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| Virginia                                                        |   | 54-1280811                                |
|---------------------------------------------------------------------------|--------|-------------------------------------------|
| (State or Other Jurisdiction of  Incorporation or Organization) |   | (I.R.S. Employer Identification No.) |

| Large accelerated filer                       | o      | Accelerated filer    | o      |
|-----------------------------------------------|--------|---------------------------|--------|
| Non-accelerated filer                         | o      | Smaller reporting Company | þ |
| (Do not check if a smaller reporting company) |   |                      |   |

| Class                         |   | Outstanding at August 9, 2012 |
|------------------------------------|--------|-------------------------------|
| Common Stock, par value - $5  |   | 2,496,402 shares              |

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|           |                                                                                                             |   | Page   |   |
|----------------|------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|           |                                                                                                             |   |   |   |   |
| Part I         | Financial Information                                                                                            |   |   | 2      |   |
|           |                                                                                                             |   |   |   |   |
| Item 1.        | Financial Statements                                                                                             |   |   | 2      |   |
|           |                                                                                                             |   |   |   |   |
|           | Consolidated Statements of Income – Three Months Ended June 30, 2012 and 2011                              |   |   | 2      |   |
|           |                                                                                                             |   |   |   |   |
|           | Consolidated Statements of Income – Six Months Ended June 30, 2012 and 2011                                |   |   | 3      |   |
|           |                                                                                                             |   |   |   |   |
|           | Consolidated Statements of Comprehensive Income – Six Months And Three Months Ended Six 30, 2012 and 2011  |   |   | 4      |   |
|           |                                                                                                             |   |   |   |   |
|           | Consolidated Balance Sheets – June 30, 2012 and December 31, 2011                                          |   |   | 5      |   |
|           |                                                                                                             |   |   |   |   |
|           | Consolidated Statements of Cash Flows – Six Months Ended June 30, 2012 and 2011                            |   |   | 6      |   |
|           |                                                                                                             |   |   |   |   |
|           | Consolidated Statements of Changes in Stockholders’ Equity – Six Months Ended June 30, 2012 and 2011 |   |   | 7      |   |
|           |                                                                                                             |   |   |   |   |
|           | Notes to Consolidated Financial Statements                                                                       |   |   | 8      |   |
|           |                                                                                                             |   |   |   |   |
| Item 2.        | Management’s Discussion and Analysis of Financial Condition and Results of Operations                      |   |   | 22     |   |
|           |                                                                                                             |   |   |   |   |
| Item 3.        | Quantitative and Qualitative Disclosures About Market Risk                                                       |   |   | 32     |   |
|           |                                                                                                             |   |   |   |   |
| Item 4.        | Controls and Procedures                                                                                          |   |   | 32     |   |
|           |                                                                                                             |   |   |   |   |
| Part II        | Other Information                                                                                                |   |   | 33     |   |
|           |                                                                                                             |   |   |   |   |
| Item 1.        | Legal Proceedings                                                                                                |   |   | 33     |   |
|           |                                                                                                             |   |   |   |   |
| Item 1a.       | Risk Factors                                                                                                     |   |   | 33     |   |
|           |                                                                                                             |   |   |   |   |
| Item 2.        | Unregistered Sales of Equity Securities and Use of Proceeds                                                      |   |   | 33     |   |
|           |                                                                                                             |   |   |   |   |
| Item 3.        | Defaults upon Senior Securities                                                                                  |   |   | 33     |   |
|           |                                                                                                             |   |   |   |   |
| Item 4.        | Mine Safety Disclosures                                                                                          |   |   | 33     |   |
|           |                                                                                                             |   |   |   |   |
| Item 5.        | Other Information                                                                                                |   |   | 33     |   |
|           |                                                                                                             |   |   |   |   |
| Item 6.        | Exhibits                                                                                                         |   |   | 33     |   |
|           |                                                                                                             |   |   |   |   |
| Signatures     |                                                                                                             |   | 34     |   |
|           |                                                                                                             |   |   |   |   |
| Certifications |                                                                                                             |   |   |   |

----

| ITEM 1. | FINANCIAL STATEMENTS |
|---------|----------------------|

|                                                |   | Three Months Ended |      |
|-----------------------------------------------------|--------|--------------------|-----------|
|                                                |   | June 30,           |      |
| Interest income                                     |   | 2012               |      |   | 2011 |   |
| Interest and fees on loans held for investment      |   | $                  | 6,227     |   |   | $ | 6,644 |   |
| Interest and fees on loans held for sale            |   |               | 217       |   |   |   | 214 |   |
| Interest on federal funds sold                      |   |               | 12        |   |   |   | 8 |   |
| Interest on interest bearing deposits               |   |               | 1         |   |   |   | 8 |   |
| Dividends on equity securities                      |   |               | -         |   |   |   | 53 |   |
| Interest on debt securities                         |   |               | 65        |   |   |   | 67 |   |
| Total interest income                               |   |               | 6,522     |   |   |   | 6,994 |   |
|                                                |   |               |      |   |   |   |   |   |
| Interest expense                                    |   |               |      |   |   |   |   |   |
| Interest on demand deposits                         |   |               | 318       |   |   |   | 430 |   |
| Interest on savings accounts                        |   |               | 53        |   |   |   | 48 |   |
| Interest on time deposits over $100,000             |   |               | 224       |   |   |   | 296 |   |
| Interest on other time deposits                     |   |               | 515       |   |   |   | 623 |   |
| Total interest on deposits                          |   |               | 1,110     |   |   |   | 1,397 |   |
| Interest on short-term debt                         |   |               | 5         |   |   |   | 4 |   |
| Interest on long-term debt                          |   |               | 508       |   |   |   | 585 |   |
| Total interest expense                              |   |               | 1,623     |   |   |   | 1,986 |   |
|                                                |   |               |      |   |   |   |   |   |
| Net interest income                                 |   |               | 4,899     |   |   |   | 5,008 |   |
|                                                |   |               |      |   |   |   |   |   |
| Provision for loan losses                           |   |               | 900       |   |   |   | 1,100 |   |
| Net interest income after provision for loan losses |   |               | 3,999     |   |   |   | 3,908 |   |
|                                                |   |               |      |   |   |   |   |   |
| Noninterest income                                  |   |               |      |   |   |   |   |   |
| Service charges                                     |   |               | 291       |   |   |   | 279 |   |
| Insurance and other commissions                     |   |               | 216       |   |   |   | 162 |   |
| Other                                               |   |               | 312       |   |   |   | 271 |   |
| Income on bank owned life insurance                 |   |               | 129       |   |   |   | 88 |   |
| Other than temporary impairment losses              |   |               | -         |   |   |   | (57 | ) |
| Gain on the sale of securities                      |   |               | -         |   |   |   | 346 |   |
| Total noninterest income                            |   |               | 948       |   |   |   | 1,089 |   |
|                                                |   |               |      |   |   |   |   |   |
| Noninterest expense                                 |   |               |      |   |   |   |   |   |
| Salaries                                            |   |               | 1,451     |   |   |   | 1,370 |   |
| Employee benefits                                   |   |               | 494       |   |   |   | 459 |   |
| Occupancy expense                                   |   |               | 134       |   |   |   | 140 |   |
| Equipment expense                                   |   |               | 142       |   |   |   | 148 |   |
| FDIC insurance assessment                           |   |               | 181       |   |   |   | 285 |   |
| Other                                               |   |               | 912       |   |   |   | 937 |   |
| Total noninterest expense                           |   |               | 3,314     |   |   |   | 3,339 |   |
|                                                |   |               |      |   |   |   |   |   |
| Income before income taxes                          |   |               | 1,633     |   |   |   | 1,658 |   |
| Income tax expense                                  |   |               | 454       |   |   |   | 406 |   |
| Consolidated net income                             |   |               | 1,179     |   |   |   | 1,252 |   |
| Net income - Noncontrolling interest                |   |               | (39       | ) |   |   | (21 | ) |
| Net Income – F & M Bank Corp              |   | $                  | 1,140     |   |   | $ | 1,231 |   |
|                                                |   |               |      |   |   |   |   |   |
| Per share data                                      |   |               |      |   |   |   |   |   |
| Net income                                          |   | $                  | .46       |   |   | $ | .49 |   |
| Cash dividends                                      |   | $                  | .16       |   |   | $ | .15 |   |
| Weighted average shares outstanding                 |   |               | 2,495,464 |   |   |   | 2,488,306 |   |

