##### 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, 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
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 
  
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at November 10, 2010Common Stock, par value  $5
    
    2,304,692 shares




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##### 



F & M BANK CORP.
 Index
 PagePart I Financial Information
    
    
    2Item 1. Financial StatementsConsolidated Statements of Income  Three Months
Ended September 30, 2010 and 2009
    
    
    2Consolidated Statements of Income  Nine Months
Ended September 30, 2010 and 2009
    
    
    3Consolidated Balance Sheets  September 30, 2010
and December 31, 2009
    
    
    4Consolidated Statements of Cash Flows  Nine Months
Ended September 30, 2010 and 2009
    
    
    5Consolidated Statements of Changes in Stockholders
Equity  Nine Months Ended September 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
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II Other Information
    
    
    27Item 1. Legal Proceedings
    
    
    27Item 1a. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults upon Senior Securities
    
    
    27Item 4. Removed and reserved
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27Signatures
    
    
    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 EndedSeptember 30,2010
    
    
    2009Interest incomeInterest and fees on loans held for investment
    
    $
    6,524
    
    
    $
    6,302Interest and fees on loans held for sale
    
    
    411
    
    
    
    259Interest on federal funds sold
    
    
    1
    
    
    
    3Interest on interest bearing deposits
    
    
    7
    
    
    
    7Dividends on equity securities
    
    
    49
    
    
    
    61Interest on debt securities
    
    
    83
    
    
    
    129Total interest income
    
    
    7,075
    
    
    
    6,761Interest expenseInterest on demand deposits
    
    
    502
    
    
    
    355Interest on savings accounts
    
    
    48
    
    
    
    47Interest on time deposits over $100,000
    
    
    332
    
    
    
    477Interest on time deposits
    
    
    705
    
    
    
    1,024Total interest on deposits
    
    
    1,587
    
    
    
    1,903Interest on short-term debt
    
    
    9
    
    
    
    9Interest on long-term debt
    
    
    617
    
    
    
    563Total Interest Expense
    
    
    2,213
    
    
    
    2,475Net interest income
    
    
    4,862
    
    
    
    4,286Provision for loan losses
    
    
    1,300
    
    
    
    2,790Net interest income after provision for loan losses
    
    
    3,562
    
    
    
    1,496Noninterest incomeService charges
    
    
    296
    
    
    
    342Insurance and other commissions
    
    
    173
    
    
    
    104Other
    
    
    255
    
    
    
    167Income on bank owned life insurance
    
    
    85
    
    
    
    92Other than temporary impairment losses
    
    
    (65
    )
    
    
    (786
    )Gain (loss) on the sale of securities
    
    
    384
    
    
    
    0Total noninterest income
    
    
    1,128
    
    
    
    (81
    )Noninterest expenseSalaries
    
    
    1,365
    
    
    
    1,349Employee benefits
    
    
    416
    
    
    
    440Occupancy expense
    
    
    131
    
    
    
    144Equipment expense
    
    
    146
    
    
    
    165Intangible amortization
    
    
    69
    
    
    
    69FDIC insurance assessment
    
    
    297
    
    
    
    282Other
    
    
    833
    
    
    
    800Total noninterest expense
    
    
    3,257
    
    
    
    3,249Income (loss) before income taxes
    
    
    1,433
    
    
    
    (1,834
    )Income tax expense (benefit)
    
    
    508
    
    
    
    (978
    )Consolidated net income (loss)
    
    
    925
    
    
    
    (856
    )Net income  Noncontrolling interest
    
    
    (34
    )
    
    
    (20
    )Net Income (Loss) F & M Bank Corp
    
    $
    891
    
    
    $
    (876
    )Per share dataNet income (loss)
    
    $
    .39
    
    
    $
    (.38
    )Cash dividends
    
    $
    .15
    
    
    $
    .23Weighted average shares outstanding
    
    
    2,298,801
    
    
    
    2,294,275
 See notes to unaudited consolidated financial statements
 2




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##### Table of Contents



F & M BANK CORP.
 
