##### 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 September 30, 2009.
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File Number: 000-13273
 F & M BANK CORP.
 Virginia
    
    54-1280811(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 
 
 þ o
 o o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o
(Do not check if a smaller reporting company)Smaller reporting Company þ o þ
  Class
    
    Outstanding at November 1, 2009Common Stock, par value  $5
    
    2,294,433 shares




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##### 



F & M BANK CORP.
  PagePART I
    
    FINANCIAL INFORMATION
    
    
    2Item 1.
    
    Financial StatementsConsolidated Statements of Income  Three Months
Ended September 30, 2009 and 2008
    
    
    2Consolidated Statements of Income  Nine Months
Ended September 30, 2009 and 2008
    
    
    3Consolidated Balance Sheets  September 30, 2009
and December 31, 2008
    
    
    4Consolidated Statements of Cash Flows  Nine Months
Ended September 30, 2009 and 2008
    
    
    5Consolidated Statements of Changes in Stockholders
Equity  Nine Months September 30, 2009 and 2008
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4T.
    
    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.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 5.
    
    Other Information
    
    
    26Item 6.
    
    Exhibits
    
    
    26SIGNATURES
    
    
    27CERTIFICATIONS
    
    
    28EX-31.1EX-31.2EX-32




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F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except per Share Amounts)
(Unaudited)
 Three Months EndedSeptember 30,2009
    
    
    2008Interest IncomeInterest and fees on loans held for investment
    
    $
    6,302
    
    
    $
    6,125Interest and fees on loans held for sale
    
    
    259
    
    
    
    65Interest on federal funds sold
    
    
    3
    
    
    
    17Interest on interest bearing deposits
    
    
    7
    
    
    
    24Dividends on equity securities
    
    
    61
    
    
    
    140Interest on debt securities
    
    
    129
    
    
    
    246Total Interest Income
    
    
    6,761
    
    
    
    6,617Interest ExpenseInterest on demand deposits
    
    
    355
    
    
    
    187Interest on savings accounts
    
    
    47
    
    
    
    77Interest on time deposits over $100,000
    
    
    477
    
    
    
    281Interest on time deposits
    
    
    1,024
    
    
    
    1,370Total interest on deposits
    
    
    1,903
    
    
    
    1,915Interest on short-term debt
    
    
    9
    
    
    
    216Interest on long-term debt
    
    
    563
    
    
    
    534Total Interest Expense
    
    
    2,475
    
    
    
    2,665Net Interest Income
    
    
    4,286
    
    
    
    3,952Provision for Loan Losses
    
    
    2,790
    
    
    
    120Net Interest Income after Provision for Loan Losses
    
    
    1,496
    
    
    
    3,832Noninterest IncomeService charges
    
    
    342
    
    
    
    367Insurance and other commissions
    
    
    104
    
    
    
    54Other
    
    
    167
    
    
    
    272Income on bank owned life insurance
    
    
    92
    
    
    
    94Security gains
    
    
    0
    
    
    
    208Other than temporarily impaired losses
    
    
    (786
    )
    
    
    (520
    )Total Noninterest Income
    
    
    (81
    )
    
    
    475Noninterest ExpenseSalaries
    
    
    1,349
    
    
    
    1,279Employee benefits
    
    
    440
    
    
    
    396Occupancy expense
    
    
    144
    
    
    
    145Equipment expense
    
    
    165
    
    
    
    147Intangible amortization
    
    
    69
    
    
    
    69Other
    
    
    1,082
    
    
    
    757Total Noninterest Expense
    
    
    3,249
    
    
    
    2,793Income before Income Taxes
    
    
    (1,834
    )
    
    
    1,514Income Tax expense (benefit)
    
    
    (978
    )
    
    
    428Minority interest in consolidated subsidiary (earnings) losses
    
    
    (20
    )Net Income (Loss)
    
    $
    (876
    )
    
    $
    1,086Per Share DataNet Income (Loss)
    
    $
    (.38
    )
    
    $
    .47Cash Dividends
    
    $
    .23
    
    
    $
    .23Weighted Average Shares Outstanding
    
    
    2,294,275
    
    
    
    2,314,827
 The accompanying notes are an integral part of these statements.
 2




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F & M BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars Except per Share Amounts)
(Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008Interest IncomeInterest and fees on loans held for investment
    
    $
    18,905
    
    
    $
    17,315Interest and fees on loans held for sale
    
    
    810
    
    
    
    185Interest on federal funds sold
    
    
    5
    
    
    
    46Interest on interest bearing deposits
    
    
    17
    
    
    
