##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2011.
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 000-13273
 F & M BANK CORP.
 Virginia
    
    54-1280811(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 
 (Registrants Telephone Number, Including Area Code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting Company þ(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at May 4, 2011Common Stock, par value - $5
    
    2,487,572 shares




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##### 



F & M BANK CORP.
 Index
 PagePart I Financial Information
    
    
    2Item 1. Financial StatementsConsolidated Statements of Income  Three Months Ended March 31, 2011 and 2010
    
    
    2Consolidated Balance Sheets  March 31, 2011 and December 31, 2010
    
    
    3Consolidated Statements of Cash Flows  Three Months Ended March 31, 2011 and 2010
    
    
    4Consolidated Statements of Changes in Stockholders Equity  Three Months Ended March 31, 2011 and 2010
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31Part II Other Information
    
    
    32Item 1. Legal Proceedings
    
    
    32Item 1a. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults upon Senior Securities
    
    
    32Item 4. Removed and reserved
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    32Signatures
    
    
    33Certifications
    
    
    34EX-31.1EX-31.2EX-32




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F & M BANK CORP.
 
 Consolidated Statements of Income
(In Thousands of Dollars Except per Share Amounts)
(Unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010Interest incomeInterest and fees on loans held for investment
    
    $
    6,369
    
    
    $
    6,473Interest and fees on loans held for sale
    
    
    97
    
    
    
    155Interest on federal funds sold
    
    
    18
    
    
    
    13Interest on interest bearing deposits
    
    
    8
    
    
    
    5Dividends on equity securities
    
    
    34
    
    
    
    48Interest on debt securities
    
    
    67
    
    
    
    113Total interest income
    
    
    6,593
    
    
    
    6,807Interest expenseInterest on demand deposits
    
    
    431
    
    
    
    458Interest on savings accounts
    
    
    47
    
    
    
    46Interest on time deposits over $100,000
    
    
    300
    
    
    
    416Interest on time deposits
    
    
    627
    
    
    
    848Total interest on deposits
    
    
    1,405
    
    
    
    1,768Interest on short-term debt
    
    
    5
    
    
    
    7Interest on long-term debt
    
    
    622
    
    
    
    629Total Interest Expense
    
    
    2,032
    
    
    
    2,404Net interest income
    
    
    4,561
    
    
    
    4,403Provision for loan losses
    
    
    1,100
    
    
    
    900Net interest income after provision for loan losses
    
    
    3,461
    
    
    
    3,503Noninterest incomeService charges
    
    
    240
    
    
    
    305Insurance and other commissions
    
    
    72
    
    
    
    81Other
    
    
    392
    
    
    
    270Income on bank owned life insurance
    
    
    87
    
    
    
    73Gain on the sale of securities
    
    
    
    
    
    
    30Total noninterest income
    
    
    791
    
    
    
    759Noninterest expenseSalaries
    
    
    1,325
    
    
    
    1,317Employee benefits
    
    
    446
    
    
    
    420Occupancy expense
    
    
    135
    
    
    
    148Equipment expense
    
    
    149
    
    
    
    146Intangible amortization
    
    
    46
    
    
    
    69FDIC insurance assessment
    
    
    283
    
    
    
    282Other
    
    
    888
    
    
    
    764Total noninterest expense
    
    
    3,272
    
    
    
    3,146Income before income taxes
    
    
    980
    
    
    
    1,116Income tax expense
    
    
    295
    
    
    
    357Consolidated net income
    
    
    685
    
    
    
    759Net (income) loss  Noncontrolling interest
    
    
    1
    
    
    
    (3
    )Net Income  F & M Bank Corp
    
    $
    686
    
    
    $
    756Per share dataNet income
    
    $
    .29
    
    
    $
    .33Cash dividends
    
    $
    .15
    
    
    $
    .15Weighted average shares outstanding
    
    
    2,326,848
    
    
    
    2,295,643
 See notes to unaudited consolidated financial statements
 2




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F & M BANK CORP.
 
 Consolidated Balance Sheets
(In Thousands of Dollars Except per Share Amounts)
 March 31,
    
    
    December 31,2011
    
    
    2010(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    5,840
    
    
    $
    4,586Federal funds sold
    
    
    17,520
    
    
    
    16,338Cash and cash equivalents
    
    
    23,360
    
    
    
    20,924Interest bearing deposits in banks
    
    
    2,673
    
    
    
    2,927Securities:Held to maturity  fair value of $109,000 in 2011 and 2010 (note 2)
    
    
    109
    
    
    
    109Available for sale (note 2)
    
    
    17,026
    
    
    
    15,247Other investments
    
    
    8,673
    
    
    
    8,789Loans held for sale
    
    
    23,683
    
    
    
    23,764Loans held for investment (note 3)
    
    
    452,731
    
    
    
    445,147Less allowance for loan losses (note 4)
    
    
    (6,095
    )
    
    
    (5,786
    )Net loans held for investment
    
    
    446,636
    
    
    
    439,361Other real estate owned
    
    
    2,765
    
    
    
    1,513Bank premises and equipment, net
    
    
    6,490
    
    
    
    6,792Interest receivable
    
    
    1,682
    
    
    
    2,001Core deposit intangible
    
    
    
    
    
    
    46Goodwill
    
    
    2,670
    
    
    
    2,670Bank owned life insurance
    
    
    6,956
    
    
    
    6,883Other assets
    
    
    8,572
    
    
    
    7,829Total assets
    
    $
    551,295
    
    
    $
    538,855LiabilitiesDeposits:Noninterest bearing
    
    $
    63,754
    
    
    $
    58,497Interest bearing:Demand
    
    
    97,843
    
    
    
    94,091Money market accounts
    
    
    22,690
    
    
    
    22,798Savings
    
    
    37,653
    
    
    
    35,760Time deposits over $100,000
    
    
    78,914
    
    
    
    80,060All other time deposits
    
    
    135,853
    
    
    
    133,845Total deposits
    
    
    436,707
    
    
    
    425,051Short-term debt
    
    
    5,148
    
    
    
    5,355Accrued liabilities
    
    
    6,238
    
    
    
    7,241Subordinated debt
    
    
    10,191
    
    
    
    9,944Long-term debt
    
    
    48,012
    
    
    
    49,035Total liabilities
    
    
    506,296
    
    
    
    496,626Stockholders EquityCommon stock, $5 par value, 6,000,000 shares authorized,
2,487,197 and 2,306,086 shares issued and outstanding
in 2011 and 2010, respectively
    
    
    12,436
    
    
    
    11,530Retained earnings
    
    
    32,622
    
    
    
    30,837Noncontrolling interest
    
    
    154
    
    
    
    186Accumulated other comprehensive income (loss)
    
    
    (213
    )
    
    
    (324
    )Total stockholders equity
    
    
    44,999
    
    
    
    42,229Total liabilities and stockholders equity
    
    $
    551,295
    
    
    $
    538,855
 See notes to unaudited consolidated financial statements
 3




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F & M BANK CORP.
 