----

|                                                |   | Six Months Ended |      |
|-----------------------------------------------------|--------|------------------|-----------|
|                                                |   | June 30,         |      |
| Interest income                                     |   | 2012             |      |   | 2011 |   |
| Interest and fees on loans held for investment      |   | $                | 12,487    |   |   | $ | 13,013 |   |
| Interest and fees on loans held for sale            |   |             | 596       |   |   |   | 311 |   |
| Interest on federal funds sold                      |   |             | 19        |   |   |   | 26 |   |
| Interest on interest bearing deposits               |   |             | 3         |   |   |   | 16 |   |
| Dividends on equity securities                      |   |             | -         |   |   |   | 87 |   |
| Interest on debt securities                         |   |             | 110       |   |   |   | 134 |   |
| Total interest income                               |   |             | 13,215    |   |   |   | 13,587 |   |
| Interest expense                                    |   |             |      |   |   |   |   |   |
| Interest on demand deposits                         |   |             | 664       |   |   |   | 861 |   |
| Interest on savings accounts                        |   |             | 102       |   |   |   | 95 |   |
| Interest on time deposits over $100,000             |   |             | 458       |   |   |   | 596 |   |
| Interest on time deposits                           |   |             | 1,057     |   |   |   | 1,250 |   |
| Total interest on deposits                          |   |             | 2,281     |   |   |   | 2,802 |   |
| Interest on short-term debt                         |   |             | 11        |   |   |   | 9 |   |
| Interest on long-term debt                          |   |             | 1,027     |   |   |   | 1,207 |   |
| Total Interest Expense                              |   |             | 3,319     |   |   |   | 4,018 |   |
|                                                |   |             |      |   |   |   |   |   |
| Net interest income                                 |   |             | 9,896     |   |   |   | 9,569 |   |
|                                                |   |             |      |   |   |   |   |   |
| Provision for loan losses                           |   |             | 1,800     |   |   |   | 2,200 |   |
| Net interest income after provision for loan losses |   |             | 8,096     |   |   |   | 7,369 |   |
|                                                |   |             |      |   |   |   |   |   |
| Noninterest income                                  |   |             |      |   |   |   |   |   |
| Service charges                                     |   |             | 575       |   |   |   | 519 |   |
| Insurance and other commissions                     |   |             | 349       |   |   |   | 234 |   |
| Other                                               |   |             | 610       |   |   |   | 663 |   |
| Income on bank owned life insurance                 |   |             | 189       |   |   |   | 175 |   |
| Other than temporary impairment losses              |   |             | -         |   |   |   | (57 | ) |
| Gain on the sale of securities                      |   |             | -         |   |   |   | 346 |   |
| Total noninterest income                            |   |             | 1,723     |   |   |   | 1,880 |   |
|                                                |   |             |      |   |   |   |   |   |
| Noninterest expense                                 |   |             |      |   |   |   |   |   |
| Salaries                                            |   |             | 2,878     |   |   |   | 2,695 |   |
| Employee benefits                                   |   |             | 974       |   |   |   | 905 |   |
| Occupancy expense                                   |   |             | 269       |   |   |   | 275 |   |
| Equipment expense                                   |   |             | 286       |   |   |   | 297 |   |
| Intangible amortization                             |   |             | -         |   |   |   | 46 |   |
| FDIC insurance assessment                           |   |             | 362       |   |   |   | 568 |   |
| Other                                               |   |             | 1,796     |   |   |   | 1,825 |   |
| Total noninterest expense                           |   |             | 6,565     |   |   |   | 6,611 |   |
|                                                |   |             |      |   |   |   |   |   |
| Income before income taxes                          |   |             | 3,254     |   |   |   | 2,638 |   |
| Income taxes                                        |   |             | 928       |   |   |   | 701 |   |
| Consolidated net income                             |   |             | 2,326     |   |   |   | 1,937 |   |
| Net income – Noncontrolling interest          |   |             | (51       | ) |   |   | (20 | ) |
| Net Income – F & M Bank Corp              |   | $                | 2,275     |   |   | $ | 1,917 |   |
|                                                |   |             |      |   |   |   |   |   |
| Per share data                                      |   |             |      |   |   |   |   |   |
| Net income                                          |   | $                | .91       |   |   | $ | .80 |   |
| Cash dividends                                      |   | $                | .31       |   |   | $ | .30 |   |
| Weighted average shares outstanding                 |   |             | 2,494,611 |   |   |   | 2,408,023 |   |

----

|                                                                                      |   | Six Months Ended |   |   | Three Months Ended |   |
|-------------------------------------------------------------------------------------------|--------|------------------|--------|--------|--------------------|--------|
|                                                                                      |   | June 30,         |   |   | June 30,           |   |
|                                                                                      |   | 2012             |   |   | 2011               |   |   | 2012 |   |   | 2011 |   |
| Net Income:                                                                               |   |             |   |   |               |   |   |   |   |   |   |   |
|     Net Income – F & M Bank Corp                            |   | $                | 2,275  |   |               | $      | 1,917 |   |   | $ | 1,140 |   |   | $ | 1,231 |   |
|     Net Income attributable to noncontrolling interest           |   |             | 51     |   |               |   | 20 |   |   |   | 39 |   |   |   | 21 |   |
|                                                                                      |   |             | 2,326  |   |               |   | 1,937 |   |   |   | 1,179 |   |   |   | 1,252 |   |
|                                                                                      |   |             |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Other comprehensive income (loss):                                                        |   |             |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Prepaid pension adjustment                                                                |   |             | -      |   |               |   | (52 | ) |   |   | - |   |   |   | - |   |
|                                                                                      |   |             |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized holding gains (losses) on available-for-sale securities                        |   |             | 17     |   |               |   | 164 |   |   |   | 23 |   |   |   | (4 | ) |
|     Reclassification adjustment for (gains) losses realized in income |   |             | -      |   |               |   | (346 | ) |   |   | - |   |   |   | (346 | ) |
|     Net unrealized gains (losses)                                     |   |             | 17     |   |               |   | (182 | ) |   |   | 23 |   |   |   | (350 | ) |
|     Tax effect                                                        |   |             | 6      |   |               |   | 62 |   |   |   | 8 |   |   |   | 119 |   |
|     Unrealized holding gain (loss), net of tax                        |   |             | 11     |   |               |   | (120 | ) |   |   | 15 |   |   |   | (231 | ) |
| Total other comprehensive income (loss)                                                   |   |             | 11     |   |               |   | (172 | ) |   |   | 15 |   |   |   | (231 | ) |
|                                                                                      |   |             |   |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive income                                                                      |   | $                | 2,337  |   |               | $      | 1,765 |   |   | $ | 1,194 |   |   | $ | 1,021 |   |

----

|                                                                                |   | June 30,    |    |   | December 31, |   |
|-------------------------------------------------------------------------------------|--------|-------------|---------|--------|--------------|--------|
|                                                                                |   | 2012        |    |   | 2011         |   |
|                                                                                |   | (Unaudited) |    |   | (Audited)    |   |
| Assets                                                                              |   |        |    |   |         |   |
| Cash and due from banks                                                             |   | $           | 6,359   |   |         | $      | 6,813 |   |
| Federal funds sold                                                                  |   |        | 6,560   |   |         |   | 2,181 |   |
| Cash and cash equivalents                                                           |   |        | 12,919  |   |         |   | 8,994 |   |
| Interest bearing deposits in banks                                                  |   |        | 1,048   |   |         |   | 1,188 |   |
| Securities: (note 2)                                                                |   |        |    |   |         |   |   |   |
| Held to maturity – fair value of $108,000 in 2012 and 2011                    |   |        | 108     |   |         |   | 108 |   |
| Available for sale                                                                  |   |        | 13,010  |   |         |   | 13,127 |   |
| Other investments                                                                   |   |        | 7,924   |   |         |   | 8,872 |   |
| Loans held for sale                                                                 |   |        | 40,984  |   |         |   | 60,543 |   |
| Loans held for investment (note 3)                                                  |   |        | 450,540 |   |         |   | 451,570 |   |
| Less allowance for loan losses (note 4)                                             |   |        | (7,607  | )      |         |   | (6,937 | ) |
| Net loans held for investment                                                       |   |        | 442,933 |   |         |   | 444,633 |   |
|                                                                                |   |        |    |   |         |   |   |   |
| Other real estate owned                                                             |   |        | 3,317   |   |         |   | 3,074 |   |
| Bank premises and equipment, net                                                    |   |        | 6,624   |   |         |   | 6,477 |   |
| Interest receivable                                                                 |   |        | 1,700   |   |         |   | 1,816 |   |
| Goodwill                                                                            |   |        | 2,670   |   |         |   | 2,670 |   |
| Bank owned life insurance                                                           |   |        | 11,430  |   |         |   | 7,179 |   |
| Other assets                                                                        |   |        | 9,206   |   |         |   | 8,053 |   |
| Total assets                                                                        |   | $           | 553,873 |   |         | $      | 566,734 |   |
|                                                                                |   |        |    |   |         |   |   |   |
| Liabilities                                                                         |   |        |    |   |         |   |   |   |
| Deposits:                                                                           |   |        |    |   |         |   |   |   |
| Noninterest bearing                                                                 |   | $           | 74,317  |   |         | $      | 70,789 |   |
| Interest bearing:                                                                   |   |        |    |   |         |   |   |   |
| Demand                                                                              |   |        | 96,933  |   |         |   | 96,683 |   |
| Money market accounts                                                               |   |        | 20,972  |   |         |   | 25,177 |   |
| Savings                                                                             |   |        | 47,322  |   |         |   | 39,940 |   |
| Time deposits over $100,000                                                         |   |        | 68,473  |   |         |   | 66,538 |   |
| All other time deposits                                                             |   |        | 133,450 |   |         |   | 136,820 |   |
| Total deposits                                                                      |   |        | 441,467 |   |         |   | 435,947 |   |
|                                                                                |   |        |    |   |         |   |   |   |
| Short-term debt                                                                     |   |        | 4,030   |   |         |   | 18,539 |   |
| Accrued liabilities                                                                 |   |        | 9,343   |   |         |   | 8,770 |   |
| Subordinated debt                                                                   |   |        | 10,191  |   |         |   | 10,191 |   |
| Long-term debt                                                                      |   |        | 41,071  |   |         |   | 47,107 |   |
| Total liabilities                                                                   |   |        | 506,102 |   |         |   | 520,554 |   |
|                                                                                |   |        |    |   |         |   |   |   |
| Stockholders’ Equity                                                          |   |        |    |   |         |   |   |   |
| Common stock, $5 par value, 6,000,000 shares authorized,                            |   |        |    |   |         |   |   |   |
|      2,496,195 and 2,487,197 shares issued and outstanding |   |        |    |   |         |   |   |   |
|      in 2012 and 2011, respectively                        |   |        | 12,481  |   |         |   | 12,464 |   |
| Retained earnings                                                                   |   |        | 37,064  |   |         |   | 35,552 |   |
| Noncontrolling interest                                                             |   |        | 267     |   |         |   | 216 |   |
| Accumulated other comprehensive loss                                                |   |        | (2,041  | )      |         |   | (2,052 | ) |
| Total stockholders’ equity                                                    |   |        | 47,771  |   |         |   | 46,180 |   |
| Total liabilities and stockholders’ equity                                    |   | $           | 553,873 |   |         | $      | 566,734 |   |

