##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-Q
 þ
    
    Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2010.
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 000-13273
 F & M BANK CORP.
 Virginia
    
    54-1280811(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 
 (Registrants Telephone Number, Including Area Code)
 þ o
  Large accelerated filer o
    

Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    

Smaller reporting Company þ
 o þ
  Class
    
    
    Outstanding at May 5, 2010Common Stock, par value  $5
    
    
    2,296,378 shares




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##### 



F & M BANK CORP.
 Index
 PagePart I Financial Information
    
    
    2Item 1. Financial StatementsConsolidated Statements of Income  Three Months
Ended March 31, 2010 and 2009
    
    

    2Consolidated Balance Sheets  March 31, 2010
and December 31, 2009
    
    

    3Consolidated Statements of Cash Flows  Three Months
Ended March 31, 2010 and 2009
    
    

    4Consolidated Statements of Changes in Stockholders
Equity  Three Months March 31, 2010 and 2009
    
    

    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    

    12Item 3. Quantitative and Qualitative Disclosures About
Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23Part II Other Information
    
    
    24Item 1. Legal Proceedings
    
    
    24Item 1a. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
    
    
    24Item 3. Defaults upon Senior Securities
    
    
    24Item 4. Removed and reserved
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25Certifications
    
    
    26EX-31.1EX-31.2EX-32




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##### Table of Contents



F & M BANK CORP.

Consolidated Statements of Income
(In Thousands of Dollars Except per Share Amounts)
(Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Interest incomeInterest and fees on loans held for investment
    
    $
    6,473
    
    
    $
    6,186Interest and fees on loans held for sale
    
    
    155
    
    
    
    227Interest on federal funds sold
    
    
    13
    
    
    
    1Interest on interest bearing deposits
    
    
    5
    
    
    
    14Dividends on equity securities
    
    
    48
    
    
    
    46Interest on debt securities
    
    
    113
    
    
    
    227Total interest income
    
    
    6,807
    
    
    
    6,701Interest expenseInterest on demand deposits
    
    
    458
    
    
    
    234Interest on savings accounts
    
    
    46
    
    
    
    63Interest on time deposits over $100,000
    
    
    416
    
    
    
    559Interest on time deposits
    
    
    848
    
    
    
    1,213Total interest on deposits
    
    
    1,768
    
    
    
    2,069Interest on short-term debt
    
    
    7
    
    
    
    28Interest on long-term debt
    
    
    629
    
    
    
    604Total Interest Expense
    
    
    2,404
    
    
    
    2,701Net interest income
    
    
    4,403
    
    
    
    4,000Provision for loan losses
    
    
    900
    
    
    
    210Net interest income after provision for loan losses
    
    
    3,503
    
    
    
    3,790Noninterest incomeService charges
    
    
    305
    
    
    
    286Insurance and other commissions
    
    
    81
    
    
    
    102Other
    
    
    270
    
    
    
    189Income on bank owned life insurance
    
    
    73
    
    
    
    90Other than temporary impairment losses
    
    
    
    
    
    
    (330
    )Gain (loss) on the sale of securities
    
    
    30Total noninterest income
    
    
    759
    
    
    
    337Noninterest expenseSalaries
    
    
    1,317
    
    
    
    1,236Employee benefits
    
    
    420
    
    
    
    428Occupancy expense
    
    
    148
    
    
    
    139Equipment expense
    
    
    146
    
    
    
    132Intangible amortization
    
    
    69
    
    
    
    69FDIC insurance assessment
    
    
    282
    
    
    
    59Other
    
    
    764
    
    
    
    731Total noninterest expense
    
    
    3,146
    
    
    
    2,794Income before income taxes
    
    
    1,116
    
    
    
    1,333Income taxes
    
    
    357
    
    
    
    432Consolidated net income
    
    
    759
    
    
    
    901Net income  Noncontrolling interest
    
    
    (3
    )
    
    
    (17
    )Net Income  F & M Bank Corp.
    