 Consolidated Statements of Cash Flows
(In Thousands of Dollars)
(Unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010Cash flows from operating activitiesNet income
    
    $
    686
    
    
    $
    756Net change  Noncontrolling interest
    
    
    (32
    )
    
    
    (23
    )Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    157
    
    
    
    163Amortization (accretion) of security premiums (discounts), net
    
    
    16
    
    
    
    15Net (increase) decrease in loans held for sale
    
    
    81
    
    
    
    9,015Provision for loan losses
    
    
    1,100
    
    
    
    900Intangible amortization
    
    
    46
    
    
    
    69(Increase) decrease in interest receivable
    
    
    319
    
    
    
    127(Increase) decrease in other assets
    
    
    (1,061
    )
    
    
    (1,362
    )Gain on sale of fixed assets
    
    
    (83
    )
    
    
    Increase (decrease) in accrued expenses
    
    
    (797
    )
    
    
    375Gain on security transactions
    
    
    
    
    
    
    (30
    )Amortization of limited partnership investments
    
    
    116
    
    
    
    103Income from life insurance investment
    
    
    (73
    )
    
    
    (71
    )Net adjustments
    
    
    (179
    )
    
    
    9,281Net cash provided by operating activities
    
    
    475
    
    
    
    10,037Cash flows from investing activitiesPurchase of investments available for sale
    
    
    (6,044
    )
    
    
    (7,048
    )Proceeds from sales of investments available for sale
    
    
    
    
    
    
    853Proceeds from maturity of investments available for sale
    
    
    4,402
    
    
    
    6,677Net increase in loans held for investment
    
    
    (11,059
    )
    
    
    (7,096
    )Proceeds from the sale of other real estate owned
    
    
    1,433
    
    
    
    Proceeds from the sale of fixed assets
    
    
    270
    
    
    
    Purchase of property and equipment
    
    
    (41
    )
    
    
    (28
    )Net (increase) decrease in interest bearing bank deposits
    
    
    254
    
    
    
    (5,145
    )Net cash used in investing activities
    
    
    (10,785
    )
    
    
    (11,787
    )Cash flows from financing activitiesNet change in demand and savings deposits
    
    
    10,793
    
    
    
    6,844Net change in time deposits
    
    
    862
    
    
    
    (11,191
    )Net change in short-term debt
    
    
    (207
    )
    
    
    (4,565
    )Cash dividends paid
    
    
    (328
    )
    
    
    (332
    )Proceeds from rights offering
    
    
    2,381
    
    
    
    Proceeds from issuance of common stock
    
    
    22
    
    
    
    31Proceeds of long-term debt
    
    
    247
    
    
    
    7,250Repayment of long-term debt
    
    
    (1,024
    )
    
    
    (7,433
    )Net cash provided (used) by financing activities
    
    
    12,746
    
    
    
    (9,396
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    2,436
    
    
    
    (11,146
    )Cash and cash equivalents, beginning of period
    
    
    20,924
    
    
    
    23,640Cash and cash equivalents, end of period
    
    $
    23,360
    
    
    $
    12,494Supplemental disclosureCash paid for:Interest expense
    
    $
    2,014
    
    
    $
    7,753Income taxes
    
    
    
    
    
    
    Transfers from loans to Other Real Estate Owned
    
    
    2,685
    
    
    
    939
 See notes to unaudited consolidated financial statements
 4




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F & M BANK CORP.
 
 Consolidated Statements of Changes in Stockholders Equity
(In Thousands of Dollars)
(Unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010Balance, beginning of period
    
    $
    42,229
    
    
    $
    39,002Comprehensive incomeNet income  F & M Bank Corp
    
    
    686
    
    
    
    756Net income  Noncontrolling interest
    
    
    (1
    )
    
    
    3Minority Interest Contributed Capital (Distributions)
    
    
    (31
    )
    
    
    (26
    )Prepaid pension adjustment
    
    
    (52
    )
    
    
    Net change in unrealized appreciation on
securities available for sale, net of taxes
    
    
    111
    
    
    
    485Total comprehensive income
    
    
    713
    
    
    
    1,218Issuance of common stock
    
    
    22
    
    
    
    31Issuance of common stock  rights offering
    
    
    2,381
    
    
    
    Dividends declared
    
    
    (346
    )
    
    
    (344
    )Balance, end of period
    
    $
    44,999
    
    
    $
    39,907
 See notes to unaudited consolidated financial statements
 5




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F & M BANK CORP.
 
 Notes to Consolidated Financial Statements
 Note 1. Accounting Principles
    Comprehensive Income
   March 31,
    
    
    March 31,2011
    
    
    2010Changes in:Net Income:Net Income  F & M Bank Corp
    
    $
    686
    
    
    $
    756Net Income  Noncontrolling Interest
    
    
    (1
    )
    
    
    3Minority Interest Contributed Capital (Distributions)
    
    
    (31
    )
    
    
    (26
    )654
    
    
    
    733Prepaid pension adjustment
    
    
    (52
    )
    
    
    Unrealized holding gains on available-for-sale securities:
    
    
    168
    
    
    
    765Reclassification adjustment for gains realized in income
    
    
    
    
    
    
    (30
    )Net unrealized gains
    
    
    168
    
    
    
    735Tax effect
    
    
    57
    
    
    
    250Unrealized holding gain, net of tax
    
    
    111
    
    
    
    485Comprehensive income
    
    $
    713
    
    
    $
    1,218
 Subsequent Events
  6




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 1. Accounting Principles, continued
 Loans
  Allowance for Loan Losses
   7




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 2. Investment Securities
  2011
    
    
    2010Market
    
    
    
    
    
    
    MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueSecurities held to maturityU. S. Treasury and agency obligations
    
    $
    109
    
    
    $
    109
    
    
    $
    109
    
    
    $
    109Total
    
    $
    109
    
    
    $
    109
    
    
    $
    109
    
    
    $
    109
 March 31, 2011Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities available for saleGovernment sponsored enterprises
    
    $
    10,001
    
    
    $
    
    
    
    $
    17
    
    
    $
    9,984Equity securities
    
    
    2,666
    
    
    
    889
    
    
    
    36
    
    
    
    3,519Mortgage-backed securities
    
    
    3,322
    
    
    