----

|                                                                              |   | Six Months Ended June 30 |    |
|-----------------------------------------------------------------------------------|--------|--------------------------|---------|
|                                                                              |   | 2012                     |    |   | 2011 |   |
| Cash flows from operating activities                                              |   |                     |    |   |   |   |
| Net income                                                                        |   | $                        | 2,275   |   |   | $ | 1,917 |   |
| Net change – Noncontrolling interest                                        |   |                     | 51      |   |   |   | (12 | ) |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |                     |    |   |   |   |   |   |
| Depreciation                                                                      |   |                     | 310     |   |   |   | 308 |   |
| Amortization of security premiums, net                                            |   |                     | 48      |   |   |   | 29 |   |
| Net (increase) decrease in loans held for sale                                    |   |                     | 19,559  |   |   |   | (18,915 | ) |
| Provision for loan losses                                                         |   |                     | 1,800   |   |   |   | 2,200 |   |
| Intangible amortization                                                           |   |                     | -       |   |   |   | 46 |   |
| Decrease in interest receivable                                                   |   |                     | 116     |   |   |   | 348 |   |
| (Increase) decrease in other assets                                               |   |                     | 1,318   |   |   |   | (741 | ) |
| Gain on sale of fixed assets                                                      |   |                     | -       |   |   |   | (85 | ) |
| Decrease in accrued expenses                                                      |   |                     | (1,904  | ) |   |   | (635 | ) |
| Gain on security transactions                                                     |   |                     | -       |   |   |   | (289 | ) |
| Amortization of limited partnership investments                                   |   |                     | 263     |   |   |   | 233 |   |
| Income from life insurance investment                                             |   |                     | (189    | ) |   |   | (175 | ) |
| Other Real Estate Owned valuation adjustments                                     |   |                     | 122     |   |   |   | - |   |
| Gain on Other Real Estate Owned                                                   |   |                     | (48     | ) |   |   | - |   |
| Net adjustments                                                                   |   |                     | 21,395  |   |   |   | (17,676 | ) |
| Net cash provided by (used in) operating activities                               |   |                     | 23,721  |   |   |   | (15,771 | ) |
|                                                                              |   |                     |    |   |   |   |   |   |
| Cash flows from investing activities                                              |   |                     |    |   |   |   |   |   |
| Purchase of investments available for sale                                        |   |                     | (15,071 | ) |   |   | (12,077 | ) |
| Proceeds from maturity of investments available for sale                          |   |                     | 15,843  |   |   |   | 1,035 |   |
| Proceeds from sales of investments available for sale                             |   |                     | -       |   |   |   | 11,137 |   |
| Net (increase) decrease in loans held for investment                              |   |                     | (1,648  | ) |   |   | (18,064 | ) |
| Proceeds from the sale of other real estate owned                                 |   |                     | 1,232   |   |   |   | 1,433 |   |
| Proceeds from the sale of fixed assets                                            |   |                     | -       |   |   |   | 276 |   |
| Purchase of property and equipment                                                |   |                     | (457    | ) |   |   | (113 | ) |
| Net (increase) decrease in interest bearing bank deposits                         |   |                     | 140     |   |   |   | 1,574 |   |
| Purchase of bank owned life insurance                                             |   |                     | (4,064  | ) |   |   | - |   |
| Net cash used in investing activities                                             |   |                     | (4,025  | ) |   |   | (14,799 | ) |
|                                                                              |   |                     |    |   |   |   |   |   |
| Cash flows from financing activities                                              |   |                     |    |   |   |   |   |   |
| Net change in demand and savings deposits                                         |   |                     | 6,956   |   |   |   | 8,884 |   |
| Net change in time deposits                                                       |   |                     | (1,435  | ) |   |   | 492 |   |
| Net change in short-term debt                                                     |   |                     | (14,509 | ) |   |   | 6,459 |   |
| Cash dividends paid                                                               |   |                     | (799    | ) |   |   | (682 | ) |
| Proceeds from rights offering                                                     |   |                     | -       |   |   |   | 2,381 |   |
| Proceeds from issuance of common stock                                            |   |                     | 52      |   |   |   | 47 |   |
| Proceeds from long-term debt                                                      |   |                     | -       |   |   |   | 247 |   |
| Repayment of long-term debt                                                       |   |                     | (6,036  | ) |   |   | (2,047 | ) |
| Net cash provided by (used in) financing activities                               |   |                     | (15,771 | ) |   |   | 15,781 |   |
|                                                                              |   |                     |    |   |   |   |   |   |
| Net Increase (Decrease) in Cash and Cash Equivalents                              |   |                     | 3,925   |   |   |   | (14,789 | ) |
| Cash and cash equivalents, beginning of period                                    |   |                     | 8,994   |   |   |   | 20,924 |   |
| Cash and cash equivalents, end of period                                          |   | $                        | 12,919  |   |   | $ | 6,135 |   |
| Supplemental disclosure                                                           |   |                     |    |   |   |   |   |   |
| Cash paid for:                                                                    |   |                     |    |   |   |   |   |   |
| Interest expense                                                                  |   | $                        | 3,153   |   |   | $ | 3,989 |   |
| Income taxes                                                                      |   |                     | 500     |   |   |   | 500 |   |
| Transfers from loans to Other Real Estate Owned                                   |   |                     | 1,549   |   |   |   | 2,332 |   |

----

|                                                                                 |   | Six Months Ended |   |
|--------------------------------------------------------------------------------------|--------|------------------|--------|
|                                                                                 |   | June 30,         |   |
|                                                                                 |   | 2012             |   |   | 2011 |   |
|                                                                                 |   |             |   |   |   |   |
| Balance, beginning of period                                                         |   | $                | 46,180 |   |   | $ | 42,229 |   |
|                                                                                 |   |             |   |   |   |   |   |   |
| Comprehensive income                                                                 |   |             |   |   |   |   |   |   |
| Net income – F & M Bank Corp                                               |   |             | 2,275  |   |   |   | 1,917 |   |
| Net income attributable to noncontrolling interest                                   |   |             | 51     |   |   |   | 20 |   |
| Prepaid pension adjustment                                                           |   |             | -      |   |   |   | (52 | ) |
| Net change in unrealized appreciation on securities available for sale, net of taxes |   |             | 11     |   |   |   | (120 | ) |
| Total comprehensive income                                                           |   |             | 2,337  |   |   |   | 1,765 |   |
|                                                                                 |   |             |   |   |   |   |   |   |
| Minority Interest Contributed Capital (Distributions)                                |   |             | -      |   |   |   | (32 | ) |
| Issuance of common stock                                                             |   |             | 52     |   |   |   | 2,428 |   |
| Dividends declared                                                                   |   |             | (798   | ) |   |   | (718 | ) |
| Balance, end of period                                                               |   | $                | 47,771 |   |   | $ | 45,672 |   |

----

----

|                                  |   | 2012              |   |   | 2011   |       |
|---------------------------------------|--------|-------------------|--------|--------|--------|------------|
|                                  |   |              |   |   | Market |       |   |   |   |   | Market |   |
|                                  |   | Cost              |   |   | Value  |       |   | Cost |   |   | Value |   |
|                                  |   |              |   |   |   |       |   |   |   |   |   |   |
| Securities held to maturity           |   |              |   |   |   |       |   |   |   |   |   |   |
| U. S. Treasury and agency obligations |   | $                 | 108    |   |   | $          | 108 |   |   | $ |  108 |   |   | $ | 108 |   |
| Total                                 |   | $                 | 108    |   |   | $          | 108 |   |   | $ |  108 |   |   | $ | 108 |   |
|                                  |   |              |   |   |   |       |   |   |   |   |   |   |   |   |   |   |
|                                  |   | June 30, 2012     |   |
|                                  |   |              |   |   |   | Unrealized |   |   | Market |   |
|                                  |   | Cost              |   |   | Gains  |       |   | Losses |   |   | Value |   |
| Securities available for sale         |   |              |   |   |   |       |   |   |   |   |   |   |   |   |   |   |
| Government sponsored enterprises      |   | $                 | 11,027 |   |   | $          | 30 |   |   | $ | 8 |   |   | $ | 11,049 |   |
| Mortgage-backed securities            |   |              | 1,936  |   |   |       | 25 |   |   |   | - |   |   |   | 1,961 |   |
| Total                                 |   | $                 | 12,963 |   |   | $          | 55 |   |   | $ | 8 |   |   | $ | 13,010 |   |
|                                  |   |              |   |   |   |       |   |   |   |   |   |   |   |   |   |   |
|                                  |   | December 31, 2011 |   |
|                                  |   |              |   |   |   | Unrealized |   |   | Market |   |
|                                  |   | Cost              |   |   | Gains  |       |   | Losses |   |   | Value |   |
| Securities available for sale         |   |              |   |   |   |       |   |   |   |   |   |   |   |   |   |   |
| Government sponsored enterprises      |   | $                 | 11,034 |   |   | $          | 36 |   |   | $ | 6 |   |   | $ | 11,064 |   |
| Mortgage-backed securities            |   |              | 2,063  |   |   |       | - |   |   |   | - |   |   |   | 2,063 |   |
| Total                                 |   | $                 | 13,097 |   |   | $          | 36 |   |   | $ | 6 |   |   | $ | 13,127 |   |

----

|                                  |   | Securities Held to Maturity |   |   | Securities Available for Sale |   |
|---------------------------------------|--------|-----------------------------|--------|--------|-------------------------------|--------|
|                                  |   | Amortized                   |   |   | Fair                          |   |   | Amortized |   |   | Fair |   |
|                                  |   | Cost                        |   |   | Value                         |   |   | Cost |   |   | Value |   |
|                                  |   |                        |   |   |                          |   |   |   |   |   |   |   |
| Due in one year or less               |   | $                           | 108    |   |                          | $      | 108 |   |   | $ | 8,001 |   |   | $ | 8,024 |   |
| Due after one year through five years |   |                        | -      |   |                          |   | - |   |   |   | 3,026 |   |   |   | 3,025 |   |
| Due after five years                  |   |                        | -      |   |                          |   | - |   |   |   | 1,936 |   |   |   | 1,961 |   |
| Total                                 |   | $                           | 108    |   |                          | $      | 108 |   |   | $ | 12,963 |   |   | $ | 13,010 |   |

| ●      | 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 (i.e. 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 no OTTI charges in the first or second quarter of 2012 or the first quarter of 2011.  There were $57,000 of charges to OTTI in the second quarter of 2011. |
|---------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                             |   | Less than 12 Months |   |   | More than 12 Months |   |   | Total     |   |
|----------------------------------|--------|---------------------|--------|--------|---------------------|--------|--------|-----------|--------|
|                             |   | FairValue           |   |   | UnrealizedLosses    |   |   | FairValue |   |   | UnrealizedLosses |   |   | FairValue |   |   | UnrealizedLosses |   |
|                             |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |
| June 30, 2012                    |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |
| Government sponsored Enterprises |   | $                   | 4,000  |   |                | $      | (8     | )         |   | $ | - |   |   | $ | - |   |   | $ | 4,000 |   |   | $ | (8 | ) |
| Total                            |   | $                   | 4,000  |   |                | $      | (8     | )         |   | $ | - |   |   | $ | - |   |   | $ | 4,000 |   |   | $ | (8 | ) |
|                             |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2011                |   |                |   |   |                |   |   |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Government sponsored Enterprises |   | $                   | 5,033  |   |                | $      | (6     | )         |   | $ | - |   |   | $ | - |   |   | $ | 5,033 |   |   | $ | (6 | ) |
| Total                            |   | $                   | 5,033  |   |                | $      | (6     | )         |   | $ | - |   |   | $ | - |   |   | $ | 5,033 |   |   | $ | (6 | ) |

|         |   | 2012   |    |   | 2011   |   |
|--------------|--------|--------|---------|--------|--------|--------|
|         |   |   |    |   |   |   |
| Commercial   |   | $      | 170,271 |   |   | $      | 170,157 |   |
| Real Estate  |   |   | 207,344 |   |   |   | 208,244 |   |
| Home Equity  |   |   | 57,841  |   |   |   | 57,259 |   |
| Credit cards |   |   | 2,655   |   |   |   | 2,813 |   |
| Consumer     |   |   | 12,429  |   |   |   | 13,097 |   |
| Total        |   | $      | 450,540 |   |   | $      | 451,570 |   |

