##### 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 June 30, 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
 o 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 August 5, 2010Common Stock, par value  $5
    
    2,297,946 shares




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##### 



F & M BANK CORP.
 Index
 PagePart I Financial Information
    
    
    2Item 1. Financial StatementsConsolidated Statements of Income  Three Months
Ended June 30, 2010 and 2009
    
    
    2Consolidated Statements of Income  Six Months
Ended June 30, 2010 and 2009
    
    
    3Consolidated Balance Sheets  June 30, 2010
and December 31, 2009
    
    
    4Consolidated Statements of Cash Flows  Six Months
Ended June 30, 2010 and 2009
    
    
    5Consolidated Statements of Changes in Stockholders
Equity  Six Months June 30, 2010 and 2009
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4. Controls and Procedures
    
    
    25Part II Other Information
    
    
    26Item 1. Legal Proceedings
    
    
    26Item 1a. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults upon Senior Securities
    
    
    26Item 4. Removed and reserved
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26Signatures
    
    
    27Certifications
    
    
    28EX-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 EndedJune 30,2010
    
    
    2009Interest incomeInterest and fees on loans held for investment
    
    $
    6,421
    
    
    $
    6,417Interest and fees on loans held for sale
    
    
    307
    
    
    
    324Interest on federal funds sold
    
    
    4
    
    
    
    1Interest on interest bearing deposits
    
    
    7
    
    
    
    12Dividends on equity securities
    
    
    57
    
    
    
    58Interest on debt securities
    
    
    106
    
    
    
    207Total interest income
    
    
    6,902
    
    
    
    7,019Interest expenseInterest on demand deposits
    
    
    505
    
    
    
    281Interest on savings accounts
    
    
    50
    
    
    
    45Interest on time deposits over $100,000
    
    
    372
    
    
    
    544Interest on time deposits
    
    
    767
    
    
    
    1,099Total interest on deposits
    
    
    1,694
    
    
    
    1,969Interest on short-term debt
    
    
    6
    
    
    
    28Interest on long-term debt
    
    
    552
    
    
    
    551Total Interest Expense
    
    
    2,252
    
    
    
    2,548Net interest income
    
    
    4,650
    
    
    
    4,471Provision for loan losses
    
    
    900
    
    
    
    310Net interest income after provision for loan losses
    
    
    3,750
    
    
    
    4,161Noninterest incomeService charges
    
    
    309
    
    
    
    315Insurance and other commissions
    
    
    115
    
    
    
    113Other
    
    
    397
    
    
    
    432Income on bank owned life insurance
    
    
    94
    
    
    
    90Other than temporary impairment losses
    
    
    
    
    
    
    (496
    )Gain (loss) on the sale of securities
    
    
    
    
    
    
    (5
    )Total noninterest income
    
    
    915
    
    
    
    449Noninterest expenseSalaries
    
    
    1,261
    
    
    
    1,251Employee benefits
    
    
    341
    
    
    
    453Occupancy expense
    
    
    144
    
    
    
    144Equipment expense
    
    
    152
    
    
    
    136Intangible amortization
    
    
    69
    
    
    
    69FDIC insurance assessment
    
    
    297
    
    
    
    221Other
    
    
    979
    
    
    
    814Total noninterest expense
    
    
    3,243
    
    
    
    3,088Income before income taxes
    
    
    1,422
    
    
    
    1,522Income taxes
    
    
    422
    
    
    
    402Consolidated net income
    
    
    1,000
    
    
    
    1,120Net income  Noncontrolling interest
    
    
    (20
    )
    
    
    (29
    )Net Income  F & M Bank Corp
    
    $
    980
    
    
    $
    1,091Per share dataNet income
    
    $
    .43
    
    
    $
    .48Cash dividends
    
    $
    .15
    
    
    $
    .23Weighted average shares outstanding
    
    
    2,297,096
    
    
    
    2,289,675
  2




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F & M BANK CORP.
 
 Consolidated Statements of Income  (In Thousands of Dollars Except per Share Amounts)  (Unaudited)
 Six Months EndedJune 30,2010
    
    
    2009Interest incomeInterest and fees on loans held for investment
    
    $
    12,892
    
    
    $
    12,603Interest and fees on loans held for sale
    
    
    464
    
    
    
    551Interest on federal funds sold
    
    
    17
    
    
    
    2Interest on interest bearing deposits
    
    
    12
    
    
    
    26Dividends on equity securities
    
    
    105
    
    
    
    104Interest on debt securities
    
    
    219
    
    
    
    434Total interest income
    
    
    13,709
    
    
    
    13,720Interest expenseInterest on demand deposits
    
    
    963
    
    
    
    515Interest on savings accounts
    
    
    96
    
    
    
