<PAGE>

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

                                    FORM 10-Q

/X/      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
         OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2000
                                       OR

/ /      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 AS SPECIFIED 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)

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:
                           COMMON STOCK ($5 PAR VALUE)
                                (TITLE OF CLASS)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

       Common Stock of 11,011,540 shares outstanding as of August 2, 2000.

--------------------------------------------------------------------------------


<PAGE>

                                   F&M BANCORP
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

PART I   FINANCIAL INFORMATION                                                                                            PAGE
<S>                                                                                                                      <C>
         Consolidated Balance Sheets,
         June 30, 2000 and 1999 (Unaudited) and December 31, 1999.........................................................3

         Consolidated Statements of Income and Comprehensive Income (Unaudited),
         Three and Six Months Ended June 31, 2000 and 1999................................................................4

         Consolidated Statements of Changes in Shareholders' Equity (Unaudited),
         Six Months Ended June 30, 2000 and Twelve Months Ended December 31, 1999.........................................5

         Consolidated Statements of Cash Flows (Unaudited),
         Six Months Ended June 30, 2000 and 1999..........................................................................6

         Notes to Consolidated Financial Statements (Unaudited)...........................................................7

         Management's Discussion and Analysis of Financial Condition and Results of Operations...........................12

         Quantitative and Qualitative Disclosures about Market Risk......................................................20

PART II  OTHER INFORMATION

         Item 6.  Exhibits and Reports on Form 8-K.......................................................................21

         Signatures......................................................................................................22

</TABLE>


                                       2

<PAGE>

                           CONSOLIDATED BALANCE SHEETS
                          F&M BANCORP AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                                                                   June 30,        June 30,       December 31,
                                                                                       2000            1999              1999
(Dollars in thousands, except per share amounts)                                (Unaudited)     (Unaudited)
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>              <C>
ASSETS
Cash and due from banks                                                          $    61,227    $    44,345      $    60,888
Federal funds sold                                                                     3,967         39,795           11,304
Interest- bearing deposits with banks                                                  9,392          6,706           14,128
------------------------------------------------------------------------------------------------------------------------------
     Total cash and cash equivalents                                                  74,586         90,846           86,320
------------------------------------------------------------------------------------------------------------------------------
Loans held for sale                                                                    4,882         17,834           15,497
Investment securities
     Available for sale, at fair value                                               308,550        357,496          317,945
     Held to maturity, fair value
     $93,916, $104,440 and $97,357, respectively                                      95,432        104,680           99,416
------------------------------------------------------------------------------------------------------------------------------
     Total investment securities                                                     403,982        462,176          417,361
------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income                                                      1,216,063        998,316        1,114,734
Less: Allowance for credit losses                                                    (13,209)       (13,858)         (13,068)
------------------------------------------------------------------------------------------------------------------------------
     Net loans                                                                     1,202,854        984,458        1,101,666
------------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment, net                                                      34,989         35,942           35,494
Other real estate owned, net                                                           1,594          1,305            1,185
Interest receivable                                                                   11,140         10,613           10,080
Intangible assets                                                                      6,049          7,871            6,696
Other assets                                                                          29,630         26,164           45,035
------------------------------------------------------------------------------------------------------------------------------
Total assets                                                                     $ 1,769,706    $ 1,637,209      $ 1,719,334
==============================================================================================================================
LIABILITIES:
Deposits:
     Noninterest-bearing                                                         $   195,186    $   177,595      $   188,154
     Interest-bearing                                                              1,129,792      1,131,585        1,125,919
------------------------------------------------------------------------------------------------------------------------------
             Total deposits                                                        1,324,978      1,309,180        1,314,073
------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
     Federal funds purchased and securities sold
         under agreements to repurchase                                              125,406         63,460           94,083
     Other short-term borrowings                                                       1,695          1,971           48,183
     Long-term borrowings                                                            149,634         98,764          100,578
     Accrued taxes and other liabilities                                              17,218         16,504           18,597
------------------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                  1,618,931      1,489,879        1,575,514
------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
     Common stock, par value $5 per share; authorized 50,000,000 shares; issued
     and outstanding 11,009,000 shares,
     10,988,621 shares, and 10,999,621 shares, respectively                           55,043         43,793           54,998
     Surplus                                                                          78,423         75,077           78,248
     Retained earnings                                                                25,064         33,525           18,951
     Accumulated other comprehensive loss                                             (7,755)        (5,065)          (8,377)
------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                           150,775        147,330          143,820
------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity                                       $ 1,769,706    $ 1,637,209      $ 1,719,334
==============================================================================================================================

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.


                                       3

<PAGE>

CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
                          F&M BANCORP AND SUBSIDIARIES

<TABLE>

                                                            Three Months Ended June 30,          Six Months Ended June 30,
(Dollars in thousands, except per share amounts)            2000                1999              2000              1999
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>               <C>               <C>               <C>
Interest Income
   Interest and fees on loans                                 $   25,051        $   20,992        $   48,782        $   42,177
   Interest on deposits with banks                                   129               336               275               665
   Interest and dividends on investment securities
    Taxable                                                        4,594             4,806             9,239             9,314
    Tax-exempt                                                     1,467             1,468             2,953             2,942
   Interest on federal funds sold                                      -               355               114               659
-------------------------------------------------------------------------------------------------------------------------------
Total interest income                                             31,241            27,957            61,363            55,757
-------------------------------------------------------------------------------------------------------------------------------
Interest Expense
   Interest on deposits                                           11,094            10,785            21,940            21,458
   Interest on federal funds purchased and
   securities
    sold under agreements to repurchase                            1,624               631             2,906             1,218
   Interest on Federal Home Loan Bank Borrowings                   2,199             1,329             3,913             2,693
   Interest on other short-term borrowings                            17                11                39                29
-------------------------------------------------------------------------------------------------------------------------------
Total interest expense                                            14,934            12,756            28,798            25,398
-------------------------------------------------------------------------------------------------------------------------------
   Net interest income                                            16,307            15,201            32,565            30,359
   Provision for credit losses                                       630               325             1,296               850
-------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses             15,676            14,876            31,268            29,509
-------------------------------------------------------------------------------------------------------------------------------
Noninterest Income
   Service charges on deposit accounts                             2,224             1,776             3,906             3,396
   Insurance income                                                1,968             1,772             4,236             3,539
   Gains on sales of loans                                           597               627             1,044             1,414
   Gains (losses) on sales of property                               (67)                -               (49)              190
   Trust & stock brokerage income                                    943               747             2,005             1,510
   Other operating income                                          1,552             1,243             3,037             2,567
-------------------------------------------------------------------------------------------------------------------------------
Total noninterest income                                           7,217             6,165            14,179            12,616
-------------------------------------------------------------------------------------------------------------------------------
Noninterest Expenses
   Salaries and employee benefits                                  8,646             8,348            17,134            16,546
   Merger-related expense                                             17                 -               228                 -
   Occupancy and equipment expense                                 2,341             2,318             4,941             4,629
   Other operating expense                                         4,745             5,000             9,424             9,293
-------------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses                                        15,748            15,666            31,726            30,468
-------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes                           7,145             5,374            13,721            11,657
Provision for income taxes                                         2,277             1,331             4,138             3,137
===============================================================================================================================
Net Income                                                    $    4,869        $    4,043        $    9,584        $    8,520
===============================================================================================================================
Other Comprehensive Income (Loss), Net of Tax:
   Unrealized losses on securities                            $     (743)       $   (4,023)       $   (1,040)       $   (5,341)
   Reclassification adjustment for gains (losses)
    included in net income                                             -                 -                 -                 -
-------------------------------------------------------------------------------------------------------------------------------
Other comprehensive loss                                            (743)           (4,023)           (1,040)           (5,341)
-------------------------------------------------------------------------------------------------------------------------------
Comprehensive income                                          $    4,126        $       20        $    8,544        $    3,179
===============================================================================================================================
Earnings per Common Share - Basic
    Based on weighted average shares outstanding
    11,008,605 in 2000, and 10,986,893 in 1999                $     0.44        $     0.37        $     0.87        $     0.78
-------------------------------------------------------------------------------------------------------------------------------
Earnings per Common Share - Diluted
    Based on weighted average shares outstanding
    11,023,552 in 2000, and 11,052,635 in 1999                $     0.44        $     0.37        $     0.87        $     0.77
===============================================================================================================================
Dividends per Share                                           $     0.27        $     0.25        $     0.54        $     0.50
===============================================================================================================================

