<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                           Washington, D. C.  20549

                                   FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
                  For the Fiscal Year Ended December 31, 1999

                                      OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE
     ACT OF 1934


                         Commission File Number 0-5929

                           F&M NATIONAL CORPORATION
            (Exact Name of Registrant as specified in its charter)

            VIRGINIA                                            54-0857462
  (State or other jurisdiction                                (IRS Employer
of incorporation or organization)                         Identification Number)

                  9 COURT SQUARE, WINCHESTER, VIRGINIA  22601
         (Address of principal executive offices, including Zip Code)

              Registrant's telephone number, including area code:
                                (540) 665-4200

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                         Common Stock, $2.00 par value
                               (Title of Class)

                            New York Stock Exchange
                  (Name of each exchange on which registered)

       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

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
      ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 10-
K or any amendment to this Form 10-K. [_]

State the aggregate market value of the voting stock held by the non-affiliates
of the Registrant. The aggregate market value is computed by reference to the
closing price of such stock as reported by the New York Stock Exchange on
February 28, 2000:
$ 524,192,934.00

NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT FEBRUARY 28, 2000:   24,934,076

                      DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions of the Registrant's Annual Report to Shareholders for the fiscal
     year ended December 31, 1999, are incorporated by reference in Parts II and
     IV hereof; and
(2)  Portions of Registrant's 2000 Proxy Statement dated March 24, 2000, are
     incorporated by reference in Part III hereof.
<PAGE>

                                    PART I

ITEM 1.  BUSINESS.

(a)  GENERAL DEVELOPMENT OF BUSINESS

     The following is a summary of the major developments in F&M's business
since January 1, 1999  (F&M National Corporation is referred to herein as "F&M"
or the "Company"):

     On February 1, 1999, F&M Bank-West Virginia opened a branch office at Wal-
Mart, Foxcroft Avenue, Martinsburg, West Virginia.

     On March 22, 1999, Security Bank Corporation ("Security"), Manassas,
Virginia, merged with and into F&M Bank-Northern Virginia. Each share of common
stock of Security outstanding immediately prior to consummation of the merger
was exchanged, in a tax-free exchange, for 0.653 shares of F&M common stock with
cash being paid in lieu of issuing fractional shares.  The merger was accounted
for as a pooling of interests.  At December 31, 1998, Security had total assets
of $61.2 million, total loans of $34.3 million, total deposits of $52.4 million
and total shareholders' equity of $7.9 million.

     On March 22, 1999, F&M Bank-Northern Virginia opened branch offices at the
following locations: 13927 Jefferson Davis Highway, Woodbridge, Virginia; 7801
Sudley Road, Manassas, Virginia; and 8780 Centreville Road, Centreville,
Virginia.

     On April 1, 1999, F&M Bank-Northern Virginia closed a branch office at 7900
Sudley Road, Catharpin, Virginia and on April 5, 1999 opened a branch office at
4665 Sudley Road, Catharpin, Virginia.

     On June 1, 1999, F&M Bank-Richmond opened a branch office at 600 East Main
Street, Richmond, Virginia and closed a branch office at 209 West Franklin
Street, Richmond, Virginia.

     On July 1, 1999, F&M Bank-Richmond opened a branch office at 11900 Chester
Village Drive, Chester, Virginia

     On July 25, 1999, F&M Bank-Richmond closed a branch office at 4310 West
Hundred Road, Chester, Virginia.

     On August 10, 1999, F&M Bank-Winchester ("Winchester") acquired loans,
deposits, property, plant and equipment that was formerly a bank branch of
Wachovia Bank Corporation located at 126 Fairfax Pike, Stephens City, Virginia.
The acquisition was accounted for as a purchase transaction.  The new branch of
Winchester opened on August 19, 1999.

                                       1
<PAGE>

     On August 18, 1999, F&M Bank-Northern Virginia opened a branch office at
4736 Lee Highway, Arlington, Virginia.

     On August 27, 1999, F&M Bank-Winchester relocated a branch office at 158
South Main Street, Woodstock, Virginia, to 115 West Spring Street, Woodstock,
Virginia. F&M Bank-Winchester acquired loans, deposits, property and equipment
that was formerly a branch bank of Wachovia Bank Corporation located at 115 West
Spring Street, Woodstock, Virginia.  The acquisition was accounted for as a
purchase transaction.  The relocated branch in Woodstock opened on August 27,
1999.

     On August 31, 1999, the Company reinstated a Dividend Reinvestment Plan.
All registered shareholders are eligible to reinvest up to 100% of their
dividends.  In addition, shareholders may purchase additional shares of F&M
common stock by making optional cash payments at any time subject to a minimum
of $25.  The plan will be funded by shares of F&M purchased in open market
transactions.  Purchases will begin on the first business day of each month and
continue until the necessary shares are acquired.  The effective date of the
plan will be January 25, 2000.

     On October 31, 1999, F&M Bank-West Virginia closed a branch office located
at Hilldale Shopping Center, Charles Town, West Virginia.

     On December 20, 1999, F&M Bank-Winchester opened a branch bank located at
432 South Street, Front Royal, Virginia.

(b)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     F&M and its subsidiaries are engaged primarily in only one industry
segment, banking, the making of commercial and personal loans and similar credit
transactions, and other activities closely related to banking.

(c)  NARRATIVE DESCRIPTION OF THE BUSINESS


                                  THE COMPANY

GENERAL

     F&M National Corporation is a multi-bank holding company headquartered in
Winchester, Virginia.  F&M provides financial, insurance, and trust services to
individuals and commercial customers through 17 subsidiary corporations
including 125 banking locations, 13 mortgage banking offices, 3 trust offices,
and 6 insurance offices in Virginia, West Virginia and Maryland.  F&M offers a
full range of banking services principally to individuals and small and middle-
market businesses in north, central and south Virginia including the Shenandoah
Valley, the eastern panhandle of West Virginia, and the counties of Montgomery
and Prince George's in Maryland.  At December 31, 1999, F&M had assets of $2.946
billion, deposits of $2.482 billion and shareholders' equity of $291.6 million.

                                       2
<PAGE>

     F&M was formed in 1969 to serve as the parent holding company of its then
sole subsidiary bank, F&M Bank-Winchester, organized in 1902.  Since its
organization, F&M has acquired 24 banks, which expanded its market area and
increased market share in Virginia, West Virginia and Maryland.

     The following table sets forth certain information concerning F&M and its
operating subsidiaries at December 31, 1999:


<TABLE>
<CAPTION>
                                     DATE          BANKING       TOTAL             TOTAL             TOTAL
                                   ACQUIRED        OFFICES       ASSETS            LOANS           DEPOSITS
                                  --------------------------------------------------------------------------
                                                                             (Dollars in thousands)
<S>                               <C>              <C>         <C>               <C>              <C>
F&M Bank-Winchester
  Winchester, VA (1)                 1970            34        $  844,167        $  496,910       $  756,326
F&M Bank-Massanutten
  Harrisonburg, VA (2)               1980             9           264,688           218,557          208,430
F&M Bank-Richmond
  Richmond, VA (3)                   1982            15           280,988           165,338          251,597
F&M Bank-Central Virginia
  Charlottesville, VA                1985             7            92,364            42,683           77,848
F&M Bank-West Virginia
  Ranson, WV (4)                     1988            13           309,105           190,013          268,405
F&M Bank-Emporia
  Emporia, VA                        1993             3            74,806            39,378           66,350
F&M Bank-Peoples
  Warrenton, VA                      1994             4           128,155            95,064          114,404
F&M Bank-Northern VA
  Fairfax, VA (5)                    1996            31           766,627           425,964          614,710
F&M Bank-Allegiance
  Bethesda, MD                       1996             9           154,653           110,823          124,135
F&M (Parent only) (6)                   -             -            30,381                 0                0
                                                    ---        ----------        ----------       ----------
Total                                               125        $2,945,934        $1,784,730       $2,482,205
</TABLE>

_________________
(1)  Includes F&M Mortgage Services, Inc., and two insurance agencies.
(2)  Includes the merger in 1995 of F&M Bank-Broadway, Broadway, Virginia, into
     F&M Bank-Massanutten.
(3)  Includes the acquisition in 1998 of Peoples Bank of Virginia, Chesterfield,
     Virginia.
(4)  Created from the consolidation in 1998 of F&M Bank-Blakeley, F&M Bank-
     Martinsburg and F&M Bank-Keyser.
(5)  Includes the acquisition in 1994 of Hallmark Bank and Trust, Springfield,
     Virginia, the acquisition in 1995 of The Bank of the Potomac, Herndon,
     Virginia, the acquisition in 1996 of FB&T Financial Corporation, Fairfax,
     Virginia, the acquisition in 1998 of The Bank of Alexandria, Alexandria,
     Virginia, and the acquisition in 1999 of Security Bank Corporation,
     Manassas, Virginia.
(6)  Includes F&M Trust Company and F&M Services Inc. each of which was
     incorporated in 1998.