 Consolidated Statements of Income
 (In Thousands of Dollars Except per Share Amounts)
 (Unaudited)
 Nine Months EndedSeptember 30,2010
    
    
    2009Interest incomeInterest and fees on loans held for investment
    
    $
    19,417
    
    
    $
    18,905Interest and fees on loans held for sale
    
    
    873
    
    
    
    810Interest on federal funds sold
    
    
    18
    
    
    
    5Interest on interest bearing deposits
    
    
    20
    
    
    
    17Dividends on equity securities
    
    
    154
    
    
    
    165Interest on debt securities
    
    
    302
    
    
    
    579Total interest income
    
    
    20,784
    
    
    
    20,481Interest expenseInterest on demand deposits
    
    
    1,465
    
    
    
    870Interest on savings accounts
    
    
    144
    
    
    
    155Interest on time deposits over $100,000
    
    
    1,120
    
    
    
    1,580Interest on time deposits
    
    
    2,320
    
    
    
    3,336Total interest on deposits
    
    
    5,049
    
    
    
    5,941Interest on short-term debt
    
    
    22
    
    
    
    65Interest on long-term debt
    
    
    1,798
    
    
    
    1,718Total Interest Expense
    
    
    6,869
    
    
    
    7,724Net interest income
    
    
    13,915
    
    
    
    12,757Provision for loan losses
    
    
    3,100
    
    
    
    3,310Net interest income after provision for loan losses
    
    
    10,815
    
    
    
    9,447Noninterest incomeService charges
    
    
    910
    
    
    
    943Insurance and other commissions
    
    
    369
    
    
    
    385Other
    
    
    922
    
    
    
    722Income on bank owned life insurance
    
    
    252
    
    
    
    272Other than temporary impairment losses
    
    
    (65
    )
    
    
    (1,612
    )Gain (loss) on the sale of securities
    
    
    414
    
    
    
    (5
    )Total noninterest income
    
    
    2,802
    
    
    
    705Noninterest expenseSalaries
    
    
    3,943
    
    
    
    3,836Employee benefits
    
    
    1,177
    
    
    
    1,321Occupancy expense
    
    
    423
    
    
    
    427Equipment expense
    
    
    444
    
    
    
    433Intangible amortization
    
    
    207
    
    
    
    207FDIC insurance assessment
    
    
    876
    
    
    
    562Other
    
    
    2,576
    
    
    
    2,345Total noninterest expense
    
    
    9,646
    
    
    
    9,131Income before income taxes
    
    
    3,971
    
    
    
    1,021Income taxes
    
    
    1,287
    
    
    
    (144
    )Consolidated net income
    
    
    2,684
    
    
    
    1,165Net income  Noncontrolling interest
    
    
    (57
    )
    
    
    (66
    )Net Income  F & M Bank Corp
    
    $
    2,627
    
    
    $
    1,099Per share dataNet income
    
    $
    1.14
    
    
    $
    .48Cash dividends
    
    $
    .45
    
    
    $
    .69Weighted average shares outstanding
    
    
    2,297,191
    
    
    
    2,290,859
 See notes to unaudited consolidated financial statements
 3




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##### Table of Contents



F & M BANK CORP.
 
 Consolidated Balance Sheets
 (In Thousands of Dollars Except per Share Amounts)
 September 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)
    
    
    (Audited)AssetsCash and due from banks
    
    $
    5,553
    
    
    $
    5,314Federal funds sold
    
    
    6,096
    
    
    
    18,326Cash and cash equivalents
    
    
    11,649
    
    
    
    23,640Interest bearing deposits in banks
    
    
    3,252
    
    
    
    65Securities:Held to maturity  fair value of $109,000 in 2010
and $110,000 in 2009. (note 2)
    
    
    109
    
    
    
    110Available for sale (note 2)
    
    
    14,722
    
    
    
    16,430Other investments
    
    
    9,049
    
    
    
    9,681Loans held for sale
    
    
    34,497
    
    
    
    31,168Loans held for investment (note 3)
    
    
    446,595
    
    
    
    434,403Less allowance for loan losses (note 4)
    
    
    (5,200
    )
    
    
    (3,836
    )Net loans held for investment
    
    
    441,395
    
    
    
    430,567Other real estate owned
    
    
    1,789
    
    
    
    526Bank premises and equipment, net
    
    
    6,834
    
    
    
    7,080Interest receivable
    
    
    1,876
    
    
    
    2,038Core deposit intangible
    
    
    115
    
    
    
    322Goodwill
    
    
    2,670
    
    
    
    2,670Bank owned life insurance
    
    
    6,810
    
    
    
    6,593Other assets
    
    
    7,851
    
    
    
    8,333Total assets
    
    $
    542,618
    
    
    $
    539,223LiabilitiesDeposits:Noninterest bearing
    
    $
    56,392
    
    
    $
    53,475Interest bearing:Demand
    
    
    92,277
    
    
    
    77,483Money market accounts
    
    
    21,646
    
    
    
    23,231Savings
    
    
    35,195
    
    
    
    34,229Time deposits over $100,000
    
    
    87,034
    
    
    
    99,330All other time deposits
    
    
    132,714
    
    
    