    $
    756
    
    
    $
    884Per share dataNet income
    
    $
    .33
    
    
    $
    .39Cash dividends
    
    $
    .15
    
    
    $
    .23Weighted average shares outstanding
    
    
    2,295,643
    
    
    
    2,288,563
 2




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##### Table of Contents



F & M BANK CORP.

Consolidated Balance Sheets
(In Thousands of Dollars Except per Share Amounts)
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    5,027
    
    
    $
    5,314Federal funds sold
    
    
    7,467
    
    
    
    18,326Cash and cash equivalents
    
    
    12,494
    
    
    
    23,640Interest bearing deposits in banks
    
    
    5,210
    
    
    
    65Securities:Held to maturity  fair value of $110,000 in 2010
and 2009, respectively (note 2)
    
    
    110
    
    
    
    110Available for sale (note 2)
    
    
    16,627
    
    
    
    16,430Other investments
    
    
    9,578
    
    
    
    9,681Loans held for sale
    
    
    22,153
    
    
    
    31,168Loans held for investment (note 3)
    
    
    440,750
    
    
    
    434,403Less allowance for loan losses (note 4)
    
    
    (4,510
    )
    
    
    (3,836
    )Net loans held for investment
    
    
    436,240
    
    
    
    430,567Other real estate owned
    
    
    1,465
    
    
    
    526Bank premises and equipment, net
    
    
    6,945
    
    
    
    7,080Interest receivable
    
    
    1,910
    
    
    
    2,038Core deposit intangible
    
    
    253
    
    
    
    322Goodwill
    
    
    2,670
    
    
    
    2,670Bank owned life insurance
    
    
    6,664
    
    
    
    6,593Other assets
    
    
    8,455
    
    
    
    8,333Total assets
    
    $
    530,774
    
    
    $
    539,223LiabilitiesDeposits:Noninterest bearing
    
    $
    53,705
    
    
    $
    53,475Interest bearing:Demand
    
    
    84,987
    
    
    
    77,483Money market accounts
    
    
    21,432
    
    
    
    23,231Savings
    
    
    35,138
    
    
    
    34,229Time deposits over $100,000
    
    
    87,705
    
    
    
    99,330All other time deposits
    
    
    133,329
    
    
    
    132,895Total deposits
    
    
    416,296
    
    
    
    420,643Short-term debt
    
    
    4,520
    
    
    
    9,084Accrued liabilities
    
    
    7,138
    
    
    
    7,398Subordinated debt
    
    
    3,806
    
    
    
    2,715Long-term debt
    
    
    59,107
    
    
    
    60,381Total liabilities
    
    
    490,867
    
    
    
    500,221Stockholders EquityCommon stock, $5 par value, 6,000,000 shares authorized,
2,296,428 and 2,295,053 shares issued and outstanding
in 2010 and 2009, respectively
    
    
    11,482
    
    
    
    11,475Retained earnings
    
    
    28,425
    
    
    
    27,989Noncontrolling interest
    
    
    100
    
    
    
    123Accumulated other comprehensive income (loss)
    
    
    (100
    )
    
    
    (585
    )Total stockholders equity
    
    
    39,907
    
    
    
    39,002Total liabilities and stockholders equity
    
    $
    530,774
    
    
    $
    539,223
 3




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##### Table of Contents



F & M BANK CORP.
 
 Consolidated Statements of Cash Flows
(In Thousands of Dollars)
(Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Cash flows from operating activitiesNet income
    
    $
    756
    
    
    $
    884Adjustments to reconcile net income to net
cash provided (used) by operating activities:Depreciation
    
    
    163
    
    
    
    158Amortization (accretion) of security premiums (discounts)
    
    
    15
    
    
    
    11Net (increase) decrease in loans held for sale
    
    
    9,015
    
    
    
    (15,937
    )Provision for loan losses
    
    
    900
    
    
    
    210Intangible amortization
    
    
    69
    
    
    
    69(Increase) decrease in interest receivable
    
    
    127
    
    
    
    (9
    )(Increase) decrease in other assets
    
    
    (1,385
    )
    
