, 2001 (Unaudited) and December 31, 2000                                               |
|     |                                                                                                                        |
|     | Consolidated  Statements of Income and Comprehensive Income (Unaudited), Three and Six  Months Ended June 31, 2001 and 2000 |
|     |                                                                                                                        |
|     | Consolidated  Statements of Changes in Shareholders' Equity (Unaudited), Six Months Ended  June 30, 2001 and 2000           |
|     |                                                                                                                        |
|     | Consolidated  Statements of Cash Flows (Unaudited), Six Months Ended June 30, 2001 and 2000                                 |
|     |                                                                                                                        |
|     | Notes to  Consolidated Financial Statements (Unaudited)                                                                     |
|     |                                                                                                                        |
|     | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                      |
|     |                                                                                                                        |
|     | Quantitative  and Qualitative Disclosures about Market Risk                                                                 |
|     |                                                                                                                        |
| PART  II |                                                                                                                        | OTHER  INFORMATION     |
|     |                                                                                                                        |
|     | Item 6.  Exhibits and Reports on Form 8-K                                                                              |
|     |                                                                                                                        |
|     | Signatures                                                                                                                  |
|     |                                                                                                                        |

 

**CONSOLIDATED BALANCE SHEETS****F&M BANCORP and Subsidiaries**

|                                           | June 30,                                                                                                                            |      | December 31,  |      |
|------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|-----------|---------------|-----------|
|                                           | 2001                                                                                                                                |      | 2000          |      |
| (Dollars in thousands, except per share  data) | (Unaudited)                                                                                                                         |      |          |      |
|                                           |                                                                                                                                     |      |               |      |
| **Assets**                                     |                                                                                                                                |      |          |      |
| Cash and due from banks                        | $                                                                                                                                   | 58,960    |          | $         | 55,490 |   |
| Federal funds sold                             | 1,068                                                                                                                               |      | 3,052         |      |
| Interest-bearing deposits with banks           | 7,607                                                                                                                               |      | 6,625         |      |
|                                           |                                                                                                                                     |      |               |      |
|                                           | Total cash and cash equivalents                                                                                                     | 67,635    |          | 65,167    |   |
|                                           |                                                                                                                                |           |          |           |   |
| Loans held for sale                            | 16,989                                                                                                                              |      | 5,994         |      |
| Investment securities:                         |                                                                                                                                |      |          |      |
|                                           | Available for sale, at fair value                                                                                                   | 462,183   |          | 337,837   |   |
|                                           | Held to maturity, fair value of $0 and  $89,583, respectively                                                                       | -         |          | 89,405    |   |
|                                           |                                                                                                                                |           |          |           |   |
|                                           | Total investment securities                                                                                                         | 462,183   |          | 427,242   |   |
|                                           |                                                                                                                                |           |          |           |   |
| Loans, net of unearned income                  | 1,179,798                                                                                                                           |      | 1,220,130     |      |
| Less: Allowance for credit losses              | (14,350                                                                                                                             | )         | (13,232       | )         |
|                                           |                                                                                                                                     |      |               |      |
|                                           | Net loans                                                                                                                           | 1,165,448 |          | 1,206,898 |   |
|                                           |                                                                                                                                     |      |               |      |
| Bank premise and equipment, net                | 36,198                                                                                                                              |      | 35,647        |      |
| Other real estate owned, net                   | 758                                                                                                                                 |      | 1,056         |      |
| Interest receivable                            | 9,874                                                                                                                               |      | 11,172        |      |
| Intangible assets                              | 5,024                                                                                                                               |      | 5,566         |      |
| Other assets                                   | 33,443                                                                                                                              |      | 36,502        |      |
|                                           |                                                                                                                                     |      |               |      |
|                                           | Total assets                                                                                                                        | $         | 1,797,552     |      | $ | 1,795,244 |   |
|                                           |                                                                                                                                |           |          |           |   |
|                                           |                                                                                                                                |      |          |      |   |
| **Liabilities:**                               |                                                                                                                                |      |          |      |
| Deposits:                                      |                                                                                                                                |      |          |      |
|                                           | Noninterest-bearing                                                                                                                 | $         | 221,897       |      | $ | 207,872 |   |
|                                           | Interest-bearing                                                                                                                    | 1,247,368 |          | 1,156,160 |   |
|                                           |                                                                                                                                |           |          |           |   |
|                                           | Total deposits                                                                                                                      | 1,469,265 |          | 1,364,032 |   |
|                                           |                                                                                                                                |           |          |           |   |
| Short-term borrowings:                         |                                                                                                                                |      |          |      |
|                                           | Federal funds purchased and securities  sold under agreements to repurchase                                                         | 102,279   |          | 127,395   |   |
|                                           | Other short-term borrowings                                                                                                         | 1,832     |          | 110,676   |   |
|                                           | Long-term borrowings                                                                                                                | 40,327    |          | 15,790    |   |
|                                           | Accrued taxes and other liabilities                                                                                                 | 17,943    |          | 19,315    |   |
|                                           |                                                                                                                                |           |          |           |   |
| Total liabilities                              | 1,631,646                                                                                                                           |      | 1,637,208     |      |
|                                           |                                                                                                                                     |      |               |      |
| **Shareholders' equity**                       |                                                                                                                                |      |          |      |
|                                           | Common stock, par value $5 per share;  authorized 50,000,000 shares; issued 11,033,305 shares, and 11,014,529  shares, respectively | 55,167    |     | 55,073    |     |
|                                           | Surplus                                                                                                                             | 78,766    |          | 78,488    |   |
|                                           | Retained earnings                                                                                                                   | 29,931    |          | 25,857    |   |
|                                           | Accumulated other comprehensive (loss)  income                                                                                      | 2,898     |          | (1,382    | ) |
|                                           | Treasury shares                                                                                                                     | (856      | )             | -         |   |
|                                           |                                                                                                                                     |      |               |      |
| Total shareholders' equity                     | 165,906                                                                                                                             |      | 158,036       |      |
|                                           |                                                                                                                                     |      |               |      |
| Total liabilities and shareholders' equity     | $                                                                                                                                   | 1,797,552 |          | $         | 1,795,244 |   |
|                                           |                                                                                                                                     |      |               |      |
|                                                |                                                                                                                                     |           |               |           |  |  |  |  |