    132,895Total deposits
    
    
    425,258
    
    
    
    420,643Short-term debt
    
    
    5,604
    
    
    
    9,085Accrued liabilities
    
    
    7,065
    
    
    
    7,397Subordinated debt
    
    
    8,268
    
    
    
    2,715Long-term debt
    
    
    55,059
    
    
    
    60,381Total liabilities
    
    
    501,254
    
    
    
    500,221Stockholders EquityCommon stock, $5 par value, 6,000,000 shares authorized,
2,304,692 and 2,295,053 shares issued and outstanding
in 2010 and 2009, respectively
    
    
    11,523
    
    
    
    11,475Retained earnings
    
    
    30,052
    
    
    
    27,989Noncontrolling interest
    
    
    153
    
    
    
    123Accumulated other comprehensive income (loss)
    
    
    (364
    )
    
    
    (585
    )Total stockholders equity
    
    
    41,364
    
    
    
    39,002Total liabilities and stockholders equity
    
    $
    542,618
    
    
    $
    539,223
 See notes to unaudited consolidated financial statements
 4




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F & M BANK CORP.
 
 Consolidated Statements of Cash Flows
 (In Thousands of Dollars)
 (Unaudited)
 Nine Months EndedSeptember 30,2010
    
    
    2009Cash flows from operating activitiesNet income
    
    $
    2,627
    
    
    $
    1,099Net change  Noncontrolling interest
    
    
    30
    
    
    
    (66
    )Adjustments to reconcile net income to net
cash provided (used) by operating activities:Depreciation
    
    
    480
    
    
    
    488Amortization (accretion) of security premiums (discounts)
    
    
    29
    
    
    
    26Net (increase) decrease in loans held for sale
    
    
    (3,330
    )
    
    
    (18,434
    )Provision for loan losses
    
    
    3,100
    
    
    
    3,310Intangible amortization
    
    
    207
    
    
    
    207(Increase) decrease in interest receivable
    
    
    161
    
    
    
    193(Increase) decrease in other assets
    
    
    (78
    )
    
    
    492Gain on sale of other real estate owned
    
    
    (18
    )Increase (decrease) in accrued expenses
    
    
    512
    
    
    
    (1,096
    )(Gain)/loss on security transactions
    
    
    (349
    )
    
    
    1,617Amortization of limited partnership investments
    
    
    306
    
    
    
    277Income from life insurance investment
    
    
    (217
    )
    
    
    (216
    )Net adjustments
    
    
    803
    
    
    
    (13,136
    )Net cash provided (used) by operating activities
    
    
    3,460
    
    
    
    (12,103
    )Cash flows from investing activitiesPurchase of investments available for sale
    
    
    (17,127
    )
    
    
    (6,948
    )Proceeds from sales of investments available for sale
    
    
    1,860
    
    
    
    12,097Proceeds from maturity of investments available for sale
    
    
    17,905
    
    
    
    16Net increase in loans held for investment
    
    
    (16,382
    )
    
    
    (28,853
    )Proceeds from the sale of other real estate owned
    
    
    1,210Purchase of property and equipment
    
    
    (234
    )
    
    
    (212
    )Net (increase) decrease in interest bearing bank deposits
    
    
    (3,187
    )
    
    
    1,099Net cash used in investing activities
    
    
    (15,955
    )
    
    
    (22,801
    )Cash flows from financing activitiesNet change in demand and savings deposits
    
    
    17,091
    
    
    
    30,645Net change in time deposits
    
    
    (12,477
    )
    
    
    16,056Net change in short-term debt
    
    
    (3,481
    )
    
    
    (16,489
    )Cash dividends paid
    
    
    (1,036
    )
    
    
    (1,587
    )Repurchase of common stock
    
    
    
    
    
    
    (54
    )Proceeds from issuance of common stock
    
    
    175
    
    
    
    157Proceeds of long-term debt
    
    
    14,289
    
    
    
    13,275Repayment of long-term debt
    
    
    (14,057
    )
    
    
    (13,579
    )Net cash provided (used) by financing activities
    
    
    504
    
    
    
    28,424Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (11,991
    )
    
    
    (6,480
    )Cash and cash equivalents, beginning of period
    
    
    23,640
    
    
    
    14,666Cash and cash equivalents, end of period
    
    $
    11,649
    
    
    $
    8,186Supplemental disclosureCash paid for:Interest expense
    
    $
    6,815
    
    
    $
    7,904Income taxes
    
    
    500
    
    
    
    620Transfers from loans to Other Real Estate Owned
    
    
    2,456
 See notes to unaudited consolidated financial 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 30,2010
    