                                       3
<PAGE>

     The business strategy of F&M is to provide its customers with the financial
sophistication and breadth of products of a regional bank, while retaining the
local appeal and level of service of a community bank. F&M has maintained its
community orientation by allowing its subsidiary banks latitude to tailor
products and services to meet community and customer needs. While F&M has
preserved the autonomy of its subsidiary banks, it has established system-wide
policies governing, among other things, lending practices, credit analysis and
approval procedures, as well as guidelines for deposit pricing and investment
portfolio management. In addition, F&M has established a centralized loan review
team that regularly performs a detailed, on-site review and analysis of each
subsidiary bank's loan portfolio to ensure the consistent application of credit
policies and procedures system-wide. An officer or representative of F&M attends
meetings of the board of directors of each subsidiary bank to monitor operations
and to serve as a liaison to the Company.

     F&M's subsidiary banks are community-oriented and offer services
customarily provided by full-service banks, including individual and commercial
demand and time deposit accounts, commercial and consumer loans, residential
mortgages, credit card services, safe deposit boxes, and home banking. Lending
is focused on individuals and small and middle-market businesses in the local
market regions of each of F&M's subsidiary banks. In 1998, F&M Trust Company was
formed by consolidating the trust departments of F&M Bank-Winchester, F&M Bank-
Peoples, and F&M Bank-Northern Virginia. F&M Trust Company provides a variety of
personal trust services including management of common trust funds, estate
administration and planning specifically addressing the investment and financial
management needs of its customers. At December 31, 1999, F&M Trust Company
managed assets and accounts totaling $712.1 million.

     F&M operates in seven market regions: the Shenandoah Valley of Virginia;
the eastern panhandle of West Virginia; Charlottesville/Albemarle County and
surrounding areas; Greenville County in southside Virginia; suburban Richmond,
primarily Henrico and Chesterfield Counties; the northern Virginia areas of
Loudoun, Fairfax and Prince William Counties; Stafford, Warrenton and
surrounding Fauquier County area and the counties of Montgomery and Prince
George's in Maryland. The more populous sectors within each of the seven market
regions experienced substantial population growth between 1980 and 1990, most of
which exceeded 20% growth. At June 30, 1999, F&M operated 33 banking offices in
the Shenandoah Valley from Winchester to Harrisonburg with deposits of $743.9
million; 14 banking offices in the eastern panhandle of West Virginia with
deposits of $281.1 million; 7 banking offices in the Charlottesville/Albemarle
County area with deposits of $71.0 million; 3 banking offices in Emporia,
Virginia, and surrounding Greenville County with deposits of $63.7 million; 16
banking offices in suburban Richmond, Virginia, with deposits of $259.1 million;
38 banking offices in Loudoun, Fairfax and Prince William Counties of northern
Virginia and including the cities of Alexandria, Fairfax, Falls Church, and
Manassas with deposits of $802.9 million; 4 offices in the town of Warrenton and
Fauquier and Stafford Counties with deposits of $110.1 million; and 9 offices in
the counties of Montgomery and Prince George's in Maryland with deposits of
$130.4 million. F&M's principal market is Winchester and the surrounding six
Virginia counties where its lead bank, F&M Bank-Winchester, is the dominant
financial institution in terms of deposit market share, with a 50%

                                       4
<PAGE>

share of total deposits in Winchester, a 22% share of total deposits in
surrounding Frederick County, a 28% share of total deposits in Warren County,
and a 16% share of total deposits in Loudoun County. In Rockingham County, which
has the largest population of any county or city in the Shenandoah Valley, F&M
has a 20% deposit market share. In F&M's three-county West Virginia market, F&M
has a 23% deposit market share in Jefferson County (which includes Charles
Town), a 15% deposit market share in Berkeley County (which includes
Martinsburg) and a 41% deposit market share in Mineral County (which includes
Keyser). In Fairfax, Prince William and Fauquier Counties (including Warrenton),
F&M has 2%, 4%, and 15%, respectively, of deposit market share and, in the
cities of Alexandria, Fairfax, Falls Church and Manassas, F&M's deposit market
share, respectively, is 3%, 9%, 3% and 19%. Although F&M's deposit market share
in the Richmond and Charlottesville areas is small, F&M has positioned its
banking offices in these two markets to increase deposit market share as a
result of continued business and population growth in the suburban markets
surrounding Richmond and Charlottesville. In F&M's two-county Maryland market,
F&M is positioning itself to increase market share in Montgomery County and
Prince George's County.

     F&M's subsidiary banks have not experienced loan quality deterioration due
to conservative underwriting standards and focused in-market lending practices.
At December 31, 1999, F&M had total nonperforming assets of approximately $19.6
million, representing 1.09% of period end loans and foreclosed properties.

     F&M also operates F&M Mortgage Services, Inc., which offers both fixed and
adjustable rate residential mortgage loans and servicing. F&M Mortgage Services
Inc., F&M Bank-Northern Virginia and F&M Bank-Peoples sell into the secondary
market permanent residential mortgage loans that conform to GNMA and FNMA
underwriting guidelines. These F&M subsidiaries purchase government insured 1-4
family FHA and VA loans and resell them immediately in package form.

ACQUISITION PROGRAM

     F&M has expanded its market area and increased its market share through
both internal growth and strategic acquisitions. Since the beginning of 1988,
F&M has acquired approximately $1.423 billion in assets and approximately $1.233
billion in deposits through 15 acquisitions. 1999 acquisitions by F&M are
outlined in "ITEM 1. BUSINESS (a) GENERAL DEVELOPMENT OF BUSINESS."

     Management believes there are additional opportunities to acquire financial
institutions or to acquire assets and deposits that will allow F&M to enter
adjacent markets or increase market share in existing markets.  Management
intends to pursue acquisition opportunities in strategic markets where its
managerial, operational and capital resources will enhance the performance of
acquired institutions. There can be no assurance that F&M will be able to
successfully effect any additional acquisition activity, or that any such
acquisition activity will have a positive effect on the value of shares of F&M
Common Stock.

                                       5
<PAGE>

ANTI-TAKEOVER PROVISIONS

  The Company's Articles of Incorporation and the Virginia Stock Corporation Act
contain certain anti-takeover provisions, including (i) the Affiliated
Transactions statue which places restrictions on any significant transaction
between a publicly held Virginia corporation and any shareholder who owns more
than 10% of any class of its outstanding shares, (ii) the Control Share
Acquisitions statue which provides that a shareholder who purchases shares in
any one of three statutory ranges (20%-33 1/3%, 33 1/3%-50%, and 50% or more of
the outstanding shares) cannot vote those shares on any matter unless the
acquisition of the additional shares has been approved by disinterested
shareholders, and (iii) a super-majority provision in the Articles of
Incorporation that requires the affirmative vote of at lease 80% of the
outstanding voting shares on significant transactions, unless at least two-
thirds of the Board of Directors then in office have approved the transaction.

EMPLOYEES

  At December 31, 1999, F&M had 1,446 full time and 259 part time employees.  No
employees are represented by any collective bargaining unit.  F&M considers
relations with its employees to be good.