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.


                                       4

<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
                          F&M BANCORP AND SUBSIDIARIES

(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                             Accumulated
                                                                                                Other
                                        Common                            Retained           Comprehensive
                                         Stock           Surplus          Earnings          Income (Loss)           Total
-------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                <C>                <C>                <C>               <C>
Balance at December 31, 1998          $ 52,196           $ 65,020           $ 30,694           $   277           $ 148,187

Net income                                 -                  -               13,063               -                13,063
Dividend reinvestment plan                  55                171               (138)              -                    88
Cash dividends paid
 ($.97 per share)                          -                  -              (10,646)              -               (10,646)
Stock consideration for
 options exercised                         (58)               (50)               (81)              -                  (189)
Stock options exercised                    527              1,444                -                 -                 1,971
Stock dividend                           2,278             11,663            (13,941)              -                   -
Other comprehensive income                 -                  -                  -              (8,654)             (8,654)

--------------------------------------------------------------------------------------------------------------------------
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 exercised                     63                166                -                 -                   229
Stock dividend                             -                  -                  -                 -                   -
Other comprehensive income                 -                  -                  -                 622                 622
--------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000              $ 55,043           $ 78,423           $ 25,064           $(7,755)          $ 150,775
==========================================================================================================================

</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.


                                       5

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

F&M Bancorp and Subsidiaries

<TABLE>
<CAPTION>

                                                                                          Six  Months Ended  June 30,
(DOLLARS IN THOUSANDS)                                                                     2000                 1999
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                                               $   9,584           $   8,520
Adjustments to reconcile net income to net cash provided by operating
activities
   Provision for credit losses                                                               1,296                 850
   Depreciation and amortization                                                             1,906               2,009
   Amortization of intangibles                                                                 586                 528
   Net premium amortization on investment securities                                           173                 453
   Increase in interest receivable                                                          (1,024)               (431)
   Increase in interest payable                                                                658               1,490
   Deferred income tax benefits                                                               (229)                (67)
   Amortization (accretion) of net loan origination costs (fees)                               187                (125)
   Gain on sales of property                                                                   -                    (3)
   Decrease in loans held for sale                                                          10,615              10,695
   Decrease in other assets                                                                 18,596                 336
   Decrease in other liabilities                                                            (2,037)             (1,694)
   Other                                                                                       413                  31
----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                   40,724              22,592
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities to be held to maturity                                      -               (12,494)
Purchases of investment securities available for sale                                      (13,252)           (136,321)
Proceeds from sales/calls of securities available for sale                                     -                 1,109
Proceeds from maturing securities available for sale                                        23,540             106,076
Proceeds from maturing securities held to maturity                                           3,882               5,865
Net increase in loans                                                                     (106,363)             (8,763)
Purchases of premises and equipment                                                         (1,401)             (1,698)
Proceeds from sales of property                                                                -                   400
Other investing activities                                                                    (409)             (1,223)
----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                                      (94,003)            (47,049)
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits, interest-bearing checking,
   savings and money market accounts                                                        18,168              20,019
Net (decrease)/increase in certificates of deposit                                          (7,263)              3,900
Net increase in federal funds purchased and securities sold under agreements to
repurchase                                                                                  31,323               2,033
Net decrease in other short-term borrowings                                                (46,488)            (12,805)
Net increase in long-term borrowings                                                        49,056               4,518
Cash dividends paid                                                                         (3,413)             (5,247)
Dividend reinvestment plan                                                                     (55)                139
Proceeds from issuance of common stock                                                         217               1,232
----------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities                                                       41,545              13,789
Net decrease in cash and cash equivalents                                                  (11,734)            (10,667)
Cash and cash equivalents at beginning of year                                              86,320             101,513
Cash and cash equivalents at end of period                                                  74,586              90,846
======================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest                                                                  28,140              25,398
Cash payments for income tax                                                                   474               1,225
NON-CASH INVESTING AND FINANCING ACTIVITIES
Fair value adjustment for securities available for sale,
   net of income taxes                                                                         622              (5,342)


</TABLE>


                                       6

<PAGE>

Notes to Consolidated Financial Statements  (Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The foregoing financial statements are unaudited; however, in the opinion of
management, all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation of the financial statements have been
included. A summary of F&M Bancorp and subsidiaries' ("Bancorp's") significant
accounting policies is set forth in Note 1 to the consolidated financial
statements in its Annual Report on Form 10-K for the year ended December 31,
1999.

Certain reclassifications to prior year balances have been made in the
accompanying consolidated financial statements to make disclosures consistent
with those of the current year.

NOTE 2. ACQUISITIONS

On December 30, 1999, Bancorp consummated a merger with Patapsco Valley
Bancshares, Inc. ("PVB") and its commercial banking subsidiary, Commercial &
Farmers Bank ("C&F"), Ellicott City, MD, in a tax-free exchange of shares
accounted for as a pooling-of-interests. Under the terms of the merger
agreement, C&F was merged with and into the Bank at closing, increasing the
Bank's assets by approximately $173 million, loans by approximately $118
million, and deposits by approximately $150 million.