The accompanying notes arean integral part of these consolidated financial statements.
**CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME**(Unaudited)**F&M BANCORP and Subsidiaries**
 Three Months  Ended Six Months  Ended (Dollars in  thousands, except per share data)June 30, June 30,  2001 2000 2001 2000      Interest Income:          Interest and fees on loans $24,356 $25,051 $49,354 $48,782  Interest on deposits with banks 126 129 211 275  Interest and dividends on investment  securities:          Taxable 4,919 4,594 9,777 9,239  Tax-exempt 1,393 1,467 2,864 2,953  Interest on federal funds sold 198 - 437 114        Total interest income 30,992 31,241 62,643 61,363         Interest Expense           Interest on deposits 12,477 11,094 24,906 21,940  Interest on federal funds purchased and  securities sold under agreements to repurchase 905 1,624 2,168 2,906  Interest on long-term borrowings 102 2,199 1,361 3,913  Interest on other short-term borrowings 419 17 828 39        Total interest expense 13,903 14,934 29,263 28,798          Net interest income 17,089 16,307 33,380 32,565  Provision for credit losses 1,535 630 2,630 1,296        Net interest income after provision for  credit losses 15,554 15,677 30,750 31,269         Noninterest Income           Service charges on deposit accounts 2,093 2,224 4,070 3,906  Insurance income 2,257 1,968 4,795 4,236  Gains on sales of loans 613 597 1,120 1,044  Gains on sales of securities 33 - 33 -  Gains on sales of property 64 (67)108 (49) Alternative investment & stock  brokerage income 932 943 1,847 2,005  Other operating income 1,475 1,552 3,531 3,037        Total noninterest income 7,467 7,217 15,504 14,179         Noninterest Expenses           Salaries and employee benefits 9,045 8,646 17,901 17,134  Merger-related expenses - 17 - 228  Occupancy and equipment expense 2,375 2,341 4,959 4,941  Other operating expense 4,361 4,745 9,238 9,424        Total noninterest expenses 15,781 15,749 32,098 31,727          Income before provision for income taxes 7,240 7,145 14,155 13,722  Provision for income taxes 2,029 2,277 3,964 4,138        Net Income $5,211 $4,868 $10,191 $9,584       Other Comprehensive Income (Loss), Net of  Tax:          Unrealized gains (losses) on securities (50)(743)4,280 (1,040)       Comprehensive income $5,161 $4,125 $14,471 $8,544       Earnings per Common Share - Basic          Based on weighted average shares  outstanding of 11,019,337 in 2001, and 11,008,605 in 2000 $0.47 $0.44 $0.92 $0.87        Earnings per Common Share - Diluted           Based on weighted average shares  outstanding of 11,074,453 in 2001, and 11,023,552 in 2000 $0.47 $0.44 $0.92 $0.87        Dividends per Share $0.27 $0.27 $0.54 $0.54       
Theaccompanying notes are an integral part of these consolidated financialstatements.
**CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY** (Unaudited)**F&M BANCORP and Subsidiaries**
(Dollars in thousands, except per share  data)    Accumulated            Other      Common   Retained Comprehensive Treasury    Stock Surplus Earnings Income  (Loss) Shares Total                     Balance at December 31, 1999$54,998 $78,248 $18,951 $(8,377)$- $143,820              Net income- - 9,584 -   9,584 Dividend reinvestment plan(15)14 (54)-   (55)Cash dividends paid ($.27 per share)- - (3,413)-   (3,413)Stock consideration for options exercised(3)(5)(4)-   (12)Stock options exercised63 166 - -   229 Other comprehensive income- - - 622   622        Balance at June 30, 2000$55,043 $78,423 $25,064 $(7,755)$- 150,775                     Balance at December 31, 2000$55,073 $78,488 $25,857 $(1,382)$- $158,036              Net income- - 10,191 -   10,191 Dividend reinvestment plan- - (154)-   (154)Cash dividends paid ($.27 per share)- - (5,956)-   (5,956)Stock consideration for options exercised(3)(4)(7)-   (14)Stock options exercised97 282 - -   379 Treasury shares`       (856)(856)Other comprehensive income- - - 4,280   4,280        Balance at June 30, 2001$55,167 $78,766 $29,931 $2,898 $(856)165,906        
Theaccompanying notes are an integral part of these consolidated financialstatements.
**CONSOLIDATED STATEMENTS OF CASH FLOWS**** **(Unaudited)**F&MBANCORP and Subsidiaries**
 Six  Months Ended June 30, *(Dollars in thousands)*2001 2000  **Cash Flows from Operating Activities**    Net Income$10,191 $9,584 Adjustments to reconcile net income to net  cash provided by operating activities:     Provision for credit losses2,630 1,296  Depreciation and amortization1,779 1,906  Amortization of intangibles542 586  Net premium amortization on investment  securities200 173  Decrease/(increase) in interest receivable1,298 (1,024) (Decrease)/increase in interest payable(842)658  Deferred income tax benefits831 (229) Amortization of net loan origination  (fees)/costs(45)187  (Gain)/Loss on sales of property(108)49  Gain on sales/calls of securities(33)-  (Increase)/Decrease in loans held for sale(10,995)10,615  Decrease in other assets3,059 18,596  Decrease in other liabilities(529)(2,037) Other497 364     Net cash provided by operating activities8,475 40,724    **Cash Flows from Investing Activities**    Purchases of investment securities  available for sale(149,769)(13,252)Proceeds from sales/calls of securities  available for sale29,777 - Proceeds from maturing securities  available for sale88,131 23,540 Proceeds from maturing securities held to  maturity- 3,882 Net (increase)/decrease in loans38,868 (106,363)Purchases of premises and equipment(2,412)(1,401)Proceeds from sales of property190 - Other investing activities- (409)   Net cash provided by/(used in) investing  activities4,785 (94,003)   **Cash Flows from Financing Activities**    Net increase in noninterest-bearing  deposits, interest-bearing checking, savings and money market accounts26,660 18,168 Net increase/(decrease) in certificates of  deposit78,573 (7,263)Net (decrease)/increase in federal funds  purchased and Securities sold under agreements to repurchase(25,116)31,323 Net decrease in other short-term  borrowings(108,844)(46,488)Net increase in long-term borrowings24,536 49,056 Cash dividends paid(5,956)(3,413)Dividend reinvestment plan(154)(55)Proceeds from issuance of common stock365 217 Net increase in treasury shares(856)-    Net cash (used in)/provided by financing  activities(10,792)41,545    Net increase/(decrease) in cash and cash  equivalents2,468 (11,734)     Cash and cash equivalents at beginning of  year65,167 86,320 Cash and cash equivalents at end of period67,635 74,586    **Supplemental Disclosures of Cash Flow Information**    Cash payments for interest30,107 28,140 Cash payments for income taxes3,693 474      **Non-Cash Investing and Financing Activities**    Fair value adjustment for securities  available for sale,    net of income taxes4,280 622 
Theaccompanying notes are an integral part of these consolidated financialstatements.**Notes to Consolidated FinancialStatements**  (Unaudited)**Note1.  Summary of Significant AccountingPolicies**
The foregoing financial statements areunaudited; however, in the opinion of management, all adjustments (comprisingonly normal recurring accruals) necessary for a fair presentation of thefinancial statements have been included. A summary of F&M Bancorp andsubsidiaries’ (“Bancorp’s”) significant accounting policies is set forth inNote 1 to the consolidated financial statements in its Annual Report on Form10-K for the year ended December 31, 2000.