MARKET REGIONS

  The market regions of F&M extend from the eastern panhandle of West Virginia
southward to Virginia in Winchester, the surrounding Shenandoah Valley through
Harrisonburg and Rockingham County and eastward to Loudoun, Fauquier, Stafford
and Prince William counties, to the central Virginia markets of Charlottesville
and Richmond, southern Virginia market in Emporia and Greenville County and
Montgomery and Prince George's counties in Maryland.  The following table
displays the market and population data for each of the market regions:

<TABLE>
<CAPTION>
                              BANKING   % MARKET     MARKET         1990
     COUNTY/CITY (1)          OFFICES   SHARE (2)   RANK (2)     POPULATION
------------------------      -------   ---------   --------     ----------
<S>                           <C>       <C>         <C>          <C>
State of Virginia:
Shenandoah Valley:
 City of Winchester             10         50          2           21,947
 Frederick County                5         22          1           45,723
 Warren County                   4         28          1           26,142
 Shenandoah County               3          8          5           31,636
 Clarke County                   1         21          2           12,101
 Rappahannock County             1         45          2            6,622
 Rockingham County               4         20          2           57,482
 City of Harrisonburg            5         15          4           30,707
</TABLE>

                                       6
<PAGE>

<TABLE>
<CAPTION>
                              BANKING   % MARKET     MARKET         1990
     COUNTY/CITY (1)          OFFICES   SHARE (2)   RANK (2)     POPULATION
------------------------      -------   ---------   --------     ----------
<S>                           <C>       <C>         <C>          <C>
Northern Virginia:
 City of Alexandria               5         3           7          111,182
 City of Fairfax                  1         9           5           20,959
 City of Falls Church             2         3           6            8,982
 City of Manassas                 4        19           2           33,399
 Loudoun County                   9        16           1           86,100
 Fairfax County                  12         2          11          819,000
 Fauquier County                  3        15           3           52,000
 Prince William County            5         4           8          216,000
 Stafford County                  1         1          11           61,000
Charlottesville/
Albemarle County:
 City of Charlottesville          1         *           9           40,341
 Albemarle County                 3         8           7           68,040
 Nelson County                    2        32           2           12,778
 Amherst County                   1         3           6           28,578
Richmond:
 City of Richmond                 3         1           9          203,056
 Henrico County                   5         3           8          217,881
 Chesterfield County              8         7           6          209,274
Emporia:
 City of Emporia                  3        32           1           14,109
State of West Virginia:
 Jefferson County                 5        23           2           35,926
 Berkeley County                  5        15           3           59,253
 Mineral County                   4        41           1           26,697
State of Maryland:
 Montgomery County                7         1          15          821,035
 Prince George's                  2         1          19          769,747
State of Virginia               101         3           7        6,187,358
State of West Virginia           14         2          10        1,793,477
State of Maryland                 9         *          NM        4,781,000
</TABLE>

_________________
* Represents less than 1% deposit market share  NM=Not meaningful
(1)  In Virginia, certain cities are separate political entities and not part of
     the counties that surround them. The city of Winchester and Frederick
     County, the city of Harrisonburg and Rockingham County, the city of
     Charlottesville and Albemarle County, the city of Fairfax and Fairfax
     County and the city of Richmond and Henrico and Chesterfield Counties are
     examples. The FDIC and OTS provide deposit data for each separately
     incorporated city.
(2)  Deposit data includes total bank and thrift deposits and is based on FDIC
     and OTS data as of June 30, 1999, which is the most recently available
     information.

                                       7
<PAGE>

LENDING ACTIVITIES

       All of F&M's subsidiary banks offer both commercial and consumer loans,
but lending activity is generally focused on consumers and small to middle
market businesses within each respective subsidiary banks' market regions.  Four
of F&M's subsidiary banks, F&M Bank-Massanutten, F&M Bank-West Virginia, F&M
Bank-Emporia, and F&M Bank-Peoples emphasize consumer lending with activities
focused primarily on residential real estate and consumer lending.  F&M Bank-
Richmond, F&M Bank-Central Virginia, F&M Bank-Northern Virginia and F&M Bank-
Allegiance are based in larger markets where commercial loan demand is stronger
and, as a result, their lending activities place a greater emphasis on small to
medium sized business.  F&M Bank-Winchester, because of its size and dominant
position in its market, has a greater opportunity to appeal to large commercial
customers in addition to consumers.

       The following table sets forth the composition of F&M's loan portfolio
(by percentage) for the three years ended December 31:

<TABLE>
<CAPTION>
                                         1999         1998         1997
                                         ----         ----         ----
<S>                                      <C>          <C>          <C>
Commercial                               16.2%        16.6%        16.7%
Real estate construction                  6.1          6.0          5.8
Real estate mortgage:
 Residential (1-4 family)                27.5         28.0         28.5
 Loans held for sale                      1.3          1.7          2.4
 Home equity lines                        3.4          3.4          4.2
 Multifamily                              1.5          1.7          2.0
 Nonfarm, nonresidential(1)              29.6         29.4         28.4
 Agricultural                             1.0          1.0          1.1
  Real estate mortgage subtotal          64.3         65.2         66.6
Loans to individuals:
 Consumer                                12.2         10.9          9.3
 Credit card                              1.2          1.3          1.6
  Loans to individuals subtotal          13.4         12.2         10.9

 Total Loans (%)                        100.0%       100.0%       100.0%
 Total Loans (dollars)             $1,784,730   $1,727,320   $1,681,113
</TABLE>

________________
(1)  This category generally consists of commercial and industrial loans where
     real estate constitutes a source of collateral.

          Approximately 48.3% of F&M's loan portfolio at December 31, 1999, was
comprised of commercial loans, which included loans secured by real estate shown
in the table above under the categories of multifamily, non-farm, non-
residential and agricultural where real estate is among the sources of
collateral securing the loan. F&M's subsidiary banks offer a variety of
commercial loans within their market regions, including revolving lines of
credit, working capital loans, equipment financing loans, and letters of credit.
Although F&M's

                                       8
<PAGE>

subsidiary banks typically look to the borrower's cash flow as the principal
source of repayment for such loans, many of the loans within this category are
secured by assets, such as accounts receivable, inventory and equipment. In
addition, a number of commercial loans are secured by real estate used by such
businesses and are generally personally guaranteed by the principals of the
business. F&M's commercial loans generally bear a floating rate of interest tied
to a system-wide prime rate set by F&M Bank-Winchester.

       F&M's residential real estate loan portfolio (including home equity
lines and loans held for sale) was 32.2 % of its total loan portfolio at
December 31, 1999.  The residential mortgage loans made by F&M's subsidiary
banks and F&M Mortgage Services, Inc., are made only for single family, owner-
occupied residences within their respective market regions.  Residential
mortgage loans offered by F&M's subsidiary banks are either adjustable rate
loans or fixed rate loans with 20 to 30 year amortization schedules that mature
with a balloon payment on the third or fifth year anniversary of the loan.  In
addition, F&M Mortgage Services and several subsidiaries sell into the secondary
market permanent residential mortgage loans that conform to GNMA and FNMA
underwriting guidelines.  These F&M subsidiaries purchase government insured 1-4
family FHA and VA loans and resell them immediately in package form.

       F&M's real estate construction portfolio historically has been a
relatively small portion of the total loan portfolio. At December 31, 1999,
construction loans were $108.4 million or 6.1% of the total loan portfolio.
Generally, all construction loans are made to finance owner-occupied properties
with permanent financing commitments in place. F&M's subsidiary banks make a
limited number of loans for acquisition, development and construction of
residential real estate. F&M's construction loans, including its acquisition and
development loans, generally bear a floating rate of interest and mature in one
year or less. Underwriting standards for such loans generally limit the loan
amount to 75% of the finished appraised value of the project. As a result of
strict underwriting guidelines, F&M has experienced charge-offs involving
residential construction since 1993 of less than one-half of 1%.

       Consumer loans were 13.4% of F&M's total loan portfolio at December 31,
1999. F&M's subsidiary banks offer a wide variety of consumer loans, which
include installment loans, credit card loans, home equity lines, and other
secured and unsecured credit facilities. The performance of the consumer loan
portfolio is directly tied to and dependent upon the general economic conditions
in each subsidiary banks' respective market regions.