    
    357Increase in accrued expenses
    
    
    375
    
    
    
    (114
    )(Gain)/loss on security transactions
    
    
    (30
    )
    
    
    330Amortization of limited partnership investments
    
    
    103
    
    
    
    93Income from life insurance investment
    
    
    (71
    )
    
    
    (71
    )Net adjustments
    
    
    9,281
    
    
    
    (14,903
    )Net cash provided (used) by operating activities
    
    
    10,037
    
    
    
    (14,019
    )Cash flows from investing activitiesPurchase of investments available for sale
    
    
    (7,048
    )
    
    
    (736
    )Proceeds from sales of investments available for sale
    
    
    853
    
    
    
    4Proceeds from maturity of investments available for sale
    
    
    6,677
    
    
    
    529Proceeds from maturity of investments held to maturity
Net increase in loans held for investment
    
    
    (7,096
    )
    
    
    (9,552
    )Purchase of property and equipment
    
    
    (28
    )
    
    
    (97
    )Net (increase) decrease in interest bearing bank deposits
    
    
    (5,145
    )
    
    
    (251
    )Net cash used in investing activities
    
    
    (11,787
    )
    
    
    (10,103
    )Cash flows from financing activitiesNet change in demand and savings deposits
    
    
    6,844
    
    
    
    6,722Net change in time deposits
    
    
    (11,191
    )
    
    
    15,375Net change in short-term debt
    
    
    (4,565
    )
    
    
    (6,836
    )Cash dividends paid
    
    
    (332
    )
    
    
    (528
    )Repurchase of common stock
    
    
    
    
    
    
    (54
    )Proceeds from sale of common stock
    
    
    31Change in federal funds purchasedProceeds of long-term debt
    
    
    7,250
    
    
    
    7,250Repayment of long-term debt
    
    
    (7,433
    )
    
    
    (6,202
    )Net cash provided (used) by financing activities
    
    
    (9,396
    )
    
    
    15,727Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (11,146
    )
    
    
    (8,395
    )Cash and cash equivalents, beginning of period
    
    
    23,640
    
    
    
    13,208Cash and cash equivalents, end of period
    
    $
    12,494
    
    
    $
    4,813Supplemental disclosureCash paid for:Interest expense
    
    $
    7,753
    
    
    $
    2,805Income taxes
 4




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F & M BANK CORP.
 
 Consolidated Statements of Changes in Stockholders Equity

(In Thousands of Dollars)
(Unaudited)
 Three Months EndedMarch 31,2010
    
    
    2009Balance, beginning of period
    
    $
    39,002
    
    
    $
    36,258Comprehensive incomeNet income  F & M Bank Corp.
    
    
    756
    
    
    
    867Net income  Noncontrolling interest
    
    
    (23
    )
    
    
    17Net change in unrealized appreciation on securities
available for sale, net of taxes
    
    
    485
    
    
    
    (396
    )Total comprehensive income
    
    
    1,218
    
    
    
    488Issuance of Common Stock
    
    
    31Repurchase of common stock
    
    
    
    
    
    
    (54
    )Dividends declared
    
    
    (344
    )
    
    
    (528
    )Balance, end of period
    
    $
    39,907
    
    
    $
    36,164
 5




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##### Table of Contents



F & M BANK CORP.
 
 Notes to Consolidated Financial Statements
 Note 1. Accounting Principles
    Comprehensive Income
   March 31,
    
    
    March 31,2010
    
    
    2009Changes in:Net Income:Net Income  F & M Bank Corp.
    