    204
    
    
    
    3
    
    
    
    3,523Total
    
    $
    15,989
    
    
    $
    1,093
    
    
    $
    56
    
    
    $
    17,026
 December 31, 2010Unrealized
    
    
    MarketCost
    
    
    Gains
    
    
    Losses
    
    
    ValueSecurities available for saleGovernment sponsored enterprises
    
    $
    7,997
    
    
    $
    7
    
    
    $
    3
    
    
    $
    8,001Equity securities
    
    
    2,643
    
    
    
    711
    
    
    
    39
    
    
    
    3,315Mortgage-backed securities
    
    
    3,724
    
    
    
    209
    
    
    
    2
    
    
    
    3,931Total
    
    $
    14,364
    
    
    $
    927
    
    
    $
    44
    
    
    $
    15,247
  Securities Held to Maturity
    
    
    Securities Available for SaleAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    109
    
    
    $
    109
    
    
    $
    255
    
    
    $
    253Due after one year through five years
    
    
    
    
    
    
    
    
    
    
    10,001
    
    
    
    9,984Due after five years
    
    
    
    
    
    
    
    
    
    
    3,067
    
    
    
    3,270109
    
    
    
    109
    
    
    
    13,323
    
    
    
    13,507Marketable equities
    
    
    
    
    
    
    
    
    
    
    2,666
    
    
    
    3,519Total
    
    $
    109
    
    
    $
    109
    
    
    $
    15,989
    
    
    $
    17,026
  Three Months EndedMarch 31, 2011
    
    
    March 31, 2010Gains
    
    $
    
    
    
    $
    114Losses
    
    
    
    
    
    
    (84
    )Net Gains
    
    $
    
    
    
    $
    30
 8




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 2. Investment Securities, continued
 Securities Impairment
 Other Than Temporary Impairment
 
    
    The length of time of impairment;
    
    The extent of the impairment relative to the cost of the investment;
    
    Recent volatility in the market value of the investment;
    
    The financial condition and near-term prospects of the issuer, including any
specific events which may impair the earnings potential of the issuer; or
    
    The intent and ability of the Company to hold its investment for a period of time
sufficient to allow for any anticipated recovery in market value.
  
    
    We begin our evaluation using a default position that OTTI has occurred and then use
all available evidence to determine whether prospects for the individual security are
sufficient to support temporary impairment at the date of the SEC filing. This
evaluation will be conducted at each filing date.
    
    For purposes of determining OTTI, the security value recovery period will be
projected for a maximum of a two year holding period. This will be the maximum; a
shorter period may be used when there are particular conditions related to the
individual security which make recovery unlikely.
    
    The primary focus in determining whether a security is OTTI, and projecting
potential recovery, is the prospects for the individual security, rather than broad
market indices. All available evidentiary material is considered, including the
Companys public filings with the SEC, press releases, analyst reports, etc.
    
    Secondary consideration is given to historic returns, but only to the extent that
this evidence is instructive in determining whether the individual security has shown a
history of outperforming (or underperforming) the market (or industry) in prior
economic cycles. These factors are only considered when the declines in value are not
limited to the individual security, but were prevalent over the broader market. This
measure is considered to aid in determining whether OTTI should be recognized earlier,
rather than later (ie. a security which underperforms relative to the industry or
market will result in early recognition of OTTI). In no event will OTTI recognition be
delayed beyond the two year projection period.
    
    OTTI may be recognized as early as quarter 1, regardless of holding period
projections, when there are specific factors relative to the security which make
recovery unlikely. These factors could include evidence contained in the aforementioned
SEC filings, press releases, analyst reports, but may also be based on the severity of
the impairment.
    
    Situations where a security has declined in value more rapidly than the industry (or
market), absent strong evidence supporting prospects for recovery, will result in OTTI
being recognized in quarter 1 or quarter 2 rather than continuing to evaluate the
security over several quarters, based on holding period projections.
    
    Declines determined to be other than temporary are charged to operations; there were
none for the quarters ended March 31, 2011 or March 31, 2010.
 9




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F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 2. Investment Securities, continued
  Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesMarch 31, 2011Government
sponsored
Enterprises
    
    $
    3,976
    
    
    $
    (17
    )
    
    $
    
    
    
    $
    
    
    
    $
    3,976
    
    
    $
    (17
    )Mortgage backed Obligations
    
    
    
    
    
    
    
    
    
    
    253
    
    
    
    (3
    )
    
    
    253
    
    
    
    (3
    )Marketable equities
    
    
    129
    
    
    
    (36
    )
    
    
    
    
    
    
    
    
    
    
    129
    
    
    
    (36
    )Total
    
    $
    4,105
    
    
    $
    (53
    )
    
    $
    253
    
    
    $
    (3
    )
    
    $
    4,358
    
    
    $
    (56
    )December 31, 2010Government
sponsored
Enterprises
    
    $
    2,004
    
    
    $
    (3
    )
    
    $
    
    
    
    $
    
    
    
    $
    2,004
    
    
    $
    (3
    )Mortgage backed Obligations
    
    
    
    
    
    
    
    
    
    
    260
    
    
    
    (2
    )
    
    
    260
    
    
    
    (2
    )Marketable equities
    
    
    
    
    
    
    
    
    
    
    575
    
    
    
    (39
    )
    
    
    575
    
    
    
    (39
    )Total
    
    $
    2,004
    
    
    $
    (3
    )
    
    $
    835
    
    
    $
    (41
    )
    
    $
    2,839
    
    
    $
    (44
    )
 Note 3. Loans Held for Investment
  2011
    
    
    2010Real EstateConstruction
    
    $
    74,047
    
    
    $
    79,337Residential
    
    
    204,008
    
    
    
    202,420Commercial and agricultural
    
    
    153,869
    
    
    
    141,253Consumer loans to individuals
    
    
    18,127
    
    
    
    19,042Credit cards
    
    
    2,639
    
    
    
    2,771Other
    
    
    41
    
    
    
    324Total
    
    $
    452,731
    
    
    $
    445,147
 10




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 3. Loans Held for Investment, continued
 The following is a summary of information pertaining to impaired loans (in thousands):
 Unpaid
    
    
    
    
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded
    
    
    IncomeMarch 31, 2011
    
    Investment
    
    
    Balance
    
    
    Allowance
    
    
    Investment
    
    
    RecognizedImpaired loans without a valuation
allowanceReal Estate
    
    $
    5,302
    
    
    $
    5,302
    
    
    $
    
    
    
    $
    5,491
    
    
    $
    49Commerical
    
    
    2,177
    
    
    
    2,177
    
    
    
    
    
    
    
    1,533
    
    
    