----

|                                         |   |       |   |   | Unpaid    |   |   |      |   |   | Average    |   |   | Interest   |   |
|----------------------------------------------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|
|                                         |   | Recorded   |   |   | Principal |   |   | Related   |   |   | Recorded   |   |   | Income     |   |
| June 30, 2012                                |   | Investment |   |   | Balance   |   |   | Allowance |   |   | Investment |   |   | Recognized |   |
|                                         |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |
| Impaired loans without a valuation allowance |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |
| Real Estate                                  |   | $          | 3,633  |   |      | $      | 3,633  |      |   | $      | -          |   |   | $          | 3,815  |   |   | $ | 106 |   |
| Commercial                                   |   |       | 251    |   |      |   | 251    |      |   |   | -          |   |   |       | 552    |   |   |   | 5 |   |
| Home Equity                                  |   |       | 388    |   |      |   | 388    |      |   |   | -          |   |   |       | 561    |   |   |   | 9 |   |
| Other                                        |   |       | 197    |   |      |   | 197    |      |   |   | -          |   |   |       | 155    |   |   |   | 3 |   |
|                                         |   |       | 4,469  |   |      |   | 4,469  |      |   |   | -          |   |   |       | 5,083  |   |   |   | 123 |   |
| Impaired loans with a valuation allowance    |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| Real Estate                                  |   |       | 13,548 |   |      |   | 13,548 |      |   |   | 1,087      |   |   |       | 7,441  |   |   |   | 172 |   |
| Commercial                                   |   |       | 530    |   |      |   | 530    |      |   |   | 84         |   |   |       | 621    |   |   |   | 2 |   |
| Home Equity                                  |   |       | 400    |   |      |   | 400    |      |   |   | 38         |   |   |       | 280    |   |   |   | 10 |   |
| Other                                        |   |       | 713    |   |      |   | 713    |      |   |   | 177        |   |   |       | 352    |   |   |   | 1 |   |
|                                         |   |       | 15,191 |   |      |   | 15,191 |      |   |   | 1,386      |   |   |       | 8,694  |   |   |   | 185 |   |
| Total impaired loans                         |   | $          | 19,660 |   |      | $      | 19,660 |      |   | $      | 1,386      |   |   | $          | 13,777 |   |   | $ | 308 |   |

|                                         |   |       |   |   | Unpaid    |   |   |      |   |   | Average    |   |   | Interest   |   |
|----------------------------------------------|--------|------------|--------|--------|-----------|--------|--------|-----------|--------|--------|------------|--------|--------|------------|--------|
|                                         |   | Recorded   |   |   | Principal |   |   | Related   |   |   | Recorded   |   |   | Income     |   |
| December 31, 2011                            |   | Investment |   |   | Balance   |   |   | Allowance |   |   | Investment |   |   | Recognized |   |
|                                         |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |
| Impaired loans without a valuation allowance |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |
| Real Estate                                  |   | $          | 3,174  |   |      | $      | 3,174  |      |   |   | -          |   |   | $          | 4,493  |   |   | $ | 190 |   |
| Commercial                                   |   |       | 45     |   |      |   | 45     |      |   |   | -          |   |   |       | 1,064  |   |   |   | 3 |   |
| Home Equity                                  |   |       | 709    |   |      |   | 709    |      |   |   | -          |   |   |       | 757    |   |   |   | 30 |   |
| Other                                        |   |       | 72     |   |      |   | 72     |      |   |   | -          |   |   |       | 165    |   |   |   | 5 |   |
|                                         |   |       | 4,000  |   |      |   | 4,000  |      |   |   | -          |   |   |       | 6,479  |   |   |   | 228 |   |
| Impaired loans with a valuation allowance    |   |       |   |   |      |   |   |      |   |   |       |   |   |       |   |   |   |   |   |   |
| Real Estate                                  |   |       | 5,678  |   |      |   | 5,678  |      |   |   | 697        |   |   |       | 6,107  |   |   |   | 238 |   |
| Commercial                                   |   |       | 568    |   |      |   | 568    |      |   |   | 268        |   |   |       | 948    |   |   |   | 2 |   |
| Home Equity                                  |   |       | 313    |   |      |   | 313    |      |   |   | 29         |   |   |       | 316    |   |   |   | 21 |   |
| Other                                        |   |       | 56     |   |      |   | 56     |      |   |   | 8          |   |   |       | 11     |   |   |   | 2 |   |
|                                         |   |       | 6,615  |   |      |   | 6,615  |      |   |   | 1,002      |   |   |       | 7,382  |   |   |   | 263 |   |
| Total impaired loans                         |   | $          | 10,615 |   |      | $      | 10,615 |      |   | $      | 1,002      |   |   | $          | 13,861 |   |   | $ | 491 |   |

----

| Six Months Ended June 30, 2012            |   | Commercial |   |   | Real Estate |   |   | Home Equity |   |   | Credit Cards |   |   | Consumer |   |   | Unallocated |   |   | Total  |   |
|-------------------------------------------|--------|------------|--------|--------|-------------|--------|--------|-------------|--------|--------|--------------|--------|--------|----------|--------|--------|-------------|--------|--------|--------|--------|
|                                      |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Allowance for loan losses:                |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Beginning Balance                         |   | $          | 1,567  |   |        | $      | 1,684  |        |   | $      | 456          |   |   | $        | 79     |   |        | $      | 71     |   |   | $ | 3,080 |   |   | $ | 6,937 |   |
|      Charge-offs |   |       | (523   | )      |        |   | (601   | )           |   |   | (50          | )      |   |     | (27    | )      |        |   | (11    | )      |   |   | - |   |   |   | (1,212 | ) |
|      Recoveries  |   |       | 45     |   |        |   | -      |        |   |   | -            |   |   |     | 22     |   |        |   | 15     |   |   |   | - |   |   |   | 82 |   |
|      Provision   |   |       | 281    |   |        |   | 951    |        |   |   | 61           |   |   |     | 1      |   |        |   | 171    |   |   |   | 335 |   |   |   | 1,800 |   |
| Ending Balance                            |   | $          | 1,370  |   |        | $      | 2,034  |        |   | $      | 467          |   |   | $        | 75     |   |        | $      | 246    |   |   | $ | 3,415 |   |   | $ | 7,607 |   |

| Three Months Ended June 30, 2012          |   | Commercial |   |   | Real Estate |   |   | Home Equity |   |   | Credit Cards |   |   | Consumer |   |   | Unallocated |   |   | Total  |   |
|-------------------------------------------|--------|------------|--------|--------|-------------|--------|--------|-------------|--------|--------|--------------|--------|--------|----------|--------|--------|-------------|--------|--------|--------|--------|
|                                      |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Allowance for loan losses:                |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Beginning Balance                         |   | $          | 1,365  |   |        | $      | 1,907  |        |   | $      | 468          |   |   | $        | 75     |   |        | $      | 522    |   |   | $ | 2,977 |   |   | $ | 7,314 |   |
|      Charge-offs |   |       | (302   | )      |        |   | (293   | )           |   |   | (37          | )      |   |     | (21    | )      |        |   | (7     | )      |   |   | - |   |   |   | (660 | ) |
|      Recoveries  |   |       | 34     |   |        |   | -      |        |   |   | -            |   |   |     | 11     |   |        |   | 8      |   |   |   | - |   |   |   | 53 |   |
|      Provision   |   |       | 273    |   |        |   | 420    |        |   |   | 36           |   |   |     | 10     |   |        |   | ( 277  | )      |   |   | 438 |   |   |   | 900 |   |
| Ending Balance                            |   | $          | 1,370  |   |        | $      | 2,034  |        |   | $      | 467          |   |   | $        | 75     |   |        | $      | 246    |   |   | $ | 3,415 |   |   | $ | 7,607 |   |

| Six Months Ended June 30, 2011            |   | Commercial |   |   | Real Estate |   |   | Home Equity |   |   | Credit Cards |   |   | Consumer |   |   | Unallocated |   |   | Total  |   |
|-------------------------------------------|--------|------------|--------|--------|-------------|--------|--------|-------------|--------|--------|--------------|--------|--------|----------|--------|--------|-------------|--------|--------|--------|--------|
|                                      |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Allowance for loan losses:                |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Beginning Balance                         |   | $          | 1,724  |   |        | $      | 1,814  |        |   | $      | 407          |   |   | $        | 59     |   |        | $      | 111    |   |   | $ | 1,671 |   |   | $ | 5,786 |   |
|      Charge-offs |   |       | (453   | )      |        |   | (706   | )           |   |   | (56          | )      |   |     | (45    | )      |        |   | (310   | )      |   |   | - |   |   |   | (1,570 | ) |
|      Recoveries  |   |       | 32     |   |        |   | 9      |        |   |   | 27           |   |   |     | 14     |   |        |   | 10     |   |   |   | - |   |   |   | 92 |   |
|      Provision   |   |       | 509    |   |        |   | 667    |        |   |   | 3            |   |   |     | 29     |   |        |   | 624    |   |   |   | 368 |   |   |   | 2,200 |   |
| Ending Balance                            |   | $          | 1,812  |   |        | $      | 1,784  |        |   | $      | 381          |   |   | $        | 57     |   |        | $      | 435    |   |   | $ | 2,039 |   |   | $ | 6,508 |   |