    108Interest on time deposits over $100,000
    
    
    788
    
    
    
    1,103Interest on time deposits
    
    
    1,615
    
    
    
    2,312Total interest on deposits
    
    
    3,462
    
    
    
    4,038Interest on short-term debt
    
    
    13
    
    
    
    56Interest on long-term debt
    
    
    1,181
    
    
    
    1,155Total Interest Expense
    
    
    4,656
    
    
    
    5,249Net interest income
    
    
    9,053
    
    
    
    8,471Provision for loan losses
    
    
    1,800
    
    
    
    520Net interest income after provision for loan losses
    
    
    7,253
    
    
    
    7,951Noninterest incomeService charges
    
    
    614
    
    
    
    601Insurance and other commissions
    
    
    196
    
    
    
    215Other
    
    
    667
    
    
    
    621Income on bank owned life insurance
    
    
    167
    
    
    
    180Other than temporary impairment losses
    
    
    
    
    
    
    (826
    )Gain (loss) on the sale of securities
    
    
    30
    
    
    
    (5
    )Total noninterest income
    
    
    1,674
    
    
    
    786Noninterest expenseSalaries
    
    
    2,578
    
    
    
    2,487Employee benefits
    
    
    761
    
    
    
    881Occupancy expense
    
    
    292
    
    
    
    283Equipment expense
    
    
    298
    
    
    
    268Intangible amortization
    
    
    138
    
    
    
    138FDIC insurance assessment
    
    
    579
    
    
    
    281Other
    
    
    1,743
    
    
    
    1,544Total noninterest expense
    
    
    6,389
    
    
    
    5,882Income before income taxes
    
    
    2,538
    
    
    
    2,855Income taxes
    
    
    779
    
    
    
    834Consolidated net income
    
    
    1,759
    
    
    
    2,021Net income  Noncontrolling interest
    
    
    (23
    )
    
    
    (46
    )Net Income  F & M Bank Corp
    
    $
    1,736
    
    
    $
    1,975Per share dataNet income
    
    $
    .76
    
    
    $
    .86Cash dividends
    
    $
    .30
    
    
    $
    .46Weighted average shares outstanding
    
    
    2,296,374
    
    
    
    2,289,122
  3




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##### Table of Contents



F & M BANK CORP.
 
 Consolidated Balance Sheets  (In Thousands of Dollars Except per Share Amounts)
 June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    6,330
    
    
    $
    5,314Federal funds sold
    
    
    8,960
    
    
    
    18,326Cash and cash equivalents
    
    
    15,290
    
    
    
    23,640Interest bearing deposits in banks
    
    
    2,986
    
    
    
    65Securities:Held to maturity  fair value of $109,000 in 2010
and $110,000 in 2009. (note 2)
    
    
    109
    
    
    
    110Available for sale (note 2)
    
    
    15,857
    
    
    
    16,430Other investments
    
    
    9,476
    
    
    
    9,681Loans held for sale
    
    
    32,448
    
    
    
    31,168Loans held for investment (note 3)
    
    
    445,416
    
    
    
    434,403Less allowance for loan losses (note 4)
    
    
    (4,890
    )
    
    
    (3,836
    )Net loans held for investment
    
    
    440,526
    
    
    
    430,567Other real estate owned
    
    
    1,076
    
    
    
    526Bank premises and equipment, net
    
    
    6,918
    
    
    
    7,080Interest receivable
    
    
    2,044
    
    
    
    2,038Core deposit intangible
    
    
    184
    
    
    
    322Goodwill
    
    
    2,670
    
    
    
    2,670Bank owned life insurance
    
    
    6,737
    
    
    
    6,593Other assets
    
    
    8,054
    
    
    
    8,333Total assets
    
    $
    544,375
    
    
    $
    539,223LiabilitiesDeposits:Noninterest bearing
    
    $
    56,380
    
    
    $
    53,475Interest bearing:Demand
    
    
    86,511
    
    
    
    77,483Money market accounts
    
    
    22,236
    
    
    
    23,231Savings
    
    
    35,097
    
    
    
    34,229Time deposits over $100,000
    
    
    93,597
    
    
    
    99,330All other time deposits
    
    
    133,793
    
    
    
    132,895Total deposits
    
    
    427,614
    
    
    
    420,643Short-term debt
    
    
    5,397
    
    
    
    9,085Accrued liabilities
    
    
    7,716
    
    
    
    7,397Subordinated debt
    
    
    5,229
    
    
    
    2,715Long-term debt
    
    
    58,083
    
    
    
    60,381Total liabilities
    
    
    504,039
    
    
    
    500,221Stockholders EquityCommon stock, $5 par value, 6,000,000 shares authorized,
2,297,883 and 2,295,053 shares issued and outstanding
in 2010 and 2009, respectively
    
    
    11,489
    
    
    
    11,475Retained earnings
    
    
    29,082
    
    
    
    27,989Noncontrolling interest
    
    
    119
    
    
    
    123Accumulated other comprehensive income (loss)
    
    
    (354
    )
    
    
    (585
    )Total stockholders equity
    
    
    40,336
    
    
    
    39,002Total liabilities and stockholders equity
    
    $
    544,375
    
    
    $
    539,223
  4




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F & M BANK CORP.
 