    5Home Equity
    
    
    1,122
    
    
    
    1,122
    
    
    
    
    
    
    
    898
    
    
    
    11Other
    
    
    202
    
    
    
    202
    
    
    
    
    
    
    
    225
    
    
    
    38,803
    
    
    
    8,803
    
    
    
    
    
    
    
    8,147
    
    
    
    68Impaired loans with a valuation allowanceReal Estate
    
    
    5,952
    
    
    
    5,952
    
    
    
    711
    
    
    
    6,447
    
    
    
    42Commerical
    
    
    305
    
    
    
    305
    
    
    
    72
    
    
    
    727
    
    
    
    Home Equity
    
    
    305
    
    
    
    305
    
    
    
    109
    
    
    
    372
    
    
    
    Other
    
    
    1,057
    
    
    
    1,057
    
    
    
    521
    
    
    
    532
    
    
    
    7,619
    
    
    
    7,619
    
    
    
    1,413
    
    
    
    8,078
    
    
    
    42Total impaired loans
    
    $
    16,422
    
    
    $
    16,422
    
    
    $
    1,413
    
    
    $
    16,225
    
    
    $
    110
  Unpaid
    
    
    
    
    
    
    Average
    
    
    InterestRecorded
    
    
    Principal
    
    
    Related
    
    
    Recorded
    
    
    IncomeDecember 31, 2010
    
    Investment
    
    
    Balance
    
    
    Allowance
    
    
    Investment
    
    
    RecognizedImpaired loans without a valuation
allowanceReal Estate
    
    $
    5,680
    
    
    $
    5,680
    
    
    $
    
    
    
    $
    2,015
    
    
    $
    84Commerical
    
    
    888
    
    
    
    888
    
    
    
    
    
    
    
    606
    
    
    
    19Home Equity
    
    
    673
    
    
    
    673
    
    
    
    
    
    
    
    260
    
    
    
    5Other
    
    
    247
    
    
    
    247
    
    
    
    
    
    
    
    292
    
    
    
    7,488
    
    
    
    7,488
    
    
    
    
    
    
    
    3,173
    
    
    
    108Impaired loans with a valuation allowanceReal Estate
    
    
    6,942
    
    
    
    6,942
    
    
    
    1,003
    
    
    
    2,881
    
    
    
    211Commerical
    
    
    1,149
    
    
    
    1,149
    
    
    
    161
    
    
    
    5,013
    
    
    
    17Home Equity
    
    
    439
    
    
    
    439
    
    
    
    118
    
    
    
    333
    
    
    
    11Other
    
    
    7
    
    
    
    7
    
    
    
    1
    
    
    
    5
    
    
    
    128,537
    
    
    
    8,537
    
    
    
    1,283
    
    
    
    8,232
    
    
    
    251Total impaired loans
    
    $
    16,025
    
    
    $
    16,025
    
    
    $
    1,283
    
    
    $
    11,405
    
    
    $
    359
 11




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 4. Allowance for Loan Losses
  Three Months EndedMarch 31,2011
    
    
    2010Balance, beginning of period
    
    $
    5,786
    
    
    $
    3,836Provisions charged to operating expenses
    
    
    1,100
    
    
    
    900Loan losses:Commercial
    
    
    (310
    )
    
    
    (80
    )Consumer
    
    
    (46
    )
    
    
    (119
    )Real Estate
    
    
    (477
    )
    
    
    (35
    )Home Equity
    
    
    
    
    
    
    (19
    )Total Loan Losses
    
    
    (833
    )
    
    
    (253
    )Recoveries:Commercial
    
    
    16
    
    
    
    Consumer
    
    
    18
    
    
    
    27Real Estate
    
    
    8
    
    
    
    Total recoveries
    
    
    42
    
    
    
    27Net loan losses
    
    
    (791
    )
    
    
    (226
    )Balance, End of Period
    
    $
    6,095
    
    
    $
    4,510
  Real
    
    
    Home
    
    
    CreditMarch 31, 2011
    
    Commercial
    
    
    Estate
    
    
    Equity
    
    
    Cards
    
    
    Consumer
    
    
    Unallocated
    
    
    TotalAllowance for loan losses:Beginning Balance
    
    $
    1,724
    
    
    $
    1,814
    
    
    $
    407
    
    
    $
    59
    
    
    $
    111
    
    
    $
    1,671
    
    
    $
    5,786Charge-offs
    
    
    (310
    )
    
    
    (477
    )
    
    
    
    
    
    
    (35
    )
    
    
    (11
    )
    
    
    
    
    
    
    (833
    )Recoveries
    
    
    16
    
    
    
    8
    
    
    
    
    
    
    
    10
    
    
    
    8
    
    
    
    
    
    
    
    42Provision
    
    
    266
    
    
    
    145
    
    
    
    18
    
    
    
    30
    
    
    
    541
    
    
    
    100
    
    
    
    1,100Ending Balance
    
    $
    1,696
    
    
    $
    1,490
    
    
    $
    425
    
    
    $
    64
    
    
    $
    649
    
    
    $
    1,771
    
    
    $
    6,095Ending Balance:Individually evaluated for
impairment (specific reserve)
    
    
    72
    
    
    
    711
    
    
    
    108
    
    
    
    
    
    
    
    522
    
    
    
    
    
    
    
    1,413Ending Balance:Collectively evaluated for impairment
    
    
    1,624
    
    
    
    779
    
    
    
    317
    
    
    
    64
    
    
    
    127
    
    
    
    1,771
    
    
    
    4,682Loans Receivable:Ending balance
    
    $
    153,869
    
    
    $
    223,112
    
    
    $
    54,943
    
    
    $
    2,639
    
    
    $
    18,168
    
    
    $
    
    
    
    $
    452,731Ending balance:Individually evaluated for impairment
    
    $
    15,477
    
    
    $
    17,037
    
    
    $
    1,176
    
    
    $
    
    
    
    $
    1,075
    
    
    $
    
    
    
    $
    34,765Ending Balance:Collectively evaluated for impairment
    
    $
    138,392
    
    
    $
    206,075
    
    
    $
    53,767
    
    
    $
    2,639
    
    
    $
    17,093
    
    
    $
    
    
    
    $
    417,966
 12




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 4. Allowance for Loan Losses, continued
  Real
    
    
    Home
    
    
    CreditDecember 31, 2010
    
    Commercial
    
    
    Estate
    
    
    Equity
    
    
    Cards
    
    
    Consumer
    
    
    Unallocated
    
    
    TotalAllowance for loan losses:Ending Balance
    
    $
    1,724
    
    
    $
    1,814
    
    
    $
    407
    
    
    $
    59
    
    
    $
    111
    
    
    $
    1,671
    
    
    $
    5,786Ending Balance:Individually evaluated for
impairment (specific reserve)
    