| Three Months Ended June 30, 2011          |   | Commercial |   |   | Real Estate |   |   | Home Equity |   |   | Credit Cards |   |   | Consumer |   |   | Unallocated |   |   | Total  |   |
|-------------------------------------------|--------|------------|--------|--------|-------------|--------|--------|-------------|--------|--------|--------------|--------|--------|----------|--------|--------|-------------|--------|--------|--------|--------|
|                                      |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Allowance for loan losses:                |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Beginning Balance                         |   | $          | 1,696  |   |        | $      | 1,490  |        |   | $      | 425          |   |   | $        | 64     |   |        | $      | 649    |   |   | $ | 1,771 |   |   | $ | 6,095 |   |
|      Charge-offs |   |       | (143   | )      |        |   | (229   | )           |   |   | (56          | )      |   |     | (10    | )      |        |   | (299   | )      |   |   | - |   |   |   | (737 | ) |
|      Recoveries  |   |       | 16     |   |        |   | 1      |        |   |   | 27           |   |   |     | 4      |   |        |   | 2      |   |   |   | - |   |   |   | 50 |   |
|      Provision   |   |       | 243    |   |        |   | 522    |        |   |   | (15          | )      |   |     | (1     | )      |        |   | 83     |   |   |   | 268 |   |   |   | 1,100 |   |
| Ending Balance                            |   | $          | 1,812  |   |        | $      | 1,784  |        |   | $      | 381          |   |   | $        | 57     |   |        | $      | 435    |   |   | $ | 2,039 |   |   | $ | 6,508 |   |

----

| June 30, 2012                         |   | Commercial |   |   | Real Estate |   |   | Home Equity |   |   | Credit Cards |   |   | Consumer |   |   | Unallocated |   |   | Total  |   |
|---------------------------------------|--------|------------|--------|--------|-------------|--------|--------|-------------|--------|--------|--------------|--------|--------|----------|--------|--------|-------------|--------|--------|--------|--------|
|                                  |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Allowance for loan losses:            |   | $          | 1,370  |   |        | $      | 2,034  |        |   | $      | 467          |   |   | $        | 75     |   |        | $      | 246    |   |   | $ | 3,415 |   |   | $ | 7,607 |   |
|                                  |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   | $          | 84     |   |        | $      | 1,087  |        |   | $      | 38           |   |   | $        | -      |   |        | $      | 177    |   |   | $ | - |   |   | $ | 1,386 |   |
| Collectively evaluated for impairment |   | $          | 1,286  |   |        | $      | 947    |        |   | $      | 429          |   |   | $        | 75     |   |        | $      | 69     |   |   | $ | 3,415 |   |   | $ | 6,221 |   |
|                                  |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2011                     |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for loan losses:            |   | $          | 1,567  |   |        | $      | 1,684  |        |   | $      | 456          |   |   | $        | 79     |   |        | $      | 71     |   |   | $ | 3,080 |   |   | $ | 6,937 |   |
|                                  |   |       |   |   |        |   |   |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   | $          | 268    |   |        | $      | 697    |        |   | $      | 29           |   |   | $        | -      |   |        | $      | 8      |   |   | $ | - |   |   | $ | 1,002 |   |
| Collectively evaluated for impairment |   | $          | 1,299  |   |        | $      | 987    |        |   | $      | 427          |   |   | $        | 79     |   |        | $      | 63     |   |   | $ | 3,080 |   |   | $ | 5,935 |   |

| June 30, 2012                         |   | Commercial |    |   | Real Estate |   |    | Home Equity |   |   | Credit Cards |   |   | Consumer |   |   | Unallocated |   |   | Total  |   |
|---------------------------------------|--------|------------|---------|--------|-------------|--------|---------|-------------|--------|--------|--------------|--------|--------|----------|--------|--------|-------------|--------|--------|--------|--------|
|                                  |   |       |    |   |        |   |    |        |   |   |         |   |   |     |   |   |        |   |   |   |   |
| Loan Receivable:                      |   | $          | 170,271 |   |        | $      | 207,344 |        |   | $      | 57,841       |   |   | $        | 2,655  |   |        | $      | 12,429 |   |   | $ | - |   |   | $ | 450,540 |   |
|                                  |   |       |    |   |        |   |    |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   | $          | 17,189  |   |        | $      | 29,319  |        |   | $      | 1,425        |   |   | $        | -      |   |        | $      | 717    |   |   | $ | - |   |   | $ | 48,650 |   |
| Collectively evaluated for impairment |   | $          | 153,082 |   |        | $      | 178,025 |        |   | $      | 56,416       |   |   | $        | 2,655  |   |        | $      | 11,712 |   |   | $ | - |   |   | $ | 401,890 |   |
|                                  |   |       |    |   |        |   |    |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2011                     |   |       |    |   |        |   |    |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
|                                  |   |       |    |   |        |   |    |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Loan Receivable:                      |   | $          | 170,157 |   |        | $      | 208,244 |        |   | $      | 57,259       |   |   | $        | 2,813  |   |        | $      | 13,097 |   |   | $ | - |   |   | $ | 451,570 |   |
|                                  |   |       |    |   |        |   |    |        |   |   |         |   |   |     |   |   |        |   |   |   |   |   |   |   |   |   |   |   |
| Individually evaluated for impairment |   | $          | 16,009  |   |        | $      | 32,335  |        |   | $      | 1,785        |   |   | $        | -      |   |        | $      | 109    |   |   | $ | - |   |   | $ | 50,238 |   |
| Collectively evaluated for impairment |   | $          | 154,148 |   |        | $      | 175,909 |        |   | $      | 55,474       |   |   | $        | 2,813  |   |        | $      | 12,988 |   |   | $ | - |   |   | $ | 401,332 |   |

|         |   | 30-59 Days Past due |   |   | 60-89 Days Past Due |   |   | Greater than 90 Days still accruing |   |   | Non-Accrual Loans |   |   | Total Past Due |   |   | Current |   |   | Total Loans Receivable |   |
|--------------|--------|---------------------|--------|--------|---------------------|--------|--------|-------------------------------------|--------|--------|-------------------|--------|--------|----------------|--------|--------|---------|--------|--------|------------------------|--------|
|         |   |                |   |   |                |   |   |                                |   |   |              |   |   |           |   |   |    |   |   |                   |   |
| Commercial   |   | $                   | 678    |   |                | $      | 4,417  |                                |   | $      | 2,499             |   |   | $              | 5,160  |   |    | $      | 12,754 |                   |   | $ | 157,517 |   |   | $ | 170,271 |   |
| Real Estate  |   |                | 4,309  |   |                |   | 2,781  |                                |   |   | 732               |   |   |           | 8,066  |   |    |   | 15,888 |                   |   |   | 191,456 |   |   |   | 207,344 |   |
| Home Equity  |   |                | 884    |   |                |   | 126    |                                |   |   | 165               |   |   |           | 180    |   |    |   | 1,355  |                   |   |   | 56,486 |   |   |   | 57,841 |   |
| Credit Cards |   |                | 33     |   |                |   | 8      |                                |   |   | -                 |   |   |           | -      |   |    |   | 41     |                   |   |   | 2,614 |   |   |   | 2,655 |   |
| Consumer     |   |                | 124    |   |                |   | 17     |                                |   |   | 111               |   |   |           | 37     |   |    |   | 289    |                   |   |   | 12,140 |   |   |   | 12,429 |   |
|         |   |                |   |   |                |   |   |                                |   |   |              |   |   |           |   |   |    |   |   |                   |   |   |   |   |   |   |   |   |
| Total        |   | $                   | 6,028  |   |                | $      | 7,349  |                                |   | $      | 3,507             |   |   | $              | 13,443 |   |    | $      | 30,327 |                   |   | $ | 420,213 |   |   | $ | 450,540 |   |

----

|         |   | 30-59 Days Past due |   |   | 60-89 Days Past Due |   |   | Greater than 90 Days (excluding non-accrual) |   |   | Total Past Due |   |   | Non-Accrual Loans |   |   | Current |   |   | Total Loans Receivable |   |
|--------------|--------|---------------------|--------|--------|---------------------|--------|--------|----------------------------------------------|--------|--------|----------------|--------|--------|-------------------|--------|--------|---------|--------|--------|------------------------|--------|
|         |   |                |   |   |                |   |   |                                         |   |   |           |   |   |              |   |   |    |   |   |                   |   |
| Commercial   |   | $                   | 227    |   |                | $      | 1,408  |                                         |   | $      | -              |   |   | $                 | 1,635  |   |    | $      | 5,888  |                   |   | $ | 162,634 |   |   | $ | 170,157 |   |
| Real Estate  |   |                | 5,146  |   |                |   | 5,055  |                                         |   |   | 646            |   |   |              | 10,847 |   |    |   | 7,671  |                   |   |   | 189,726 |   |   |   | 208,244 |   |
| Home Equity  |   |                | 503    |   |                |   | 98     |                                         |   |   | 260            |   |   |              | 861    |   |    |   | 266    |                   |   |   | 56,132 |   |   |   | 57,259 |   |
| Credit Cards |   |                | 22     |   |                |   | 5      |                                         |   |   | -              |   |   |              | 27     |   |    |   | -      |                   |   |   | 2,786 |   |   |   | 2,813 |   |
| Consumer     |   |                | 77     |   |                |   | 85     |                                         |   |   | 6              |   |   |              | 168    |   |    |   | 39     |                   |   |   | 12,890 |   |   |   | 13,097 |   |
| Total        |   | $                   | 5,975  |   |                | $      | 6,651  |                                         |   | $      | 912            |   |   | $                 | 13,538 |   |    | $      | 13,864 |                   |   | $ | 424,168 |   |   | $ | 451,570 |   |