CREDIT POLICIES AND PROCEDURES

       F&M has established system-wide guidelines governing, among other things,
lending practices, credit analysis and approval procedures, and credit quality
review. Within these guidelines, F&M's subsidiary banks have latitude to tailor
their loan products to meet the needs of the communities and specific customers.
A holding company officer or representative serves on the Board of Directors of
each subsidiary bank to monitor practices and to serve as the liaison with F&M.

                                       9
<PAGE>

LOAN APPROVAL.  F&M's loan approval policies provide for various levels of
officer lending authority.  When the aggregate outstanding loans to a single
borrower exceed an individual officer's lending authority, the loan request must
be approved by an officer with a higher lending limit or by the subsidiary
bank's loan review committee.  F&M has assigned a lending limit for each
subsidiary bank.  Loans that would result in a subsidiary bank exceeding its
assigned limit must be approved first by the subsidiary bank's loan review
committee and then by a central credit committee appointed by the Company.  The
central credit committee consists of six senior officers of F&M Bank-Winchester
and the Company, along with outside directors of either F&M Bank-Winchester or
the Company, who rotate at the twice weekly meetings.

       All loans to an individual borrower are reviewed each time the borrower
requests a renewal or extension of any loan or requests an additional loan. All
lines of credit are reviewed annually prior to renewal. These reviews are
conducted by each subsidiary bank and, if necessary, by F&M's central credit
committee.

LOAN REVIEW.  Each subsidiary bank of F&M has a formal loan review function
that consists of a committee of bank officers that regularly reviews loans and
assigns a classification, if required, based on current perceived credit risk.
In addition, the Company has a loan review team that performs a detailed on-site
review and analysis of each subsidiary bank's portfolio on at least an annual
basis to ensure the consistent application of system-wide policies and
procedures. The Company's loan review team reviews all loans over an established
principal amount for each subsidiary bank, which results in a review of 60% to
75% of the total principal amount of the subsidiary bank's loan portfolio. In
addition, all lending relationships involving a classified loan are reviewed
regardless of size. The Company loan review team has the authority to classify
any loan it determines is not satisfactory or to change the classification of a
loan within F&M's loan grading system.

       All classified loans are reviewed at least quarterly by F&M's senior
officers and monthly by the subsidiary bank's boards of directors. All past due
and nonaccrual loans are reviewed monthly by the subsidiary banks' boards of
directors. As a matter of policy, F&M's subsidiary banks place loans on
nonaccrual status when management determines that the borrower can no longer
service debt from current cash flows and/or collateral liquidation. This
generally occurs when a loan becomes 90 days past due as to principal and
interest.

ALLOWANCE FOR LOAN LOSSES.  Each subsidiary bank of F&M maintains its allowance
for loan losses based on loss experience for each loan category over a period of
years and adjusts the allowance for existing economic conditions as well as
performance trends within specific areas, such as real estate. In addition, each
subsidiary bank periodically reviews significant individual credits and adjusts
the allowance when deemed necessary. The allowance also is increased to support
projected loan growth.

IMPAIRED LOANS.  The recorded investment in certain loans that were considered
to be impaired in accordance to FASB 114 was $15.0 million at year end 1999 as
compared to $11.5 million at year end 1998, of which $5.3 million was classified
as nonperforming. Included in

                                       10
<PAGE>

1999 impaired loans are $3.7 million secured by commercial real estate. All
impaired loans at year-end 1999 and 1998 had a related valuation allowance
totaling $2.6 million and $2.4 million, respectively. The average recorded
investment in certain impaired loans for 1999 and 1998 was approximately $15.3
million and $14.5 million, respectively. For the years 1999 and 1998, interest
income recognized on impaired loans totaled $1.6 million and $847 thousand,
respectively, all of which was recognized on a cash basis.

       Loans are placed on nonaccrual when a loan is specifically determined
to be impaired or when principal or interest is delinquent for 90 days or more.
Any unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote.  Cash payments received on such loans
are applied as a reduction of the loan principal balance.  Interest income on
other nonaccrual loans is recognized only to the extent of interest payments
received.  Changes in the allowance relating to impaired loans are charged or
credited to the provision for loan losses.

       An impaired loan is charged-off when management determines that the
prospect of recovery of the principal of the loan has significantly diminished.

DEPOSITS

       F&M's subsidiary banks offer a number of programs to consumers and to
small and middle market businesses at interest rates consistent with local
market conditions. The following table sets forth the mix of depository accounts
offered by the subsidiary banks as a percentage of total deposits at the dates
indicated:

<TABLE>
<CAPTION>

                                                    December 31,
                                          1999          1998           1997
<S>                                      <C>           <C>            <C>
     Noninterest-bearing demand           21.4%         22.2%          19.3%
     Interest checking                    18.0          17.8           16.1
     Savings accounts                      8.6           8.7            9.0
     Money market accounts                10.0          10.0           10.3
     Time deposit accounts:
     Under $100,000                       32.2          31.3           35.7
     $100,000 and over                     9.8          10.0            9.6
                                         100.0%        100.0%         100.0%
</TABLE>

       F&M's subsidiary banks control deposit flows primarily through pricing of
deposits and, to a lesser extent, through promotional activities.  F&M's
subsidiary banks establish deposit rates based on a variety of factors,
including competitive conditions, liquidity needs and compliance with net
interest margin requirements established by F&M for all subsidiary banks.  As of
December 31, 1999, F&M's subsidiary banks had $243.1 million of certificates of
deposit greater than $100,000, or 9.8% of total deposits.  F&M's subsidiary
banks do not accept brokered deposits.

                                       11
<PAGE>

       No material portion of the deposits of F&M's subsidiary banks has been
obtained from a single or a small group of customers, and the loss of any
customer's deposits or a small group of customers' deposits would not have a
material adverse effect on the business of any of F&M's subsidiary banks.  See
"Business-Market Regions" for information regarding each subsidiary bank's
deposit share and rank in its respective market.

LIQUIDITY AND SENSITIVITY TO INTEREST RATES

       The primary functions of asset/liability management are to ensure
adequate liquidity and maintain an appropriate balance between interest-
sensitive assets and interest-sensitive liabilities. Liquidity management
involves the ability to meet the cash flow requirements of F&M's loan and
deposit customers. Interest rate sensitivity management seeks to avoid
fluctuating net interest margins and to enhance consistent growth of net
interest income through periods of changing interest rates. F&M does not hedge
its position with swaps, options or futures but instead maintains a highly
liquid and short-term position in all of its earning assets and interest-bearing
liabilities.

       In order to meet its liquidity needs, F&M schedules the maturity of its
investment securities according to its needs. The weighted-average life of the
securities portfolio at the end of 1999 was four years three months, which is
indicative of F&M's investment philosophy of investing in U.S. Government
securities with maturities between five and ten years. F&M views its securities
portfolio primarily as a source of liquidity and safety. However, it may if the
market is favorable, make changes in the available for sale portfolio to take
advantage of changes in the yield curve. F&M views the total available for sale
securities portfolio as a source of liquidity, whereas, liquidity in the held to
maturity portfolio is limited to calls and maturities. The maturity ranges of
the securities and the average taxable-equivalent yields as of December 31,
1999, are shown in the following table:

<TABLE>
<CAPTION>
                              U.S. Government                    State and
                              And its Agencies                   Municipal                          Other
                              Book Value          Yield          Book Value          Yield          Book Value          Yield
                              -------------------------          -------------------------          -------------------------
<S>                           <C>                 <C>            <C>                 <C>            <C>                 <C>
One year or less              $102,419            6.00%          $ 3,196             7.64%          $   905             6.28%
After one year
 through five years            443,171            6.02            12,625             7.03               201             6.48
After five through
 ten years                     151,875            6.42             4,400             7.11               206             6.62
After ten years                104,212            6.97             1,865             7.57            17,947             6.71
                              --------                           -------                            -------
  Total                       $801,677            6.21%          $22,086             7.22%          $19,259             6.69%
                              ========                           =======                            =======
</TABLE>

     A cash reserve, consisting primarily of overnight investments such as
Federal Funds, is also maintained to meet any contingencies and to provide
additional capital, if needed.