**Note 2. Investment Securities**

Investmentsecurities are summarized as follows:
   Period Ended June 30, 2001             Gross Gross Estimated  Amortized Unrealized Unrealized Fair (Dollars in thousands)Cost Gains Losses Value      Available-for-sale:         U.S. Treasury securities and obligations  of U.S.         government corporations and agencies$88,986 $759 $15 $89,730  Obligations of state and political  subdivisions124,123 2,082 366 125,840  Mortgage-backed securities239,966 1,368 426 240,908       Total debt securities453,075 4,210 807 456,478  Equity securities5,864 - 159 5,705       Total securities available for sale458,939 4,210 966 462,183      Held-to-maturity:         Obligations of state and political  subdivisions- - - -  Mortgage-backed securities- - - -       Total securities to be held to maturity- - - -      Total investment securities$458,939 $4,210 $966 $462,183                           Year Ended  December 31, 2000       Gross Gross Estimated  Amortized Unrealized Unrealized Fair (Dollars in thousands)Cost Gains Losses Value      Available-for-sale:         U.S. Treasury securities and obligations  of U.S.         government corporations and agencies$171,234 $142 $1,202 $170,174  Obligations of state and political subdivisions44,818 266 525 44,559  Mortgage-backed securities119,185 73 1,980 117,278       Total debt securities335,237 481 3,707 332,011  Equity securities5,984 - 158 5,826       Total securities available for sale341,221 481 3,865 337,837      Held-to-maturity:         Obligations of state and political  subdivisions81,034 587 493 81,128  Mortgage-backed securities8,371 86 2 8,455       Total securities to be held to maturity89,405 673 495 89,583      Total investment securities$430,626 $1,154 $4,360 $427,420      
Bancorp classifies its investments indebt and equity securities in two categories: held-to-maturity andavailable-for-sale. Securities classified as held-to-maturity are those debtsecurities that Bancorp has both the positive intent and ability to hold tomaturity. These securities are carried at cost, adjusted for amortization ofpremiums and accretion of discounts, which are recognized as adjustments tointerest income using the effective interest method. Currently, Bancorp doesnot have any held-to-maturity securities in it's portfolio.

Securities classified asavailable-for-sale are equity securities with readily determinable fair valuesand those debt securities that Bancorp intends to hold for an indefinite periodof time, but not necessarily to maturity. These securities may be sold as partof its asset/liability management strategy, or in response to significantmovements in interest rates, liquidity needs, regulatory capitalconsiderations, and other similar factors. These securities are carried at fairvalue, with any unrealized gains and losses reported as a separate component ofshareholders’ equity, net of the related deferred tax effect.

Regardless of the classification,dividend and interest income, including amortization of premiums and accretionof discounts arising at acquisition, are included in interest income in theconsolidated statements of income and comprehensive income. Realized gains andlosses, if any, determined based on the adjusted cost of the specificsecurities sold, are reported as a separate line item in noninterest income inthe consolidated statements of income and comprehensive income.

The amortized cost and estimated fairvalues of investments at June 30, 2001 by contractual maturity are shown below.Expected maturities may differ from contractual maturities because borrowershave the right to call or prepay obligations with or without call or prepaymentpenalties.
 Period Ended  June 30, 2001      Amortized Fair (Dollars in thousands)Cost Value    Available-for-sale:     Within 1 year$30,852 $31,100  After 1 but within 5 years75,512 77,020  After 5 but within 10 years71,773 72,382  After 10 years34,972 35,068  Mortgage-backed securities239,966 240,908  Equity securities5,864 5,705     Total   investment securities$458,939 $462,183    
The carrying value of investmentsecurities pledged to secure public deposits, securities sold under repurchaseagreements, Federal Home Loan Bank advances, and for other purposes as requiredand permitted by law, totaled $121.6 million at June 30, 2001.

Interest earned on obligations of stateand political subdivisions is exempt from federal income taxes.  However, the federal interest expensededuction is limited for interest deemed to be incurred to purchase or carrytax-exempt obligations.  Such tax-exemptsecurities comprised 27.2% and 29.4% of the total carrying value of theinvestment portfolio at the six months ended June 30, 2001 and the year endedDecember 31, 2000 respectively.