    99Dividends on equity securities
    
    
    165
    
    
    
    400Interest on debt securities
    
    
    579
    
    
    
    734Total Interest Income
    
    
    20,481
    
    
    
    18,779Interest ExpenseInterest on demand deposits
    
    
    870
    
    
    
    567Interest on savings accounts
    
    
    155
    
    
    
    222Interest on time deposits over $100,000
    
    
    1,580
    
    
    
    1,345Interest on time deposits
    
    
    3,336
    
    
    
    3,797Total interest on deposits
    
    
    5,941
    
    
    
    5,931Interest on short-term debt
    
    
    65
    
    
    
    402Interest on long-term debt
    
    
    1,718
    
    
    
    1,389Total Interest Expense
    
    
    7,724
    
    
    
    7,722Net Interest Income
    
    
    12,757
    
    
    
    11,057Provision for Loan Losses
    
    
    3,310
    
    
    
    385Net Interest Income after Provision for Loan Losses
    
    
    9,447
    
    
    
    10,672Noninterest IncomeService charges
    
    
    943
    
    
    
    1,007Insurance and other commissions
    
    
    385
    
    
    
    223Other
    
    
    722
    
    
    
    923Income on bank owned life insurance
    
    
    272
    
    
    
    242Security gains (losses)
    
    
    (5
    )
    
    
    177Other than temporarily impaired losses
    
    
    (1,612
    )
    
    
    (520
    )Total Noninterest Income
    
    
    705
    
    
    
    2,052Noninterest ExpenseSalaries
    
    
    3,836
    
    
    
    3,773Employee benefits
    
    
    1,321
    
    
    
    1,122Occupancy expense
    
    
    427
    
    
    
    422Equipment expense
    
    
    433
    
    
    
    413Intangible amortization
    
    
    207
    
    
    
    207Other
    
    
    2,907
    
    
    
    2,270Total Noninterest Expense
    
    
    9,131
    
    
    
    8,207Income before Income Taxes
    
    
    1,021
    
    
    
    4,517Income Tax expense (benefit)
    
    
    (144
    )
    
    
    1,283Minority interest in consolidated subsidiary (earnings) losses
    
    
    (66
    )Net Income
    
    $
    1,099
    
    
    $
    3,234Per Share DataNet Income
    
    $
    .48
    
    
    $
    1.39Cash Dividends
    
    $
    .69
    
    
    $
    .67Weighted Average Shares Outstanding
    
    
    2,290,859
    
    
    
    2,327,735
 The accompanying notes are an integral part of these statements.
 3




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F & M BANK CORP.
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars)
 September 30,
    
    
    December 31,2009
    
    
    2008(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    5,775
    
    
    $
    5,687Federal funds sold
    
    
    2,411
    
    
    
    8,979Cash and cash equivalents
    
    
    8,186
    
    
    
    14,666Interest bearing deposits in banks
    
    
    63
    
    
    
    1,162Securities:Held to maturity  fair value of $110,000 in 2009 and 2008 (note 2)
    
    
    110
    
    
    
    110Available for sale (note 2)
    
    
    16,935
    
    
    
    22,237Other investments
    
    
    9,031
    
    
    
    8,439Loans held for sale
    
    
    22,215
    
    
    
    3,780Loans held for investment (note 3)
    
    
    426,763
    
    
    
    399,233Less allowance for loan losses (note 4)
    
    
    (4,700
    )
    
    
    (2,189
    )Net loans held for investment
    
    
    422,063
    
    
    
    397,044Bank premises and equipment
    
    
    7,182
    
    
    
    7,457Interest receivable
    
    
    1,863
    
    
    
    2,056Core deposit intangible
    
    
    391
    
    
    
    598Goodwill
    
    
    2,670
    
    
    
    2,670Bank owned life insurance
    
    
    6,520
    
    
    
    6,304Other assets
    
    
    5,896
    
    
    
    5,535Total assets
    
    $
    503,125
    
    
    $
    472,058LiabilitiesDeposits:Noninterest bearing
    
    $
    51,250
    
    
    $
    49,786Interest bearing:Demand
    
    
    64,394
    
    
    
    39,773Money market accounts
    
    
    22,822
    
    
    
    22,779Savings
    
    
    33,884
    
    
    
    29,367Time deposits over $100,000
    
    
    77,762
    
    
    
    63,855All other time deposits
    
    
    138,814
    
    
    
    136,665Total deposits
    
    
    388,926
    
    
    
    342,225Short-term debt
    
    
    4,022
    
    
    
    20,510Accrued liabilities
    
    
    7,332
    
    
    