On July 15, 1999, Bancorp consummated a merger with Potomac Basin Group
Associates, Inc. (Potomac Basin), in a tax-free exchange of shares accounted for
as a pooling-of-interests. Potomac Basin is a Beltsville, MD-based, full-line
independent insurance agency specializing in corporate employee benefit plans.

NOTE 3. INVESTMENT SECURITIES

Investment securities are summarized as follows:

<TABLE>
<CAPTION>

                                                                                  Six Months Ended
                                                                                    June 30, 2000
                                                                                  Gross        Gross         Estimated
                                                               Amortized       Unrealized    Unrealized        Fair
(Dollars in thousands)                                           Cost             Gains        Losses          Value
------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>            <C>             <C>
Available-for-sale:
    U.S. Treasury securities and obligations of U.S.
      government corporations and agencies                     133,591            -             5,386          128,205
      Obligations of state and political subdivisions           45,565             37           1,608           43,994
      Mortgage-backed securities                               127,291              3           6,467          120,827
----------------------------------------------------------------------------------------------------------------------
Total debt securities                                          306,447             40          13,461          293,026
    Equity securities                                           14,622            902             -             15,524
----------------------------------------------------------------------------------------------------------------------
Total securities available for sale                            321,069            942          13,461          308,550
----------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
      Obligations of state and political subdivisions           86,294            181           1,588           84,887
      Mortgage-backed securities                                 9,138              7             116            9,029
----------------------------------------------------------------------------------------------------------------------
Total securities to be held to maturity                         95,432            188           1,704           93,916
----------------------------------------------------------------------------------------------------------------------
Total investment securities                                    416,501          1,130          15,165          402,466
======================================================================================================================

</TABLE>


                                       7

<PAGE>

<TABLE>
<CAPTION>

                                                                                  Six Months Ended
                                                                                    June 30, 1999
                                                                                  Gross        Gross         Estimated
                                                               Amortized       Unrealized    Unrealized        Fair
(Dollars in thousands)                                           Cost             Gains        Losses          Value
------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>            <C>             <C>
Available-for-sale:
    U.S. Treasury securities and obligations of U.S.
      government corporations and agencies                     146,882             53           2,843          144,092
      Obligations of state and political subdivisions           38,829            452           1,385           37,896
                                                                12,636             34             -             12,670
      Mortgage-backed securities                               147,527             20           4,419          143,128
----------------------------------------------------------------------------------------------------------------------
Total debt securities                                          345,874            559           8,647          337,786
    Equity securities                                           19,914             63             267           19,710
----------------------------------------------------------------------------------------------------------------------
Total securities available for sale                            365,788            622           8,914          357,496
----------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
    U.S. Treasury securities and obligations of U.S.
      government corporations and agencies                         -              -               -                -
      Obligations of state and political subdivisions           93,062            777           1,084           92,755
      Mortgage-backed securities                                11,618             99              32           11,685
----------------------------------------------------------------------------------------------------------------------
Total securities to be held to maturity                        104,680            876           1,116          104,440
----------------------------------------------------------------------------------------------------------------------
Total investment securities                                    470,468          1,498          10,030          461,936
======================================================================================================================

</TABLE>

<TABLE>
<CAPTION>

                                                                                Year Ended
                                                                              December 30, 1999
                                                                             Gross           Gross         Estimated
                                                             Amortized       Unrealized      Unrealized    Fair
(Dollars in thousands)                                       Cost            Gains           Losses        Value
--------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>          <C>             <C>
Available-for-sale:
    U.S. Treasury securities and obligations of U.S.
      government corporations and agencies                     137,554            9           4,737          132,826
      Obligations of state and political subdivisions           42,493           11           2,149           40,355
      Other Debt Securities                                        -              -             -                -
      Mortgage-backed securities                               136,506            9           6,358          130,157
--------------------------------------------------------------------------------------------------------------------
Total debt securities                                          316,553           29          13,244          303,338
    Equity securities                                           14,875            -             268           14,607
--------------------------------------------------------------------------------------------------------------------
Total securities available for sale                            331,428           29          13,512          317,945
--------------------------------------------------------------------------------------------------------------------
Held-to-maturity:
    U.S. Treasury securities and obligations of U.S.
      government corporations and agencies                         -              -             -                -
      Obligations of state and political subdivisions           89,218          303           2,255           87,266
      Mortgage-backed securities                                10,198           16             123           10,091
--------------------------------------------------------------------------------------------------------------------
Total securities to be held to maturity                         99,416          319           2,378           97,357
--------------------------------------------------------------------------------------------------------------------
Total investment securities                                    430,844          348          15,890          415,302
====================================================================================================================

</TABLE>

Bancorp classifies its investments in debt and equity securities in two
categories: held-to-maturity and available-for-sale. Securities classified as
held-to-maturity are those debt securities that Bancorp has both the positive
intent and ability to hold to maturity. These securities are carried at cost,
adjusted for amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income using the interest method.


                                       8

<PAGE>

Securities classified as available-for-sale are equity securities with readily
determinable fair values and those debt securities that Bancorp intends to hold
for an indefinite period of time, but not necessarily to maturity. These
securities may be sold as part of its asset/liability management strategy, or in
response to significant movements in interest rates, liquidity needs, regulatory
capital considerations, and other similar factors. These securities are carried
at fair value, with any unrealized gains and losses reported as a separate
component of shareholders' equity, net of the related deferred tax effect.

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

The amortized cost and estimated fair values of investments at June 30, 2000 by
contractual maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>

                                                   Six Months Ended
                                                     June 30, 2000
                                      Amortized           Fair
(Dollars in thousands)                  Cost             Value
-----------------------------------------------------------------
<S>                                    <C>               <C>
Available-for-sale:
  Within 1 year                        $  6,342          $  6,330
  After 1 but within 5 years             80,403            78,133
  After 5 but within 10 years            74,141            70,263
  After 10 years                         18,271            17,473
  Mortgage-backed securities            127,291           120,827
  Equity securities                      14,622            15,524
-----------------------------------------------------------------
Total available for sale                321,069           308,550
-----------------------------------------------------------------

Held-to-maturity:
  Within 1 year                           5,462             5,465
  After 1 but within 5 years             33,638            33,700
  After 5 but within 10 years            19,808            19,430
  After 10 years                         27,385            26,292
  Mortgage-backed securities              9,138             9,028
-----------------------------------------------------------------
Total to be held to maturity             95,432            93,915
-----------------------------------------------------------------
Total investment securities            $416,501          $402,466
=================================================================

</TABLE>

The carrying value of investment securities pledged to secure public deposits,
securities sold under repurchase agreements, Federal Home Loan Bank advances,
and for other purposes as required and permitted by law, totaled $136.3 million
at June 30, 2000.