    
    2009Balance, beginning of period
    
    $
    39,002
    
    
    $
    36,258Comprehensive incomeNet income  F & M Bank Corp
    
    
    2,627
    
    
    
    1,165Change  Noncontrolling interest (net of dividends)
    
    
    30
    
    
    
    (66
    )Net change in unrealized appreciation on securities
available for sale, net of taxes
    
    
    220
    
    
    
    1,642Total comprehensive income
    
    
    2,877
    
    
    
    2,741Issuance of common stock
    
    
    175
    
    
    
    157Repurchase of common stock
    
    
    
    
    
    
    (54
    )Dividends declared
    
    
    (690
    )
    
    
    (1,397
    )Balance, end of period
    
    $
    41,364
    
    
    $
    37,705
 See notes to unaudited consolidated financial statements
 6




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##### Table of Contents



F & M BANK CORP.
Notes to Consolidated Financial Statements
 Note 1. Accounting Principles
    Comprehensive Income
   September 30,
    
    
    September 30,2010
    
    
    2009Changes in:Net Income:Net Income  F & M Bank Corp
    
    $
    2,627
    
    
    $
    1,165Net Income  Noncontrolling Interest
    
    
    30
    
    
    
    (66
    )2,657
    
    
    
    1,099Unrealized holding gains (losses)
on available-for-sale securities:
    
    
    682
    
    
    
    759Reclassification adjustment for other than temporary impairment losses
    
    
    65
    
    
    
    1,612Reclassification adjustment for
(gains) losses realized in income
    
    
    (414
    )
    
    
    5Net unrealized gains (losses)
    
    
    333
    
    
    
    2,376Tax effect
    
    
    113
    
    
    
    734Unrealized holding gain (losses), net of tax
    
    
    220
    
    
    
    1,642Comprehensive income
    
    $
    2,877
    
    
    $
    2,741
 Subsequent Events
  7




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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
    
    $
    7,030
    
    
    $
    7,015
    
    
    $
    6,012
    
    
    $
    5,976Equity securities
    
    
    3,149
    
    
    
    2,622
    
    
    
    3,743
    
    
    
    3,768Mortgage-backed securities
    
    
    4,543
    
    
    
    4,290
    
    
    
    6,170
    
    
    
    5,896Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    505
    
    
    
    281Municipals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    14,722
    
    
    $
    13,927
    
    
    $
    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
    
    
    $
    1,271
    
    
    $
    1,270Due after one year through five years
    
    
    
    
    
    
    
    
    
    
    6,015
    
    
    
    6,030Due after five years
    
    
    
    
    
    
    
    
    
    
    4,019
    
    
    
    4,273109
    
    
    
    109
    
    
    
    11,305
    
    
    
    11,573Marketable equities
    
    
    
    
    
    
    
    
    
    
    2,622
    
    
    
    3,149Total
    
    $
    109
    
    
    $
    109
    
    
    $
    13,927
    
    
    $
    14,722
  Nine Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Gains
    
    $
    506
    
    
    $
    
    
    
    $
    392
    
    
    $
    Losses
    
    
    (92
    )
    
    
    (5
    )
    
    
    (8
    )
    
    
    (5
    )Net Gains (Losses)
    
    $
    414
    
    
    $
    (5
    )
    
    $
    384
    
    
    $
    (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. There
were $65,000 which were deemed to have other than temporary impairment through
September of 2010. Such charges were $1,612,000 through September 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
    
    
    LossesSeptember 30, 2010Government
sponsored
Enterprises
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Mortgage backed Obligations
    
    
    
    
    
    
    
    
    
    
    269
    
    
    
    (2
    )
    
    
    269
    
    
    
    (2
    )Marketable equities
    
    
    531
    
    
    
    (57
    )
    
    
    
    
    
    
    
    
    
    
    531
    
    
    
    (57
    )Total
    
    $
    531
    
    
    $
    (57
    )
    
    $
    269
    
    
    $
    (2
    )
    
    $
    800
    
    
    $
    (59
    )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
    
    $
    84,730
    
    
    $
    86,320Residential
    
    
    189,624
    
    
    
    191,382Commercial and agricultural
    
    
    150,685
    
    
    
    134,993Consumer loans to individuals
    
    
    18,931
    
    
    
    19,247Credit cards
    
    
    2,560
    
    
    
    2,355Other
    
    
    65
    
    
    
    106Total
    
    $
    446,595
    
    
    $
    434,403
 Note 4. Allowance for Loan Losses
  Nine Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Balance, beginning of period
    