    $
    756
    
    
    $
    867Net Income  Noncontrolling Interest
    
    
    (23
    )
    
    
    17733
    
    
    
    884Unrealized holding gains (losses)
on available-for-sale securities:
    
    
    765
    
    
    
    (930
    )Other than temporary impairment losses
    
    
    
    
    
    
    330Reclassification adjustment for
(gains) losses realized in income
    
    
    (30
    )Net unrealized gains (losses)
    
    
    735
    
    
    
    (600
    )Tax effect
    
    
    250
    
    
    
    204Unrealized holding gain (losses), net of tax
    
    
    485
    
    
    
    (396
    )Net change in comprehensive income
    
    $
    1,218
    
    
    $
    488
 Subsequent Events
  6




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 2. Investment Securities
  2010
    
    
    2009Market
    
    
    
    
    
    
    MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueSecurities held to maturityU. S. Treasury and agency obligations
    
    $
    110
    
    
    $
    110
    
    
    $
    110
    
    
    $
    110Total
    
    $
    110
    
    
    $
    110
    
    
    $
    110
    
    
    $
    110
 2010
    
    
    2009Market
    
    
    
    
    
    
    MarketValue
    
    
    Cost
    
    
    Value
    
    
    CostSecurities available for saleGovernment sponsored enterprises
    
    $
    6,988
    
    
    $
    6,975
    
    
    $
    6,012
    
    
    $
    5,976Equity securities
    
    
    3,523
    
    
    
    2,979
    
    
    
    3,743
    
    
    
    3,768Mortgage-backed securities
    
    
    5,527
    
    
    
    5,217
    
    
    
    6,170
    
    
    
    5,896Corporate Bonds
    
    
    589
    
    
    
    281
    
    
    
    505
    
    
    
    281MunicipalsTotal
    
    $
    16,627
    
    
    $
    15,452
    
    
    $
    16,430
    
    
    $
    15,921
  Securities Held to Maturity
    
    
    Securities Available for SaleAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    110
    
    
    $
    110
    
    
    $
    1,288
    
    
    $
    1,286Due after one year through five years
    
    
    
    
    
    
    
    
    
    
    5,974
    
    
    
    5,988Due after five years
    
    
    
    
    
    
    
    
    
    
    5,211
    
    
    
    5,830110
    
    
    
    110
    
    
    
    12,473
    
    
    
    13,104Marketable equities
    
    
    
    
    
    
    
    
    
    
    2,979
    
    
    
    3,523Total
    
    $
    110
    
    
    $
    110
    
    
    $
    15,452
    
    
    $
    16,627
  2010
    
    
    2009Gains
    
    $
    114
    
    
    $Losses
    
    
    (84
    )Net Gains (Losses)
    
    $
    30
    
    
    $
 7




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 3. Loans Held for Investment
  2010
    
    
    2009Real EstateConstruction
    
    $
    85,925
    
    
    $
    86,320Residential
    
    
    181,747
    
    
    
    191,382Commercial and agricultural
    
    
    151,553
    
    
    
    134,993Consumer loans to individuals
    
    
    18,953
    
    
    
    19,247Credit cards
    
    
    2,489
    
    
    
    2,355Other
    
    
    83
    
    
    
    106Total
    
    $
    440,750
    
    
    $
    434,403
 Note 4. Allowance for Loan Losses
  Three Months EndedMarch 31,2010
    
    
    2009Balance, beginning of period
    
    $
    3,836
    
    
    $
    2,189Provisions charged to operating expenses
    
    
    900
    
    
    
    210Net (charge-offs) recoveries:Loan recoveries
    
    
    27
    
    
    
    12Loan charge-offs
    
    
    (253
    )
    
    
    (30
    )Total Net (Charge-Offs) Recoveries*
    
    
    (226
    )
    
    
    (18
    )Balance, End of Period
    
    $
    4,510
    
    
    $
    2,381* Components of Net (Charge-Offs) RecoveriesReal Estate
    
    
    (184
    )CommercialConsumer and other
    
    
    (42
    )
    
    
    (18
    )Total
    
    $
    (226
    )
    
    $
    (18
    )
 Note 5. Employee Benefit Plan
  2010
    
    
    2009Service cost
    
    $
    96,979
    
    
    $
    89,700Interest cost
    
    
    79,250
    
    
    
    68,333Expected return on plan assets
    
    
    (120,427
    )
    
    
    (78,428
    )Amortization of net obligation at transitionAmortization of prior service cost
    