 Consolidated Statements of Cash Flows  (In Thousands of Dollars)  (Unaudited)
 Six Months EndedJune 30,2010
    
    
    2009Cash flows from operating activitiesNet income
    
    $
    1,736
    
    
    $
    1,975Net change  Noncontrolling interest
    
    
    (3
    )
    
    
    (46
    )Adjustments to reconcile net income to net
cash provided (used) by operating activities:Depreciation
    
    
    323
    
    
    
    315Amortization (accretion) of security premiums (discounts)
    
    
    18
    
    
    
    16Net (increase) decrease in loans held for sale
    
    
    (1,280
    )
    
    
    (16,584
    )Provision for loan losses
    
    
    1,800
    
    
    
    520Intangible amortization
    
    
    138
    
    
    
    138(Increase) decrease in interest receivable
    
    
    (7
    )
    
    
    35(Increase) decrease in other assets
    
    
    (325
    )
    
    
    527Increase (decrease) in accrued expenses
    
    
    864
    
    
    
    (87
    )(Gain)/loss on security transactions
    
    
    (30
    )
    
    
    831Amortization of limited partnership investments
    
    
    204
    
    
    
    182Income from life insurance investment
    
    
    (144
    )
    
    
    (143
    )Net adjustments
    
    
    1,561
    
    
    
    (14,250
    )Net cash provided (used) by operating activities
    
    
    3,294
    
    
    
    (12,321
    )Cash flows from investing activitiesPurchase of investments available for sale
    
    
    (13,085
    )
    
    
    (924
    )Proceeds from sales of investments available for sale
    
    
    853
    
    
    
    16Proceeds from maturity of investments available for sale
    
    
    13,110
    
    
    
    5,481Net increase in loans held for investment
    
    
    (12,574
    )
    
    
    (17,237
    )Proceeds from the sale of other real estate owned
    
    
    265Purchase of property and equipment
    
    
    (162
    )
    
    
    (200
    )Change in federal funds sold
    
    
    
    
    
    
    4,873Net (increase) decrease in interest bearing bank deposits
    
    
    (2,920
    )
    
    
    305Net cash used in investing activities
    
    
    (14,513
    )
    
    
    (7,686
    )Cash flows from financing activitiesNet change in demand and savings deposits
    
    
    11,806
    
    
    
    20,528Net change in time deposits
    
    
    (4,835
    )
    
    
    13,681Net change in short-term debt
    
    
    (3,688
    )
    
    
    (13,367
    )Cash dividends paid
    
    
    (690
    )
    
    
    (1,057
    )Repurchase of common stock
    
    
    
    
    
    
    (54
    )Proceeds from issuance of common stock
    
    
    60
    
    
    
    152Proceeds of long-term debt
    
    
    7,250
    
    
    
    7,400Repayment of long-term debt
    
    
    (7,034
    )
    
    
    (7,556
    )Net cash provided (used) by financing activities
    
    
    2,869
    
    
    
    19,727Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (8,350
    )
    
    
    (280
    )Cash and cash equivalents, beginning of period
    
    
    23,640
    
    
    
    5,687Cash and cash equivalents, end of period
    
    $
    15,290
    
    
    $
    5,407Supplemental disclosureCash paid for:Interest expense
    
    $
    4,643
    
    
    $
    5,420Income taxes
    
    
    250
    
    
    
    520Transfers from loans to Other Real Estate Owned
    
    
    815
    
    
    
    526
  5




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F & M BANK CORP.
 
 Consolidated Statements of Changes in Stockholders Equity
 (In Thousands of Dollars)
(Unaudited)
 Six Months EndedJune 30,2010
    
    
    2009Balance, beginning of period
    
    $
    39,002
    
    
    $
    36,258Comprehensive incomeNet income  F & M Bank Corp
    
    
    1,736
    
    
    
    2,021Change  Noncontrolling interest (net of dividends)
    
    
    (3
    )
    
    
    (46
    )Net change in unrealized appreciation on securities
available for sale, net of taxes
    
    
    231
    
    
    
    558Total comprehensive income
    
    
    1,964
    
    
    
    2,533Issuance of common stock
    
    
    60
    
    
    
    152Repurchase of common stock
    
    
    
    
    
    
    (54
    )Dividends declared
    
    
    (690
    )
    
    
    (1,053
    )Balance, end of period
    
    $
    40,336
    
    
    $
    37,836
  6




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##### Table of Contents



F & M BANK CORP.
 