| Corporate Credit Exposure                        |   |          |    |   |       |         |    |        |     |
|--------------------------------------------------|--------|---------------|---------|--------|------------|--------------|---------|-------------|----------|
| Credit Risk Profile by Creditworthiness Category |   |          |    |   |       |         |    |        |     |
|                                             |   | June 30, 2012 |    |
|                                             |   | Real Estate   |    |   | Commercial |         |    | Home Equity |     |
|                                             |   |          |    |   |       |         |    |        |     |
| Grade 1 - Minimal Risk                           |   | $             | -       |   |       | $            | 137     |        |     | $ | - |   |
| Grade 2 - Modest Risk                            |   |          | 606     |   |       |         | 2,688   |        |     |   | 1,419 |   |
| Grade 3 - Average Risk                           |   |          | 24,735  |   |       |         | 26,610  |        |     |   | 9,083 |   |
| Grade 4 - Acceptable Risk                        |   |          | 84,847  |   |       |         | 72,397  |        |     |   | 38,349 |   |
| Grade 5 - Marginally Acceptable                  |   |          | 53,762  |   |       |         | 45,140  |        |     |   | 5,653 |   |
| Grade 6 – Watch                            |   |          | 10,414  |   |       |         | 4,869   |        |     |   | 1,449 |   |
| Grade 7 – Substandard                      |   |          | 32,980  |   |       |         | 18,430  |        |     |   | 1,888 |   |
| Grade 8 – Doubtful                         |   |          | -       |   |       |         | -       |        |     |   | - |   |
| Total                                            |   | $             | 207,344 |   |       | $            | 170,271 |        |     | $ | 57,841 |   |
|                                             |   |          |    |   |       |         |    |        |     |   |   |   |
| Consumer Credit Exposure                         |   |          |    |   |       |         |    |        |     |   |   |   |
| Credit Risk Profile Based on Payment Activity    |   |          |    |   |       |         |    |        |     |   |   |   |
|                                             |   |          |    |   |       |         |    |        |     |   |   |   |
|                                             |   |          |    |   |       | Credit Cards |    |        | Consumer |   |
|                                             |   |          |    |   |       |         |    |        |     |   |   |   |
| Performing                                       |   |          |    |   |       | $            | 2,655   |        |     | $ | 12,318 |   |
| Non performing (past due 90 days or greater)     |   |          |    |   |       |         | -       |        |     |   | 111 |   |
| Total                                            |   |          |    |   |       | $            | 2,655   |        |     | $ | 12,429 |   |

----

| Corporate Credit Exposure                        |   |              |    |   |       |         |    |        |     |
|--------------------------------------------------|--------|-------------------|---------|--------|------------|--------------|---------|-------------|----------|
| Credit Risk Profile by Creditworthiness Category |   |              |    |   |       |         |    |        |     |
|                                             |   | December 31, 2011 |    |
|                                             |   | Real Estate       |    |   | Commercial |         |    | Home Equity |     |
|                                             |   |              |    |   |       |         |    |        |     |
| Grade 1 - Minimal Risk                           |   | $                 | 120     |   |       | $            | 150     |        |     | $ | - |   |
| Grade 2 - Modest Risk                            |   |              | 1,211   |   |       |         | 3,268   |        |     |   | 404 |   |
| Grade 3 - Average Risk                           |   |              | 23,199  |   |       |         | 16,418  |        |     |   | 8,052 |   |
| Grade 4 - Acceptable Risk                        |   |              | 87,425  |   |       |         | 86,874  |        |     |   | 39,170 |   |
| Grade 5 - Marginally Acceptable                  |   |              | 46,945  |   |       |         | 41,144  |        |     |   | 6,152 |   |
| Grade 6 – Watch                            |   |              | 12,975  |   |       |         | 5,994   |        |     |   | 1,192 |   |
| Grade 7 – Substandard                      |   |              | 36,331  |   |       |         | 16,309  |        |     |   | 2,289 |   |
| Grade 8 – Doubtful                         |   |              | 38      |   |       |         | -       |        |     |   | - |   |
| Total                                            |   | $                 | 208,244 |   |       | $            | 170,157 |        |     | $ | 57,259 |   |
|                                             |   |              |    |   |       |         |    |        |     |   |   |   |
| Consumer Credit Exposure                         |   |              |    |   |       |         |    |        |     |   |   |   |
| Credit Risk Profile Based on Payment Activity    |   |              |    |   |       |         |    |        |     |   |   |   |
|                                             |   |              |    |   |       | Credit Cards |    |        | Consumer |   |
|                                             |   |              |    |   |       |         |    |        |     |   |   |   |
| Performing                                       |   |              |    |   |       | $            | 2,813   |        |     | $ | 13,091 |   |
| Non performing (past due 90 days or greater)     |   |              |    |   |       |         | -       |        |     |   | 6 |   |
| Total                                            |   |              |    |   |       | $            | 2,813   |        |     | $ | 13,097 |   |

----

|                                         |   | Six Months Ended |     |   | Three Months Ended |   |
|----------------------------------------------|--------|------------------|----------|--------|--------------------|--------|
|                                         |   | June 30, 2012    |     |   | June 30, 2011      |   |   | June 30, 2012 |   |   | June 30, 2011 |   |
|                                         |   |             |     |   |               |   |   |   |   |   |   |   |
| Service cost                                 |   | $                | 259,318  |   |               | $      | 222,710 |   |   | $ | 129,659 |   |   | $ | 111,355 |   |
| Interest cost                                |   |             | 163,962  |   |               |   | 160,756 |   |   |   | 81,981 |   |   |   | 80,378 |   |
| Expected return on plan assets               |   |             | (270,034 | )      |               |   | (252,218 | ) |   |   | (135,017 | ) |   |   | (126,109 | ) |
| Amortization of net obligation at transition |   |             | -        |   |               |   | - |   |   |   | - |   |   |   | - |   |
| Amortization of prior service cost           |   |             | (7,618   | )      |               |   | (3,886 | ) |   |   | (3,809 | ) |   |   | (1,943 | ) |
| Amortization of net (gain) or loss           |   |             | 86,610   |   |               |   | 31,922 |   |   |   | 43,305 |   |   |   | 15,961 |   |
| Net periodic pension cost                    |   | $                | 232,238  |   |               | $      | 159,284 |   |   | $ | 116,119 |   |   | $ | 79,642 |   |

----

| June 30, 2012                                   |   | Total  |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|-------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Government sponsored enterprises                |   | $      | 11,049 |   |    | $      | -      |    |   | $      | 11,049  |   |   | $ |  - |   |
| Mortgage-backed obligations of federal agencies |   |   | 1,961  |   |    |   | -      |    |   |   | 1,961   |   |   |   |   |   |
| Investment securities available for sale        |   | $      | 13,010 |   |    | $      | -      |    |   | $      | 13,010  |   |   | $ |  - |   |
|                                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total assets at fair value                      |   | $      | 13,010 |   |    | $      | -      |    |   | $      | 13,010  |   |   | $ |  - |   |
|                                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value                 |   | $      | -      |   |    | $      | -      |    |   | $      | -       |   |   | $ |  - |   |
|                                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Derivative financial instruments at fair value  |   | $      | 14     |   |    | $      | -      |    |   | $      | 14      |   |   | $ |  - |   |

----

| December 31, 2011                               |   | Total  |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|-------------------------------------------------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Government sponsored enterprises                |   | $      | 11,064 |   |    | $      | -      |    |   | $      | 11,064  |   |   | $ | - |   |
| Mortgage-backed obligations of federal agencies |   |   | 2,063  |   |    |   | -      |    |   |   | 2,063   |   |   |   | - |   |
| Investment securities available for sale        |   |   | 13,127 |   |    |   | -      |    |   |   | 13,127  |   |   |   | - |   |
|                                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total assets at fair value                      |   | $      | 13,127 |   |    | $      | -      |    |   | $      | 13,127  |   |   | $ | - |   |
|                                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value                 |   | $      | -      |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |
|                                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Derivative financial instruments at fair value  |   | $      | 13     |   |    | $      | -      |    |   | $      | 13      |   |   | $ | - |   |

| June 30, 2012                   |   | Total  |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|---------------------------------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                            |   |   |   |   |    |   |   |    |   |   |    |   |
| Loans Held for Sale             |   | $      | 40,984 |   |    | $      | -      |    |   | $      | 40,984  |   |   | $ | - |   |
| Other Real Estate Owned         |   |   | 3,317  |   |    |   | -      |    |   |   | 3,317   |   |   |   | - |   |
|                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Real Estate                     |   |   | 12,461 |   |    |   | -      |    |   |   | 12,461  |   |   |   | - |   |
| Commercial                      |   |   | 446    |   |    |   | -      |    |   |   | 446     |   |   |   | - |   |
| Consumer                        |   |   | 536    |   |    |   | -      |    |   |   | 536     |   |   |   | - |   |
| Home Equity                     |   |   | 362    |   |    |   | -      |    |   |   | 362     |   |   |   | - |   |
| Impaired loans                  |   |   | 13,805 |   |    |   | -      |    |   |   | 13,805  |   |   |   | - |   |
| Total assets at fair value      |   | $      | 58,106 |   |    | $      | -      |    |   | $      | 58,106  |   |   | $ | - |   |
|                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value |   | $      | -      |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |

| December 31, 2011               |   | Total  |   |   | Level 1 |   |   | Level 2 |   |   | Level 3 |   |
|---------------------------------|--------|--------|--------|--------|---------|--------|--------|---------|--------|--------|---------|--------|
|                            |   |   |   |   |    |   |   |    |   |   |    |   |
| Loans Held for Sale             |   | $      | 60,543 |   |    | $      | -      |    |   | $      | 60,543  |   |   | $ | - |   |
| Other Real Estate Owned         |   |   | 3,074  |   |    |   | -      |    |   |   | 3,074   |   |   |   | - |   |
|                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Real Estate                     |   |   | 4,981  |   |    |   | -      |    |   |   | 4,981   |   |   |   | - |   |
| Commercial                      |   |   | 300    |   |    |   | -      |    |   |   | 300     |   |   |   | - |   |
| Consumer                        |   |   | 48     |   |    |   | -      |    |   |   | 48      |   |   |   | - |   |
| Home Equity                     |   |   | 284    |   |    |   | -      |    |   |   | 284     |   |   |   | - |   |
| Impaired loans                  |   |   | 5,613  |   |    |   | -      |    |   |   | 5,613   |   |   |   | - |   |
| Total assets at fair value      |   | $      | 69,230 |   |    | $      | -      |    |   | $      | 69,230  |   |   | $ | - |   |
|                            |   |   |   |   |    |   |   |    |   |   |    |   |   |   |   |   |
| Total liabilities at fair value |   | $      | -      |   |    | $      | -      |    |   | $      | -       |   |   | $ | - |   |