**Note 3. Loans**

Loans, net of unearned income, consist ofthe following:
 Period Ended    June 30, December 31, (Dollars in thousands)2001 2000    Real Estate Loans:     Construction and land development$86,273 $80,632  Secured by farmland5,826 6,508  Residential mortgage322,479 347,440  Other mortgage298,852 292,661 Agricultural597 550 Commercial and industrial loans167,564 182,020 Consumer296,627 308,818 Other loans1,580 1,501    Totals$1,179,798 $1,220,130    
Does not include loansheld for sale

Loans to states and politicalsubdivisions and industrial revenue bonds are included in other loans in theschedule above and in total loans in the consolidated balance sheets.

The allowance for credit losses ismaintained at a level which, in management’s opinion, is considered adequate toprovide for possible loan losses on loans currently held in the loan portfolio.

**Note 4. Bank Premises andEquipment**

Investments in bank premises andequipment are as follows:
 Period Ended    June 30, December 31, (Dollars in thousands)2001 2000         Bank premises and land$33,877 $32,024 Furniture and equipment32,931 32,557 Leasehold improvements3,476 3,482     70,284 68,063 Less: accumulated depreciation and amortization34,086 32,416    Net premises and equipment$36,198 $35,647    
**Note 5.  ComprehensiveIncome**

Bancorp adopted Financial AccountingStandards Board  (“FASB”) Statement No.130, “Reporting Comprehensive Income,” effective January 1, 1998. Othercomprehensive income consists entirely of unrealized gains (losses) onavailable-for-sale securities. Income taxes allocated to other comprehensiveincome amounted to a benefit of $18 thousand and a provision of $578 thousandfor the six months ended June 30, 2001 and 2000, respectively. Income taxesallocated to other comprehensive income amounted to a provision of $2.7 millionand $391 thousand for the six months ended June 30, 2001 and 2000,respectively.

**Note 6.  Earnings Per Share**

Earnings per share (“EPS”) data iscomputed and presented in accordance with FASB Statement No. 128, “Earnings PerShare.” As prescribed by the Statement, the presentation of primary EPS hasbeen replaced with the dual presentation of basic and diluted EPS.  Basic EPS excludes dilution and is computedby dividing net income available to common shareholders (“numerator”) by theweighted-average number of common shares outstanding for the period aftergiving retroactive effect to stock dividends and stock splits (“denominator”).Diluted EPS reflects the potential dilution that could occur if outstandingstock options or other contracts to issue common stock, if any, were exercisedor converted into common stock or resulted in the issuance of common stock thatthen shared in the earnings of Bancorp. Diluted EPS is equal to the numeratordivided by the denominator plus the dilutive effect of outstanding stockoptions.
(Dollars in  thousands except per share data)                Three Months  Ended June 30, Six Months  Ended June 30,  2001 2000 2001 2000               Net income$5,211 $4,868 $10,191 $9,584         Basic EPS, net of treasury shares         Shares11,019,337 11,008,605 11,020,857 11,008,468  EPS$0.47 $0.44 $0.92 $0.87 Dilutive shares         Stock options55,116 14,947 42,190 16,824  EPS$0.00 $0.00 $0.00 $0.00 Diluted EPS, net of treasury shares         Shares including options11,074,453 11,023,552 11,063,047 11,025,292  EPS$0.47 $0.44 $0.92 $0.87 
**Note 7.  Future Changes in Accounting Principles**

In June, 1999, FASB issued SFAS No. 133,“Accounting for Derivative Instruments and for Hedging Activities”, which callsfor derivatives to be recognized on the consolidated balance sheet at fairvalue and for subsequent changes in fair value to be recognized in theconsolidated statement of income and comprehensive income.  However, because non-derivative andnon-financial transactions are still measured using a mix of historical andcurrent prices, the Statement retains special accounting for gains and losseswhen derivatives are used in qualifying hedges of assets, liabilities, andfuture transactions.  The Statementunifies qualifying criteria for hedges involving all types of derivatives,requiring that a company document, designate, and assess the effectiveness ofits hedges. For hedges that meet the Statement’s criteria, the derivative’sgains and losses will be allowed to offset gains and losses on, or forecastedcash flows of, the hedged item

Among a number of other provisions, theStatement will also allow entities to reclassify held-to-maturity securitieswithout calling into question management’s intent for the remainder of itssecurities portfolios. On January 1, 2001 the Bancorp adopted this Statementand elected to reclassify its entire held-to-maturity portfolio into theavailable-for-sale portfolio.

For calendar-year companies such asBancorp, the Statement, as amended by SFAS No. 137, took effect on January 1,2001.  The adoption of this statement onJanuary 1, 2001 had no effect on Bancorp's earnings as the Bancorp did notcarry any derivative instruments on its books during the period from January 1,2001 to June 30, 2001.

In June 2001, theFinancial Accounting Standards Board issued SFAS No. 141,"BusinessCombinations" (effective July 1, 2001) and SFAS No. 142,"Goodwill andOther Intangible Assets" (effective for the Company on January 1, 2002).SFAS No. 141 prohibits pooling-of-interests accounting for acquisitions. SFASNo. 142 specifies that goodwill and some intangible assets will no longer beamortized but instead will be subject to periodic impairment testing. TheCompany is in the process of evaluating the financial statement impact ofadoption of SFAS No. 142.

**Item 2.  Management’s Discussion andAnalysis of Financial Condition and Results of Operations**

**Overview**

The U.S. economy continued it’s slow paceduring the second quarter of 2001, even as the Federal Reserve Bank maintainedit’s easy money policy by lowering short-term interest rates an additional1.00%. Competition among financial institutions for new loans intensified asprepayments of existing loans accelerated and capital spending by corporatecustomers was delayed. With a bearish stock market, many investors chose tomove their money into more risk-free bank deposits. F&M Bancorp’s resultshave been impacted by these economic conditions as reflected in our slower loangrowth, rapid deposit growth and an improvement in the net interest margin, asthe deposits replaced higher cost wholesale funds.