    
    (1,325
    )
    
    
    (1,325
    )Amortization of net (gain) or loss
    
    
    16,378
    
    
    
    31,051Net periodic benefit cost
    
    $
    70,855
    
    
    $
    109,331
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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 6. Fair Value
  Level
1
 Level
2
 Level
3
     Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  March 31, 2010
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Government sponsored enterprises
    
    
    6,988
    
    
    
    
    
    
    
    6,988Mortgage-backed obligations of
federal agencies
    
    
    5,527
    
    
    
    
    
    
    
    5,527Marketable Equities
    
    
    3,523
    
    
    
    3,523Corporate Bonds
    
    
    589
    
    
    
    589Investment securities available for sale
    
    
    16,627
    
    
    
    4,112
    
    
    
    12,515Total assets at fair value
    
    
    16,627
    
    
    
    4,112
    
    
    
    12,515Total liabilities at fair value
 9




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 6. Fair Value, continued
 December 31, 2009
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Government sponsored enterprises
    
    
    6,013
    
    
    
    
    
    
    
    6,013Mortgage-backed obligations of
federal agencies
    
    
    6,170
    
    
    
    
    
    
    
    6,170Marketable Equities
    
    
    3,743
    
    
    
    3,743Corporate Bonds
    
    
    504
    
    
    
    504Investment securities available for sale
    
    
    16,430
    
    
    
    4,247
    
    
    
    12,183Total assets at fair value
    
    
    16,430
    
    
    
    4,247
    
    
    
    12,183Total liabilities at fair value
 Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis
  March 31, 2010
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Loans Held for Sale
    
    
    22,153
    
    
    
    
    
    
    
    22,153Other Real Estate Owned
    
    
    1,465
    
    
    
    
    
    
    
    1,465Real Estate
    
    
    972
    
    
    
    
    
    
    
    972Commercial
    
    
    5,986
    
    
    
    
    
    
    
    5,986ConsumerImpaired loans
    
    
    6,958
    
    
    
    
    
    
    
    6,958Total assets at fair value
    
    
    30,576
    
    
    
    
    
    
    
    30,576Total liabilities at fair value
 December 31, 2009
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Loans Held for Sale
    
    
    31,168
    
    
    
    
    
    
    
    31,168Other Real Estate Owned
    
    
    526
    
    
    
    
    
    
    
    526Real Estate
    
    
    1,123
    
    
    
    
    
    
    
    1,123Commercial
    
    
    5,585
    
    
    
    
    
    
    
    5,585ConsumerImpaired loans
    
    
    6,708
    
    
    
    
    
    
    
    6,708Total assets at fair value
    
    
    38,402
    
    
    
    
    
    
    
    38,402Total liabilities at fair value
  10




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##### Table of Contents



F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7. Disclosures About Fair Value of Financial Instruments
  March 31, 2010
    
    
    December 31, 2009Estimated
    
    
    Carrying
    
    
    Estimated
    
    
    CarryingFair Value
    
    
    Value
    
    
    Fair Value
    
    
    ValueFinancial AssetsCash
    
    $
    5,027
    
    
    $
    5,027
    
    
    $
    5,314
    
    
    $
    5,314Interest bearing deposits
    
    
    5,207
    
    
    
    5,210
    
    
    
    65
    
    
    
    65Federal funds sold
    
    
    7,467
    
    
    
    7,467
    
    
    
    18,326
    
    
    
    18,326Securities available for sale
    
    
    16,627
    
    
    
    16,627
    
    
    
    16,430
    
    
    
    16,430Securities held to maturity
    
    
    110
    
    
    
    110
    
    
    
    110
    
    
    
    110Other investments
    
    
    9,578
    
    
    
    9,578
    
    
    
    9,681
    
    
    
    9,681Loans
    
    
    472,337
    
    
    
    440,750
    
    
    
    481,967
    
    
    
    434,403Loan held for sale
    
    
    22,153
    
    
    
    22,153
    
    
    
    31,168
    
    
    
    31,168Bank owned life insurance
    
    
    6,664
    
    
    