     Most of F&M's loans are fixed-rate installment loans to consumers and
mortgage loans whose maturities are generally longer than the deposits by which
they are funded. A degree of interest-rate risk is incurred if the interest rate
on deposits should rise before the loans mature. However, the substantial
liquidity provided by the monthly repayments on these loans can be

                                       12
<PAGE>

reinvested at higher rates that largely reduce the interest-rate risk. Home
equity lines of credit have adjustable rates that are tied to the prime rate.
Many of the loans not in the installment or mortgage categories have maturities
of less than one year or have floating rates that may be adjusted periodically
to reflect current market rates. These loans are summarized in the following
table:

REMAINING MATURITIES OF SELECTED LOANS

<TABLE>
<CAPTION>
                                      December 31, 1999
                              -----------------------------------
                              Commercial,
                              Financial and       Real estate and
                              Agricultural        Construction
                              ------------        ------------
                                   (Dollars in thousands)
<S>                           <C>                 <C>

Within 1 year                 $    137,603        $     69,425
Variable Rate:
1 to 5 years                        29,504               5,032
After 5 years                       16,981               9,255
  Total                             46,485              14,287

Fixed Rate:
1 to 5 years                        93,712              17,557
After 5 years                       11,258               7,112
  Total                       $    104,970        $     24,669
  Total Maturities            $    289,058        $    108,381
</TABLE>

     F&M's Asset/Liability/Risk Committee is responsible for reviewing the
Company's liquidity requirements and maximizing the Company's net interest
income consistent with capital requirements, liquidity, interest rate and
economic outlooks, competitive factors and customer needs.  Liquidity
requirements are also reviewed in detail for each of F&M's individual banks;
however, overall asset/liability management is performed on a consolidated basis
to achieve a consistent and coordinated approach.

FORWARD-LOOKING STATEMENTS
--------------------------

     This report contains certain forward-looking statements with respect to the
financial condition, results of operations, plans, objectives and business of
the Company. These forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated by such forward-looking statements include, among others, the
following possibilities: (a) competitive pressure in the financial services
industry increases significantly; (b) changes in the interest rate environment
reduce margins; (c) general economic conditions, either nationally or
regionally, are less favorable than expected, resulting in, among other things,
a deterioration in credit quality; (d) changes occur in the financial services
regulatory environment; and (e) changes occur in the securities markets.

                                       13
<PAGE>

OTHER ACTIVITIES

     Effective January 1, 1998, F&M Trust Company, a wholly-owned trust
subsidiary of the Company, began operations and assumed responsibility for all
the trust and fiduciary activities of the Virginia banking subsidiaries of the
Company.

     In 1999, F&M Trust Company offered a range of trust services. At December
31, 1999, F&M Trust Company managed $ 712.1 million in assets in approximately
1,712 fiduciary accounts, covering both personal trust activities and employee
benefit plans.

COMPETITION

     Each of the market regions in which the Company operates is a highly
competitive banking market involving commercial banks and thrifts. Other
competitors, including credit unions, consumer finance companies, insurance
companies and money market mutual funds, compete with the Company for certain
lending and deposit gathering services. In its Charlottesville/Albemarle County,
northern Virginia, and suburban Richmond markets, the Company faces particularly
intense competition from several state-wide, regional, and national banking
institutions which have substantial operations in those market regions.
Management believes, however, that the Company enjoys certain competitive
advantages in its principal market of Winchester, the surrounding northern
Shenandoah Valley and Loudoun County where F&M Bank-Winchester is the largest
financial institution headquartered in the area and the dominant bank in terms
of deposit market share.

     Competition among the various financial institutions is based on interest
rates offered on deposit accounts, interest rates charged on loans, credit and
service charges, the quality of services, the convenience of banking facilities
and, in connection with loans to larger borrowers, relative lending limits. Many
of the financial organizations in competition with the Company have much greater
financial resources, diversified markets, and branch networks than F&M and are
able to offer similar services at varying costs with higher lending limits. With
reciprocal interstate banking, the Company also faces the prospect of additional
competitors entering its markets as well as additional competition in its
efforts to acquire other financial institutions.

EXECUTIVE OFFICERS OF THE REGISTRANT

     All officers of the Company and its subsidiaries are elected annually to
serve at the pleasure of the Board of Directors of the Company. The following
table sets forth the name, age, year first elected, and offices held at February
28, 2000, of each of the executive officers of the Company:

                                       14
<PAGE>

<TABLE>
<CAPTION>
                                   YEAR
                                   FIRST
NAME                       AGE     ELECTED   OFFICE
----                       ---     -------   ------
<S>                        <C>     <C>       <C>

W. M. Feltner               80      1970     Chairman of the Board  and Chief
                                             Executive Officer of the Company

Alfred B. Whitt             61      1998     Vice Chairman, President and Chief
                                             Financial Officer of the Company;
                                             Chairman of F&M Bank-Winchester

Charles E. Curtis           61      1998     Vice Chairman and Chief
                                             Administrative Office of the
                                             Company; Vice Chairman of F&M Bank-
                                             Winchester

F. Dixon Whitworth, Jr.     55      1985     Executive Vice President of the
                                             Company; President of F&M Trust
                                             Company

Betty H. Carroll            62      1987     Senior Vice President of the
                                             Company; President, Vice Chairman
                                             and Chief Executive Officer of F&M
                                             Bank-Winchester

Michael L. Bryan            48      1998     Corporate Secretary and General
                                             Counsel of the Company

Barbara H. Ward             54      1983     Treasurer of the Company; Senior
                                             Vice President of F&M Bank-
                                             Winchester
</TABLE>

     Mr. Feltner has been a senior executive officer of the Company since its
inception in 1970.

     Mr. Whitt joined the Company in 1987 as Director of Human Resources, before
which time he served as President of F&M Bank-Massanutten, Harrisonburg,
Virginia, since its organization in 1973.  In July of 1991, he was appointed
Senior Vice President, Senior Financial Officer and Secretary of the Company and
F&M Bank-Winchester.  As of January 1, 1998, Mr. Whitt was appointed President,
Vice Chairman and Chief Financial Officer of the Company, and Vice Chairman and
Secretary to the Board of F&M Bank-Winchester.  On  June 7, 1999, Mr. Whitt was
appointed Chairman of F&M Bank-Winchester.

     In March of 1996, Mr. Curtis joined the Company as President and Chief
Executive Officer of Fairfax Bank and Trust Company, now F&M Bank-Northern
Virginia. Mr. Curtis served in this position from July 22, 1985 to December 31,
1997. As of January 1, 1998, Mr. Curtis was appointed Vice Chairman and Chief
Administrative Officer of the Company, and Vice Chairman of F&M Bank-Winchester.

                                       15
<PAGE>

    Mr. Whitworth, Jr. joined the Company in August 1985, as President of the
Suburban Bank, now F&M Bank-Richmond, and served as such until November, 1985,
when he became Executive Vice President of the Company.  As of January 1, 1998,
Mr. Whitworth was appointed President of F&M Trust Company.

    Mrs. Carroll has served as President and Chief Executive Officer of F&M
Bank-Winchester since December 1988, and was appointed Vice Chairman of the bank
on June 7, 1999.  She was appointed Senior Vice President of the Company in
1987.

    Mr. Bryan was appointed Corporate Secretary and General Counsel of the
Company effective January 1, 1998.  Prior to this appointment, Mr. Bryan was a
partner in the law firm of Bryan & Coleman, P.C., Winchester, Virginia, since
February 1, 1995.  On June 7, 1999, Mr. Bryan was appointed Secretary of F&M
Bank-Winchester.

    Mrs. Ward was appointed Senior Vice President of F&M Bank-Winchester in
March of 1992. Prior thereto, she was Vice President of F&M Bank-Winchester
since 1974. She has been Treasurer of the Company since 1983.