Net income for the quarter ended June 30,2001 increased to a record $5.21 million or $.47 per share, a 7% increase overthe $4.87 million or $.44 per share for the second quarter of 2000. For the sixmonths ended June 30, 2001, net income increased 6% to $10.19 million or $.92per share from the $9.58 million or $.87 per share for the six months endedJune 20, 2000.

F&M Bancorp’s key performance ratioscontinue to be strong. Second quarter of 2001 results produced a return onaverage assets of 1.19% and a return on average equity of 12.60%. The earningsproduced in the six months ended June 30, 2001 represent a return on averageassets of 1.17% and a return on average equity of 12.50%. These financialperformance ratios are indicative of F&M Bancorp’s earnings strength andeffective balance sheet management.

During the quarter ended June 30, 2001,the Bancorp initiated a charter consolidation plan as part of an ongoing effortto improve long-term shareholder value. Under the program, our community bankaffiliates were combined under a single state of Maryland operating charter.This plan will result in improved efficiencies by eliminating operationalredundancies.

Certain information included in thefollowing section of this report, other than historical information, maycontain certain forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Such forward-looking statements areidentified by terminology such as "may", "will","believe", "expect", "estimate","anticipate", "likely", "unlikely","continue", or similar terms. Although Bancorp believes that theexpectations reflected in such forward–looking statements are reasonable,actual results may differ from those projected in the forward-lookingstatements.

**Results of Operations**

**Net Interest Income**

F&M Bancorp’s principal source ofrevenue is net interest income, the difference between interest income onearnings assets and interest expense on deposits and borrowings. Interestincome for purposes of analysis, is presented on a tax-equivalent basis torecognize associated tax benefits. The presentation provides a basis forcomparison of yields with taxable earning assets. The discussion on netinterest income should be read in conjunction with the following table –“Consolidated Average Balances, Interest and Average Rates.”

For the three months ended June 30, 2001,the Bancorp’s taxable-equivalent net interest income of $17.9 million was 4.4%greater to the comparable quarter in the prior year. The lower interest rateenvironment favorably impacted the Bancorp’s borrowing costs for both coredeposits and wholesale funding and led to a net interest margin in the secondquarter that widened to 4.38%  — anincrease of 0.17% compared to the same period last year.

The Bancorp’s taxable-equivalent netinterest income of $35.0 million in the first half 2001 increased 2.2% comparedto the prior year. This increase was driven by $26.5 million in additionalloans outstanding as well as a $16.9 million growth in demand deposit accounts.Net interest margin in the first half 2001 was 4.27%, relatively unchanged from4.26% in the first half of 2000.
**Consolidated AverageBalances, Interest and Average Rate**(Unaudited)
     Three Months  Ended  June 30,                     2001     2000         Average   Average Average   Average (Dollars in thousands)Balance Interest Rate Balance Interest Rate        ASSETS            Interest earning assets:            Short-term funds$29,713 $325 4.44%$10,689 $140 5.27%Investment securities:             Taxable305,941 4,916 6.52%289,979 4,593 6.37% Tax-exempt (1)125,980 2,111 6.80%132,429 2,189 6.65%        Total investment securities431,921 7,027 6.60%422,408 6,782 6.46%       Loans, net, including loans held for sale(1)1,192,353 24,409 8.30%1,202,274 25,154 8.41%       Total interest-earning assets1,653,987 31,761 7.79%1,635,371 32,076 7.89%       Total noninterest-earning assets107,595     111,051            Total assets$1,761,582     $1,746,422                         LIABILITIES            Interest-bearing liabilities:             Interest-bearing deposits:             Savings$149,489 $810 2.20%$159,435 $854 2.15% Checking185,507 555 1.21%188,947 971 2.07% Money market accounts282,739 2,356 3.38%259,440 2,549 3.95% Certificates of deposit609,584 8,757 5.83%517,890 6,719 5.22%         Total interest-bearing deposits1,227,319 12,478 4.12%1,125,712 11,093 3.96%        Short-term borrowings:             Federal funds purchased and securities  sold under agreements to repurchase95,178 905 3.86%115,849 1,625 5.64% Other short term borrowings7,842 102 5.28%8,519 108 5.10%        Total short term borrowings103,020 1,007 3.96%124,368 1,733 5.60%Long-term borrowings39,900 418 4.25%142,600 2,142 6.04%       Total borrowed funds142,920 1,425 4.04%266,968 3,875 5.84%       Total interest-bearing liabilities1,370,239 13,903 4.11%1,392,680 14,968 4.32%Noninterest-bearing liabilities:             Demand deposits208,721     189,970      Other liabilities16,795     17,426      Shareholders' equity165,827     146,346             Total liabilities and shareholders' equity$1,761,582     $1,746,422            Net interest income  $17,858     $17,108   Net interest spread    3.67%    3.57%Net interest margin    4.38%    4.21%
(1) Interest and yields on obligations ofstates and political subdivisions and tax-exempt loans are computed on ataxable equivalent basis using the U.S. statutory rate of 35 percent. Inaddition, loan fee income is included in the interest income calculations, andnonaccrual loans are included in the average loan base upon which the interestrate earned on loans is calculated.**Consolidated AverageBalances, Interest and Average Rate**(Unaudited)     Six Months  Ended June 30,        2001     2000         Average   Average Average   Average (Dollars in thousands)Balance Interest Rate Balance Interest Rate        ASSETS            Interest earning assets:            Short-term funds$22,161 $648 5.90%$16,404 $401 4.92%Investment securities:             Taxable303,263 9,777 6.50%293,180 9,237 6.34% Tax-exempt (1)126,365 4,341 6.93%132,390 4,476 6.80%       Total investment securities429,628 14,118 6.63%425,570 13,713 6.48%       Loans, net, including loans held for sale(1)1,199,163 9,455 8.32%1,172,584 48,885 8.38%       Total interest-earning assets1,650,952 64,220 7.84%1,614,558 62,999 7.85%       Total noninterest-earning assets110,739     101,983            Total assets$1,761,691     $1,716,541            LIABILITIES            Interest-bearing liabilities:             Interest-bearing deposits             Savings$165,482 $1,586 1.93%$164,228 $1,795 2.20% Checking182,923 1,411 1.56%192,455 2,031 2.12% Money market accounts266,225 4,941 3.74%244,830 4,628 3.80% Certificates of deposit589,891 16,968 5.80%524,774 13,486 5.17%         Total interest-bearing deposits1,204,521 24,906 4.17%1,126,287 21,940 3.92%       Short-term borrowings:             Federal funds purchased and securities             sold under agreements to repurchase96,175 2,169 4.55%108,670 2,910 5.39% Other short term borrowings41,681 1,361 6.58%1,603 50 6.27%       Total short term borrowings137,856 3,530 5.16%110,273 2,960 5.40%Long-term borrowings35,480 828 4.71%131,781 3,912 5.97%       Total borrowed funds173,336 4,358 5.07%242,054 6,872 5.71%       Total interest-bearing liabilities1,377,857 29,264 4.28%1,368,341 28,812 4.23%Noninterest-bearing liabilities:             Demand deposits202,575     185,656      Other liabilities16,891     17,664      Shareholders' equity164,368     144,880             Total liabilities and shareholders' equity$1,761,691     $1,716,541            Net interest income  $34,956     $34,187   Net interest spread    3.56%    3.61%Net interest margin    4.27%    4.26%
(1) Interest and yields on obligations ofstates and political subdivisions and tax-exempt loans are computed on ataxable equivalent basis using the U.S. statutory rate of 35 percent. Inaddition, loan fee income is included in the interest income calculations, and nonaccrualloans are included in the average loan base upon which the interest rate earnedon loans is calculated.**Provision for Credit Losses.
The provision for credit losses for thesecond quarter of 2001 was increased by $905 thousand over the year-ago quarterto reflect the slower economic conditions. For the six-month period ended June30, 2001, the provision increased to $2.6 million as compared to $1.3 millionfor the same period last year. It was management’s belief that the continuedslowdown in the economy warranted an increase in the risk factor associatedwith slowing economic conditions.