 Notes to Consolidated Financial Statements
 Note 1. Accounting Principles
    Comprehensive Income
   June 30,
    
    
    June 30,2010
    
    
    2009Changes in:Net Income:Net Income  F & M Bank Corp
    
    $
    1,756
    
    
    $
    2,021Net Income  Noncontrolling Interest
    
    
    (23
    )
    
    
    (46
    )1,733
    
    
    
    1,975Unrealized holding gains (losses)
on available-for-sale securities:
    
    
    380
    
    
    
    1,667Other than temporary impairment losses
    
    
    
    
    
    
    826Reclassification adjustment for
(gains) losses realized in income
    
    
    (30
    )
    
    
    5Net unrealized gains (losses)
    
    
    350
    
    
    
    846Tax effect
    
    
    119
    
    
    
    288Unrealized holding gain (losses), net of tax
    
    
    231
    
    
    
    558Net change in comprehensive income
    
    $
    1,964
    
    
    $
    2,533
 Subsequent Events
  7




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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
    
    $
    109
    
    
    $
    109
    
    
    $
    110
    
    
    $
    110Total
    
    $
    109
    
    
    $
    109
    
    
    $
    110
    
    
    $
    110
 2010
    
    
    2009Market
    
    
    
    
    
    
    MarketValue
    
    
    Cost
    
    
    Value
    
    
    CostSecurities available for saleGovernment sponsored enterprises
    
    $
    7,007
    
    
    $
    7,007
    
    
    $
    6,012
    
    
    $
    5,976Equity securities
    
    
    3,196
    
    
    
    3,006
    
    
    
    3,743
    
    
    
    3,768Mortgage-backed securities
    
    
    5,064
    
    
    
    4,760
    
    
    
    6,170
    
    
    
    5,896Corporate Bonds
    
    
    590
    
    
    
    281
    
    
    
    505
    
    
    
    281Municipals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    15,857
    
    
    $
    15,054
    
    
    $
    16,430
    
    
    $
    15,921
  Securities Held to Maturity
    
    
    Securities Available for SaleAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    109
    
    
    $
    109
    
    
    $
    1,113
    
    
    $
    1,113Due after one year through five years
    
    
    
    
    
    
    
    
    
    
    6,170
    
    
    
    6,167Due after five years
    
    
    
    
    
    
    
    
    
    
    4,765
    
    
    
    5,381109
    
    
    
    109
    
    
    
    12,048
    
    
    
    12,661Marketable equities
    
    
    
    
    
    
    
    
    
    
    3,006
    
    
    
    3,196Total
    
    $
    109
    
    
    $
    109
    
    
    $
    15,054
    
    
    $
    15,857
  Six Months Ended
    
    
    Three Months EndedJune 30, 2010
    
    
    December 31, 2009
    
    
    June 30, 2010
    
    
    December 31, 2009Gains
    
    $
    114
    
    
    $
    
    
    
    $
    
    
    
    $
    Losses
    
    
    (84
    )
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Net Gains (Losses)
    
    $
    30
    
    
    $
    (5
    )
    
    $
    
    
    
    $
    (5
    )
 8




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 2. Investment Securities, continued
 Securities Impairment
 Other Than Temporary Impairment
 
    
    The length of time of impairment;
    
    The extent of the impairment relative to the cost of the investment;
    
    Recent volatility in the market value of the investment;
    
    The financial condition and near-term prospects of the issuer, including any
specific events which may impair the earnings potential of the issuer; or
    
    The intent and ability of the Company to hold its investment for a period of time
sufficient to allow for any anticipated recovery in market value.
  
    
    We begin our evaluation using a default position that OTTI has occurred and then use
all available evidence to determine whether prospects for the individual security are
sufficient to support temporary impairment at the date of the SEC filing. This
evaluation will be conducted at each filing date.
    
    For purposes of determining OTTI, the security value recovery period will be
projected for a maximum of a two year holding period. This will be the maximum; a
shorter period may be used when there are particular conditions related to the
individual security which make recovery unlikely.
    
    The primary focus in determining whether a security is OTTI, and projecting
potential recovery, is the prospects for the individual security, rather than broad
market indices. All available evidentiary material is considered, including the
Companys public filings with the SEC, press releases, analyst reports, etc.
    