    
    161
    
    
    
    1,003
    
    
    
    118
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1,283Ending Balance:Collectively evaluated for impairment
    
    
    1,563
    
    
    
    811
    
    
    
    289
    
    
    
    59
    
    
    
    110
    
    
    
    1,671
    
    
    
    4,503Loans Receivable:Ending balance
    
    $
    153,511
    
    
    $
    214,906
    
    
    $
    54,593
    
    
    $
    2,771
    
    
    $
    19,366
    
    
    $
    
    
    
    $
    445,147Ending balance:Individually evaluated for impairment
    
    $
    12,406
    
    
    $
    16,806
    
    
    $
    1,538
    
    
    $
    
    
    
    $
    1,099
    
    
    $
    
    
    
    $
    31,849Ending Balance:Collectively evaluated for impairment
    
    $
    141,105
    
    
    $
    198,100
    
    
    $
    53,055
    
    
    $
    2,771
    
    
    $
    18,267
    
    
    $
    
    
    
    $
    413,298
  Greaterthan 90Days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recorded30-59
    
    
    60-89
    
    
    (excluding
    
    
    
    
    
    
    Non-
    
    
    
    
    
    
    
    
    
    
    InvestmentDays Past
    
    
    Days
    
    
    non-
    
    
    Total Past
    
    
    Accrual
    
    
    
    
    
    
    Total Loan
    
    
    > 90 Daysdue
    
    
    Past Due
    
    
    accrual)
    
    
    Due
    
    
    Loans
    
    
    Current
    
    
    Receivable
    
    
    & AccruingCommercial
    
    $
    2,109
    
    
    $
    592
    
    
    $
    255
    
    
    $
    2,956
    
    
    $
    5,454
    
    
    $
    145,459
    
    
    $
    153,869
    
    
    $
    255Real Estate
    
    
    11,095
    
    
    
    5,499
    
    
    
    1,466
    
    
    
    18,060
    
    
    
    5,628
    
    
    
    199,424
    
    
    
    223,112
    
    
    
    1,466Home Equity
    
    
    544
    
    
    
    824
    
    
    
    411
    
    
    
    1,779
    
    
    
    675
    
    
    
    52,488
    
    
    
    54,942
    
    
    
    411Credit Cards
    
    
    22
    
    
    
    2
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    2,615
    
    
    
    2,639
    
    
    
    Consumer
    
    
    127
    
    
    
    68
    
    
    
    21
    
    
    
    216
    
    
    
    1,107
    
    
    
    16,846
    
    
    
    18,169
    
    
    
    21Total
    
    $
    13,897
    
    
    $
    6,985
    
    
    $
    2,153
    
    
    $
    23,035
    
    
    $
    12,864
    
    
    $
    416,832
    
    
    $
    452,731
    
    
    $
    2,153
 13




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 4. Allowance for Loan Losses, continued
  Greaterthan 90Days
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recorded30-59
    
    
    60-89
    
    
    (excluding
    
    
    Total
    
    
    Non-
    
    
    
    
    
    
    
    
    
    
    Investment >Days Past
    
    
    Days
    
    
    non-
    
    
    Past
    
    
    Accrual
    
    
    
    
    
    
    Total Loan
    
    
    90 Days &due
    
    
    Past Due
    
    
    accrual)
    
    
    Due
    
    
    Loans
    
    
    Current
    
    
    Receivable
    
    
    AccruingCommercial
    
    $
    756
    
    
    $
    382
    
    
    $
    4,581
    
    
    $
    5,719
    
    
    $
    1,656
    
    
    $
    146,137
    
    
    $
    153,512
    
    
    $
    4,581Real Estate
    
    
    6,303
    
    
    
    1,395
    
    
    
    3,021
    
    
    
    10,719
    
    
    
    5,189
    
    
    
    198,998
    
    
    
    214,906
    
    
    
    3,021Home Equity
    
    
    1,302
    
    
    
    595
    
    
    
    588
    
    
    
    2,485
    
    
    
    715
    
    
    
    51,392
    
    
    
    54,592
    
    
    
    588Credit Cards
    
    
    19
    
    
    
    6
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    2,746
    
    
    
    2,771
    
    
    
    Consumer
    
    
    1,240
    
    
    
    67
    
    
    
    54
    
    
    
    1,361
    
    
    
    30
    
    
    
    17,975
    
    
    
    19,366
    
    
    
    54Total
    
    $
    9,620
    
    
    $
    2,445
    
    
    $
    8,244
    
    
    $
    20,309
    
    
    $
    7,590
    
    
    $
    417,248
    
    
    $
    445,147
    
    
    $
    8,244
  Corporate Credit Exposure
Credit Risk Profile by Creditworthiness Category
 MARCH 31, 2011Real Estate
    
    
    Commercial
    
    
    Home EquityGrade 1 - Minimal Risk
    
    $
    67,006
    
    
    $
    168,296
    
    
    $
    Grade 2 - Modest Risk
    
    
    1,212,780
    
    
    
    3,214,402
    
    
    
    456,188Grade 3 - Average Risk
    
    
    27,482,287
    
    
    
    16,808,584
    
    
    
    7,487,518Grade 4 - Acceptable Risk
    
    
    107,296,051
    
    
    
    73,218,493
    
    
    
    38,115,952Grade 5 - Marginally Acceptable
    
    
    46,571,773
    
    
    
    39,120,506
    
    
    
    5,484,020Grade 6 - Watch
    
    
    20,308,512
    
    
    
    5,460,797
    
    
    
    1,455,899Grade 7 - Substandard
    
    
    20,172,363
    
    
    
    15,534,703
    
    
    
    1,942,867Grade 8 - Doubtful
    
    
    
    
    
    
    344,142
    
    
    
    Total
    
    $
    223,110,772
    
    
    $
    153,869,923
    
    
    $
    54,942,444
 Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
 Credit Cards
    
    
    ConsumerPerforming
    
    $
    2,639,288
    
    
    $
    18,147,339Non performing
    
    
    
    
    
    
    21,383Total
    
    $
    2,639,288
    
    
    $
    18,168,722
  14




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 4. Allowance for Loan Losses, continued
 Credit quality indicators as of December 31, 2010
 Corporate Credit Exposure
Credit Risk Profile by Creditworthiness Category
 DECEMBER 31, 2010Real Estate
    
    
    Commercial
    
    
    Home EquityGrade 1 - Minimal Risk
    
    $
    69,231
    
    
    $
    174,582
    
    
    $
    Grade 2 - Modest Risk
    
    
    817,827
    
    
    