                                       9

<PAGE>

NOTE 4. LOANS

Loans, net of unearned income, consist of the following:

<TABLE>
<CAPTION>

                                                                 June 30,                           December 31,
(In thousand of Dollars)                               2000                    1999                       1999
-----------------------------------------------------------------------------------------------------------------
<S>                                                <C>                     <C>                       <C>
Real Estate Loans:
     Construction and land development             $    75,330             $    61,350               $    67,452
     Secured by farmland                                 6,393                   6,307                     7,884
     Residential mortgage                              344,929                 298,614                   305,834
     Other mortgage                                    297,500                 234,084                   276,414
Agricultural                                               480                     732                       656
Commercial and industrial loans                        187,694                 127,600                   170,379
Consumer                                               300,568                 260,178                   283,000
Other loans                                              3,169                   9,493                     3,115
-----------------------------------------------------------------------------------------------------------------
Totals                                             $ 1,216,063             $   998,316               $ 1,114,734
=================================================================================================================

</TABLE>

Does not include loans held for sale

Loans to states and political subdivisions and industrial revenue bonds are
included in all other loans in the schedule above and in total loans in the
balance sheet.

The allowance for credit losses is maintained at a level which, in management's
opinion, is considered adequate to provide for possible loan losses on loans
currently held in the loan portfolio.

NOTE 5. BANK PREMISES AND EQUIPMENT

Investments in bank premises and equipment are as follows:

<TABLE>
<CAPTION>

                                                June 30,             December 31,
                                          2000             1999            1999
---------------------------------------------------------------------------------
<S>                                     <C>              <C>              <C>
Bank premises and land                  $33,168          $33,543          $33,688
Furniture and equipment                  30,152           28,192           28,594
Leasehold improvements                    3,530            3,483            3,537
---------------------------------------------------------------------------------
                                         66,850           65,218           65,819
Less: accumulated depreciation
     and amortization                    31,861           29,276           30,325
---------------------------------------------------------------------------------
Net premises and equipment              $34,989          $35,942          $35,494
=================================================================================

</TABLE>

NOTE 6. COMPREHENSIVE INCOME

Bancorp adopted Financial Accounting Standards Board ("FASB") Statement No. 130,
"Reporting Comprehensive Income," effective January 1, 1999. Other comprehensive
income consists entirely of unrealized gains (losses) on available-for-sale
securities. Income taxes allocated to other comprehensive income amounted to
benefits of $467 thousand and $2.5 million for the second quarter of 2000 and
1999, respectively and benefits of $654 thousand and $3.4 million for the six
months ended June 30, 2000 and 1999, respectively.


                                       10

<PAGE>

NOTE 7. EARNINGS PER SHARE

Earnings per share ("EPS") data is computed and presented in accordance with
FASB Statement No. 128, "Earnings Per Share." As prescribed by the Statement,
the presentation of primary EPS has been replaced with the dual presentation of
basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing
net income available to common shareholders ("numerator") by the
weighted-average number of common shares outstanding for the period after giving
retroactive effect to stock dividends and stock splits ("denominator"). Diluted
EPS reflects the potential dilution that could occur if outstanding stock
options or other contracts to issue common stock, if any, were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of Bancorp. Diluted EPS is equal to the numerator
divided by the denominator plus the dilutive effect of outstanding stock
options.

(Dollars in thousands except per share amounts)

<TABLE>
<CAPTION>

                                          Three Months Ended June 30,                 Six Months Ended June 30,
                                            2000                 1999                2000                  1999
<S>                                    <C>                  <C>                  <C>                  <C>
Net income                             $     4,869          $     4,043          $     9,584          $     8,520
                                       ===========          ===========          ===========          ===========
Basic EPS
     Shares                             11,008,605           10,986,893           11,008,468           10,967,514
     EPS                               $      0.44          $      0.37          $      0.87          $      0.78
Dilutive shares
     Stock options                          14,947               65,742               16,824               72,588
     EPS                               $      0.00          $      0.00          $      0.00          $      0.01
Diluted EPS
     Shares including options           11,023,552           11,052,635           11,025,292           11,040,102
     EPS                               $      0.44          $      0.37          $      0.87          $      0.77

</TABLE>

NOTE 8. FUTURE CHANGES IN ACCOUNTING PRINCIPLES

In June, 1999, FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and for Hedging Activities", which calls for derivatives to be recognized in the
consolidated balance sheet at fair value and for subsequent changes in fair
value to be recognized in the consolidated statement of income and comprehensive
income. However, because non-derivative and non-financial transactions are still
measured using a mix of historical and current prices, the Statement retains
special accounting for gains and losses when derivatives are used in qualifying
hedges of assets, liabilities, and future transactions. The Statement unifies
qualifying criteria for hedges involving all types of derivatives, requiring
that a company document, designate, and assess the effectiveness of its hedges.
For hedges that meet the Statement's criteria, the derivative's gains and losses
will be allowed to offset gains and losses on, or forecasted cash flows of, the
hedged item.

Among a number of other provisions, the Statement will also allow entities to
reclassify available-for-sale and held-to-maturity securities without calling
into question management's intent for the remainder of its securities
portfolios.

For calendar-year companies such as Bancorp, the Statement will take effect
beginning January 1, 2001. Historically, Bancorp has not made use of hedges and
other financial derivatives and is unable to predict the impact, if any, that
the application of Statement No. 133 will have upon consolidated financial
statements issued after 2000.


                                       11

<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

OVERVIEW

F&M Bancorp's net income for the second quarter of 2000 was $4.869 million, or
$0.44 basic earnings per share, an increase of 20% compared with earnings of
$4.043 million, or $0.37 basic earnings per share, for the second quarter of
1999. Per share amounts reported previously have been restated for the
acquisitions of Patapsco Valley Bancshares, Inc., completed in December 1999,
and Potomac Basin Group Associates, Inc. completed in July 1999, both accounted
for as a pooling-of- interests.

Second quarter 2000 earnings were favorably impacted by a 17% increase in
noninterest income, as well as maintaining noninterest expense to less than a 1%
increase, compared to the second quarter of last year. Return on average assets
was 1.12% for the second quarter of 2000, compared to 1.00% for the second
quarter of 1999. Return on average equity in the second quarter of 2000 was
13.38%, compared to 10.85% for the same period of 1999.

For the six months ended June 30, 2000 compared with the six months ended June
30, 1999, net income increased 13% to $9.584 million, or $0.87 basic earnings
per share, from $8.520 million, or $0.78 basic earnings per share. Returns on
average assets and average equity were 1.12% and 13.30%, respectively, for the
first half of 2000 compared with 1.06% and 11.47%, respectively, for the first
six months of 1999.