    7,687Subordinated Debt
    
    
    875Long-term debt
    
    
    64,152
    
    
    
    65,331Total liabilities
    
    
    465,307
    
    
    
    435,753Minority interest in consolidated subsidiary
    
    
    113
    
    
    
    47Stockholders EquityCommon stock, $5 par value, 6,000,000 shares authorized,
2,294,340 and 2,289,497 shares issued and outstanding
in 2009 and 2008, respectively
    
    
    11,472
    
    
    
    11,447Retained earnings
    
    
    27,468
    
    
    
    27,687Accumulated other comprehensive loss
    
    
    (1,235
    )
    
    
    (2,876
    )Total stockholders equity
    
    
    37,705
    
    
    
    36,258Total liabilities and stockholders equity
    
    $
    503,125
    
    
    $
    472,058
 The accompanying notes are an integral part of these statements.
 4




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F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008Cash Flows from Operating ActivitiesNet income
    
    $
    1,099
    
    
    $
    3,234Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation
    
    
    488
    
    
    
    468Amortization (accretion) of security premiums (discounts)
    
    
    26
    
    
    
    (29
    )Net (increase) decrease in loans held for sale
    
    
    (18,434
    )Provision for loan losses
    
    
    3,310
    
    
    
    385Intangible amortization
    
    
    207
    
    
    
    207(Increase) decrease in interest receivable
    
    
    193
    
    
    
    47(Increase) decrease in other assets
    
    
    426
    
    
    
    640Increase in accrued expenses
    
    
    (1,096
    )
    
    
    (606
    )(Gain) loss on security transactions
    
    
    1,617
    
    
    
    343Amortization of limited partnership investments
    
    
    277
    
    
    
    335Income from life insurance investment
    
    
    (216
    )
    
    
    (223
    )Net Adjustments
    
    
    (13,202
    )
    
    
    1,567Net Cash Provided (Used) by Operating Activities
    
    
    (12,103
    )
    
    
    4,801Cash Flows from Investing ActivitiesPurchase of investments available for sale
    
    
    (6,948
    )
    
    
    (19,449
    )Proceeds from sales of investments available for sale
    
    
    12,097
    
    
    
    20,393Proceeds from maturity of investments available for sale
    
    
    16
    
    
    
    1,010Net increase in loans held for investment
    
    
    (28,843
    )
    
    
    (64,879
    )Purchase of property and equipment
    
    
    (212
    )
    
    
    (734
    )Net (increase) decrease in interest bearing bank deposits
    
    
    1,099
    
    
    
    397Net Cash Used in Investing Activities
    
    
    (22,801
    )
    
    
    (63,262
    )Cash Flows from Financing ActivitiesNet change in demand and savings deposits
    
    
    30,645
    
    
    
    9,003Net change in time deposits
    
    
    16,056
    
    
    
    15,780Net change in short-term debt
    
    
    (16,489
    )
    
    
    10,935Cash dividends paid
    
    
    (1,587
    )
    
    
    (1,561
    )Repurchase of common stock
    
    
    (54
    )
    
    
    (1,536
    )Change in federal funds purchased
    
    
    
    
    
    
    (2,932
    )Proceeds of long-term debt
    
    
    13,275
    
    
    
    42,000Proceeds from issuance of common stock
    
    
    157
    
    
    
    118Repayment of long-term debt
    
    
    (13,579
    )
    
    
    (7,929
    )Net Cash Provided (Used) by Financing Activities
    
    
    28,424
    
    
    
    63,878Net Decrease (Increase) in Cash and Cash Equivalents
    
    
    (6,480
    )
    
    
    5,417Cash and Cash Equivalents, Beginning of Period
    
    
    14,666
    
    
    
    8,706Cash and Cash Equivalents, End of Period
    
    $
    8,186
    
    
    $
    14,123Supplemental DisclosureCash paid for:Interest expense
    
    $
    7,904
    
    
    $
    7,952Income taxes
    
    
    620
    
    
    
    700
 The accompanying notes are an integral part of these statements.
 5




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F & M BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(In Thousands of Dollars)
(Unaudited)
 Nine Months EndedSeptember 30,2009
    
    
    2008Balance, beginning of period, as previously stated
    
    $
    36,258
    
    
    $
    39,165Cumulative effect of initial adoption of ASC Topic
715 (formerly FAS 106)
    
    
    
    
    
    
    (428
    )Balance, beginning of period, restated
    
    $
    36,258
    
    
    $
    38,737Comprehensive IncomeNet income
    
    
    1,099
    
    
    
    3,234Net change in unrealized appreciation on securities
available for sale, net of taxes (Note 1)
    