    6,664
    
    
    
    6,593
    
    
    
    6,593Accrued interest receivable
    
    
    1,910
    
    
    
    1,910
    
    
    
    2,038
    
    
    
    2,038Financial LiabilitiesDemand Deposits:Non-interest bearing
    
    
    53,705
    
    
    
    53,705
    
    
    
    53,475
    
    
    
    53,475Interest bearing
    
    
    106,419
    
    
    
    106,419
    
    
    
    100,714
    
    
    
    100,714Savings deposits
    
    
    35,138
    
    
    
    35,138
    
    
    
    34,229
    
    
    
    34,229Time deposits
    
    
    222,368
    
    
    
    221,034
    
    
    
    234,032
    
    
    
    232,225Accrued liabilities
    
    
    7,138
    
    
    
    7,138
    
    
    
    7,534
    
    
    
    7,396Short-term debt
    
    
    4,520
    
    
    
    4,520
    
    
    
    9,085
    
    
    
    9,085Subordinated debt
    
    
    3,806
    
    
    
    3,806
    
    
    
    2,715
    
    
    
    2,715Long-term debt
    
    
    59,931
    
    
    
    59,107
    
    
    
    61,216
    
    
    
    60,381
  11




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
     Forward-Looking Statements
    12




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Critical Accounting Policies
 General
  Allowance for Loan Losses
 , ,
 Goodwill and Intangibles
   Securities Impairment
 Other Than Temporary
Impairment
 
    
    The length of time of impairment;
    
    The extent of the impairment relative to the cost of the investment;
    
    Recent volatility in the market value of the investment;
    
    The financial condition and near-term prospects of the issuer, including any specific
events which may impair the earnings potential of the issuer; or
    
    The intent and ability of the Company to hold its investment for a period of time
sufficient to allow for any anticipated recovery in market value.
 13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Securities Impairment, continued
  
    
    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.
This factor is only considered when the declines in value were not limited to the
individual security, but were prevalent over the broader market. This measure is considered
to aid in determining whether OTTI should be recognized earlier, rather than later (ie. a
security which underperforms relative to the industry or market will result in early
recognition of OTTI). In no event will OTTI recognition be delayed beyond the two year
projection period.
    
    OTTI may be recognized as early as quarter 1, regardless of holding period projections,
when there are specific factors relative to the security which make recovery unlikely.
These factors could include evidence contained in the aforementioned SEC filings, press
releases, analyst reports, but may also be based on the severity of the impairment.
    
    Situations where a security has declined in value more rapidly than the industry (or
market), absent strong evidence supporting prospects for recover, 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 and included in
gain (loss) on security sales.
  Overview
  In thousands
    
    2010
    
    
    2009Net Income from Bank Operations
    
    $
    799
    
    
    $
    1,136Income or loss from Parent Company Activities
    
    
    (43
    )
    
    
    (252
    )Net Income for the year
    
    
    756
    
    
    
    884
 14




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
  In thousands
    
    2010
    
    
    2009Net Income
    
    $
    756
    
    
    $
    884Non-recurring Tax Items
    
    
    11
    
    
    
    (16
    )Non-recurring Securities Transactions
    
    
    (19
    )
    
    
    217Core Earnings
    
    
    748
    
    
    
    1,085
  Results of Operations
      Financial Condition
 Federal Funds Sold and Interest Bearing Bank Deposits
  15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Securities
      Loan Portfolio
    16




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations (Continued)
   March 31, 2010
    
    
    December 31, 2009Nonaccrual Loans:Real Estate
    
    
    1,699
    
    
    
    3,245Commercial
    
    
    4,173
    
    
    
    261Other
    
    
    426Loans past due 90 days or more:Real Estate
    
    
    2,231
    
    
    
    3,850Commercial
    
    
    339
    
    
    
    57Other
    
    
    108
    
    
    
    240Total Nonperforming loans
    
    
    8,976
    
    
    