    Secondary consideration is given to historic returns, but only to the extent that
this evidence is instructive in determining whether the individual security has shown a
history of outperforming (or underperforming) the market (or industry) in prior
economic cycles. 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 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 and
included in gain (loss) on security sales.There were no securities which were deemed to have other than temporary impairment
through June of 2010. Such charges were $826,000 through June of 2009.
 9




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 2. Investment Securities, continued
  Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesJune 30, 2010Government sponsored Enterprises
    
    $
    2,002
    
    
    $
    (4
    )
    
    $
    
    
    
    $
    
    
    
    $
    2,002
    
    
    $
    (4
    )Mortgage backed Obligations
    
    
    
    
    
    
    
    
    
    
    276
    
    
    
    (2
    )
    
    
    276
    
    
    
    (2
    )Marketable equities
    
    
    275
    
    
    
    (60
    )
    
    
    184
    
    
    
    (75
    )
    
    
    459
    
    
    
    (135
    )Total
    
    $
    2,277
    
    
    $
    (64
    )
    
    $
    460
    
    
    $
    (77
    )
    
    $
    2,737
    
    
    $
    (141
    )December 31, 2009Government sponsored Enterprises
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Mortgage backed Obligations
    
    
    
    
    
    
    
    
    
    
    300
    
    
    
    (2
    )
    
    
    300
    
    
    
    (2
    )Marketable equities
    
    
    
    
    
    
    
    
    
    
    1,891
    
    
    
    (289
    )
    
    
    1,891
    
    
    
    (289
    )Total
    
    $
    
    
    
    $
    
    
    
    $
    2,191
    
    
    $
    (291
    )
    
    $
    2,191
    
    
    $
    (291
    )
 10




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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
    
    $
    86,246
    
    
    $
    86,320Residential
    
    
    185,093
    
    
    
    191,382Commercial and agricultural
    
    
    152,281
    
    
    
    134,993Consumer loans to individuals
    
    
    19,249
    
    
    
    19,247Credit cards
    
    
    2,475
    
    
    
    2,355Other
    
    
    72
    
    
    
    106Total
    
    $
    445,416
    
    
    $
    434,403
 Note 4. Allowance for Loan Losses
  Six Months Ended
    
    
    Three Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance, beginning of period
    
    $
    3,836
    
    
    $
    2,189
    
    
    $
    4,510
    
    
    $
    2,381Provisions charged to operating expenses
    
    
    1,800
    
    
    
    520
    
    
    
    900
    
    
    
    310Net (charge-offs) recoveries:Loan recoveries
    
    
    40
    
    
    
    29
    
    
    
    13
    
    
    
    18Loan charge-offs
    
    
    (786
    )
    
    
    (182
    )
    
    
    (533
    )
    
    
    (153
    )Total Net (Charge-Offs) Recoveries*
    
    
    (746
    )
    
    
    (153
    )
    
    
    (520
    )
    
    
    (135
    )Balance, End of Period
    
    $
    4,890
    
    
    $
    2,556
    
    
    $
    4,890
    
    
    $
    2,556*Components of Net (Charge-Offs)
RecoveriesReal Estate
    
    
    (654
    )
    
    
    (87
    )
    
    
    (470
    )
    
    
    (87
    )Commercial
    
    
    (31
    )
    
    
    (44
    )
    
    
    (31
    )
    
    
    (44
    )Consumer and other
    
    
    (61
    )
    
    
    (22
    )
    
    
    (19
    )
    
    
    (4
    )Total
    
    $
    (746
    )
    
    $
    (153
    )
    
    $
    (520
    )
    
    $
    (135
    )
 Note 5. Employee Benefit Plan
  Six Months Ended
    
    
    Three Months EndedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Service cost
    
    $
    193,958
    
    
    $
    179,400
    
    
    $
    96,979
    
    
    $
    89,700Interest cost
    
    
    158,500
    
    
    
    136,666
    
    
    
    79,250
    
    
    
    68,333Expected return on plan assets
    
    
    (240,854
    )
    
    
    (156,856
    )
    
    
    (120,427
    )
    
    
    (78,428
    )Amortization of net obligation at transitionAmortization of prior service cost
    
    
    (2,650
    )
    
    
    (2,650
    )
    
    
    (1,325
    )
    
    
    (1,325
    )Amortization of net (gain) or loss
    
    
    32,756
    
    
    
    62,102
    
    
    
    16,378
    
    
    
    31,051Net periodic benefit cost
    
    $
    141,710
    
    
    $
    218,662
    
    
    $
    70,855
    
    
    $
    109,331
 11




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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
  June 30, 2010
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Government sponsored enterprises
    
    
    7,007
    
    
    
    
    
    
    
    7,007Mortgage-backed obligations of federal agencies
    
    
    5,064
    
    
    
    
    
    
    
    5,064Marketable Equities
    
    
    3,196
    
    
    
    3,196Corporate Bonds
    
    
    590
    
    
    
    590
    
    
    
    Investment securities available for sale
    
    
    15,857
    
    
    
    3,786
    
    
    