    $
    3,836
    
    
    $
    2,189
    
    
    $
    4,890
    
    
    $
    2,556Provisions charged to operating expenses
    
    
    3,100
    
    
    
    3,310
    
    
    
    1,300
    
    
    
    2,790Net (charge-offs) recoveries:Loan recoveries
    
    
    60
    
    
    
    51
    
    
    
    20
    
    
    
    22Loan charge-offs
    
    
    (1,796
    )
    
    
    (850
    )
    
    
    (1,010
    )
    
    
    (668
    )Total Net (Charge-Offs) Recoveries*
    
    
    (1,736
    )
    
    
    (799
    )
    
    
    (990
    )
    
    
    (646
    )Balance, End of Period
    
    $
    5,200
    
    
    $
    4,700
    
    
    $
    5,200
    
    
    $
    4,700*   Components of Net (Charge-Offs)
RecoveriesReal Estate
    
    
    (1,633
    )
    
    
    (699
    )
    
    
    (979
    )
    
    
    (612
    )Commercial
    
    
    (33
    )
    
    
    (44
    )
    
    
    (2
    )Consumer and other
    
    
    (70
    )
    
    
    (56
    )
    
    
    (9
    )
    
    
    (34
    )Total
    
    $
    (1,736
    )
    
    $
    (799
    )
    
    $
    (990
    )
    
    $
    (646
    )
 Note 5. Employee Benefit Plan
  Nine Months Ended
    
    
    Three Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    $
    290,937
    
    
    $
    269,100
    
    
    $
    96,979
    
    
    $
    89,700Interest cost
    
    
    237,750
    
    
    
    204,999
    
    
    
    79,250
    
    
    
    68,333Expected return on plan assets
    
    
    (361,281
    )
    
    
    (235,284
    )
    
    
    (120,427
    )
    
    
    (78,428
    )Amortization of net obligation at transitionAmortization of prior service cost
    
    
    (3,975
    )
    
    
    (3,975
    )
    
    
    (1,325
    )
    
    
    (1,325
    )Amortization of net (gain) or loss
    
    
    49,134
    
    
    
    93,153
    
    
    
    16,378
    
    
    
    31,051Net periodic benefit cost
    
    $
    212,565
    
    
    $
    327,993
    
    
    $
    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
  September 30, 2010
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Government sponsored enterprises
    
    
    7,030
    
    
    
    
    
    
    
    7,030Mortgage-backed obligations of federal agencies
    
    
    4,543
    
    
    
    
    
    
    
    4,543Marketable Equities
    
    
    3,149
    
    
    
    3,149Corporate Bonds
    
    
    
    
    
    
    
    
    
    
    Investment securities available for sale
    
    
    14,722
    
    
    
    3,149
    
    
    
    11,573Total assets at fair value
    
    
    14,722
    
    
    
    3,149
    
    
    
    11,573Total 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
  September 30, 2010
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Loans Held for Sale
    
    
    34,497
    
    
    
    
    
    
    
    34,497Other Real Estate Owned
    
    
    1,789
    
    
    
    
    
    
    
    1,789Real Estate
    
    
    508
    
    
    
    
    
    
    
    508Commercial
    
    
    6,081
    
    
    
    
    
    
    
    6,081ConsumerImpaired loans
    
    
    6,589
    
    
    
    
    
    
    
    6,589Total assets at fair value
    
    
    42,875
    
    
    
    
    
    
    
    42,875Total 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
  September 30, 2010
    
    
    December 31, 2009Estimated
    
    
    Carrying
    
    
    Estimated
    
    
    CarryingFair Value
    
    
    Value
    
    
    Fair Value
    
    
    ValueFinancial AssetsCash
    
    $
    5,553
    
    
    $
    5,553
    
    
    $
    5,314
    
    
    $
    5,314Interest bearing deposits
    
    
    3,252
    
    
    
    3,252
    
    
    
    65
    
    
    
    65Federal funds sold
    
    
    6,096
    
    
    
    6,096
    
    
    
    18,326
    
    
    
    18,326Securities available for sale
    
    
    14,722
    
    
    
    14,722
    
    
    
    16,430
    
    
    
    16,430Securities held to maturity
    
    
    109
    
    
    
    109
    
    
    
    110
    
    
    
    110Other investments
    
    
    9,049
    
    
    
    9,049
    
    
    
    9,681
    
    
    
    9,681Loans
    
    
    476,249
    
    
    
    446,595
    
    
    
    481,967
    
    
    
    434,403Loans held for sale
    
    
    34,497
    
    
    
    34,497
    
    
    
    31,168
    
    
    
    31,168Bank owned life insurance
    
    
    6,810
    
    
    