----

|                  |   | June 30, 2012 |    |   | December 31, 2011 |   |
|-----------------------|--------|---------------|---------|--------|-------------------|--------|
|                  |   | Estimated     |    |   | Carrying          |   |   | Estimated |   |   | Carrying |   |
|                  |   | Fair Value    |    |   | Value             |   |   | Fair Value |   |   | Value |   |
|                  |   |          |    |   |              |   |   |   |   |   |   |   |
| Financial Assets      |   |          |    |   |              |   |   |   |   |   |   |   |
| Loans                 |   |          | 479,293 |   |              |   | 450,540 |   |   |   | 484,500 |   |   |   | 451,570 |   |
|                  |   |          |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Financial Liabilities |   |          |    |   |              |   |   |   |   |   |   |   |   |   |   |   |
| Time deposits         |   | $             | 203,639 |   |              | $      | 201,923 |   |   | $ | 205,325 |   |   | $ | 203,358 |   |
| Long-term debt        |   |          | 43,986  |   |              |   | 41,071 |   |   |   | 49,765 |   |   |   | 47,107 |   |

----

|                         |   | For the three and six months ending |   |
|------------------------------|--------|-------------------------------------|--------|
|                         |   | June 30, 2012                       |   |
|                         |   |                                |   |   | Pre-Modification |   |   | Post-Modification |   |
|                         |   |                                |   |   | Outstanding |   |   | Outstanding |   |
|                         |   | Number of Contracts                 |   |   | Recorded Investment |   |   | Recorded Investment |   |
| Troubled Debt Restructurings |   |                                |   |   |   |   |   |   |   |
| Commercial                   |   |                                |   |   | $ | - |   |   | $ | - |   |
| Real Estate                  |   |                                | 2      |   |   |   | 492 |   |   |   | 492 |   |
| Home Equity                  |   |                                |   |   |   |   | - |   |   |   | - |   |
| Total                        |   |                                |   |   |   | $ | 492 |   |   | $ | 492 |   |

|                         |   | For the six months ending |   |
|------------------------------|--------|---------------------------|--------|
|                         |   | June 30, 2011             |   |
|                         |   |                      |   |   | Pre-Modification |   |   | Post-Modification |   |
|                         |   |                      |   |   | Outstanding |   |   | Outstanding |   |
|                         |   | Number of Contracts       |   |   | Recorded Investment |   |   | Recorded Investment |   |
| Troubled Debt Restructurings |   |                      |   |   |   |   |   |   |   |
| Commercial                   |   |                      | 3      |   |   | $ | 1,016 |   |   | $ | 1,016 |   |
| Real Estate                  |   |                      | 2      |   |   |   | 1,306 |   |   |   | 1,306 |   |
| Home Equity                  |   |                      | 1      |   |   |   | 314 |   |   |   | 314 |   |
| Total                        |   |                      |   |   |   | $ | 2,636 |   |   | $ | 2,636 |   |

|                         |   | For the three months ending |   |
|------------------------------|--------|-----------------------------|--------|
|                         |   | June 30, 2011               |   |
|                         |   |                        |   |   | Pre-Modification |   |   | Post-Modification |   |
|                         |   |                        |   |   | Outstanding |   |   | Outstanding |   |
|                         |   | Number of Contracts         |   |   | Recorded Investment |   |   | Recorded Investment |   |
| Troubled Debt Restructurings |   |                        |   |   |   |   |   |   |   |
| Commercial                   |   |                        |   |   | $ | - |   |   | $ | - |   |
| Real Estate                  |   |                        | 1      |   |   |   | 1,040 |   |   |   | 1,040 |   |
| Home Equity                  |   |                        |   |   |   |   | - |   |   |   | - |   |
| Total                        |   |                        |   |   |   | $ | 1,040 |   |   | $ | 1,040 |   |

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|---------|---------------------------------------------------------------------------------------|

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
|---------|---------------------------------------------------------------------------------------------------|

| In thousands                                    |   | 2012   |   |   | 2011   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                            |   |   |   |   |   |   |
| Net Income from Bank Operations                 |   | $      | 2,264  |   |   | $      | 2,084 |   |
| Income or (loss) from Parent Company Activities |   |   | 11     |   |   |   | (167 | ) |
| Net Income for the six months ended June 30     |   | $      | 2,275  |   |   | $      | 1,917 |   |

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
|---------|---------------------------------------------------------------------------------------------------|

| In thousands                                      |   | 2012   |   |   | 2011   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                              |   |   |   |   |   |   |
| Net Income                                        |   | $      | 2,275  |   |   | $      | 1,917 |   |
| Non-recurring Tax Items                           |   |   | (82    | )      |   |   | 20 |   |
| Non-recurring Securities Transactions, net of tax |   |   | -      |   |   |   | (259 | ) |
| Core Earnings for the six months ended June 30    |   | $      | 2,193  |   |   | $      | 1,678 |   |

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
|---------|---------------------------------------------------------------------------------------------------|

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
|---------|---------------------------------------------------------------------------------------------------|

|                                                             |   | June 30,2012 |   |   | December 31, 2011 |   |
|------------------------------------------------------------------|--------|--------------|--------|--------|-------------------|--------|
|                                                             |   |         |   |   |              |   |
| Nonaccrual Loans                                                 |   |         |   |   |              |   |
|      Real Estate                        |   | $            | 8,066  |   |              | $      | 7,671 |   |
|      Commercial                         |   |         | 5,160  |   |              |   | 5,888 |   |
|      Home Equity                        |   |         | 180    |   |              |   | 266 |   |
|      Other                              |   |         | 37     |   |              |   | 39 |   |
|                                                             |   |         | 13,443 |   |              |   | 13,864 |   |
|                                                             |   |         |   |   |              |   |   |   |
| Loans past due 90 days or more (excluding nonaccrual)            |   |         |   |   |              |   |   |   |
|      Real Estate                        |   |         | 732    |   |              |   | 646 |   |
|      Commercial                         |   |         | 2,499  |   |              |   | - |   |
|      Home Equity                        |   |         | 165    |   |              |   | 260 |   |
|      Other                              |   |         | 111    |   |              |   | 6 |   |
|                                                             |   |         | 3,507  |   |              |   | 912 |   |
|                                                             |   |         |   |   |              |   |   |   |
| Total Nonperforming loans                                        |   | $            | 16,950 |   |              | $      | 14,776 |   |
|                                                             |   |         |   |   |              |   |   |   |
| Nonperforming loans as a percentage of loans held for investment |   |         | 3.76   | %      |              |   | 3.27 | % |
|                                                             |   |         |   |   |              |   |   |   |
| Net Charge Offs to total loans held for investment               |   |         | .25    | %      |              |   | .63 | % |
|                                                             |   |         |   |   |              |   |   |   |
| Allowance for loan and lease losses to nonperforming loans       |   |         | 44.88  | %      |              |   | 46.95 | % |

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
|---------|---------------------------------------------------------------------------------------------------|

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
|---------|---------------------------------------------------------------------------------------------------|

----

| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) |
|---------|---------------------------------------------------------------------------------------------------|