    12,071Total assets at fair value
    
    
    15,857
    
    
    
    3,786
    
    
    
    12,071Total liabilities at fair value
 12




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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
    
    
    
    504
    
    
    
    Investment 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
  June 30, 2010
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Loans Held for Sale
    
    
    32,448
    
    
    
    
    
    
    
    32,448Other Real Estate Owned
    
    
    1,076
    
    
    
    
    
    
    
    1,076Real Estate
    
    
    648
    
    
    
    
    
    
    
    648Commercial
    
    
    5,821
    
    
    
    
    
    
    
    5,821ConsumerImpaired loans
    
    
    6,469
    
    
    
    
    
    
    
    6,469Total assets at fair value
    
    
    39,993
    
    
    
    
    
    
    
    39,993Total 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
  13




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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
  June 30, 2010
    
    
    December 31, 2009Estimated
    
    
    Carrying
    
    
    Estimated
    
    
    CarryingFair Value
    
    
    Value
    
    
    Fair Value
    
    
    ValueFinancial AssetsCash
    
    $
    6,330
    
    
    $
    6,330
    
    
    $
    5,314
    
    
    $
    5,314Interest bearing deposits
    
    
    2,986
    
    
    
    2,986
    
    
    
    65
    
    
    
    65Federal funds sold
    
    
    8,960
    
    
    
    8,960
    
    
    
    18,326
    
    
    
    18,326Securities available for sale
    
    
    15,857
    
    
    
    15,857
    
    
    
    16,430
    
    
    
    16,430Securities held to maturity
    
    
    109
    
    
    
    109
    
    
    
    110
    
    
    
    110Other investments
    
    
    9,476
    
    
    
    9,476
    
    
    
    9,681
    
    
    
    9,681Loans
    
    
    476,653
    
    
    
    445,416
    
    
    
    481,967
    
    
    
    434,403Loans held for sale
    
    
    32,448
    
    
    
    32,448
    
    
    
    31,168
    
    
    
    31,168Bank owned life insurance
    
    
    6,737
    
    
    
    6,737
    
    
    
    6,593
    
    
    
    6,593Accrued interest receivable
    
    
    2,044
    
    
    
    2,044
    
    
    
    2,038
    
    
    
    2,038Financial LiabilitiesDemand Deposits:Non-interest bearing
    
    
    56,380
    
    
    
    56,380
    
    
    
    53,475
    
    
    
    53,475Interest bearing
    
    
    108,747
    
    
    
    108,747
    
    
    
    100,714
    
    
    
    100,714Savings deposits
    
    
    35,097
    
    
    
    35,097
    
    
    
    34,229
    
    
    
    34,229Time deposits
    
    
    225,024
    
    
    
    222,390
    
    
    
    234,032
    
    
    
    232,225Short-term debt
    
    
    5,397
    
    
    
    5,397
    
    
    
    9,085
    
    
    
    9,085Subordinated debt
    
    
    5,229
    
    
    
    5,229
    
    
    
    2,715
    
    
    
    2,715Long-term debt
    
    
    59,767
    
    
    
    58,083
    
    
    
    61,216
    
    
    
    60,381
  14




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
     Forward-Looking Statements
    15




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Critical Accounting Policies
 General
  Allowance for Loan Losses
 , ,
 Goodwill and Intangibles
   Securities Impairment
  Overview
  In thousands
    
    2010
    
    
    2009Net Income from Bank Operations
    
    $
    1,848
    
    
    $
    2,471Income or loss from Parent Company Activities
    
    
    (112
    )
    
    
    (496
    )Net Income for the six months ended June 30
    
    
    1,736
    
    
    
    1,975
 16




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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
    
    $
    1,736
    
    
    $
    1,975Non-recurring Tax Items
    
    
    29
    
    
    
    (16
    )Non-recurring Securities Transactions
    
    
    (19
    )
    
    
    548Core Earnings for the six months ended June 30
    
    $
    1,746
    
    
    $
    2,507
  Results of Operations
     Financial Condition
 Federal Funds Sold and Interest Bearing Bank Deposits
  17




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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
    18




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
   June 30, 2010
    
    
    December 31, 2009Nonaccrual Loans:Real Estate
    
    
    923
    
    
    
    3,245Commercial
    
    
    4,279
    
    
    
    261Other
    
    
    348
    
    
    
    Loans past due 90 days or more:Real Estate
    
    
    1,584
    
    
    
    3,850Commercial
    
    
    662
    
    
    
    57Other
    
    
    136
    
    
    
    240Total Nonperforming loans
    
    
    7,932
    
    
    
    7,653Nonperforming loans as a percentage of loans held for investment
    
    
    1.78
    %
    
    
    1.76
    %Net Charge Offs to Total Loans
    
    
    .17
    %
    
    
    .59
    %Allowance for loan and lease losses to nonperforming loans
    
    
    61.65
    %
    
    
    50.12
    %
 19




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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
        20