    
    1,642
    
    
    
    (710
    )Total comprehensive income
    
    
    2,741
    
    
    
    2,524Repurchase of common stock
    
    
    (54
    )
    
    
    (1,536
    )Common stock sold
    
    
    157
    
    
    
    118Dividends declared
    
    
    (1,397
    )
    
    
    (1,569
    )Balance, end of period
    
    $
    37,705
    
    
    $
    38,274
 The accompanying notes are an integral part of these statements.
 6




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F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1 ACCOUNTING PRINCIPLES:
    Comprehensive Income
   September 30,
    
    
    December 31,2009
    
    
    2008Changes in:Net Income
    
    $
    1,099,027
    
    
    $
    3,204,015Adjustment for initial adoption of ASC 715Funded Status Adjustment
    
    
    
    
    
    
    (1,835,082
    )Tax effect
    
    
    
    
    
    
    623,928Pension plan adjustment, net of tax
    
    
    
    
    
    
    (1,211,154
    )Unrealized holding gains (losses)
on available-for-sale securities:
    
    
    758,466
    
    
    
    (2,742,769
    )Other than temporary impairment losses
    
    
    1,612,355
    
    
    
    1,758,730Reclassification adjustment for
(gains) losses realized in income
    
    
    4,899
    
    
    
    (78,173
    )Net unrealized gains (losses)
    
    
    2,375,720
    
    
    
    (1,062,212
    )Tax effect
    
    
    734,179
    
    
    
    361,152Unrealized holding gain (losses), net of tax
    
    
    1,641,541
    
    
    
    (701,060
    )Net change in other comprehensive income
    
    $
    2,740,568
    
    
    $
    1,291,801
 Subsequent Events
  7




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F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
 NOTE 2 INVESTMENT SECURITIES:
  2009
    
    
    2008Market
    
    
    
    
    
    
    MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueSecurities Held to MaturityU. S. Treasury and
agency obligations
    
    $
    110
    
    
    $
    110
    
    
    $
    110
    
    
    $
    110Total
    
    $
    110
    
    
    $
    110
    
    
    $
    110
    
    
    $
    110
 2009
    
    
    2008Market
    
    
    
    
    
    
    MarketCost
    
    
    Value
    
    
    Cost
    
    
    ValueSecurities Available for SaleGovernment sponsored
enterprises
    
    $
    5,977
    
    
    $
    6,018
    
    
    $
    10,013
    
    
    $
    10,194Equity securities
    
    
    3,886
    
    
    
    3,724
    
    
    
    5,430
    
    
    
    3,064Mortgage-backed securities
    
    
    6,418
    
    
    
    6,715
    
    
    
    8,391
    
    
    
    8,573Corporate Bonds
    
    
    281
    
    
    
    478
    
    
    
    281
    
    
    
    281Municipals
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    125Total
    
    $
    16,562
    
    
    $
    16,935
    
    
    $
    24,240
    
    
    $
    22,237
  Securities Held to Maturity
    
    
    Securities Available for SaleAmortized
    
    
    Fair
    
    
    Amortized
    
    
    FairCost
    
    
    Value
    
    
    Cost
    
    
    ValueDue in one year or less
    
    $
    110
    
    
    $
    110
    
    
    $
    2,319
    
    
    $
    2,315Due after one year through five years
    
    
    
    
    
    
    
    
    
    
    3,978
    
    
    
    4,020Due after five years
    
    
    
    
    
    
    
    
    
    
    6,379
    
    
    
    6,876110
    
    
    
    110
    
    
    
    12,676
    
    
    
    13,211Marketable equities
    
    
    
    
    
    
    
    
    
    
    3,886
    
    
    
    3,724Total
    
    $
    110
    
    
    $
    110
    
    
    $
    16,562
    
    
    $
    16,935
  2009
    
    
    2008Gains
    
    $
    
    
    
    $
    244Losses
    
    
    (5
    )
    
    
    (166
    )Net Gains (Losses)
    
    $
    (5
    )
    
    $
    78
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F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
 NOTE 2 INVESTMENT SECURITIES (CONTINUED):
   Less than 12 Months
    
    
    More than 12 Months
    
    
    TotalFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesGovernment sponsored
enterprises
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $Mortgage backed
obligations
    
    
    
    
    
    
    
    
    
    
    317
    
    
    
    (3
    )
    
    
    317
    
    
    
    (3
    )Marketable equities
    
    
    28
    
    
    
    (12
    )
    
    
    1,334
    
    
    
    (331
    )
    
    
    1,362
    
    
    