**Noninterest Income.**

For the first half of 2001, noninterestincome increased 9% from the comparable period of the previous year. Theseincreased revenues were the result of increased insurance sales and mortgagebanking services during the period. Compared with the first half of 2000,insurance revenue grew 13%, and income from mortgage banking operations grew by7%. Noninterest income as a percentage of net revenues increased from 29.3% forthe first half of 2000 to 30.7% for the current year.

**Noninterest Expense**.

Noninterest expense is made up of thoseexpenses incurred to run and operate the Bancorp.  The Bancorp’s efficiency ratio (the ratio of adjusted noninterestexpense to the sum of net interest income on a tax equivalent basis andrecurring noninterest income)  for thesecond quarter of 2001 was 62.3%, well below the previous quarter and theyear-ago comparable quarter. It is important to note that our business strategyincludes the diversification of our revenue stream through insurance sales.This line of business has a different cost structure than traditional bankingand therefor drives our efficiency ratio higher than some of our peers. Theefficiency ratio for the second quarter of 2001 excluding the insurancebusiness was 60.1%.

The Bancorp continued to focus on expensecontrol as evidenced by the 0% increase in noninterest expense from theyear-ago quarter and a decrease of 3% from the previous quarter. When comparedto the prior year quarter, salaries and employee benefits increased 5%,occupancy and equipment expense increased 2%, and other operating expensesdecreased 8%.

Total noninterest expense for the firsthalf of 2001 increased 1%, or $371 thousand over the prior year comparableperiod.  Salaries and employee benefitsincreased 5%, occupancy and equipment rose less than 1% and other operatingexpenses including merger-related expense decreased 4%.

**Income Taxes.**

Tax expense varies from one period to thenext with changes in the level of income before taxes, changes in the amount oftax-exempt income, and the relationship of these changes to each other. Theeffective income tax expense rate differs from the amount computed at statutoryrates primarily due to tax-exempt interest from certain loans and investmentsecurities.

For the second quarter of 2001, provisionfor income taxes declined by 11% to $2.029 million from the previous yearquarter. The second quarter 2001 effective tax rate was 28% compared to 32% inthe prior year. For the six months ended June 30, 2001, the  provision for income taxes decreased 4% to$3.964 million from the comparable 2000 period.  The first half of 2001 effective tax rate was 28% compared to 30%in the prior year.

**Nonperforming Assets.**

The Bancorp’s asset quality continues tobe sound with nonperforming assets at only 0.12% of total assets at the end ofthe second quarter. Total nonperforming assets at June 30, 2001 were $2.1million, a 72% decrease from the previous year. Although there is no directcorrelation between nonperforming loans and ultimate loan losses, an analysisof nonperforming loans may provide some indication of the quality of the loanportfolio.

**Potential Problem Loans.**

At June 30, 2001, Bancorp had $18.0million in loans to borrowers who were currently experiencing financialdifficulties such that management had reasonable concerns that such loans mightbecome contractually past due or be classified as a nonperforming asset. Theseloans are subject to the same close attention and regular credit reviews asextended to loans past due 90 days or more and nonperforming assets.

  **Nonperforming Assets and Contractually Past-Due Loans**
 Six  Months Ended   June 30, December 31, (Dollars in thousands)2001 2000    Nonperforming assets:     Nonaccrual  loans (1)$1,341 $2,669  Other  real estate owned net of valuation allowance (2)758 1,057     Total nonperforming assets$2,099 $3,726     Loans  past due 90 or more days as to interest or principal (3)$2,205 $1,230  Nonperforming loans to total loans0.11%0.22% Nonperforming assets to total loans plus  other real estate owned0.18%0.30% Nonperforming assets to total assets0.12%0.21% Allowance for credit losses times  nonperforming loans10.70 4.96  Allowance for credit losses times  nonperforming assets6.84 3.55 
(1)          Loans are placed on nonaccrual statuswhen, in the opinion of management, reasonable doubt exists as to the full, timelycollection of interest or principal, or a specific loan meets the criteria fornonaccrual status established by regulatory authorities. When a loan is placedon nonaccrual status, all interest previously accrued but not collected isreversed against current period interest income. No interest is taken intoincome on nonaccrual loans unless received in cash, or until such time theborrower demonstrates sustained performance over a period of time in accordancewith contractual terms.