SUPERVISION AND REGULATION

    The Company and its subsidiary banks are subject to state and federal
banking laws and regulations, which impose specific requirements or restrictions
on and provide for general regulatory oversight with respect to virtually all
aspects of operations. The following is a brief summary of certain statues,
rules and regulations affecting the Company and its subsidiary banks. This
summary is qualified in its entirety by reference to the particular statutory
and regulatory provisions referred to below and is not intended to be an
exhaustive description of the statutes or regulations applicable to the business
of the Company and its subsidiary banks. A change in applicable laws or
regulations may have a material effect on the business and prospects of the
Company.

THE COMPANY

    The Company is registered as a bank holding company under the Bank Holding
Company Act ("BHCA") and the Virginia Financial Institution Holding Company Act,
and is therefore subject to regulation and examination by the Board of Governors
of the Federal Reserve System (the "Federal Reserve") and the Virginia State
Corporation Commission (the "Virginia SCC"). F&M's subsidiary banks are subject
to examination and regulation by the Virginia SCC, the West Virginia Board of
Banking and Financial Institutions (the "West Virginia Board of Banking") and
the Commissioner of Financial Regulation of the State of Maryland (the
"Maryland-CFR"). In addition, the Company and its subsidiary banks are subject
to certain minimum capital standards established by the Federal Reserve and the
FDIC.

    Under the BHCA, the Company is required to secure the prior approval of the
Federal Reserve before it can merge or consolidate with any other bank holding
company, or acquire all or substantially all of the assets of any bank or
acquire direct or indirect ownership or control of

                                       16
<PAGE>

any voting shares of any bank that is not already majority owned by it if after
such acquisition the Company would directly or indirectly own or control more
than 5% of the voting shares of such bank. The BHCA also prohibits the Company
from acquiring, directly or indirectly voting shares of, or interests in, or all
or substantially all of the assets of, any bank located outside the State of
Virginia unless the acquisition is specifically authorized by the laws of the
state in which such bank is located, as discussed below.

    The Company is prohibited under the BHCA, and regulations promulgated
thereunder, from engaging in, and from acquiring direct or indirect ownership or
control of more than 5% of voting shares of any company engaged in, nonbanking
activities unless the Federal Reserve, by order or regulation, has found such
activities to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. The Federal Reserve has by regulation
determined that certain activities are closely related to banking within the
meaning of the BHCA. These activities include, among others, operating a
mortgage, finance, credit card or factoring company; performing certain data
processing operations; providing investment and financial advice; acting as an
insurance agent for certain types of credit-related insurance; leasing personal
property on a full-payout, non-operating basis; and providing certain stock
brokerage and investment advisory services.

    The Company, as an affiliate of its subsidiary banks within the meaning of
the Federal Reserve Act, is subject to certain restrictions under the Federal
Reserve Act regarding transactions between a bank and companies with which it is
affiliated. These provisions limit extensions of credit (including guarantees of
loans) by the subsidiary banks to affiliates, investments in the stock or other
securities of the Company by the subsidiary banks and the nature and amount of
collateral that subsidiary banks may accept from any affiliate to secure loans
extended to the affiliate. Further, under the Federal Reserve Act and the
regulations promulgated thereunder, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
any extension of credit or provision of any property or service.

    The BHCA and the Change in Bank Control Act, together with regulations of
the Federal Reserve, require that, depending on the particular circumstances,
either Federal Reserve approval must be obtained or notice must be furnished to
the Federal Reserve and not disapproved prior to any person or company acquiring
"control" of a bank holding company, such as the Company, subject to exemptions
for certain transactions. Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any class of voting securities of
the bank holding company. Control is rebuttably presumed to exist if a person
acquires 10% or more but less than 25% of any class of voting securities and
either the company has registered securities under Section 12 of the Securities
Exchange Act of 1934, as amended, or no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure for challenge of the rebuttable control
presumption.

    Federal Reserve policy requires a bank holding company to act as a source of
financial strength to each of its bank subsidiaries and to take certain measures
to preserve and protect bank subsidiaries in situations where additional
investments in a troubled bank subsidiary may not

                                       17
<PAGE>

otherwise be warranted. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), in order to avoid receivership of an insured
depository institution subsidiary, a bank holding company is required to
guarantee up to certain maximum limits the compliance with the terms of any
capital restoration plan filed by such subsidiary with its appropriate federal
banking regulator. In addition, if a bank holding company has more than one bank
or thrift subsidiary, the bank holding company's other subsidiary depository
institutions are responsible under a cross guarantee for any losses to the FDIC
resulting from the failure of a depository institution subsidiary. Under these
provisions, a bank holding company may be required to loan money to its
depository institution subsidiaries in the form of capital notes or other
instruments. However, any such loans likely would be unsecured and subordinated
to such institution's depositors and certain other creditors.

    Under federal legislation, restrictions on interstate bank acquisitions were
abolished effective September 29, 1995, and bank holding companies from any
state are now able to acquire banks and bank holding companies located in any
other state.  Effective June 1, 1997, the law permits banks to merge across
state lines, subject to earlier "opt-in" or "opt-out" action by individual
states.  The law also allows interstate branch acquisitions and de novo
branching if permitted by the host state.  Virginia, Maryland and West Virginia
have adopted early "opt-in" legislation that allows interstate bank mergers.
The states also permit interstate branch acquisitions and de novo branching if
reciprocal treatment is accorded Virginia banks in the state of the acquiror.

    All acquisitions, whether by an in-state or out-of-state acquiror, involving
a Virginia bank or bank holding company require the prior approval of the
Virginia SCC, in addition to approval by the appropriate federal regulatory
authority. Similarly, the West Virginia Board of Banking must approve all
acquisitions of a West Virginia bank or bank holding company, and the Maryland-
CFR must approve all acquisitions of a Maryland bank or bank holding company.

REGULATION OF SUBSIDIARY BANKS

GENERAL.  All of F&M's subsidiary banks are state-chartered institutions
organized under either Virginia, West Virginia, or Maryland law. Seven of the
subsidiary banks, F&M Bank-Winchester, F&M Bank-Massanutten, F&M Bank-Richmond,
F&M Bank-Central Virginia, F&M Bank-Emporia, F&M Bank-Northern Virginia, and F&M
Bank-Peoples are Virginia-chartered institutions regulated and examined by the
Virginia SCC. F&M Bank-West Virginia, Inc., is a West Virginia-chartered
institutions regulated and examined by the West Virginia Board of Banking. F&M
Bank-Allegiance is a Maryland state-chartered bank regulated and examined by the
Maryland-CFR.

    F&M's subsidiary banks are all members of the Federal Reserve System and
are, therefore, supervised and examined by the Federal Reserve, their primary
federal regulator. The Federal Reserve and the Virginia SCC, West Virginia Board
of Banking, or the Maryland-CFR, as appropriate, conduct regular examinations of
each subsidiary bank, reviewing the adequacy of their allowance for loan losses,
quality of loans and investments, propriety of management practices, compliance
with laws and regulations and other aspects of operations. In addition to

                                       18
<PAGE>

these regular examinations, each subsidiary bank must furnish the Federal
Reserve with quarterly reports containing detailed financial statements and
schedules. The FDIC, which provides deposit insurance, also has authority to
examine and regulate F&M's subsidiary banks.

    Federal and state banking laws and regulations govern all areas of the
operations of F&M's subsidiary banks, including maintenance of cash reserves,
loans, mortgages maintenance of minimum capital, payment of dividends, and
establishment of branch offices. Federal and state bank regulatory agencies also
have the general authority to eliminate dividends paid by insured banks if such
payment is deemed to constitute an unsafe and unsound practice. As their primary
federal regulator, the Federal Reserve has authority to impose penalties,
initiate civil administrative actions and take other steps to prevent F&M's
subsidiary banks from engaging in unsafe or unsound practices. In this regard,
the Federal Reserve has adopted capital adequacy requirements applicable to its
member banks.

DEPOSIT INSURANCE.  The deposits of F&M's subsidiary banks are currently insured
to a maximum of $100,000 per depositor, subject to certain aggregation rules.
The FDIC has implemented a risk-related assessment system for deposit insurance
premiums and all depository institutions have been assigned to one of nine risk
assessment classifications based upon certain capital and supervisory measures.
All deposits of F&M's subsidiary banks are subject to the rates of the Bank
Insurance Fund ("BIF"), the federal deposit insurance fund that covers
commercial bank deposits.