----

|                                                             |   | Six Months Ended |    |   | Six Months Ended |   |   | Three Months Ended |   |   | Three Months Ended |   |
|------------------------------------------------------------------|--------|------------------|---------|--------|------------------|--------|--------|--------------------|--------|--------|--------------------|--------|
|                                                             |   | June 30, 2012    |    |   | June 30, 2011    |   |   | June 30, 2012      |   |   | June 30, 2011      |   |
|                                                             |   |             |    |   | Income/          |   |   | Average            |   |   |               |   |   | Income/ |   |   | Average |   |   |   |   |   | Income/ |   |   | Average |   |   |   |   |   | Income/ |   |   | Average |   |
| Average                                                          |   | Balance2,4       |    |   | Expense          |   |   | Rates5             |   |   | Balance2,4         |   |   | Expense |   |   | Rates5 |   |   | Balance2,4 |   |   | Expense |   |   | Rates5 |   |   | Balance2,4 |   |   | Expense |   |   | Rates5 |   |
|                                                             |   |             |    |   |             |   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                                                  |   |             |    |   |             |   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Loans held for investment1,2       |   | $                | 452,804 |   |             | $      | 12,530 |               |   |   | 5.53               | %      |   | $ | 452,618 |   |   | $ | 13,060 |   |   |   | 5.77 | % |   | $ | 453,202 |   |   | $ | 6,249 |   |   |   | 5.52 | % |   | $ | 451,869 |   |   | $ | 6,668 |   |   |   | 5.90 | % |
|      Loans held for sale                |   |             | 32,805  |   |             |   | 596    |               |   |   | 3.63               | %      |   |   | 16,198 |   |   |   | 311 |   |   |   | 3.84 | % |   |   | 26,842 |   |   |   | 216 |   |   |   | 3.22 | % |   |   | 23,415 |   |   |   | 214 |   |   |   | 3.66 | % |
|      Federal funds sold                 |   |             | 17,548  |   |             |   | 19     |               |   |   | .22                | %      |   |   | 23,837 |   |   |   | 26 |   |   |   | .22 | % |   |   | 22,674 |   |   |   | 12 |   |   |   | .21 | % |   |   | 15,718 |   |   |   | 8 |   |   |   | .20 | % |
|      Interest bearing deposits          |   |             | 1,686   |   |             |   | 3      |               |   |   | .36                | %      |   |   | 2,454 |   |   |   | 16 |   |   |   | 1.30 | % |   |   | 1,305 |   |   |   | 1 |   |   |   | .31 | % |   |   | 2,333 |   |   |   | 8 |   |   |   | 1.37 | % |
|      Investments                        |   |             |    |   |             |   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxable 3                                                        |   |             | 13,362  |   |             |   | 109    |               |   |   | 1.63               | %      |   |   | 12,978 |   |   |   | 168 |   |   |   | 2.59 | % |   |   | 13,543 |   |   |   | 64 |   |   |   | 1.89 | % |   |   | 13,449 |   |   |   | 94 |   |   |   | 2.80 | % |
| Partially taxable                                                |   |             | 108     |   |             |   | 1      |               |   |   | 1.85               | %      |   |   | 2,902 |   |   |   | 70 |   |   |   | 4.82 | % |   |   | 108 |   |   |   | 0 |   |   |   | - |   |   |   | 2,304 |   |   |   | 37 |   |   |   | 6.42 | % |
|      Total earning assets               |   | $                | 518,313 |   |             | $      | 13,258 |               |   |   | 5.12               | %      |   | $ | 510,987 |   |   | $ | 13,651 |   |   |   | 5.34 | % |   | $ | 517,674 |   |   | $ | 6,542 |   |   |   | 5.06 | % |   | $ | 509,088 |   |   | $ | 7,029 |   |   |   | 5.52 | % |
| Interest Expense                                                 |   |             |    |   |             |   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Demand deposits                    |   |             | 122,640 |   |             |   | 663    |               |   |   | 1.08               | %      |   |   | 118,448 |   |   |   | 861 |   |   |   | 1.45 | % |   |   | 120,076 |   |   |   | 317 |   |   |   | 1.06 | % |   |   | 118,863 |   |   |   | 430 |   |   |   | 1.45 | % |
|      Savings                            |   |             | 43,513  |   |             |   | 102    |               |   |   | .47                | %      |   |   | 37,464 |   |   |   | 95 |   |   |   | .51 | % |   |   | 45,218 |   |   |   | 52 |   |   |   | .46 | % |   |   | 38,028 |   |   |   | 48 |   |   |   | .50 | % |
|      Time deposits                      |   |             | 204,717 |   |             |   | 1,515  |               |   |   | 1.48               | %      |   |   | 214,549 |   |   |   | 1,846 |   |   |   | 1.72 | % |   |   | 203,228 |   |   |   | 740 |   |   |   | 1.46 | % |   |   | 214,071 |   |   |   | 919 |   |   |   | 1.72 | % |
|      Short-term debt                    |   |             | 5,440   |   |             |   | 11     |               |   |   | .40                | %      |   |   | 4,684 |   |   |   | 9 |   |   |   | .38 | % |   |   | 4,452 |   |   |   | 5 |   |   |   | .45 | % |   |   | 4,202 |   |   |   | 4 |   |   |   | .38 | % |
|      Long-term debt                     |   |             | 51,900  |   |             |   | 1,021  |               |   |   | 3.96               | %      |   |   | 58,218 |   |   |   | 1,207 |   |   |   | 4.15 | % |   |   | 51,552 |   |   |   | 509 |   |   |   | 3.95 | % |   |   | 57,748 |   |   |   | 585 |   |   |   | 4.05 | % |
|      Total interest bearing liabilities |   | $                | 428,210 |   |             | $      | 3,319  |               |   |   | 1.55               | %      |   | $ | 433,363 |   |   | $ | 4,018 |   |   |   | 1.85 | % |   | $ | 424,526 |   |   | $ | 1,623 |   |   |   | 1.53 | % |   | $ | 432,912 |   |   | $ | 1,986 |   |   |   | 1.84 | % |
|                                                             |   |             |    |   |             |   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Tax equivalent net interest income 1                             |   |             |    |   |             | $      | 9,939  |               |   |   |               |   |   |   |   |   |   | $ | 9,633 |   |   |   |   |   |   |   |   |   |   | $ | 4,919 |   |   |   |   |   |   |   |   |   |   | $ | 5,043 |   |   |   |   |   |
|                                                             |   |             |    |   |             |   |   |               |   |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net interest margin                                              |   |             |    |   |             |   |   |               |   |   | 3.84               | %      |   |   |   |   |   |   |   |   |   |   | 3.77 | % |   |   |   |   |   |   |   |   |   |   | 3.80 | % |   |   |   |   |   |   |   |   |   |   | 3.96 | % |

----

|                                            |   |   | 0 – 3 |   |   |   | 4 – 12 |   |   |   | 1 – 5 |   |   | Over 5 |    |   | Not        |   |   |   |   |
|-------------------------------------------------|--------|--------|-------------|--------|--------|--------|--------------|--------|--------|--------|-------------|--------|--------|--------|---------|--------|------------|--------|--------|--------|--------|
|                                            |   |   | Months      |   |   |   | Months       |   |   |   | Years       |   |   | Years  |    |   | Classified |   |   | Total  |   |
| Uses of funds                                   |   |   |        |   |   |   |         |   |   |   |        |   |   |   |    |   |       |   |   |   |   |
| Loans                                           |   |   |        |   |   |   |         |   |   |   |        |   |   |   |    |   |       |   |   |   |   |
| Commercial                                      |   | $      | 35,596      |   |   | $      | 25,780       |   |   | $      | 100,678     |   |   | $      | 6,670   |   |       | $      | -      |   |   | $ | 168,724 |   |
| Installment                                     |   |   | 5,000       |   |   |   | 908          |   |   |   | 6,310       |   |   |   | 217     |   |       |   | -      |   |   |   | 12,435 |   |
| Real estate loans for investments               |   |   | 102,946     |   |   |   | 33,126       |   |   |   | 118,271     |   |   |   | 12,383  |   |       |   | -      |   |   |   | 266,726 |   |
| Loans held for sale                             |   |   | 40,984      |   |   |   | -            |   |   |   | -           |   |   |   | -       |   |       |   | -      |   |   |   | 40,984 |   |
| Credit cards                                    |   |   | 2,655       |   |   |   | -            |   |   |   | -           |   |   |   | -       |   |       |   | -      |   |   |   | 2,655 |   |
| Federal funds sold                              |   |   | 6,560       |   |   |   | -            |   |   |   | -           |   |   |   | -       |   |       |   | -      |   |   |   | 6,560 |   |
| Interest bearing bank deposits                  |   |   | 800         |   |   |   | -            |   |   |   | 248         |   |   |   | -       |   |       |   | -      |   |   |   | 1,048 |   |
| Investment securities                           |   |   | 108         |   |   |   | -            |   |   |   | 11,049      |   |   |   | 1,961   |   |       |   | -      |   |   |   | 13,118 |   |
| Total                                           |   | $      | 194,649     |   |   | $      | 59,814       |   |   | $      | 236,556     |   |   | $      | 21,231  |   |       | $      | -      |   |   | $ | 512,250 |   |
|                                            |   |   |        |   |   |   |         |   |   |   |        |   |   |   |    |   |       |   |   |   |   |   |   |   |
| Sources of funds                                |   |   |        |   |   |   |         |   |   |   |        |   |   |   |    |   |       |   |   |   |   |   |   |   |
| Interest bearing demand deposits                |   | $      | -           |   |   | $      | 29,872       |   |   | $      | 68,646      |   |   | $      | 19,387  |   |       | $      | -      |   |   | $ | 117,905 |   |
| Savings deposits                                |   |   | -           |   |   |   | 9,465        |   |   |   | 28,393      |   |   |   | 9,464   |   |       |   | -      |   |   |   | 47,322 |   |
| Certificates of deposit $100,000 and over       |   |   | 9,485       |   |   |   | 22,744       |   |   |   | 36,244      |   |   |   | -       |   |       |   | -      |   |   |   | 68,473 |   |
| Other certificates of deposit                   |   |   | 18,810      |   |   |   | 47,709       |   |   |   | 66,931      |   |   |   | -       |   |       |   | -      |   |   |   | 133,450 |   |
| Short-term borrowings                           |   |   | 4,030       |   |   |   | -            |   |   |   | -           |   |   |   | -       |   |       |   | -      |   |   |   | 4,030 |   |
| Long-term borrowings                            |   |   | 23,214      |   |   |   | 17,857       |   |   |   | 1,829       |   |   |   | 8,362   |   |       |   | -      |   |   |   | 51,262 |   |
| Total                                           |   | $      | 55,539      |   |   | $      | 127,647      |   |   | $      | 202,043     |   |   | $      | 37,213  |   |       | $      | -      |   |   | $ | 422,442 |   |
|                                            |   |   |        |   |   |   |         |   |   |   |        |   |   |   |    |   |       |   |   |   |   |   |   |   |
| Discrete Gap                                    |   | $      | 139,110     |   |   | $      | (67,833      | )      |   | $      | 34,513      |   |   | $      | (15,982 | )      |       | $      | -      |   |   | $ | 89,808 |   |
|                                            |   |   |        |   |   |   |         |   |   |   |        |   |   |   |    |   |       |   |   |   |   |   |   |   |
| Cumulative Gap                                  |   | $      | 139,110     |   |   | $      | 71,277       |   |   | $      | 105,790     |   |   | $      | 89,808  |   |       | $      | 89,808 |   |   |   |   |   |
|                                            |   |   |        |   |   |   |         |   |   |   |        |   |   |   |    |   |       |   |   |   |   |   |   |   |
| Ratio of Cumulative Gap to Total Earning Assets |   |   | 27.16       | %      |   |   | 13.91        | %      |   |   | 20.65       | %      |   |   | 17.53   | %      |       |   | 17.53  | %      |   |   |   |   |

----

| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|---------|------------------------------------------------------------|

| ITEM 4. | CONTROLS AND PROCEDURES |
|---------|-------------------------|

----

| ITEM 1.  | LEGAL PROCEEDINGS –                                           | Not Applicable |
|----------|---------------------------------------------------------------------|----------------|
|     |                                                                |           |
| ITEM 1A. | RISK FACTORS –                                                | Not Applicable |
|     |                                                                |           |
| ITEM 2.  | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS – | Not Applicable |
|     |                                                                |           |
| ITEM 3.  | DEFAULTS UPON SENIOR SECURITIES –                             | Not Applicable |
|     |                                                                |           |
| ITEM 4.  | MINE SAFETY DISCLOSURES                                             | Not Applicable |
|     |                                                                |           |
| ITEM 5.  | OTHER INFORMATION –                                           | Not Applicable |
| ITEM 6. | 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). |
|   |                                                                                                                                                                                            |
| 101    | Interactive Data File                                                                                                                                                                           |

----

|            | F & M BANK CORP. |                                                 |
|-----------------|----------------------|------------------------------------------------------|
|            |                 |                                                 |   |
| August 13, 2012 | By:                  | /s/ Dean W. Withers                                  |   |
|            |                 | Dean W. Withers                                      |   |
|            |                 | President and Chief Executive Officer                |   |
|            |                 |                                                 |   |
|            | By:                  | /s/ Neil W. Hayslett                                 |   |
|            |                 | Neil W. Hayslett                                     |   |
|            |                 | Executive Vice President and Chief Financial Officer |   |

----