    6,810
    
    
    
    6,593
    
    
    
    6,593Accrued interest receivable
    
    
    1,876
    
    
    
    1,876
    
    
    
    2,038
    
    
    
    2,038Financial LiabilitiesDemand Deposits:Non-interest bearing
    
    
    56,392
    
    
    
    56,392
    
    
    
    53,475
    
    
    
    53,475Interest bearing
    
    
    113,923
    
    
    
    113,923
    
    
    
    100,714
    
    
    
    100,714Savings deposits
    
    
    35,195
    
    
    
    35,195
    
    
    
    34,229
    
    
    
    34,229Time deposits
    
    
    222,105
    
    
    
    219,748
    
    
    
    234,032
    
    
    
    232,225Short-term debt
    
    
    5,604
    
    
    
    5,604
    
    
    
    9,085
    
    
    
    9,085Subordinated debt
    
    
    8,268
    
    
    
    8,268
    
    
    
    2,715
    
    
    
    2,715Long-term debt
    
    
    57,252
    
    
    
    55,059
    
    
    
    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
    
    $
    2,811
    
    
    $
    1,799Income or loss from Parent Company Activities
    
    
    (184
    )
    
    
    (700
    )Net Income for the nine months ended September 30
    
    
    2,627
    
    
    
    1,099
 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
    
    $
    2,627
    
    
    $
    1,099Non-recurring Tax Items
    
    
    48
    
    
    
    (16
    )Non-recurring Securities Transactions
    
    
    (267
    )
    
    
    979Core Earnings for the six months ended September 30
    
    $
    2,408
    
    
    $
    2,062
  Results of Operations
 Year to Date
     Quarter to Date
  17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
  Financial Condition
 Federal Funds Sold and Interest Bearing Bank Deposits
  Securities
      Loan Portfolio
  18




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Nonaccrual Loans:Real Estate
    
    $
    1,887
    
    
    $
    3,245Commercial
    
    
    5,828
    
    
    
    261Other
    
    
    285
    
    
    
    Loans past due 90 days or more:Real Estate
    
    
    1,204
    
    
    
    3,850Commercial
    
    
    134
    
    
    
    57Other
    
    
    157
    
    
    
    240Total Nonperforming loans
    
    $
    9,495
    
    
    $
    7,653Nonperforming loans as a percentage of loans held for investment
    
    
    2.13
    %
    
    
    1.76
    %Net Charge Offs to Total Loans
    
    
    .39
    %
    
    
    .59
    %Allowance for loan and lease losses to loans held for investment
    
    
    1.16
    %
    
    
    .88
    %Allowance for loan and lease losses to nonperforming loans
    
    
    54.77
    %
    
    
    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




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Deposits and Other Borrowings
  Short-term debt
  Long-term debt
    Capital
  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
  22




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
 Effect of Newly Issued Accounting Standards (continued)
   Existence of Securities and Exchange Commission Web Site
  23




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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)
 Nine Months Ended
    
    
    Nine Months Ended
    
    
    Three Months Ended
    
    
    Three Months EndedSeptember 30, 2010
    
    
    September 30, 2009
    
    
    September 30, 2010
    
    
    September 30, 2009Income/
    
    
    Average
    
    
    
    
    
    
    Income/
    
    
    
    
    
    
    
    
    
    
    Income/
    
    
    Average
    
    
    
    
    
    
    Income/
    
    
    AverageAverage
    
    Balance2
    
    
    Expense
    
    
    Rates4
    
    
    Balance2
    
    
    Expense
    
    
    Rates4
    
    
    Balance2
    
    
    Expense
    
    
    Rates4
    
    
    Balance2
    
    
    Expense
    
    
    Rates4Interest incomeLoans held for investment1,2
    
    $
    442,830
    
    
    $
    19,498
    
    
    
    5.87
    %
    
    $
    412,984
    
    
    $
    19,001
    
    
    
    6.13
    %
    
    $
    446,721
    
    
    $
    6,551
    
    
    
    5.87
    %
    
    $
    422,056
    
    
    $
    6,331
    
    
    
    6.00
    %Loans held for sale
    
    
    28,891
    
    
    
    873
    
    
    
    4.03
    %
    
    
    27,860
    
    
    
    810
    
    
    
    3.88
    %
    
    
    40,075
    
    
    
    410
    
    
    
    4.09
    %
    
    
    27,576
    
    
    
    259
    
    
    
    3.76
    %Federal funds sold
    
    
    10,818
    
    
    
    18
    
    
    
    .22
    %
    
    
    3,515
    
    
    
    5
    
    
    