REGULATORY CAPITAL REQUIREMENTS.  On December 19, 1991, FDICIA was enacted.
Among other things, FDICIA requires the federal banking agencies to take "prompt
corrective action" with respect to banks that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: "well capitalized,"
"adequately capitalized", "under capitalized", "significantly undercapitalized",
and "critically undercapitalized", which terms are each further defined by
federal regulations. A depository institution is "well capitalized" if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, "adequately capitalized" if it meets each such measure,
"undercapitalized" if it fails to meet any such measure, "significantly
undercapitalized" if it is significantly below any such measure, and "critically
undercapitalized" if it fails to meet any critical capital level set forth in
the regulations. The critical capital level must be a level of tangible equity
capital equal to not less than 2.0% of total assets and not more than 65% of the
minimum leverage ratio to be prescribed by regulation (except to the extent that
2.0% would be higher than such 65% level). An institution may be deemed to be in
a capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating. In order to be
classified as a "well capitalized institution," the institution must have a
total risk-based capital ratio of 10% and a leverage ratio of 5%.

    If a depository institution fails to meet regulatory capital requirements,
regulatory agencies can require submission and funding of a capital restoration
plan by the institution, place limits on its activities, require the raising of
additional capital, and, ultimately, require the appointment of a conservator or
receiver for the institution. As of December 31, 1999, all F&M's subsidiary
banks exceeded the required regulatory capital requirements under FDICIA.

                                       19
<PAGE>

CAPITAL ADEQUACY AND DIVIDENDS.  Information on "Capital Adequacy" may be found
under "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS", "Capital Resources".

    Dividends from F&M's subsidiary banks constitute the major source of funds
for dividends to be paid by the Company. The amount of dividends payable by each
subsidiary bank to the Company depends upon its earnings and capital position,
and is limited by federal and state law, regulations and policy. The Federal
Reserve has the general authority to limit dividends paid by F&M's subsidiary
banks and the Company if such payments are deemed to constitute an unsafe and
unsound practice.

    As state member banks subject to the regulations of the Federal Reserve,
each subsidiary bank must obtain approval of the Federal Reserve for any
dividend if the total of all dividends declared by F&M's subsidiary banks in any
calendar year would exceed the total of its net profits for such year, as
defined by the Federal Reserve, plus its retained net profits for the preceding
two years. In addition, each subsidiary bank may not pay a dividend in an amount
greater than its undivided profits then on hand after deducting current losses
and bad debts. For this purpose, bad debts are generally defined to include the
principal amount of all loans which are in arrears with respect to interest by
six months or more, unless such loans are fully secured and in the process of
collection.

    In addition, Virginia law imposes restrictions on the ability of all banks
chartered under Virginia law to pay dividends. Under Virginia law, no dividend
may be declared or paid that would impair a bank's paid-in capital. The Virginia
SCC also can limit the payment of dividends by any Virginia bank if it
determines the limitation is in the public interest and is necessary to ensure
the bank's financial soundness.

    Under West Virginia law, a state bank may declare a dividend only from its
undivided profits and, if the bank's surplus account is not greater than or
equal to the par value of the bank's stock, the bank may not declare a dividend
unless a portion of the bank's profits for the period for which dividends are
declared is credited to the bank's surplus account. Also, a West Virginia-
chartered bank must obtain the approval of the West Virginia Board of Banking
prior to declaring a dividend if the total of all dividends paid by the bank in
any calendar year exceeds the total of its profits for that year plus its
undivided profits for the preceding two years.

    Pursuant to Maryland law, a state bank may declare a cash dividend only from
(i) its undivided profits or (ii) with the prior approval of the Maryland-CFR,
its surplus in excess of 100% of its required capital stock. For further
information about the Company's dividends, see Part II., Item 5., "Market for
Registrant's Common Equity and Related Stockholder Matters."

FINANCIAL MODERNIZATION LEGISLATION

     The Gramm-Leach-Bliley Act of 1999 ("GLBA") was signed into law on November
12, 1999.  The main purpose of GLBA is to permit greater affiliations within the
financial services

                                       20
<PAGE>

industry, primarily banking, securities and insurance. While certain portions of
GLBA became effective upon enactment and on March 11, 2000, many other
provisions do not become effective until May 2001 and most of the regulations
implementing the law have not yet been issued. As a result, the overall impact
of GLBA on the Company cannot be predicted at this time. The provisions of GLBA
that are believed to be of most significance to the Company are discussed below.

     GLBA repeals sections 20 and 32 of the Glass-Steagall Act, which separated
commercial banking from investment banking, and substantially amends the BHCA,
which limited the ability of bank holding companies to engage in the securities
and insurance businesses.  To achieve this purpose, GLBA creates a new type of
company, the "financial holding company."  A financial holding company may
engage in or acquire companies that engage in a broad range of financial
services, including

     .    securities activities such as underwriting, dealing, brokerage,
          investment and merchant banking; and

     .    insurance underwriting, sales and brokerage activities.

A bank holding company may elect to become a financial holding company only if
all of its depository institution subsidiaries are well-capitalized, well-
managed and have at least a satisfactory Community Reinvestment Act rating.

     GLBA establishes a system of functional regulation under which the federal
banking agencies will regulate the banking activities of financial holding
companies and banks' financial subsidiaries, the Securities and Exchange
Commission ("SEC") will regulate their securities activities and state insurance
regulators will regulate their insurance activities.

     With regard to Federal securities laws,  GLBA removes the blanket exemption
for banks from being considered brokers or dealers under the Securities Exchange
Act of 1934, and sets out a number of limited activities, including trust and
fiduciary activities, in which a bank may engage without being considered a
broker, and a set of activities in which a bank may engage without being
considered a dealer.  The Investment Advisers Act of 1940 also will be amended
to eliminate certain provisions exempting banks from the registration
requirements of that statute, and the Investment Company Act of 1940 will be
amended to provide the SEC with regulatory authority over various bank mutual
fund activities.

    GLBA also provides new protections against the transfer and use by financial
institutions of consumers nonpublic personal information.  A financial
institution must provide to its customers, at the beginning of the customer
relationship and annually thereafter, the institution's policies and procedures
regarding the handling of customers' nonpublic personal financial information.
The new privacy provisions will generally prohibit a financial institution from
providing a customer's personal financial information to unaffiliated third

                                       21
<PAGE>

parties unless the institution discloses to the customer that the information
may be so provided and the customer is given the opportunity to opt out of such
disclosure.

     At this time, the Company is unable to predict the impact GLBA may have
upon its or its subsidiaries' financial condition or results of operations.  The
Company is currently reviewing the new law and at this time has not elected to
be treated as a financial holding company under GLBA.

RECENT LEGISLATIVE DEVELOPMENTS

    From time to time, various legislative and regulatory proposals with respect
to the regulation of financial institutions are considered by the executive
branch of the Federal government, Congress and various state governments,
including Virginia, West Virginia, and Maryland. Certain of these proposals, if
adopted, could significantly change the regulation of banks and the financial
services industry. The Company cannot predict whether any of these proposals
will be adopted or, if adopted, how these proposals would affect the Company.

                                       22
<PAGE>

ITEM 2.  PROPERTIES.

    The principal executive offices of F&M is located at 9 Court Square,
Winchester, Virginia, in a multi-story building complex that is owned free of
any encumbrances. The Company operates a total of 125 banking offices (103 in
Virginia, 13 in West Virginia, and 9 in Maryland), 66 of which are owned by the
Company or one of its subsidiary banks free of any encumbrances, and 54 of which
are leased under agreements expiring at various dates, including renewal
options. The Company also owns additional office facilities for various of its
lending, audit, accounting, and data processing functions. Additional
information regarding F&M's lease agreements may be found under "ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, Note 15."

ITEM 3.  LEGAL PROCEEDINGS.