    (343
    )Total
    
    $
    28
    
    
    $
    (12
    )
    
    $
    1,651
    
    
    $
    (334
    )
    
    $
    1,679
    
    
    $
    (346
    )
  NOTE 3 LOANS HELD FOR INVESTMENT:
  2009
    
    
    2008Real EstateConstruction
    
    $
    86,123
    
    
    $
    71,259Residential
    
    
    183,795
    
    
    
    169,122Commercial and agricultural
    
    
    135,743
    
    
    
    134,008Installment loans to individuals
    
    
    18,866
    
    
    
    22,792Credit cards
    
    
    2,116
    
    
    
    1,940Other
    
    
    120
    
    
    
    112Total
    
    $
    426,763
    
    
    $
    399,233
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##### Table of Contents



F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT
 NOTE 4 ALLOWANCE FOR LOAN LOSSES:
  Nine Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Balance, beginning of period
    
    $
    2,189
    
    
    $
    1,703
    
    
    $
    2,556
    
    
    $
    1,707Provisions charged to
operating expenses
    
    
    3,310
    
    
    
    385
    
    
    
    2,790
    
    
    
    120Net (charge-offs) recoveries:Loan recoveries
    
    
    51
    
    
    
    59
    
    
    
    22
    
    
    
    18Loan charge-offs
    
    
    (850
    )
    
    
    (327
    )
    
    
    (668
    )
    
    
    (25
    )Total Net Charge-Offs *
    
    
    (799
    )
    
    
    (268
    )
    
    
    (646
    )
    
    
    (7
    )Balance, End of Period
    
    $
    4,700
    
    
    $
    1,820
    
    
    $
    4,700
    
    
    $
    1,820* Components of Net Charge-OffsReal Estate
    
    
    (699
    )
    
    
    1
    
    
    
    (612
    )Commercial
    
    
    (44
    )
    
    
    (260
    )Installment
    
    
    (56
    )
    
    
    (9
    )
    
    
    (34
    )
    
    
    (7
    )Total
    
    $
    (799
    )
    
    $
    (268
    )
    
    $
    (646
    )
    
    $
    (7
    )
 NOTE 5 EMPLOYEE BENEFIT PLAN
  2009
    
    
    2008Service cost
    
    $
    269,100
    
    
    $
    241,785Interest cost
    
    
    204,999
    
    
    
    192,162Expected return on plan assets
    
    
    (235,284
    )
    
    
    (282,534
    )Amortization of net obligation at transitionAmortization of prior service cost
    
    
    (3,975
    )
    
    
    (3,975
    )Amortization of net (gain) or loss
    
    
    93,153
    
    
    
    8,841Net periodic benefit cost
    
    $
    327,993
    
    
    $
    156,279
 10




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##### Table of Contents



F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6 FAIR VALUE
         Assets and Liabilities Recorded at Fair Value on a Recurring Basis
  September 30, 2009
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Investment securities available-for-sale
    
    $
    16,935
    
    
    $
    4,202
    
    
    $
    12,733Loans held for sale
    
    
    22,215
    
    
    
    
    
    
    
    22,215Impaired loans
    
    
    6,966
    
    
    
    5,322
    
    
    
    1,644Other real estate owned
    
    
    524
    
    
    
    
    
    
    
    524Total assets at fair value
    
    
    46,640
    
    
    
    9,524
    
    
    
    37,116Total liabilities at fair value
  11




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F & M BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 7 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
  September 30, 2009
    
    December 31, 2008Estimated
    
    Carrying
    
    Estimated
    
    CarryingFair Value
    
    Value
    
    Fair Value
    
    ValueFinancial AssetsCash
    
    $
    5,775
    
    
    $
    5,775
    
    
    $
    5,687
    
    
    $
    5,687Interest bearing deposits
    
    
    63
    
    
    
    63
    
    
    
    1,164
    
    
    
    1,162Federal funds sold
    
    
    2,411
    
    
    
    2,411
    
    
    
    8,979
    
    
    
    8,979Securities available for sale
    
    
    16,935
    
    
    
    16,935
    
    
    
    22,237
    
    
    
    22,237Securities held to maturity
    
    
    110
    
    
    
    110
    
    
    
    110
    
    
    
    110Other investments
    
    
    9,031
    
    
    
    9,031
    
    
    
    8,439
    
    
    
    8,439Loans
    
    
    449,442
    
    
    
    422,063
    
    
    
    418,630
    
    
    
    399,233Loan held for sale
    
    
    22,215
    
    
    
    22,215
    
    
    
    3,780
    
    
    