    1,678,841
    
    
    
    574,374Grade 3 - Average Risk
    
    
    30,041,586
    
    
    
    16,254,057
    
    
    
    7,942,935Grade 4 - Acceptable Risk
    
    
    107,027,580
    
    
    
    77,472,242
    
    
    
    37,848,295Grade 5 - Marginally Acceptable
    
    
    40,163,358
    
    
    
    40,908,350
    
    
    
    5,473,349Grade 6 - Watch
    
    
    16,785,371
    
    
    
    7,781,021
    
    
    
    904,542Grade 7 - Substandard
    
    
    19,718,886
    
    
    
    8,639,726
    
    
    
    1,849,301Grade 8 - Doubtful
    
    
    281,678
    
    
    
    602,691
    
    
    
    Total
    
    $
    214,905,517
    
    
    $
    153,511,510
    
    
    $
    54,592,796
 Consumer Credit Exposure
Credit Risk Profile Based on Payment Activity
 Credit Cards
    
    
    ConsumerPerforming
    
    $
    2,770,826
    
    
    $
    19,311,799Non performing
    
    
    
    
    
    
    54,779Total
    
    $
    2,770,826
    
    
    $
    19,366,578
 Description of loan grades:
 Grade 1  Minimal Risk: Excellent credit, superior asset quality, excellent debt
capacity and coverage, and recognized management capabilities.
 Grade 2  Modest Risk: Borrower consistently generates sufficient cash flow to fund
debt service, excellent credit, above average asset quality and liquidity.
 Grade 3  Average Risk: Borrower generates sufficient cash flow to fund debt
service. Employment (or business) is stable with good future trends. Credit is very good.
 Grade 4  Acceptable Risk: Borrowers cash flow is adequate to cover debt service;
however, unusual expenses or capital expenses must by covered through additional long term
debt. Employment (or business) stability is reasonable, but future trends may exhibit
slight weakness. Credit history is good. No unpaid judgments or collection items appearing
on credit report.
 Grade 5  Marginally acceptable: Credit to borrowers who may exhibit declining
earnings, may have leverage that is materially above industry averages, liquidity may be
marginally acceptable. Employment or business stability may be weak or deteriorating. May
be currently performing as agreed, but would be adversely affected by developing factors
such as layoffs, illness, reduced hours or declining business prospects. Credit history
shows weaknesses, past dues, paid or disputed collections and judgments, but does not
include borrowers that are currently past due on obligations or with unpaid, undisputed
judgments.
 15




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 4. Allowance for Loan Losses, continued
 Grade 6  Watch: Loans are currently protected, but are weak due to negative
balance sheet or income statement trends. There may be a lack of effective control over
collateral or the existence of documentation deficiencies. These loans have potential
weaknesses that deserve managements close attention. Other reasons supporting this
classification include adverse economic or market conditions, pending litigation or any
other material weakness. Existing loans that become 60 or more days past due are placed in
this category pending a return to current status.
 Grade 7  Substandard: Loans having well-defined weaknesses where a payment default
and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt
under the current payment, or terms, with prospects that the condition is permanent. Loans
classified as substandard are inadequately protected by the current net worth and paying
capacity of the borrower and there is the likelihood that collateral will have to be
liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is
considered collectible as to both principal and interest, primarily because of collateral
coverage, however, if the deficiencies are not corrected quickly; there is a probability of
loss.
 Grade 8  Doubtful: The loan has all the characteristics of a substandard credit,
but available information indicates it is unlikely the loan will be repaid in its entirety.
Cash flow is insufficient to service the debt. It may be difficult to project the exact
amount of loss, but the probability of some loss is great. Loans are to be placed on
non-accrual status when any portion is classified doubtful.
 Note 5. Employee Benefit Plan
  Three Months EndedMarch 31,
    
    
    March 31,2011
    
    
    2010Service cost
    
    $
    111,355
    
    
    $
    96,979Interest cost
    
    
    80,378
    
    
    
    79,250Expected return on plan assets
    
    
    (126,109
    )
    
    
    (120,427
    )Amortization of net obligation at transition
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (1,943
    )
    
    
    (1,325
    )Amortization of net (gain) or loss
    
    
    15,961
    
    
    
    16,378Net periodic benefit cost
    
    $
    79,642
    
    
    $
    70,855
 16




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 6. Fair Value
  Level 1- Inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
 Level 2- Inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability,
either directly or indirectly, for substantially the full term of the financial instrument.
 Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair
value measurement
     Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  March 31, 2011
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Government sponsored enterprises
    
    $
    9,984
    
    
    $
    
    
    
    $
    9,984Mortgage-backed obligations of federal agencies
    
    
    3,523
    
    
    
    
    
    
    
    3,523Marketable Equities
    
    
    3,519
    
    
    
    3,519
    
    
    
    Investment securities available for sale
    
    $
    17,026
    
    
    $
    3,519
    
    
    $
    13,507Total assets at fair value
    
    $
    17,026
    
    
    $
    3,519
    
    
    $
    13,507Total liabilities at fair value
    
    $
    
    
    
    $
    
    
    
    $
    
 17




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 6. Fair Value, continued
 Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  December 31, 2010
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Government sponsored enterprises
    
    $
    8,001
    
    
    $
    
    
    
    $
    8,001Mortgage-backed obligations of federal agencies
    
    
    3,931
    
    
    
    
    
    
    
    3,931Marketable Equities
    
    
    3,315
    
    
    
    3,315
    
    
    
    Investment securities available for sale
    
    $
    15,247
    
    
    $
    3,315
    
    
    $
    11,932Total assets at fair value
    
    $
    15,247
    
    
    $
    3,315
    
    
    $
    11,932Total liabilities at fair value
    
    $
    
    
    
    $
    
    
    
    $
    
 Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis
  March 31, 2011
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Loans Held for Sale
    
    $
    23,683
    
    
    
    
    
    
    $
    23,683Other Real Estate Owned
    
    
    2,765
    
    
    
    
    
    
    
    2,765Real Estate
    
    
    5,240
    
    
    
    
    
    
    
    5,240Commercial
    
    
    233
    
    
    
    
    
    
    
    233Consumer
    
    
    536
    
    
    
    
    
    
    
    536Home Equity
    
    
    197
    
    
    
    
    
    
    
    197Impaired loans
    
    
    6,206
    
    
    
    
    
    
    
    6,206Total assets at fair value
    
    $
    32,654
    
    
    
    
    
    
    $
    32,654Total liabilities at fair value
 December 31, 2010
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Loans Held for Sale
    
    $
    23,764
    
    
    