---



##### 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
  21




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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
  22




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##### Table of Contents



TABLE I
 F & M BANK CORP.
Net Interest Margin Analysis
(on a fully taxable equivalent basis)
(Dollar Amounts in Thousands)
 Six Months Ended
    
    
    Six Months Ended
    
    
    Three Months Ended
    
    
    Three Months EndedJune 30, 2010
    
    
    June 30, 2009
    
    
    June 30, 2010
    
    
    June 30, 2009Income/
    
    
    Average
    
    
    
    
    
    
    Income/
    
    
    
    
    
    
    
    
    
    
    Income/
    
    
    Average
    
    
    
    
    
    
    Income/
    
    
    AverageAverage
    
    Balance2
    
    
    Expense
    
    
    Rates
    
    
    Balance2
    
    
    Expense
    
    
    Rates
    
    
    Balance2
    
    
    Expense
    
    
    Rates
    
    
    Balance2
    
    
    Expense
    
    
    RatesInterest incomeLoans held for investment1,2
    
    $
    441,329
    
    
    $
    12,947
    
    
    
    5.87
    %
    
    $
    409,421
    
    
    $
    12,670
    
    
    
    6.19
    %
    
    $
    444,346
    
    
    
    6,447
    
    
    
    5.80
    %
    
    $
    418,967
    
    
    $
    6,451
    
    
    
    6.16
    %Loans held for sale
    
    
    23,207
    
    
    
    464
    
    
    
    3.99
    %
    
    
    28,003
    
    
    
    551
    
    
    
    3.94
    %
    
    
    30,460
    
    
    
    308
    
    
    
    4.04
    %
    
    
    32,750
    
    
    
    324
    
    
    
    3.96
    %Federal funds sold
    
    
    15,266
    
    
    
    17
    
    
    
    .22
    %
    
    
    2,316
    
    
    
    2
    
    
    
    .17
    %
    
    
    7,443
    
    
    
    4
    
    
    
    .21
    %
    
    
    2,541
    
    
    
    1
    
    
    
    .16
    %Interest bearing deposits
    
    
    2,950
    
    
    
    12
    
    
    
    .88
    %
    
    
    1,181
    
    
    
    26
    
    
    
    4.40
    %
    
    
    2,685
    
    
    
    9
    
    
    
    1.34
    %
    
    
    1,076
    
    
    
    13
    
    
    
    4.83
    %InvestmentsTaxable 3
    
    
    12,687
    
    
    
    230
    
    
    
    3.63
    %
    
    
    17,888
    
    
    
    436
    
    
    
    4.87
    %
    
    
    12,448
    
    
    
    120
    
    
    
    3.86
    %
    
    
    17,113
    
    
    
    211
    
    
    
    4.93
    %Partially taxable
    
    
    4,048
    
    
    
    120
    
    
    
    5.93
    %
    
    
    3,406
    
    
    
    119
    
    
    
    6.99
    %
    
    
    3,949
    
    
    
    55
    
    
    
    5.57
    %
    
    
    5,162
    
    
    
    60
    
    
    
    4.65
    %Tax exempt 2,3
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    77
    
    
    
    
    
    
    
    7.87
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    .40
    %Total earning assets
    
    $
    499,487
    
    
    $
    13,790
    
    
    
    5.52
    %
    
    $
    462,292
    
    
    
    13,807
    
    
    
    5.97
    %
    
    
    501,331
    
    
    
    6,943
    
    
    
    5.54
    %
    
    
    477,639
    
    
    
    7,060
    
    
    
    5.91
    %Interest ExpenseDemand deposits
    
    
    105,344
    
    
    
    963
    
    
    
    1.83
    %
    
    
    68,698
    
    
    
    515
    
    
    
    1.50
    %
    
    
    107,312
    
    
    
    505
    
    
    
    1.88
    %
    
    
    73,223
    
    
    
    281
    
    
    
    1.54
    %Savings
    
    
    34,629
    
    
    
    96
    
    
    
    .55
    %
    
    
    31,532
    
    
    
    108
    
    
    
    .69
    %
    
    
    35,737
    
    
    
    49
    
    
    
    .55
    %
    
    
    32,882
    
    
    
    45
    
    
    
    .55
    %Time deposits
    
    
    227,775
    
    
    
    2,403
    
    
    
    2.11
    %
    
    
    213,872
    
    
    
    3,416
    
    
    
    3.19
    %
    
    
    225,272
    
    
    
    1,140
    
    
    
    2.02
    %
    
    
    218,360
    
    
    
    1,644
    
    
    
    3.01
    %Short-term debt
    
    
    5,604
    
    
    