(2)          Other real estate owned includes:banking premises no longer used for business purposes and real estate acquiredby foreclosure (in partial or complete satisfaction of debt), or otherwisesurrendered by the borrower to Bancorp’s possession. Other real estate owned isrecorded at the lower of cost or fair value on the date of acquisition ortransfer from loans. Write-downs to fair value at the date of acquisition arecharged to the allowance for credit losses. Subsequent to transfer, theseassets are adjusted through a valuation allowance to the lower of the netcarrying value or the fair value (net of estimated selling expenses) based onperiodic appraisals.

(3)          Nonaccrual loans are not included.

**Allowance for Credit Losses.**

At June 30, 2001, the allowance forcredit losses was $14.4 million or 1.20% of total loans with net charge-offs ofless than 0.13% of average loans outstanding during the first half of 2001.

The allowance for credit losses ismaintained at a level, which in management's judgment is adequate to absorb lossesinherent in the loan portfolio. The adequacy of the allowance for credit lossesis reviewed regularly by management. Additions to the allowance are made bycharges to the provision for credit losses. On a quarterly basis, acomprehensive review of the allowance is performed considering such factors asthe levels of loans outstanding, loss experience, delinquency levels, certainindividual loan reviews, and an evaluation of the regional and nationaleconomic environment. The methodology for assessing the appropriateness of theallowance consists of three primary elements:

  – The Formula Allowance. The formula allowance is calculated byapplying historically determined loss factors to outstanding business loansbased on credit risk ratings and for pools of homogeneous loans. Individuallyrisk rated loan loss factors is determined using average annual net charge–offrates for the most recent two years. Pooled loans are loans that arehomogeneous in nature such as consumer installment and residential mortgageloans. Pooled loan loss factors are based on net charge–offs experiencedover the past year. The historic loss factors on the risk rated loans and thepooled loans are then considered for either positive or negative adjustment inan attempt to reflect the current dynamics of the portfolios. These adjustmentsin the loss factors are tied to management's evaluation of a number of factorsincluding: 1) changes in the trend of the volume and severity of past due,classified and non–accrual assets; 2) changes in the nature and volume ofthe portfolio; 3) changes in lending policies, underwriting standards, orcollection practices; 4) changes in the experience, ability, depth of lendingmanagement and staff; 5) portfolio concentrations; and 6) changes in the nationalor local economy.

  – Specific Allowances for Identified Problem Loans. The amount ofspecific reserves is determined through a loan–by–loan analysis ofnon–performing loans. The analysis considers expected future cash flows,the value of collateral or other factors that may impact the borrower's abilityto repay.

  – The Unallocated Allowance. The unallocated portion of theallowance is based on loss factors that cannot be associated with specificloans or loan categories. These factors include management's subjectiveevaluation of such conditions as credit quality trends, collateral values,portfolio concentrations, specific industry conditions in the regional economy,regulatory examination results, internal audit and loan review findings, recentloss experiences in particular portfolio segments, etc. The unallocated portionof the allowance for losses reflects management's attempt to ensure that theoverall reserve appropriately reflects a margin for the imprecision necessarilyinherent in estimates of credit losses.

While management believes the allowancefor credit losses was adequate at June 30, 2001, the estimate of losses andrelated allowance may change in the near term due to economic and otheruncertainties inherent in the estimation process.

**Analysisof Allowance for Credit Losses**
 Period ended    June 30, December 31, (Dollars in thousands)2001 2000    Average loans outstanding less average  unearned income (1)$1,193,491 $1,197,648    Allowance for credit losses at beginning  of period$13,232 $13,068 Charge-offs:     Real estate156 630  Commercial and industrial115 1,009  Consumer2,588 3,887     Total loans charged-off2,859 5,526    Recoveries:     Real estate1 189  Commercial and industrial106 80  Consumer1,240 2,185     Total recoveries1,347 2,454    Net charge-offs1,512 3,072    Additions charged to operating expense2,630 3,236    Allowance for credit losses at end of  period$14,350 $13,232    Net charge-offs to average loans  outstanding0.13%0.26%
(1) Excludesloans held for sale

The following table presents anallocation of the allowance for credit losses to various loan categories. This allocationdoes not limit the amount of the allowance available to absorb losses from anytype of loan and should not be viewed as an indicator of the specific amount orspecific loan categories in which future charge-offs may ultimately occur.

**Allocation of Allowance forCredit Losses**
 Period Ended    June 30,  2001 December 31,  2000       % of Total   % of Total (Dollars in thousands)Amount Allowance Amount Allowance      Real estate loans:         Construction and land development$1,459 10.2%$1,866 14.1% Residential mortgage837 5.8%690 5.2% Other mortgage3,623 25.2%3,651 27.6%Commercial and industrial1,660 11.6%2,073 15.7%Consumer5,379 37.5%3,940 29.8%Unallocated1,392 9.7%1,012 7.6%     Totals$14,350 100.0%$13,232 100.0%     
**Capital Resources**

It is Bancorp's policy to maintain alevel of capital sufficient to protect the company's depositors, creditors, andshareholders, and to support Bancorp's growth. The principal source of capitalis retained earnings.

The Board and the regulatory authoritiesmaintain capital adequacy guidelines applicable to Bancorp and the Bank,respectively. Under each measure, Bancorp and its subsidiaries weresubstantially in excess of the minimum regulatory requirements and, bydefinition, were "well capitalized" at June 30, 2001 and December 31,2000.

Shareholders’ equity totaled $165.9million at June 30, 2001, or $15.08 per share compared to $146 million, or$13.70 per share at June 30, 2000.