    3,780Bank owned life insurance
    
    
    6,520
    
    
    
    6,520
    
    
    
    6,304
    
    
    
    6,304Accrued interest receivable
    
    
    1,863
    
    
    
    1,863
    
    
    
    2,056
    
    
    
    2,056Financial LiabilitiesDemand Deposits:Non-interest bearing
    
    
    51,250
    
    
    
    51,250
    
    
    
    49,786
    
    
    
    49,786Interest bearing
    
    
    87,216
    
    
    
    87,216
    
    
    
    62,552
    
    
    
    62,552Savings deposits
    
    
    33,884
    
    
    
    33,884
    
    
    
    29,367
    
    
    
    29,367Time deposits
    
    
    218,631
    
    
    
    216,576
    
    
    
    202,082
    
    
    
    200,521Accrued liabilities
    
    
    7,332
    
    
    
    7,332
    
    
    
    7,687
    
    
    
    7,687Short-term debt
    
    
    4,022
    
    
    
    4,022
    
    
    
    20,569
    
    
    
    20,510Long-term debt
    
    
    65,176
    
    
    
    65,027
    
    
    
    68,846
    
    
    
    65,331
  12




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
     Forward-Looking Statements
    13




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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.
 14




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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 will 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, will be the prospects for the individual security, rather than broad market
indices. All available evidentiary material will be considered, including the Companys
public filings with the SEC, press releases, analyst reports, etc.
    
    Secondary consideration will be 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 would only be considered when the declines in value were not limited to
the individual security, but were prevalent over the broader market. This measure will be
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 Q1, 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 Q1 or Q2 rather than continuing to evaluate the security over several
quarters, based on holding period projections.
 Results of Operations
 Net Income
   2009
    
    
    2008Net Income from Bank Operations
    
    $
    1,799
    
    
    $
    3,134Income or loss from Parent Company Activities
    
    
    (700
    )
    
    
    100Net Income for the year
    
    
    1,099
    
    
    
    3,234
 15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 Net Interest Income
    Provision for Loan Losses
  Noninterest Income
  Noninterest Expense
   
 16




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Financial Condition
 Federal Funds Sold and Interest Bearing Bank Deposits
  Securities
       
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Loan Portfolio
      September 30,
    
    June 30,
    
    March 31,
    
    December 31,
    
    September 30,2009
    
    2009
    
    2009
    
    2008
    
    2008Nonaccrual Loans:Real Estate
    
    
    3,638
    
    
    
    1,918
    
    
    
    1,518
    
    
    
    1,374
    
    
    
    1,225Commercial
    
    
    1,364
    
    
    
    31OtherLoans past due 90 days or more:Real Estate
    
    
    2,550
    
    
    
    4,432
    
    
    
    2,798
    
    
    
    3,205
    
    
    
    2,276Commercial
    
    
    312
    
    
    
    432
    
    
    
    497
    
    
    
    26Other
    
    
    153
    
    
    
    38
    
    
    
    148
    
    
    
    161
    
    
    
    188Total Nonperforming loans
    
    
    8,017
    
    
    
    6,461
    
    
    
    4,961
    
    
    
    4,766
    
    
    
    3,689Nonperforming loans as a
percentage of loans held for
investment
    
    
    1.88
    %
    
    
    1.55
    %
    
    
    1.21
    %
    
    
    1.19
    %
    
    
    .97
    %Net Charge Offs to Total Loans
    
    
    .19
    %
    
    
    .04
    %
    
    
    .004
    %
    
    
    .08
    %
    
    
    .07
    %Allowance for loan and lease
losses to nonperforming loans
    
    
    58.63
    %
    
    
    39.56
    %
    
    
    48.00
    %
    
    
    45.93
    %
    
    
    49.33
    %
 
 18




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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
        Deposits and Other Borrowings
  19




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
(Continued)
 Short-term debt
  Long-term debt
     Capital
  Liquidity
  
 20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
  Interest Rate Sensitivity
    Stock Repurchase
  Effect of Newly Issued Accounting Standards
 FASB Accounting Standards Codification TM FASB Accounting Standards Codification TM Accounting Standards Codification
  
 21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
     Existence of Securities and Exchange Commission Web Site
  22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
 TABLE 1
 F & M BANK CORP.
NET INTEREST MARGIN ANALYSIS
(ON A FULLY TAXABLE EQUIVALENT BASIS)
(Dollar Amounts in Thousands)
 Nine Months Ended
    
    
    Nine Months Ended
    
    
    Three Months Ended
    
    
    Three Months EndedSeptember 30, 2009
    
    
    September 30, 2008
    
    
    September 30, 2009
    
    
    September 30, 2008Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/
    
    
    