    13
    
    
    
    .46
    %
    
    
    21,816
    
    
    
    56
    
    
    
    .51
    %
    
    
    5,561
    
    
    
    6
    
    
    
    .43
    %
    
    
    23,616
    
    
    
    28
    
    
    
    .47
    %Long-term debt
    
    
    63,242
    
    
    
    1,181
    
    
    
    3.73
    %
    
    
    68,395
    
    
    
    1,155
    
    
    
    3.38
    %
    
    
    63,245
    
    
    
    552
    
    
    
    3.49
    %
    
    
    66,032
    
    
    
    551
    
    
    
    3.34
    %Total interest bearing liabilities
    
    $
    436,594
    
    
    $
    4,656
    
    
    
    2.13
    %
    
    $
    404,313
    
    
    $
    5,250
    
    
    
    2.60
    %
    
    
    437,127
    
    
    
    2,252
    
    
    
    2.06
    %
    
    
    414,113
    
    
    
    2,549
    
    
    
    2.46
    %Tax equivalent net interest income 1
    
    
    
    
    
    $
    9,134
    
    
    
    
    
    
    
    
    
    
    $
    8,557
    
    
    
    
    
    
    
    
    
    
    $
    4,691
    
    
    
    
    
    
    
    
    
    
    $
    4,511Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.66
    %
    
    
    
    
    
    
    
    
    
    
    3.70
    %
    
    
    
    
    
    
    
    
    
    
    3.74
    %
    
    
    
    
    
    
    
    
    
    
    3.78
    %
 
 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. 23




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##### Table of Contents



TABLE II
 F & M BANK CORP.
Interest Sensitivity Analysis
June 30, 2010
(In Thousands of Dollars)
  0  3
    
    
    4  12
    
    
    1  5
    
    
    Over 5
    
    
    NotMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    Classified
    
    
    TotalUses of fundsLoansCommercial
    
    $
    104,601
    
    
    $
    25,003
    
    
    $
    89,110
    
    
    $
    6,680
    
    
    $
    
    
    
    $
    225,394Installment
    
    
    10,644
    
    
    
    1,142
    
    
    
    6,882
    
    
    
    651
    
    
    
    
    
    
    
    19,319Real estate for investments
    
    
    42,730
    
    
    
    16,728
    
    
    
    120,942
    
    
    
    17,828
    
    
    
    
    
    
    
    198,228Real estate held for sale
    
    
    32,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,448Credit cards
    
    
    2,475
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,475Federal funds sold
    
    
    8,960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,960Interest bearing bank deposits
    
    
    1,294
    
    
    
    1,692
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,986Investment securities
    
    
    112
    
    
    
    1,163
    
    
    
    6,115
    
    
    
    4,790
    
    
    
    3,786
    
    
    
    15,966Total
    
    
    203,264
    
    
    
    45,728
    
    
    
    223,049
    
    
    
    29,949
    
    
    
    3,786
    
    
    
    505,776Sources of fundsInterest bearing demand deposits
    
    
    
    
    
    
    28,420
    
    
    
    63,025
    
    
    
    17,302
    
    
    
    
    
    
    
    108,747Savings deposits
    
    
    
    
    
    
    7,020
    
    
    
    21,058
    
    
    
    7,019
    
    
    
    
    
    
    
    35,097Certificates of deposit $100,000 and over
    
    
    27,935
    
    
    
    26,705
    
    
    
    38,957
    
    
    
    
    
    
    
    
    
    
    
    93,597Other certificates of deposit
    
    
    30,379
    
    
    
    42,205
    
    
    
    61,209
    
    
    
    
    
    
    
    
    
    
    
    133,793Short-term borrowings
    
    
    5,397
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,397Long-term borrowings
    
    
    7,023
    
    
    
    9,096
    
    
    
    41,964
    
    
    
    5,229
    
    
    
    
    
    
    
    63,312Total
    
    $
    70,734
    
    
    $
    113,446
    
    
    $
    226,213
    
    
    $
    29,550
    
    
    $
    
    
    
    $
    439,943Discrete Gap
    
    
    132,530
    
    
    
    (67,718
    )
    
    
    (3,164
    )
    
    
    399
    
    
    
    3,786
    
    
    
    65,833Cumulative Gap
    
    
    132,530
    
    
    
    64,812
    
    
    
    61,648
    
    
    
    62,047
    
    
    
    65,833Ratio of Cumulative Gap to Total Earning Assets
    
    
    26.20
    %
    
    
    12.81
    %
    
    
    12.19
    %
    
    
    12.27
    %
    
    
    13.02
    %
  24




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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
  25




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##### Table of Contents



Part II Other InformationItem 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
 3i
    
    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, 2002.3ii
    
    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).
 26




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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  27