    In the ordinary course of its operations, the Company and its subsidiary
banks are parties to various legal proceedings. Based on information presently
available, and after consultation with legal counsel, management believes that
the ultimate outcome in such proceedings, in the aggregate, will not have a
material adverse effect on the business or the financial condition or results of
operations of the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    The Company has not submitted any matters to its security holders since its
Annual Meeting of Shareholders held April 27, 1999.

                                       23
<PAGE>

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

       The following table sets forth the per share high and low last sale
prices for the common stock of the Company as reported on the New York Stock
Exchange, and the cash dividends declared per share on the Common Stock for the
periods indicated:

                            PRICE RANGE            CASH
                        HIGH          LOW       DIVIDENDS
                        ----          ---       ---------

1999
First Quarter           30.00        23.87        0.195
Second Quarter          33.18        23.93        0.235
Third Quarter           33.50        26.00        0.235
Fourth Quarter          30.25        26.00        0.235

1998
First Quarter           36.25        31.75        0.185
Second Quarter          34.31        32.00        0.185
Third Quarter           31.56        26.13        0.195
Fourth Quarter          31.69        25.06        0.195

    At December 31, 1999, there were 22,984,500 shares of Common Stock
outstanding held by 8,466 holders of record.

    The Company historically has paid cash dividends on a quarterly basis. The
final determination of the timing, amount and payment of dividends on the Common
Stock is at the discretion of the Board of Directors and will depend upon the
earnings of the Company and its subsidiaries, principally its subsidiary banks,
the financial condition of the Company and other factors, including general
economic conditions and applicable governmental regulations and policies.

    The Company or F&M Bank-Winchester has paid regular cash dividends for more
than 57 consecutive years.

    The Company is a legal entity separate and distinct from its subsidiaries,
and its revenues depend primarily on the payment of dividends from F&M
subsidiary banks. F&M subsidiary banks are subject to certain legal restrictions
on the amount of dividends they are permitted to pay to the Company. At December
31, 1999, F&M's subsidiary banks had available for distribution as dividends to
the Company approximately $20.0 million.

                                       24
<PAGE>

ITEM 6.    SELECTED FINANCIAL DATA.

           Incorporated herein by reference, as Exhibit 13, to page 1 of the
           1999 Annual Report.

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

           Incorporated herein by reference, as Exhibit 13, to pages 7 through
           25 of the 1999 Annual Report.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

           Incorporated herein by reference, as Exhibit 13, to pages 9 and 12 of
           the 1999 Annual Report.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

           Incorporated herein by reference, as Exhibit 13, to pages 26 through
           49 of the 1999 Annual Report.

ITEM 9.    CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURES.

           None.

                                       25
<PAGE>

                                   PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

ITEM 11.   EXECUTIVE COMPENSATION.

ITEM 12.   SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

           Pursuant to General Instruction G(3), the information called for by
           Part III, Items 10. through 13., is incorporated herein by reference
           from the Company's definitive proxy statement, dated March 24, 2000,
           for the Company's Annual Meeting of Shareholders to be held April 25,
           2000, which definitive proxy statement was filed with the Commission
           pursuant to Rule 14a-6 on March 24, 2000. The information regarding
           executive officers called for by Item 401 of Regulation S-K is
           included in Part I under "EXECUTIVE OFFICERS OF THE REGISTRANT".

                                       26
<PAGE>

                                    PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K.

(a)  The following documents included in Part II of this report are incorporated
     by reference to the Company's 1999 Annual Report (see Exhibit 13):

1.   Financial Statements                                          Pages

     F&M National Corporation and Subsidiaries:
      Consolidated Balance Sheets at December 31, 1999 and 1998      26
      Consolidated Statements of Income for the years
       ended December 31, 1999, 1998, and 1997                       27
      Consolidated Statements of Changes in Shareholders'
       Equity for years ended December 31, 1999, 1998 and 1997       28
      Consolidated Statements in Cash Flows for the years
       ended December 31, 1999, 1998 and 1997                        29
      Notes to Consolidated Financial Statements                     30
      Report of Independent Certified Public Accountants             48

2.   Financial Statement Schedules

     All schedules are omitted because of the absence of conditions under which
     they are required or because the required information is given in the
     financial statements or notes thereto.

3.   Exhibits.

     (3)
          (i)  Registrant's Articles of Incorporation (incorporated herein by
               reference to Exhibit 3.1 to Registration Statement #33-45717).

          (ii) Registrant's Bylaws (incorporated herein by reference to Exhibit
               3.2 to Registration Statement #33-45717).

     (10) Material Contracts.

          (i)  Form of agreement between officers of the Registrant under the
               Registrant's Defined Benefit Deferred Compensation and Salary
               Continuation Plan (incorporated herein by reference to Exhibit
               10(b) to Registration Statement #33-10696, filed on December 9,
               1986).

                                       27
<PAGE>

          (ii)   Registrant's Officers' Incentive Bonus Plan (incorporated
                 herein by reference to Exhibit 28(i) to Registration Statement
                 #33-25867 filed on December 2, 1988).

          (iii)  Form of Management Continuity Agreement entered into between
                 the Registrant and certain of its and its subsidiaries'
                 executive officers (filed herewith).

          (iv)   Registrant's 1992 Incentive and Non-Qualified Stock Option
                 Plan, as amended and restated February 2, 1998 (incorporated
                 herein by reference to Exhibit 99.0 to Registration Statement
                 #333-63111 filed on September 9, 1998).

          (v)    Registrant's 1998 Employee Stock Discount Plan (incorporated
                 herein by reference to Exhibit 99.1 to Registration Statement
                 #333-63113 filed on September 9, 1998).

     (11) Statement re computation of per share earnings (incorporated by
          reference as Note 11, page 37, of the 1999 Annual Report to
          Shareholders filed herewith as Exhibit 13).

     (13) Portions of the 1999 Annual Report to Shareholders for the fiscal year
          ended December 31, 1999 (filed herewith).

     (21) Subsidiaries of the Registrant (filed herewith).

     (23) Consent of Yount, Hyde & Barbour, P. C., Certified Public Accountants
          (filed herewith).

     (27) Financial Data Schedule (filed herewith).

(b)  Reports on Form 8-K:

     None.

                                       28
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto  duly authorized, as of the  8th day of
March, 2000:

                                F&M NATIONAL CORPORATION
                                Winchester, Virginia


                                 /s/ W. M. Feltner
                                ---------------------------------------------
                                W. M. Feltner, Chairman of the Board
                                  and Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the 8th  day of March, 2000:


SIGNATURE                                 TITLE
---------                                 -----

/s/ W. M. Feltner                         Chairman of the Board, Chief
--------------------------------------    Executive Officer, Director
W. M. FELTNER

/s/ Alfred B. Whitt                       Vice Chairman, President, Chief
--------------------------------------    Financial Officer, Director
ALFRED B. WHITT

/s/ Charles E. Curtis                     Vice Chairman, Chief Administrative
--------------------------------------    Officer, Director
CHARLES E. CURTIS

/s/ Frank Armstrong, III                  Director
--------------------------------------
FRANK ARMSTRONG, III

/s/ William H. Clement                    Director
--------------------------------------
WILLIAM H. CLEMENT

/s/ John E. Fernstrom                     Director
--------------------------------------
JOHN E. FERNSTROM

/s/ William R. Harris                     Director
--------------------------------------
WILLIAM R. HARRIS

                                       29
<PAGE>

/s/ L. David Horner, III                          Director
----------------------------------------------
L DAVID HORNER, III

/s/ Jack R. Huyett                                Director
----------------------------------------------
JACK R. HUYETT

/s/ George L. Romine                              Director
----------------------------------------------
GEORGE L. ROMINE

/s/ J. D. Shockey, Jr.                            Director
----------------------------------------------
J. D. SHOCKEY, JR.

/s/ Ronald W. Tydings                             Director
----------------------------------------------
RONALD W. TYDINGS

/s/ Fred G. Wayland, Jr.                          Director
----------------------------------------------
FRED G. WAYLAND, JR.

                                       30
<PAGE>

EXHIBIT 13.
1999 ANNUAL REPORT TO SHAREHOLDERS


Filed herewith.

                                       31