    
    
    
    Average
    
    
    Income/Balance
    
    
    Expense
    
    
    Rates
    
    
    Balance
    
    
    Expense
    
    
    Rates
    
    
    Balance
    
    
    Expense
    
    
    Rates
    
    
    Balance
    
    
    Expense
    
    
    RatesRate related incomeLoans held for investment1
    
    $
    412,984
    
    
    $
    19,001
    
    
    
    6.13
    %
    
    $
    343,996
    
    
    $
    17,412
    
    
    
    6.75
    %
    
    $
    422,056
    
    
    $
    6,331
    
    
    
    6.00
    %
    
    $
    370,276
    
    
    $
    6,159
    
    
    
    6.65
    %Loans held for sale
    
    
    27,860
    
    
    
    810
    
    
    
    3.88
    %
    
    
    5,958
    
    
    
    185
    
    
    
    4.14
    %
    
    
    27,576
    
    
    
    259
    
    
    
    3.76
    %
    
    
    6,196
    
    
    
    65
    
    
    
    4.20
    %Federal funds sold
    
    
    3,515
    
    
    
    5
    
    
    
    .19
    %
    
    
    3,012
    
    
    
    46
    
    
    
    2.04
    %
    
    
    5,874
    
    
    
    3
    
    
    
    .20
    %
    
    
    4,001
    
    
    
    17
    
    
    
    1.70
    %Bank deposits
    
    
    1,148
    
    
    
    16
    
    
    
    1.86
    %
    
    
    2,712
    
    
    
    99
    
    
    
    4.87
    %
    
    
    1,077
    
    
    
    
    
    
    
    
    
    
    
    2,058
    
    
    
    24
    
    
    
    4.66
    %InvestmentsTaxable3
    
    
    16,268
    
    
    
    585
    
    
    
    4.79
    %
    
    
    19,873
    
    
    
    846
    
    
    
    5.68
    %
    
    
    13,190
    
    
    
    140
    
    
    
    4.25
    %
    
    
    19,365
    
    
    
    289
    
    
    
    5.97
    %Partially taxable 2,3
    
    
    3,773
    
    
    
    197
    
    
    
    6.96
    %
    
    
    10,091
    
    
    
    369
    
    
    
    4.88
    %
    
    
    3,834
    
    
    
    77
    
    
    
    8.03
    %
    
    
    8,834
    
    
    
    125
    
    
    
    5.66
    %Tax exempt 2,3
    
    
    51
    
    
    
    3
    
    
    
    7.84
    %
    
    
    184
    
    
    
    6
    
    
    
    4.35
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    1
    
    
    
    3.20
    %Total earning assets
    
    
    465,599
    
    
    
    20,617
    
    
    
    5.90
    %
    
    
    385,826
    
    
    
    18,963
    
    
    
    6.55
    %
    
    
    473,607
    
    
    
    6,810
    
    
    
    5.75
    %
    
    
    410,855
    
    
    
    6,680
    
    
    
    6.50
    %Interest ExpenseDemand deposits
    
    
    73,166
    
    
    
    869
    
    
    
    1.58
    %
    
    
    58,053
    
    
    
    567
    
    
    
    1.30
    %
    
    
    81,956
    
    
    
    354
    
    
    
    1.73
    %
    
    
    58,629
    
    
    
    187
    
    
    
    1.28
    %Savings
    
    
    32,363
    
    
    
    155
    
    
    
    .64
    %
    
    
    30,057
    
    
    
    222
    
    
    
    .98
    %
    
    
    33,996
    
    
    
    47
    
    
    
    .55
    %
    
    
    31,921
    
    
    
    77
    
    
    
    .96
    %Time deposits
    
    
    216,545
    
    
    
    4,917
    
    
    
    3.03
    %
    
    
    163,867
    
    
    
    5,142
    
    
    
    4.18
    %
    
    
    221,804
    
    
    
    1,501
    
    
    
    2.71
    %
    
    
    165,370
    
    
    
    1,651
    
    
    
    3.99
    %Short-term debt
    
    
    16,882
    
    
    
    65
    
    
    
    .51
    %
    
    
    24,007
    
    
    
    402
    
    
    
    2.23
    %
    
    
    7,175
    
    
    
    9
    
    
    
    .50
    %
    
    
    38,992
    
    
    
    216
    
    
    
    2.22
    %Long-term debt
    
    
    67,466
    
    
    
    1,718
    
    
    
    3.40
    %
    
    
    46,962
    
    
    