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


                                       12

<PAGE>

Results of Operations

NET INTEREST INCOME

Net interest income, which is the sum of interest and certain fees generated by
earning assets minus interest paid on deposits and other funding sources, is the
principal source of Bancorp's earnings, representing approximately 70% of gross
revenue through the first six months of 2000. Net interest income is influenced
by a number of external economic and competitive factors such as Federal Reserve
Board monetary policy and its influence on market interest rates. Loan demand
and competition from nonbank lenders; and competition with investment managers,
brokerage firms and investment bankers for consumer and commercial business
assets that might otherwise be deposited in banks. Internal factors impacting
levels and changes in net interest income are attributed to Bancorp's interest
rate risk management policies, which address a variety of issues including loan
and deposit pricing strategies, funding alternatives, and maturity schedules.
Bancorp has not made use of derivatives, interest rate hedges, or similar
instruments or transactions to manage interest rate risk.

Average balances and rates for each major category of interest-earning assets
and interest-bearing liabilities for the second quarter and year-to-date periods
are presented on a comparative basis in the tables below. Average balances for
the second quarter 2000, compared with the second quarter 1999 were as follow.
Net interest income on a taxable-equivalent basis increased by 7%, or $1.2
million. Average earning assets increased 8%, or $125.7 million. Average loans
continued to grow at a strong pace of 20%, or $199.7 million. The average
balance in the investment portfolio decreased 6%, or $27.4 million. This is
partially due to the increase in loan demand. The yield on earning assets across
all sectors increased 24 basis points to 7.89%. Average interest-bearing
deposits increased $6.7 million, or 1%. Additional long-term funding was
provided principally by Federal Home Loan Bank advances, which increased $49.2
million, or 53%.

Average balances for the six months ended June 30, 2000, compared with the six
month ended June 30, 1999 were as follow. Net interest income on a
taxable-equivalent basis increased by 7%, or $2.3 million. Average earning
assets increased 7%, or $1.0 million. Average loans grew 17%, or $166.7 million.
The average balance in the investment portfolio decreased 4%, or $18.9 million.
As loan demand has increased, investment securities have been utilized to fund
this growth. The yield on earning assets across all sectors increased 20 basis
points to 7.85%. Average interest-bearing deposits increased $19.0 million, or
2%. The majority of this growth is in money market account that grew 32% in this
period. Additional long-term funding was provided principally by Federal Home
Loan Bank advances, which increased $29.6 million, or 29%.


                                       13

<PAGE>

CONSOLIDATED AVERAGE BALANCES, INTEREST AND AVERAGE RATE (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                 Three Months Ended
                                                                                       June 30,
                                                                       2000                                 1999
                                                    ----------------------------------- ----------------------------------------
                                                         Average                  verage         Average                 Average
   (Dollars in thousands)                               Balances     Interest      Rate         Balances   Interest       Rate
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>            <C>         <C>          <C>          <C>
ASSETS
Interest earning assets:
Short-term funds                                    $   10,689      $   140        5.27%       $   57,273   $   685      4.80%
Investment securities (1)
   Taxable                                             289,979        4,593        6.37%          319,305     4,812      6.04%
   Tax-exempt (2)                                      132,429        2,189        6.65%          130,518     2,227      6.84%
--------------------------------------------------------------------------------------------------------------------------------
Total investment securities                            422,408        6,782        6.46%          449,823     7,039      6.28%
--------------------------------------------------------------------------------------------------------------------------------
Loans, net, including loans held for sale            1,202,274       25,154        8.41%        1,002,623    21,084      8.43%
--------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                        1,635,371       32,076        7.89%        1,509,719    28,808      7.65%
--------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets                       111,051                                    115,108
--------------------------------------------------------------------------------------------------------------------------------
Total assets                                        $1,746,422                                 $1,624,827
================================================================================================================================
LIABILITIES Interest bearing liabilities:
   Interest bearing deposits
    Savings                                         $  159,435      $   854        2.15%       $  181,969   $ 1,093      2.41%
    Checking                                           188,947          971        2.07%          180,141     1,062      2.36%
    Money market accounts                              259,440        2,549        3.95%          192,281     1,316      2.75%
    Certificates of deposit                            517,890        6,719        5.22%          564,660     7,315      5.20%
--------------------------------------------------------------------------------------------------------------------------------
   Total interest bearing deposits                   1,125,712       11,093        3.96%        1,119,051    10,786      3.87%
--------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings
   Federal funds purchased and
   securities
    sold under agreements to repurchase                115,849        1,625        5.64%           60,960       725      4.77%
   Other short term borrowings                           8,519          108        5.10%            7,209        93      5.17%
--------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings                            124,368        1,733        5.60%           68,169       818      4.81%
Long-term borrowings                                   142,600        2,142        6.04%           93,351     1,247      5.36%
--------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds                                   266,968        3,875        5.84%          161,520     2,065      5.13%
--------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities                   1,392,680       14,968        4.32%        1,280,571    12,851      4.03%
Non-interest bearing liabilities:
   Demand deposits                                     189,970                                    178,662
   Other liabilities                                    17,426                                     16,077
   Shareholders' equity                                146,346                                    149,517
--------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity          $1,746,422                                 $1,624,827
================================================================================================================================
Net interest income                                                  17,108                                  15,957
Net interest spread (3)                                                            3.57%                                 3.63%
Net interest margin(4)                                                             4.21%                                 4.24%

</TABLE>

(1)  Average balance and the related average rate are based on amortized cost.
(2)  Interest and yield on obligations of state and political subdivisions and
     tax-exempt loans are computed on a taxable Equivalent basis using U.S.
     statutory tax rate of 35 percent. In addition, loan fee income is included
     in the interest income Calculation, and nonaccrual loans are included in
     the average loan base upon which the interest rate earned on loans is
     calculated.
(3)  Net interest spread is the difference between the ratios (expressed as
     percentages) of taxable-equivalent interest income to earning assets and of
     interest expense to interest-bearing liabilities.
(4)  Net interest margin is the difference between the ratios (expressed as
     percentages) of taxable-equivalent interest income to earning assets and of
     interest expense to earning assets.