    
    
    
    $
    23,764Other Real Estate Owned
    
    
    1,513
    
    
    
    
    
    
    
    1,513Real Estate
    
    
    5,938
    
    
    
    
    
    
    
    5,938Commercial
    
    
    988
    
    
    
    
    
    
    
    988Consumer
    
    
    7
    
    
    
    
    
    
    
    7Home Equity
    
    
    321
    
    
    
    
    
    
    
    321Impaired loans
    
    
    7,254
    
    
    
    
    
    
    
    7,254Total assets at fair value
    
    $
    32,531
    
    
    
    
    
    
    $
    32,531Total liabilities at fair value
  18




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##### Table of Contents



F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 7. Disclosures About Fair Value of Financial Instruments
  March 31, 2011
    
    
    December 31, 2010Estimated
    
    
    Carrying
    
    
    Estimated
    
    
    CarryingFair Value
    
    
    Value
    
    
    Fair Value
    
    
    ValueFinancial AssetsCash
    
    $
    5,840
    
    
    $
    5,840
    
    
    $
    4,586
    
    
    $
    4,586Interest bearing deposits
    
    
    2,673
    
    
    
    2,673
    
    
    
    2,927
    
    
    
    2,927Federal funds sold
    
    
    17,520
    
    
    
    17,520
    
    
    
    16,338
    
    
    
    16,338Securities available for sale
    
    
    17,026
    
    
    
    17,026
    
    
    
    15,247
    
    
    
    15,247Securities held to maturity
    
    
    109
    
    
    
    109
    
    
    
    109
    
    
    
    109Other investments
    
    
    8,673
    
    
    
    8,673
    
    
    
    8,789
    
    
    
    8,789Loans
    
    
    485,911
    
    
    
    452,731
    
    
    
    475,166
    
    
    
    445,147Loans held for sale
    
    
    23,683
    
    
    
    23,683
    
    
    
    23,764
    
    
    
    23,764Bank owned life insurance
    
    
    6,956
    
    
    
    6,956
    
    
    
    6,883
    
    
    
    6,883Accrued interest receivable
    
    
    1,682
    
    
    
    1,682
    
    
    
    2,001
    
    
    
    2,001Financial LiabilitiesDemand Deposits:Non-interest bearing
    
    
    63,754
    
    
    
    63,754
    
    
    
    58,497
    
    
    
    58,497Interest bearing
    
    
    120,533
    
    
    
    120,533
    
    
    
    116,889
    
    
    
    116,889Savings deposits
    
    
    37,653
    
    
    
    37,653
    
    
    
    35,760
    
    
    
    35,760Time deposits
    
    
    216,810
    
    
    
    214,767
    
    
    
    216,199
    
    
    
    213,905Short-term debt
    
    
    5,148
    
    
    
    5,148
    
    
    
    5,355
    
    
    
    5,355Subordinated debt
    
    
    10,191
    
    
    
    10,191
    
    
    
    9,944
    
    
    
    9,944Long-term debt
    
    
    51,099
    
    
    
    48,012
    
    
    
    51,566
    
    
    
    49,035
  
 19




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
     Forward-Looking Statements
    20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Critical Accounting Policies
 General
  Allowance for Loan Losses
 , ,
 Goodwill and Intangibles
   Securities Impairment
  Overview
  In thousands
    
    2011
    
    
    2010Net Income from Bank Operations
    
    $
    771
    
    
    $
    799Income or loss from Parent Company Activities
    
    
    (85
    )
    
    
    (43
    )Net Income for the three months ended March 31
    
    $
    686
    
    
    $
    756
 
 21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
  In thousands
    
    2011
    
    
    2010Net Income
    
    $
    686
    
    
    $
    756Non-recurring Tax Items
    
    
    8
    
    
    
    11Non-recurring Securities Transactions, net of tax
    
    
    
    
    
    
    (19
    )Core Earnings for the three months ended March 31
    
    $
    694
    
    
    $
    748
  Results of Operations
     22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 Financial Condition
 Federal Funds Sold and Interest Bearing Bank Deposits
  Securities
      Loan Portfolio
   
 23




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
    March 31,
    
    
    December 31,2011
    
    
    2010Nonaccrual LoansReal Estate
    
    $
    5,628
    
    
    $
    5,189Commercial
    
    
    5,454
    
    
    
    1,656Home Equity
    
    
    675
    
    
    
    715Other
    
    
    1,107
    
    
    
    3012,864
    
    
    
    7,590Loans past due 90 days or moreReal Estate
    
    
    1,466
    
    
    
    3,021Commercial
    
    
    255
    
    
    
    4,581Home Equity
    
    
    411
    
    
    
    588Other
    
    
    21
    
    
    
    542,153
    
    
    
    8,244Total Nonperforming loans
    
    $
    15,017
    
    
    $
    15,834Nonperforming loans as a percentage of loans held for investment
    
    
    3.32
    %
    
    
    3.56
    %Net Charge Offs to Total Loans
    
    
    .17
    %
    
    
    .53
    %Allowance for loan and lease losses to loans held for investment
    
    
    1.35
    %
    
    
    1.30
    %Allowance for loan and lease losses to nonperforming loans
    
    
    40.59
    %
    
    
    36.54
    %
 
 24




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Allowance for Loan Losses
        
 25




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Deposits and Other Borrowings
  Short-term debt
 
 Long-term debt
 
   Capital
  
 26




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Liquidity
   Interest Rate Sensitivity
    Stock Repurchase
  Effect of Newly Issued Accounting Standards
    
 27




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Effect of Newly Issued Accounting Standards (continued)
  Existence of Securities and Exchange Commission Web Site
  28




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##### Table of Contents



TABLE I
 F & M BANK CORP.
Net Interest Margin Analysis
(on a fully taxable equivalent basis)
(Dollar Amounts in Thousands)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2011
    
    
    March 31, 2010Income/
    
    
    Average
    
    
    
    
    
    
    Income/
    
    
    AverageAverage
    
    Balance2
    
    
    Expense
    
    
    Rates4
    
    
    Balance2
    
    
    Expense
    
    
    Rates4Interest incomeLoans held for investment1,2
    
    $
    449,823
    
    
    $
    6,392
    
    
    
    5.76
    %
    
    $
    438,277
    
    
    $
    6,500
    
    
    
    5.93
    %Loans held for sale
    
    
    9,978
    
    
    
    97
    
    
    
    3.94
    %
    
    
    15,873
    
    
    
    155
    
    
    
    3.91
    %Federal funds sold
    
    
    32,047
    
    
    
    18
    
    
    
    .23
    %
    
    
    23,176
    
    
    