    1,389
    
    
    
    3.94
    %
    
    
    65,637
    
    
    
    563
    
    
    
    3.43
    %
    
    
    54,007
    
    
    
    533
    
    
    
    3.95
    %Total interest bearing liabilities
    
    
    406,422
    
    
    
    7,724
    
    
    
    2.53
    %
    
    
    322,946
    
    
    
    7,722
    
    
    
    3.19
    %
    
    
    410,568
    
    
    
    2,474
    
    
    
    2.41
    %
    
    
    348,919
    
    
    
    2,664
    
    
    
    3.05
    %Net interest income 1
    
    
    
    
    
    
    12,893
    
    
    
    
    
    
    
    
    
    
    $
    11,241
    
    
    
    
    
    
    
    
    
    
    $
    4,336
    
    
    
    
    
    
    
    
    
    
    $
    4,016Net yield on interest earning assets
1
    
    
    
    
    
    
    
    
    
    
    3.69
    %
    
    
    
    
    
    
    
    
    
    
    3.88
    %
    
    
    
    
    
    
    
    
    
    
    3.66
    %
    
    
    
    
    
    
    
    
    
    
    3.91
    %
 23




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##### Table of Contents



TABLE II
 F & M BANK CORP.
INTEREST SENSITIVITY ANALYSIS
September 30, 2009
(In Thousands of Dollars)
  0 - 3
    
    
    4 - 12
    
    
    1 - 5
    
    
    Over 5
    
    
    NotMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    Classified
    
    
    TotalUses of FundsLoansCommercial
    
    $
    112,235
    
    
    $
    18,175
    
    
    $
    77,734
    
    
    $
    5,180
    
    
    $
    
    
    
    $
    213,324Installment
    
    
    10,653
    
    
    
    863
    
    
    
    9,428
    
    
    
    3,262
    
    
    
    
    
    
    
    24,206Real estate for
investments
    
    
    39,758
    
    
    
    12,394
    
    
    
    117,943
    
    
    
    17,022
    
    
    
    
    
    
    
    187,117Real estate for sale
    
    
    22,215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,215Credit cards
    
    
    2,116
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,116Federal funds sold
    
    
    2,411
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,411Interest bearing
bank deposits
    
    
    70
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70Investment securities
    
    
    60
    
    
    
    2,366
    
    
    
    4,020
    
    
    
    6,397
    
    
    
    4,202
    
    
    
    17,045Total
    
    
    189,518
    
    
    
    33,798
    
    
    
    209,125
    
    
    
    31,861
    
    
    
    4,202
    
    
    
    468,504Sources of FundsInterest bearing
demand deposits
    
    
    
    
    
    
    24,289
    
    
    
    50,047
    
    
    
    12,879
    
    
    
    
    
    
    
    87,215Savings deposits
    
    
    
    
    
    
    6,777
    
    
    
    20,330
    
    
    
    6,777
    
    
    
    
    
    
    
    33,884Certificates of deposit
$100,000 and over
    
    
    23,234
    
    
    
    34,806
    
    
    
    19,723
    
    
    
    
    
    
    
    
    
    
    
    77,763Other certificates
of deposit
    
    
    20,173
    
    
    
    70,847
    
    
    
    47,794
    
    
    
    
    
    
    
    
    
    
    
    138,814Short-term borrowings
    
    
    4,022
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,022Long-term borrowings
    
    
    22,771
    
    
    
    9,575
    
    
    
    31,806
    
    
    
    875
    
    
    
    
    
    
    
    65,027Total
    
    $
    70,200
    
    
    $
    146,294
    
    
    $
    169,700
    
    
    $
    20,531
    
    
    $
    
    
    
    $
    406,725Discrete Gap
    
    
    119,318
    
    
    
    (112,496
    )
    
    
    39,425
    
    
    
    11,330
    
    
    
    4,202
    
    
    
    61,779Cumulative Gap
    
    
    119,318
    
    
    
    6,822
    
    
    
    46,247
    
    
    
    57,577
    
    
    
    61,779Ratio of Cumulative
Gap to Total Earning Assets
    
    
    25.47
    %
    
    
    1.46
    %
    
    
    9.87
    %
    
    
    12.29
    %
    
    
    13.19
    %
  24




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Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4T. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    Changes in Internal Controls
  25




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##### Table of Contents



Part II Other Information
 
  
 Item 1a.
    
    Risk Factors  There have been no material changes from the risk factors previously
disclosed in Item 1a of the Corporations Form 10k filed on March 23,2009.
 
  
  
  
  
  (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 August 17, 2007.3 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 Sarbanes-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