    .19
    %
    
    
    2,066
    
    
    
    1
    
    
    
    .19
    %
    
    
    5,874
    
    
    
    3
    
    
    
    .20
    %Interest bearing deposits
    
    
    3,018
    
    
    
    20
    
    
    
    .88
    %
    
    
    1,148
    
    
    
    16
    
    
    
    1.86
    %
    
    
    3,063
    
    
    
    7
    
    
    
    .91
    %
    
    
    1,077InvestmentsTaxable 3
    
    
    12,457
    
    
    
    313
    
    
    
    3.35
    %
    
    
    16,268
    
    
    
    585
    
    
    
    4.79
    %
    
    
    12,009
    
    
    
    83
    
    
    
    2.76
    %
    
    
    13,190
    
    
    
    140
    
    
    
    4.25
    %Partially taxable
    
    
    3,824
    
    
    
    182
    
    
    
    6.35
    %
    
    
    3,773
    
    
    
    197
    
    
    
    6.96
    %
    
    
    3,467
    
    
    
    62
    
    
    
    7.15
    %
    
    
    3,834
    
    
    
    77
    
    
    
    8.03
    %Tax exempt 2,3
    
    
    
    
    
    
    
    
    
    
    
    %
    
    
    51
    
    
    
    3
    
    
    
    7.84
    %Total earning assets
    
    $
    501,838
    
    
    $
    20,904
    
    
    
    5.55
    %
    
    $
    465,599
    
    
    $
    20,617
    
    
    
    5.90
    %
    
    $
    507,401
    
    
    $
    7,114
    
    
    
    5.61
    %
    
    $
    473,607
    
    
    $
    6,810
    
    
    
    5.75
    %Interest ExpenseDemand deposits
    
    $
    107,896
    
    
    $
    1,465
    
    
    
    1.81
    %
    
    $
    73,166
    
    
    $
    869
    
    
    
    1.58
    %
    
    $
    112,941
    
    
    $
    502
    
    
    
    1.78
    %
    
    $
    81,956
    
    
    $
    354
    
    
    
    1.73
    %Savings
    
    
    35,396
    
    
    
    144
    
    
    
    .54
    %
    
    
    32,363
    
    
    
    155
    
    
    
    .64
    %
    
    
    36,906
    
    
    
    49
    
    
    
    .53
    %
    
    
    33,996
    
    
    
    47
    
    
    
    .55
    %Time deposits
    
    
    224,841
    
    
    
    3,440
    
    
    
    2.04
    %
    
    
    216,545
    
    
    
    4,917
    
    
    
    3.03
    %
    
    
    219,105
    
    
    
    1,036
    
    
    
    1.89
    %
    
    
    221,804
    
    
    
    1,501
    
    
    
    2.71
    %Short-term debt
    
    
    5,956
    
    
    
    22
    
    
    
    .49
    %
    
    
    16,882
    
    
    
    65
    
    
    
    .51
    %
    
    
    6,646
    
    
    
    9
    
    
    
    .54
    %
    
    
    7,175
    
    
    
    9
    
    
    
    .50
    %Long-term debt
    
    
    63,616
    
    
    
    1,798
    
    
    
    3.77
    %
    
    
    67,466
    
    
    
    1,718
    
    
    
    3.40
    %
    
    
    64,348
    
    
    
    617
    
    
    
    3.84
    %
    
    
    65,637
    
    
    
    563
    
    
    
    3.43
    %Total interest bearing liabilities
    
    $
    437,705
    
    
    $
    6,869
    
    
    
    2.09
    %
    
    $
    406,422
    
    
    $
    7,724
    
    
    
    2.53
    %
    
    $
    439,946
    
    
    $
    2,213
    
    
    
    2.01
    %
    
    $
    410,568
    
    
    $
    2,474
    
    
    
    2.41
    %Tax equivalent net interest income 1
    
    
    
    
    
    $
    14,035
    
    
    
    
    
    
    
    
    
    
    $
    12,893
    
    
    
    
    
    
    
    
    
    
    $
    4,901
    
    
    
    
    
    
    
    
    
    
    $
    4,336Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.73
    %
    
    
    
    
    
    
    
    
    
    
    3.69
    %
    
    
    
    
    
    
    
    
    
    
    3.86
    %
    
    
    
    
    
    
    
    
    
    
    3.66
    %
 
 1
    
    Interest income on loans includes loan fees.2
    
    An incremental income tax rate of 34% was used to calculate the tax equivalent income
on nontaxable and partially taxable investments and loans. The taxable equivalent adjustment
was $120 thousand and $136,000 for the nine months ended September 30, 2010 and 2009, respectively. The taxable equivalent adjustment was $39 thousand and $50 thousand for The three months ended September 30, 2010 and 2009, respectively.3
    