    13
    
    
    
    .22
    %Interest bearing deposits
    
    
    2,756
    
    
    
    7
    
    
    
    1.03
    %
    
    
    3,040
    
    
    
    4
    
    
    
    .53
    %InvestmentsTaxable 3
    
    
    12,499
    
    
    
    75
    
    
    
    2.40
    %
    
    
    12,928
    
    
    
    110
    
    
    
    3.40
    %Partially taxable2
    
    
    3,417
    
    
    
    33
    
    
    
    3.86
    %
    
    
    4,180
    
    
    
    65
    
    
    
    6.22
    %Total earning assets
    
    $
    510,520
    
    
    $
    6,622
    
    
    
    5.26
    %
    
    $
    497,474
    
    
    $
    6,847
    
    
    
    5.51
    %Interest ExpenseDemand deposits
    
    $
    117,971
    
    
    $
    431
    
    
    
    1.48
    %
    
    $
    103,345
    
    
    $
    458
    
    
    
    1.77
    %Savings
    
    
    36,894
    
    
    
    47
    
    
    
    .52
    %
    
    
    33,508
    
    
    
    46
    
    
    
    .55
    %Time deposits
    
    
    215,031
    
    
    
    927
    
    
    
    1.75
    %
    
    
    230,585
    
    
    
    1,264
    
    
    
    2.19
    %Short-term debt
    
    
    5,169
    
    
    
    5
    
    
    
    .39
    %
    
    
    5,650
    
    
    
    7
    
    
    
    .50
    %Long-term debt
    
    
    58,689
    
    
    
    622
    
    
    
    4.30
    %
    
    
    59,939
    
    
    
    629
    
    
    
    4.20
    %Total interest bearing liabilities
    
    $
    433,754
    
    
    $
    2,032
    
    
    
    1.90
    %
    
    $
    433,027
    
    
    $
    2,404
    
    
    
    2.22
    %Tax equivalent net interest income
    
    
    
    
    
    $
    4,590
    
    
    
    
    
    
    
    
    
    
    $
    4,443Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.65
    %
    
    
    
    
    
    
    
    
    
    
    3.57
    %
 
 1
    
    Interest income on loans includes loan fees.2
    
    An incremental income tax rate of 34% was used to calculate the tax equivalent income on nontaxable and partially
taxable investments and loans. The taxable equivalent adjustment was $29,000 and $40,000 for the three
months ended March 31, 2011 and 2010, respectively.3
    
    Average balance information is reflective of historical cost and has not been adjusted for changes in market value.4
    
    Annualized. 29




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##### Table of Contents



TABLE II
 F & M BANK CORP.
Interest Sensitivity Analysis
March 31, 2011
(In Thousands of Dollars)
  0  3
    
    
    4  12
    
    
    1  5
    
    
    Over 5
    
    
    NotMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    Classified
    
    
    TotalUses of fundsLoansCommercial
    
    $
    98,021
    
    
    $
    26,465
    
    
    $
    98,824
    
    
    $
    4,446
    
    
    $
    
    
    
    $
    227,756Installment
    
    
    9,866
    
    
    
    903
    
    
    
    7,391
    
    
    
    8
    
    
    
    
    
    
    
    18,168Real estate for investments
    
    
    48,188
    
    
    
    15,246
    
    
    
    126,093
    
    
    
    14,641
    
    
    
    
    
    
    
    204,168Real estate held for sale
    
    
    23,683
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,683Credit cards
    
    
    2,639
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,639Federal funds sold
    
    
    17,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,520Interest bearing bank deposits
    
    
    433
    
    
    
    1,743
    
    
    
    497
    
    
    
    
    
    
    
    
    
    
    
    2,673Investment securities
    
    
    51
    
    
    
    8,186
    
    
    
    2,109
    
    
    
    3,270
    
    
    
    3,519
    
    
    
    17,135Total
    
    $
    200,401
    
    
    $
    52,543
    
    
    $
    234,914
    
    
    $
    22,365
    
    
    $
    3,519
    
    
    $
    513,742Sources of fundsInterest bearing demand deposits
    
    $
    
    
    
    $
    30,913
    
    
    $
    70,051
    
    
    $
    19,569
    
    
    $
    
    
    
    $
    120,533Savings deposits
    
    
    
    
    
    
    7,530
    
    
    
    22,592
    
    
    
    7,531
    
    
    
    
    
    
    
    37,653Certificates of deposit
$100,000 and over
    
    
    8,531
    
    
    
    40,559
    
    
    
    29,824
    
    
    
    
    
    
    
    
    
    
    
    78,914Other certificates of deposit
    
    
    12,414
    
    
    
    62,918
    
    
    
    60,521
    
    
    
    
    
    
    
    
    
    
    
    135,853Short-term borrowings
    
    
    5,148
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,148Long-term borrowings
    
    
    5,024
    
    
    
    7,738
    
    
    
    35,250
    
    
    
    10,191
    
    
    
    
    
    
    
    58,203Total
    
    $
    31,117
    
    
    $
    149,658
    
    
    $
    218,238
    
    
    $
    37,291
    
    
    
    
    
    
    $
    436,304Discrete Gap
    
    $
    169,284
    
    
    $
    (97,115
    )
    
    $
    16,676
    
    
    $
    (14,926
    )
    
    $
    3,519
    
    
    $
    77,438Cumulative Gap
    
    $
    169,284
    
    
    $
    72,169
    
    
    $
    88,845
    
    
    $
    73,919
    
    
    $
    77,438Ratio of Cumulative Gap to
Total Earning Assets
    
    
    32.95
    %
    
    
    14.05
    %
    
    
    17.29
    %
    
    
    14.39
    %
    
    
    15.07
    %
  30




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls
  31




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##### Table of Contents



Part II Other Information
 
  
  
  
  
  
  
  Exhibits
 3 i
    
    Restated Articles of Incorporation of F & M
Bank Corp. are incorporated by reference to Exhibits to F & M Bank
Corp.s 2001 Form 10K filed March 1, 2002.3 ii
    
    Amended and Restated Bylaws of F & M Bank
Corp. are incorporated by reference to Exhibits to F & M Bank Corp.s
Form 10K filed March 1, 2002.31.1
    
    Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) (filed herewith).31.2
    
    Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) (filed herewith).32
    
    Certifications of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sabanes-Oxley Act of 2002 (filed
herewith).
 32




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##### Table of Contents



Signatures
  F & M BANK CORP./s/ DEAN W. WITHERSDean W. WithersPresident and Chief Executive Officer/s/ NEIL W. HAYSLETTNeil W. HayslettExecutive Vice President and Chief Financial Officer  33