    7,653Nonperforming loans as a percentage of loans held for
investment
    
    
    2.04
    %
    
    
    1.76
    %Net Charge Offs to Total Loans
    
    
    .05
    %
    
    
    .59
    %Allowance for loan and lease losses to nonperforming loans
    
    
    50.25
    %
    
    
    50.12
    %
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Allowance for Loan Losses
        18




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Deposits and Other Borrowings
  Short-term debt
  Long-term debt
    Capital
  19




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Liquidity
   Interest Rate Sensitivity
    Stock Repurchase
  Effect of Newly Issued Accounting Standards
   Existence of Securities and Exchange Commission Web Site
  20




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##### Table of Contents



TABLE 1
 F & M BANK CORP.
Net Interest Margin Analysis
(on a fully taxable equivalent basis)
 (Dollar Amounts in Thousands)
 Three Months Ended
    
    
    Three Months EndedMarch 31, 2010
    
    
    March 31, 2009Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/Balance2
    
    
    Expense
    
    
    Rates
    
    
    Balance2
    
    
    Expense
    
    
    RatesInterest incomeLoans held for investment1,2
    
    $
    438,277
    
    
    $
    6,500
    
    
    
    5.93
    %
    
    $
    403,984
    
    
    $
    6,219
    
    
    
    6.16
    %Loans held for sale
    
    
    15,873
    
    
    
    155
    
    
    
    3.91
    %
    
    
    23,204
    
    
    
    227
    
    
    
    3.91
    %Federal funds sold
    
    
    23,176
    
    
    
    13
    
    
    
    .22
    %
    
    
    2,089
    
    
    
    1
    
    
    
    .19
    %Interest bearing deposits
    
    
    3,040
    
    
    
    4
    
    
    
    .53
    %
    
    
    1,306
    
    
    
    13
    
    
    
    3.98
    %InvestmentsTaxable 3
    
    
    12,928
    
    
    
    110
    
    
    
    3.40
    %
    
    
    18,304
    
    
    
    225
    
    
    
    4.92
    %Partially taxable
    
    
    4,180
    
    
    
    65
    
    
    
    6.22
    %
    
    
    2,902
    
    
    
    59
    
    
    
    8.13
    %Tax exempt 2,3
    
    
    
    
    
    
    
    
    
    
    
    %

    
    
    125
    
    
    
    3
    
    
    
    9.70
    %Total earning assets
    
    $
    497,474
    
    
    $
    6,847
    
    
    
    5.51
    %
    
    $
    451,914
    
    
    $
    6,747
    
    
    
    5.97
    %Interest ExpenseDemand deposits
    
    
    103,345
    
    
    
    458
    
    
    
    1.77
    %
    
    
    63,884
    
    
    
    234
    
    
    
    1.47
    %Savings
    
    
    33,508
    
    
    
    46
    
    
    
    .55
    %
    
    
    30,168
    
    
    
    63
    
    
    
    .84
    %Time deposits
    
    
    230,585
    
    
    
    1,264
    
    
    
    2.19
    %
    
    
    209,334
    
    
    
    1,772
    
    
    
    3.39
    %Short-term debt
    
    
    5,650
    
    
    
    7
    
    
    
    .50
    %
    
    
    20,246
    
    
    
    28
    
    
    
    .55
    %Long-term debt
    
    
    59,939
    
    
    
    629
    
    
    
    4.20
    %
    
    
    70,785
    
    
    
    604
    
    
    
    3.41
    %Total interest bearing liabilities
    
    $
    433,027
    
    
    $
    2,404
    
    
    
    .2.22
    %
    
    $
    394,417
    
    
    $
    2,701
    
    
    
    2.74
    %Net interest margin 1
    
    
    
    
    
    $
    4,443
    
    
    
    
    
    
    
    
    
    
    $
    4,046Net yield on interest earning assets
    
    
    
    
    
    
    
    
    
    
    3.57
    %
    
    
    
    
    
    
    
    
    
    
    3.58
    %
 
 1
    
    Interest income on loans includes loan fees.2
    
    An incremental income tax rate of 34% was used to calculate the tax equivalent income
on nontaxable and partially taxable investments and loans.3
    