During the second quarter of 2001, weannounced a 500,000 share repurchase program to optimize the returns on ourinvested capital. Through June 30, 2001 we have repurchased 34,600 shares at anaverage price of $25.98. We will continue to purchase shares from time to timein the future depending on market conditions

Bancorp's risk-based capital and leveragecapital ratios as of June 30, 2001, were as follows:

**Capital Ratios**
 Risk-based  Capital Six Months Ended June 30, 2001    Tier 1 Total Leverage  Capital Capital Ratios     Actual12.43%13.55%9.04%Regulatory Minimum4.00%8.00%3.00%    Excess8.43%5.55%6.04%    
Fair value adjustments to shareholders’equity for changes in the fair value of securities classified asavailable-for-sale are excluded from the calculation of these capital ratios inaccordance with regulatory guidelines.
**Item  3.****Quantitative and Qualitative  Disclosures about Market Risk****.**
Market risk is defined as the futurechanges in market prices that increase or decrease the value of financialinstruments, i.e. cash, investments, loans, deposits and debt.  Included in market risk are interest raterisk, foreign currency exchange rate risk, commodity price risk, and otherrelevant market risks.  Bancorp’sprimary source of market risk is interest rate risk.  Market risk-sensitive financial instruments are entered into forpurposes other than trading.

Interest rate risk refers to the exposureof Bancorp’s earnings and capital to changes in interest rates. This risk isdriven by potential mismatches resulting in timing differences in the repricingof assets, liabilities and the potential impact of explicit and embeddedoptions. The goal of asset/liability management is to maintain high-quality andconsistent growth of net interest income, while maintaining acceptable levelsof risk to changes in interest rates, and acceptable levels of capital andliquidity. This goal is achieved by influencing the maturity and repricing ofassets and liabilities and by managing discretionary portfolios.

There are several common sources ofinterest rate risk that must be effectively managed if there is to be minimalimpact on Bancorp’s earnings and capital. Re-pricing risk arises largely from timing differences in the pricing ofassets and liabilities.  Reinvestmentrisk refers to the reinvestment of cash flows from interest payments andmaturing assets at lower rates.  Basisrisk exists when different yield curves or pricing indices do not change atprecisely the same time or in the same magnitude such that assets andliabilities with the same maturity are not all affected equally.  Yield curve risk refers to unequal movementsin interest rates across a full range of maturities.

In determining the appropriate level ofinterest rate risk, Bancorp considers the impact on earnings and capital of thecurrent outlook on interest rates, potential changes in interest rates,regional economies, liquidity, business strategies, and other factors. TheBancorp uses a number of tools to measure interest rate risk, includingsimulating net interest income, monitoring the sensitivity of the net presentvalue of the balance sheet, and monitoring the difference or gap betweenmaturing or rate-sensitive assets and liabilities over various time periods.

Management believes that interest raterisk is best measured by simulation modeling which calculates expected netinterest income based on projected interest-earning assets and interest-bearingliabilities.  The model projections arebased upon historical trends and management's expectations of balance sheetgrowth patterns, spreads to market rates, historical market rate relationships,prepayment behavior, current and expected product offerings and salesactivities. Various sensitivity analyses are performed on a regular basis tosegregate interest rate risk into separate components and understand the riskattributable to prepayments, caps and floors, and other options. Assumptiontesting is performed to understand the degree of impact from changing keyassumptions such as the speed of prepayments, the interest rate elasticity ofcore deposit rates and balance sheet growth. The Bancorp's policy guideline limit for net interest income simulationis a negative impact to net interest income of 15.0 percent for the up or down300 basis points scenarios when compared with the flat rate scenario.  Management has generally maintained a riskposition well within the policy guideline level.  The model indicated the impact of a 300 basis point rise in ratesover the next 12 months would cause approximately a 3.7% decrease in netinterest income at June 30, 2001.  A 300basis point decrease in rates over the next 12 months would cause approximatelya 0.9% increase in net interest income.

Computations of prospective effects ofhypothetical interest rate changes are based on many assumptions, includingrelative levels of market interest rates, loan prepayments and changes indeposit levels.  They are not intendedto be a forecast and should not be relied upon as indicative of actualresults.  Further, the computations donot contemplate certain actions that management could take in response tochanges in interest rates.

Effects of Changing Prices: Inasmuch asvirtually all of a financial institution's assets and liabilities are monetaryin nature, changes in interest rates, or the price paid for money, may have asignificant effect on earnings performance. Interest rates, though affected byinflation, do not necessarily move in the same direction, or in the samemagnitude, as the prices of other goods and services. Movements in interestrates are a result of the perceived changes in the rate of inflation and theeffects of monetary and fiscal policies. Reference to Net Interest Income andMarket Risk in this section will assist the reader in understanding of howBancorp is positioned to address changing interest rates.

Several major categories of noninterestexpense are more directly affected by inflationary factors such as salaries andemployee benefits and other operating expenses. Management endeavors toovercome, or mitigate, the effects of inflation by seeking opportunities toimprove operating efficiency and productivity, and by developing strategies forgrowth that will exceed the projected rate of inflation.

PARTII - Other Information

Item6.  Exhibitsand Reports on Form 8-K

(a)         Exhibits

11.Computation of per share earnings. Filed as an exhibit hereto and incorporated herein by reference.

(b)        Reportson Form 8-K

1. Report on Form 8-K, Item 5. OtherEvent, was filed April 2, 2001. Announce its application to become a statechartered bank, filed on December 14, 2000, was approved by the Maryland StateCommissioner of Financial Regulation, and that it has commenced operations atFarmers & Mechanics Bank, a state-chartered bank, effective April 1, 2001.

2. Report on Form 8-K, Item 5. OtherEvent, was filed June 22, 2001. Announced it has completed the consolidation ofits two banking subsidiaries into one state banking charter. Effective June1st,Home Federal Savings Bank began operating as a division of Farmers&Mechanics Bank.
Signatures

Pursuant to the requirements of theSecurities Exchange Act of 1934 the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.
     F&M  BANCORP          (Registrant)             August  10, 2000   /s/  Faye E. Cannon    Date   FAYE  E. CANNON     PRESIDENT  AND CEO             August  10, 2000   /s/  Kaye A. Simmons    Date   KAYE  A. SIMMONS     CFO  AND TREASURER
 **