                                       14

<PAGE>

CONSOLIDATED AVERAGE BALANCES, INTEREST AND AVERAGE RATE (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                    Six Months Ended
                                                                                        June 30,
                                                                    2000                                      1999
                                              --------------------------------------------   ------------------------------------
                                                 Average                       Average         Average                    Average
   (Dollars in thousands)                        Balances         Interest       Rate          Balances     Interest        Rate
---------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                 <C>             <C>         <C>             <C>           <C>
ASSETS
Interest earning assets:
Short-term funds                              $   16,404          $   401         4.92%       $   63,146      $ 1,341       4.28%
Investment securities (1)
   Taxable                                       293,180            9,237         6.34%          315,581        9,297       5.94%
   Tax-exempt (2)                                132,390            4,476         6.80%          128,849        4,459       6.98%
---------------------------------------------------------------------------------------------------------------------------------
Total investment securities                      425,570           13,713         6.48%          444,430       13,756       6.24%
---------------------------------------------------------------------------------------------------------------------------------
Loans, net, including loans held for sale      1,172,584           48,885         8.38%        1,005,894       42,319       8.48%
---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                  1,614,558           62,999         7.85%        1,513,470       57,416       7.65%
---------------------------------------------------------------------------------------------------------------------------------
Total noninterest-earning assets                 101,983                                         102,635
---------------------------------------------------------------------------------------------------------------------------------
Total assets                                  $1,716,541                                      $1,616,105
=================================================================================================================================
LIABILITIES Interest bearing liabilities:
   Interest bearing deposits
    Savings                                   $  164,228          $ 1,795         2.20%       $  181,784      $ 2,161       2.40%
    Checking                                     192,455            2,031         2.12%          175,673        2,003       2.30%
    Money market accounts                        244,830            4,628         3.80%          185,207        2,574       2.80%
    Certificates of deposit                      524,774           13,486         5.17%          564,610       14,720       5.26%
---------------------------------------------------------------------------------------------------------------------------------
   Total interest bearing deposits             1,126,287           21,940         3.92%        1,107,274       21,458       3.91%
---------------------------------------------------------------------------------------------------------------------------------
Short-term borrowings
   Federal funds purchased and securities
    sold under agreements to repurchase          108,670            2,910         5.39%           59,289        1,362       4.63%
   Other short term borrowings                     1,603               50         6.27%            1,658           29       3.53%
---------------------------------------------------------------------------------------------------------------------------------
Total short-term borrowings                      110,273            2,960         5.40%           60,947        1,391       4.60%
Long-term borrowings                             131,781            3,912         5.97%          102,135        2,693       5.32%
---------------------------------------------------------------------------------------------------------------------------------
Total borrowed funds                             242,054            6,872         5.71%          163,082        4,084       5.05%
---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities             1,368,341           28,812         4.23%        1,270,356       25,542       4.05%
Non-interest bearing liabilities:
   Demand deposits                               185,656                                         178,397
   Other liabilities                              17,664                                          17,523
   Shareholders' equity                          144,880                                         149,829
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity    $1,716,541                                      $1,616,105
==================================================================================================================================
Net interest income                                                34,187                                      31,874
Net interest spread (3)                                                           3.61%                                     3.60%
Net interest margin (4)                                                           4.26%                                     4.25%

</TABLE>

(1)  Average balance and the related average rate are based on amortized cost.
(2)  Interest and yield on obligations of state and political subdivisions and
     tax-exempt loans are computed on a taxable equivalent basis using U.S.
     statutory tax rate of 35 percent. In addition, loan fee income is included
     in the interest income calculation, and nonaccrual loans are included in
     the average loan base upon which the interest rate earned on loans is
     calculated.
(3)  Net interest spread is the difference between the ratios (expressed as
     percentages) of taxable-equivalent interest income to earning assets and of
     interest expense to interest-bearing liabilities.
(4)  Net interest margin is the difference between the ratios (expressed as
     percentages) of taxable-equivalent interest income to earning assets and of
     interest expense to earning assets.


                                       15

<PAGE>

PROVISION FOR CREDIT LOSSES.

The provision for credit losses increased by 94% to $630 thousand for the second
quarter of 2000 compared with $325 thousand for the second quarter of 1999. For
the six-month period ended June 30, 2000, the provision increased $446 thousand
or 52% as compared to last year. This increase is in part, a result of the 20%
growth in the Bancorp's loan portfolio.

NONINTEREST INCOME.

Noninterest income is comprised of fees and commissions earned on traditional
banking products such as fees charged on deposit accounts, as well as from
commissions on other activities such as, insurance, trust and alternative
investment products. Gains on the sales of portfolio items like, loans,
securities, or fixed assets are also included.

For the second quarter 2000, compared with the second quarter 1999 total
noninterest income increased 17%, or $1.1 million. Expanding into stocks, mutual
funds, and trust markets, and continuing to offer a full range of insurance
services have aided in noninterest income growth. These types of business have
increased noninterest income by 16% or, $392 thousand. Service charges on
deposit accounts increased 25% or, $448 thousand.

The six months ended June 30, 2000; compared to the six months ended June 30,
1999 yielded the same growth results. Total noninterest income increased 12%, or
$1.6 million. Alternative investments and insurance activity increased
noninterest income by 24%, or $1.2 million, while service charges on deposit
accounts produced a $510 thousand or, 15% increase.

NONINTEREST EXPENSE.

Noninterest expense is made up of those expenses incurred to run and operate the
Bancorp. These expenses are divided into four general categories.
1.   Salaries & employee benefits, which is the largest portion, representing
     55% of total noninterest expense.
2.   Merger-related expenses, which are nonrecurring and unusual items.
3.   Occupancy and equipment expenses.
4.   Other operating expenses.
The Bancorp's efficiency ratio (the ratio of adjusted noninterest expense to the
sum of net interest income on a tax equivalent basis and recurring noninterest
income) decreased from 69.52% for the period ended June 30, 1999, to 64.30% for
the period ended June 30, 2000.

The second quarter 2000, compared to the second quarter 1999 result were as
follows. Total noninterest expense increased less than 1%, or $82 thousand.
Salaries and employee benefits increased 4% or $298 thousand, occupancy and
equipment expense increased 1%, or $22 thousand, while other operating expenses
including merger related expenses decreased 5% or $238 thousand.

For the six months ended June 30, 2000, compared to the six month ended June 30,
1999, total noninterest expense increased 4%, or $1.3 million. Salaries and
employee benefits maintained a 4%, or $588 thousand increase. Occupancy and
equipment rose 7% or $312 thousand, and other operating expenses including
merger-related expense increased 4% or $359 thousand.


                                       16

<PAGE>

INCOME TAXES.

Tax expense varies from one period to the next with changes in the level of
income before taxes, changes in the amount of tax-exempt income, and the
relationship of these changes to each other. The effective income tax expense
rate differs from the amount computed at statutory rates primarily due to
tax-exempt interest from certain loans and investment securities. Provision for
income taxes increased 71% to $2.277 million in the second quarter, from $1.331
million in the same period last year. The effective tax rate is 32% compared to
25% in this same period.

The six months ended June 30, 2000, compared to the six months ended June 30,
1999 resulted in the provision for income taxes increasing 32% to $4.138
million, from $3.137 million. The effective tax rate was 30% compared to 27% in
the same period.

NONPERFORMING ASSETS.

The table below summarizes Bancorp's nonperforming assets and contractually
past-due loans. Total nonperforming assets at June 30, 2000 increased $2.8
million compared with year-earlier levels and increased $173 thousand since
year-end 1999. Loans past due 90 days or more as to interest or principal
decreased $853 thousand compared with prior year levels and increased $169
thousand since year-end. Although there is no direct correlation between
nonperforming loans and ultimate loan losses, an analysis of nonperforming loans
may provide some indication of the quality of the loan portfolio.

POTENTIAL PROBLEM LOANS.