    Average balance information is reflective of historical cost and has not been adjusted
for changes in market value. 21




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##### Table of Contents



TABLE II
 F & M BANK CORP.
Interest Sensitivity Analysis
March 31, 2010
 (In Thousands of Dollars)
  0 - 3
    
    
    4 - 12
    
    
    1 - 5
    
    
    Over 5
    
    
    NotMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    Classified
    
    
    TotalUses of fundsLoansCommercial
    
    $
    102,895
    
    
    $
    21,194
    
    
    $
    93,198
    
    
    $
    6,823
    
    
    $
    
    
    
    $
    224,110Installment
    
    
    10,128
    
    
    
    1,189
    
    
    
    7,353
    
    
    
    612
    
    
    
    
    
    
    
    19,282Real estate for investments
    
    
    43,751
    
    
    
    14,024
    
    
    
    121,506
    
    
    
    15,588
    
    
    
    
    
    
    
    194,869Real estate held for sale
    
    
    22,153
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,153Credit cards
    
    
    2,489
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,489Federal funds sold
    
    
    7,467
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,467Interest bearing bank deposits
    
    
    5,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,210Investment securities
    
    
    56
    
    
    
    1,340
    
    
    
    5,988
    
    
    
    5,241
    
    
    
    4,112
    
    
    
    16,737Total
    
    
    194,149
    
    
    
    37,747
    
    
    
    228,045
    
    
    
    28,264
    
    
    
    4,112
    
    
    
    492,317Sources of fundsInterest bearing demand deposits
    
    
    
    
    
    
    27,714
    
    
    
    61,708
    
    
    
    16,997
    
    
    
    
    
    
    
    106,419Savings deposits
    
    
    
    
    
    
    7,027
    
    
    
    21,083
    
    
    
    7,028
    
    
    
    
    
    
    
    35,138Certificates of deposit
$100,000 and over
    
    
    21,895
    
    
    
    31,464
    
    
    
    34,346
    
    
    
    
    
    
    
    
    
    
    
    87,705Other certificates of deposit
    
    
    25,686
    
    
    
    59,830
    
    
    
    47,813
    
    
    
    
    
    
    
    
    
    
    
    133,329Short-term borrowings
    
    
    4,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,520Long-term borrowings
    
    
    1,023
    
    
    
    11,096
    
    
    
    46,988
    
    
    
    3,806
    
    
    
    
    
    
    
    62,913Total
    
    $
    53,124
    
    
    $
    137,131
    
    
    $
    211,938
    
    
    $
    27,831
    
    
    $
    
    
    
    $
    430,024Discrete Gap
    
    
    141,025
    
    
    
    (99,384
    )
    
    
    16,107
    
    
    
    433
    
    
    
    4,112
    
    
    
    62,293Cumulative Gap
    
    
    141,025
    
    
    
    41,641
    
    
    
    57,748
    
    
    
    58,181
    
    
    
    62,293Ratio of Cumulative
Gap to Total Earning Assets
    
    
    28.65
    %
    
    
    8.46
    %
    
    
    11.73
    %
    
    
    11.82
    %
    
    
    12.65
    %
 
  22




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls
  23




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##### Table of Contents



Part II Other Information
 Item 1. Legal Proceedings 
    
    Not ApplicableItem 1a. Risk Factors 
    
    Not ApplicableItem 2. Unregistered Sales of Equity Securities and Use of Proceeds 
    
    Not ApplicableItem 3. Defaults Upon Senior Securities 
    
    Not ApplicableItem 4. Removed and reserved-Item 5. Other Information 
    
    Not ApplicableItem 6. Exhibits
 (a)
    
    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).
 24




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##### Table of Contents



Signatures
  F & M BANK CORP./s/ DEAN W. WITHERSDean W. WithersPresident and Chief Executive Officer/s/ NEIL W. HAYSLETTNeil W. HayslettExecutive Vice President and Chief Financial Officer  25