    Average balance information is reflective of historical cost and has not been adjusted for changes in market value.4
    
    Annualized. 24




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##### Table of Contents



TABLE II
 F & M BANK CORP.
Interest Sensitivity Analysis
September 30, 2010
(In Thousands of Dollars)
  0 - 3
    
    
    4 - 12
    
    
    1 - 5
    
    
    Over 5
    
    
    NotMonths
    
    
    Months
    
    
    Years
    
    
    Years
    
    
    Classified
    
    
    TotalUses of fundsLoansCommercial
    
    $
    105,717
    
    
    $
    23,706
    
    
    $
    86,452
    
    
    $
    6,102
    
    
    
    
    
    
    $
    221,977Installment
    
    
    10,304
    
    
    
    1,287
    
    
    
    8,618
    
    
    
    685
    
    
    
    
    
    
    
    20,894Real estate for investments
    
    
    41,898
    
    
    
    14,175
    
    
    
    122,976
    
    
    
    22,114
    
    
    
    
    
    
    
    201,163Real estate held for sale
    
    
    34,497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,497Credit cards
    
    
    2,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,560Federal funds sold
    
    
    6,096
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,096Interest bearing bank deposits
    
    
    2,256
    
    
    
    996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,252Investment securities
    
    
    1,051
    
    
    
    218
    
    
    
    4,131
    
    
    
    6,282
    
    
    
    3,149
    
    
    
    14,831Total
    
    $
    204,379
    
    
    $
    40,382
    
    
    $
    222,177
    
    
    $
    35,183
    
    
    $
    3,149
    
    
    $
    505,270Sources of fundsInterest bearing demand deposits
    
    
    
    
    
    $
    29,279
    
    
    $
    66,189
    
    
    $
    18,455
    
    
    
    
    
    
    $
    113,923Savings deposits
    
    
    
    
    
    
    7,039
    
    
    
    21,117
    
    
    
    7,039
    
    
    
    
    
    
    
    35,195Certificates of deposit
$100,000 and over
    
    
    30,236
    
    
    
    17,158
    
    
    
    39,640
    
    
    
    
    
    
    
    
    
    
    
    87,034Other certificates of deposit
    
    
    20,906
    
    
    
    42,992
    
    
    
    68,816
    
    
    
    
    
    
    
    
    
    
    
    132,714Short-term borrowings
    
    
    5,604
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,604Long-term borrowings
    
    
    5,023
    
    
    
    8,322
    
    
    
    41,714
    
    
    
    8,268
    
    
    
    
    
    
    
    63,327Total
    
    $
    61,769
    
    
    $
    104,790
    
    
    $
    237,476
    
    
    $
    33,762
    
    
    
    
    
    
    $
    437,797Discrete Gap
    
    $
    142,610
    
    
    $
    (64,408
    )
    
    $
    (15,299
    )
    
    $
    1,421
    
    
    $
    3,149
    
    
    $
    67,473Cumulative Gap
    
    $
    142,610
    
    
    $
    78,202
    
    
    $
    62,903
    
    
    $
    64,324
    
    
    $
    67,473Ratio of Cumulative Gap to
Total Earning Assets
    
    
    28.22
    %
    
    
    15.48
    %
    
    
    12.45
    %
    
    
    12.73
    %
    
    
    13.35
    %
  25




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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
  26




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##### Table of Contents



Part II Other Information
 
 Item 1.
    
    Legal Proceedings 
    
    Not Applicable
 
 Item 1a.
    
    Risk Factors 
    
    Not Applicable
 
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds 
    
    Not Applicable
 
 Item 3.
    
    Defaults Upon Senior Securities 
    
    Not Applicable
 
 Item 4.
    
    Removed and reserved-
 
 Item 5.
    
    Other Information 
    
    Not Applicable
 
 Item 6.
    
    Exhibits
 (a)
    
    Exhibits
 3 i
    
    Restated Articles of Incorporation of F & M
Bank Corp. are incorporated by reference to Exhibits to F & M Bank
Corp.s 2001 Form 10K filed March 1, 2002.3 ii
    
    Amended and Restated Bylaws of F & M Bank
Corp. are incorporated by reference to Exhibits to F & M Bank Corp.s
Form 10K filed March 1, 2002.31.1
    
    Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) (filed herewith).31.2
    
    Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) (filed herewith).32
    
    Certifications of Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sabanes-Oxley Act of 2002 (filed
herewith).
 27




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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  28