At June 30, 2000, Bancorp had $29.8 million in loans to borrowers who were
currently experiencing financial difficulties such that management had
reasonable concerns that such loans might become contractually past due or be
classified as a nonperforming asset.

These loans are subject to the same close attention and regular credit reviews
as extended to loans past due 90 days or more and nonperforming assets. At
December 31, 1999, potential problem loans totaled $23.1 million.

Nonperforming Asset and Contractually Past-Due Loans:

<TABLE>
<CAPTION>

                                                                                       June 30,                  December 31,
(Dollars in thousands)                                                          2000              1999                1999
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                 <C>                 <C>
Nonperforming assets:
    Nonaccrual loans (1)                                                    $   5,945           $   3,422           $   6,181
    Other real estate owned net of valuation allowance (2)                      1,594               1,305               1,185
      -----------------------------------------------------------------------------------------------------------------------
Total nonperforming assets                                                  $   7,539           $   4,727           $   7,366
      -----------------------------------------------------------------------------------------------------------------------
    Loans past due 90 or more days as to interest or principal (3)          $   1,683           $   2,536           $   1,514
    Nonperforming loans to total loans                                           0.39%               0.34%               0.55%
    Nonperforming assets to total loans plus
      other real estate owned                                                    0.54%               0.47%               0.66%
    Nonperforming assets to total assets                                         0.34%               0.29%               0.43%
    Allowance for credit losses times nonperforming loans                        2.85                4.05                2.11
    Allowance for credit losses times nonperforming assets                       2.05                2.93                1.77

</TABLE>

(1)  Loans are placed on nonaccrual status when, in the opinion of management,
     reasonable doubt exists as to the full, timely collection of interest or
     principal, or a specific loan meets the criteria for nonaccrual status
     established by regulatory authorities. When a loan is placed on nonaccrual
     status, all interest previously accrued but not collected is reversed
     against current period interest income. No interest is taken into income on
     nonaccrual loans unless received in cash, or until such time the borrower
     demonstrates sustained performance over a period of time in accordance with
     contractual terms.


                                       17

<PAGE>

(2)  Other real estate owned includes: banking premises no longer used for
     business purposes and real estate acquired by foreclosure (in partial or
     complete satisfaction of debt), or otherwise surrendered by the borrower to
     Bancorp's possession. Other real estate owned is recorded at the lower of
     cost or fair value on the date of acquisition or transfer from loans.
     Write-downs to fair value at the date of acquisition are charged to the
     allowance for credit losses. Subsequent to transfer, these assets are
     adjusted through a valuation allowance to the lower of the net carrying
     value or the fair value (net of estimated selling expenses) based on
     periodic appraisals.

(3)  Nonaccrual loans are not included.

ALLOWANCE FOR CREDIT LOSSES.

The allowance for credit losses is maintained at a level, which in management's
judgment is adequate to absorb losses inherent in the loan portfolio. The
adequacy of the allowance for credit losses is reviewed regularly by management.
Additions to the allowance are made by charges to the provision for credit
losses. On a quarterly basis, a comprehensive review of the allowance is
performed considering such factors as the levels of loans outstanding, loss
experience, delinquency levels, certain individual loan reviews, and an
evaluation of the regional and national economic environment. The methodology
for assessing the appropriateness of the allowance consists of three primary
elements:

     - The Formula Allowance. The formula allowance is calculated by applying
historically determined loss factors to outstanding business loans based on
credit risk ratings and for pools of homogeneous loans. Individually risk rated
loan loss factors is determined using average annual net charge-off rates for
the most recent two years. Pooled loans are loans that are homogeneous in nature
such as consumer installment and residential mortgage loans. Pooled loan loss
factors are based on net charge-offs experienced over the past year. The
historic loss factors on the risk rated loans and the pooled loans are then
considered for either positive or negative adjustment in an attempt to reflect
the current dynamics of the portfolios. These adjustments in the loss factors
are tied to management's evaluation of a number of factors including: 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 of the portfolio; 3) changes in
lending policies, underwriting standards, or collection practices; 4) changes in
the experience, ability, depth of lending management and staff; 5) portfolio
concentrations; and 6) changes in the national or local economy.

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

     - The Unallocated Allowance. The unallocated portion of the allowance is
based on loss factors that cannot be associated with specific loans or loan
categories. These factors include management's subjective evaluation 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, recent loss
experiences in particular portfolio segments, etc. The unallocated portion of
the allowance for losses reflects management's attempt to ensure that the
overall reserve appropriately reflects a margin for the imprecision necessarily
inherent in estimates of credit losses.

While management believes the allowance for credit losses was adequate at June
30, 2000, the estimate of losses and related allowance may change in the near
term due to economic and other uncertainties inherent in the estimation process.


                                       18

<PAGE>

Analysis of Allowance for Credit Losses:

<TABLE>
<CAPTION>

                                                              Six Months Ended
                                                                     June 30,                   December 31,
(Dollars in thousands)                                      2000                  1999              1999
------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                  <C>                <C>
Average loans outstanding
   less average unearned income (1)                       $1,197,951           $988,044           $1,116,658
------------------------------------------------------------------------------------------------------------
Allowance for credit losses at beginning of year          $   13,068           $ 14,241           $   14,241
Charge-offs:
   Real estate                                                   431                423                  586
   Commericial and industrial                                    313                131                  388
   Consumer                                                    1,662              1,706                4,144
------------------------------------------------------------------------------------------------------------
Total loans charged-off                                        2,406              2,260                5,118
------------------------------------------------------------------------------------------------------------
Recoveries:
   Real estate                                                    94                  9                  310
   Commercial and industrial                                      36                 36                  371
   Consumer                                                    1,121                982                1,969
------------------------------------------------------------------------------------------------------------
Total recoveries                                               1,251              1,027                2,650
------------------------------------------------------------------------------------------------------------
Net charge-offs                                                1,155              1,233                2,468
------------------------------------------------------------------------------------------------------------
Additions charged to operating expense                         1,296                850                1,295
------------------------------------------------------------------------------------------------------------
Allowance for credit losses at end of period              $   13,209           $ 13,858           $   13,068
============================================================================================================
Net charge-offs to average loans outstanding                    0.09%              0.12%                0.22%

</TABLE>

(1)  Excludes loans held for sale

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

Allocation of Allowance for Credit Losses:

<TABLE>
<CAPTION>

                                                                      Six Month Ended
                                                                        June 30,                      December 31,
                                             2000                          1999                           1999
                                           ---------------------------------------------------------------------------------------
(Dollars in thousands)                      Amount       % of Gross       Amount        % of Gross       Amount     % of Gross
                                                           Loans                          Loans                        Loans
----------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                  <C>         <C>                 <C>         <C>             <C>
Real estate loans
     Construction and land development      $ 1,776              6.1%        $1,287              6.9%        $ 1,612         6.1%
     Residential mortgage                       751             28.5%           765             29.2%            653        27.4%
     Other mortgage                           4,096             24.6%         3,385             24.1%          3,960        24.8%
Commercial and industrial                     3,166             15.4%         2,109             12.2%          2,388        15.3%
Consumer                                      3,052             24.3%         2,991             25.9%          3,073        25.4%
Unallocated                                     368              1.0%         3,321              1.7%          1,382         1.0%
----------------------------------------------------------------------------------------------------------------------------------
Totals                                      $13,209            100.0%     $   13858            100.0%        $13,068       100.0%
==================================================================================================================================

</TABLE>


                                       19

<PAGE>

CAPITAL RESOURCES

Shareholders' equity totaled $150.8 million at June 30, 2000; an increase of 5%
compared with the 1999 year-end level of $143.8 million, and an increase of 2%
from the year earlier level of $147.3 million. The fair value of the
available-for-sale portfolio increased $622 thousand (net of deferred taxes)
since year-end, reflecting the positive impact of market interest rates. Capital
levels were considered sufficient to absorb anticipated future price volatility
in the available-for-sale portfolio.

Bancorp's risk-based capital and leverage capital ratios continue to exceed
regulatory guidelines as of June 30, 2000, as follows:

CAPITAL RATIOS

<TABLE>
<CAPTION>

                                                     Risk-based Capital
                                                      Six Months Ended
                                                        June 30, 2000
                                      -----------------------------------------------------
                                          Tier 1             Total             Leverage
                                          Capital           Capital             Ratios
-------------------------------------------------------------------------------------------
<S>                                            <C>               <C>                 <C>
Actual                                         11.79%            12.80%              8.77%
Regulatory Minimum                              4.00%             8.00%              3.00%
-------------------------------------------------------------------------------------------
Excess                                          7.79%             4.80%              5.77%
===========================================================================================

</TABLE>


Fair value adjustments to shareholders' equity for changes in the fair value of
securities classified as available-for-sale are excluded from the calculation of
these capital ratios in accordance with regulatory guidelines.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Market risk is defined as the future changes in market prices that increase or
decrease the value of financial instruments, i.e. cash, investments, loans,
deposits and debt. Included in market risk are interest rate risk, foreign
currency exchange rate risk, commodity price risk, and other relevant market
risks. Bancorp's primary source of market risk is interest rate risk. Market
risk-sensitive financial instruments are entered into for purposes other than
trading.

Interest rate risk refers to the exposure of Bancorp's earnings and capital to
changes in interest rates. The magnitude of the effect of changes in market
rates depends on the extent and timing of such changes and on Bancorp's ability
to adjust. The ability to adjust is controlled by the time remaining to maturity
on fixed-rate obligations, the contractual ability to adjust rates prior to
maturity, competition, and customer actions.

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


                                       20

<PAGE>

In determining the appropriate level of interest rate risk, Bancorp considers
the impact on earnings and capital of the current outlook on interest rates,
potential changes in interest rates, regional economies, liquidity, business
strategies, and other factors. To effectively measure and manage interest rate
risk, traditional cumulative gap and simulation analysis are used to determine
the impact on net interest income and the market value of portfolio equity
("MVE"). Bancorp attempts to manage interest rate sensitivity on the basis of
when assets and liabilities WILL reprice as opposed to when they CAN reprice.

Cumulative gap analysis presents the net amount of assets and liabilities that
will most likely reprice through specified periods if there are no changes in
balance sheet mix. Using that analysis, the effect of changes in market interest
rates, both rising and falling, on net interest income can be calculated.
Because of inherent limitations in traditional cumulative gap analysis, however,
Asset / Liability Management Committee ("ALCO") also employs more sophisticated
interest rate risk measurement techniques. Simulation analysis is used to
subject the current re-pricing conditions to rising and falling interest rates
in increments and decrements of 100, 200, and 300 basis points, and to determine
how net interest income varies under alternative interest rate and business
activity scenarios. ALCO also measures the effects of changes in interest rates
on the MVE, i.e. the net present value of all the future cash flows from
Bancorp's financial instruments expressed as the percentage change in portfolio
value of equity for any given change in prevailing interest rates. The table
below presents Bancorp's MVE at June 30, 2000.

Effects of Change in Interest rates on Market Value of Portfolio Equity:
At June 30, 2000

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------
                                                                        Percent Change
                             Market          Hypothetical       ----------------------------------
         Change in          Value of            Change          Hypothetical
         Interest           Portfolio          Increase           Increase            Board
           Rates             Equity           (Decrease)         (Decrease)         Limit(1)
-------------------------------------------------------------------------------------------------
<S>                           <C>               <C>                     <C>                <C>
     300 bp rise              $ 131,681         $ (24,746)             -15.8%             -30.0%
     200 bp rise                139,722           (16,705)             -10.7%             -20.0%
     100 bp rise                147,972            (8,455)              -5.4%             -10.0%
     Base scenario              156,427                 -                  -                  -
     100 bp decline             178,224            21,797               13.9%             -10.0%
     200 bp decline             187,284            30,857               19.7%             -20.0%
     300 bp decline             196,510            40,083               25.6%             -30.0%

</TABLE>

(1)  Established by Bancorp's Board of Directors

Computations of prospective effects of hypothetical interest rate changes are
based on many assumptions, including relative levels of market interest rates,
loan prepayments and changes in deposit levels. They are not intended to be a
forecast and should not be relied upon as indicative of actual results. Further,
the computations do not contemplate certain actions that management could take
in response to changes in interest rates. At June 30, 2000 and 1999, the changes
in net interest income and or MVE calculated under these alternative methods
were within limits established by the Board of Directors and monitored by ALCO.


                                       21

<PAGE>

PART II - Other Information

Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits

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

         27. Financial date schedule. Filed as an exhibit hereto and
incorporated herein by reference.

(b)      Reports on Form 8-K

         None

                                   Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                                 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


                                       22

<PAGE>

Exhibit 11:

Statement re: Computation of Per Share Earnings

Earnings per share ("EPS") are calculated on a Basic EPS and Diluted EPS basis.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders (the numerator) by the weighted-average number of common
shares outstanding (the denominator) during the period. Income available to
common shareholders is Net Income in the table below and as reported in
Bancorp's income statement. No adjustments were required to net income for any
EPS calculations.

Diluted EPS is calculated by adjusting the denominator for all dilutive
potential common shares that were outstanding during the period. Bancorp had
stock options outstanding during the periods presented below which had a
dilutive effect on EPS. Therefore, the number of additional common shares that
would have been outstanding if the options had been exercised is added to the
denominator to arrive at the dilutive number of shares.

The calculations of earnings per share below are based on the weighted average
number of shares outstanding, including all common stock and common stock
equivalents in conformity with the instructions for Item 601 of Regulation S-K.


                                       23