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    FMBM   US30237P1066

F & M BANK CORP.

(FMBM)
  Report
Delayed OTC Markets  -  05/10 03:36:14 pm EDT
29.35 USD   -0.51%
05/13F&M BANK CORP : Submission of Matters to a Vote of Security Holders (form 8-K)
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05/13F&M BANK CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (form 10-Q)
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05/13F & M Bank Corp. Reports Earnings Results for the First Quarter Ended March 31, 2022
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F&M BANK CORP Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (form 10-Q)

05/13/2022 | 12:28pm EDT
F & M Bank Corp. ("Company"), incorporated in Virginia in 1983, is a financial
holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of
1956, which provides financial services through its wholly-owned subsidiary
Farmers & Merchants Bank ("Bank"). TEB Life Insurance Company ("TEB"), Farmers &
Merchants Financial Services ("FMFS") and VBS Mortgage LLC (dba F&M Mortgage)
are wholly owned subsidiaries of the Bank. F & M Bank Corp. held a majority
ownership in VSTitle LLC ("VST"), with the remaining minority interest owned by
F&M Mortgage, until the Company purchased F&M Mortgage's minority interest
in
VST on January 3, 2022.


The Bank is a full-service commercial bank offering a wide range of banking and
financial services through its thirteen branch offices as well as its loan
production office located in Penn Laird, Virginia (which specializes in
providing automobile financing through a network of automobile dealers). TEB
reinsures credit life and accident and health insurance sold by the Bank in
connection with its lending activities. FMFS provides brokerage services and
property/casualty insurance to customers of the Bank. F&M Mortgage originates
conventional and government sponsored mortgages through their offices in
Harrisonburg, Fishersville, Woodstock, and Winchester, Virginia. VSTitle
provides title insurance services through their offices in Harrisonburg,
Fishersville, and Charlottesville, Virginia.



The Company's primary trade area services customers in the counties of Rockingham, Shenandoah, and Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester.




Management's discussion and analysis is presented to assist the reader in
understanding and evaluating the financial condition and results of operations
of the Company. The analysis focuses on the consolidated financial statements,
footnotes, and other financial data presented. The discussion highlights
material changes from prior reporting periods and any identifiable trends which
may affect the Company. Amounts have been rounded for presentation purposes.
This discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and the Notes to the Consolidated Financial Statements
presented in Item 1, Part 1 of this Form 10-Q and in conjunction with the
audited Consolidated Financial Statements included in the Company's December 31,
2021 Form 10-K.



Forward-Looking Statements



Certain statements in this report may constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements that include projections, predictions,
expectations or beliefs about future events or results or otherwise are not
statements of historical fact. Such statements are often characterized by the
use of qualified words (and their derivatives) such as "expect," "believe,"
"estimate," "plan," "project," or other statements concerning opinions or
judgment of the Company and its management about future events.




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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

Although the Company believes that its expectations with respect to certain
forward-looking statements are based upon reasonable assumptions within the
bounds of its existing knowledge of its business and operations, there can be no
assurance that actual results, performance or achievements of the Company will
not differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements. Actual future results
and trends may differ materially from historical results or those anticipated
depending on a variety of factors, including, but not limited to, the effects of
and changes in: changing uncertainties related to the COVID-19 pandemic, general
economic conditions, the interest rate environment, legislative and regulatory
requirements, competitive pressures, new products and delivery systems,
inflation, changes in the stock and bond markets, technology, the financial
strength of borrowers, consumer spending and savings habits, geopolitical
conditions, and exposure to fraud, negligence, computer theft and cyber-crime.



We do not update any forward-looking statements that may be made from time to time by or on behalf of the Company.



Critical Accounting Policies



General



The Company's financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP"). The
financial information contained within the statements is, to a significant
extent, financial information that is based on measures of the financial effects
of transactions and events that have already occurred. The Company's financial
position and results of operations are affected by management's application of
accounting policies, including estimates, assumptions and judgments made to
arrive at the carrying value of assets and liabilities and amounts reported for
revenues, expenses and related disclosures. Different assumptions in the
application of these policies could result in material changes in the Company's
consolidated financial position and/or results of operations.



In addition, GAAP itself may change from one previously acceptable method to
another method. Although the economics of these transactions would be the same,
the timing of events that would impact these transactions could change.
Following is a summary of the Company's significant accounting policies that are
highly dependent on estimates, assumptions and judgments.



Allowance for Loan Losses



The allowance for loan losses is an estimate of the losses that may be sustained
in the loan portfolio. The allowance is based on two basic principles of
accounting: (i) ASC 450 "Contingencies", which requires that losses be accrued
when they are probable of occurring and estimable and (ii) ASC 310
"Receivables", which requires that losses be accrued based on the differences
between the value of collateral, present value of future cash flows or values
that are observable in the secondary market and the loan balance. The Company's
allowance for loan losses is the accumulation of various components that are
calculated based on independent methodologies. All components of the allowance
represent an estimation performed pursuant to either ASC 450 or ASC 310.
Management's estimate of each ASC 450 component is based on certain observable
data that management believes are most reflective of the underlying credit
losses being estimated. This evaluation includes credit quality trends;
collateral values; loan volumes; geographic, borrower and industry
concentrations; seasoning of the dealer loan portfolio; maturity of lending
staff; the findings of internal credit quality assessments, results from
external bank regulatory examinations and third-party loan reviews. These
factors, as well as historical losses and current economic and business
conditions, are used in developing estimated loss factors used in the
calculations.



Allowances for loans are determined by applying estimated loss factors to the
portfolio based on management's evaluation and "risk grading" of the loan
portfolio. Specific allowances, if required are typically provided on all
impaired loans in excess of a defined loan size threshold that are classified in
the Substandard or Doubtful risk grades and on all troubled debt restructurings.
The specific reserves are determined on a loan-by-loan basis based on
management's evaluation of the Company's exposure for each credit, given the
current payment status of the loan and the value of any underlying collateral.




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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

Critical Accounting Policies, continued




While management uses the best information available to establish the allowance
for loan and lease losses, future adjustments to the allowance may be necessary
if economic conditions differ substantially from the assumptions used in making
the valuations or, if required by regulators, based upon information available
to them at the time of their examinations. Such adjustments to original
estimates, as necessary, are made in the period in which these factors and other
relevant considerations indicate that loss levels may vary from previous
estimates.



Fair Value



The estimate of fair value involves the use of (1) quoted prices for identical
instruments traded in active markets, (2) quoted prices for similar instruments
in active markets, quoted prices for identical or similar instruments in markets
that are not active, and model-based valuation techniques using significant
assumptions that are observable in the market or (3) model-based techniques that
use significant assumptions not observable in the market. When observable market
prices and parameters are not fully available, management's judgment is
necessary to arrive at fair value including estimates of current market
participant expectations of future cash flows, risk premiums, among other
things. Additionally, significant judgment may be required to determine whether
certain assets measured at fair value are classified within the fair value
hierarchy as Level 2 or Level 3. The estimation process and the potential
materiality of the amounts involved result in this item being identified as
critical.



Pension Obligations


The accounting guidance for the measurement and recognition of obligations and
expense related to pension plans generally applies the concept that the cost of
benefits provided during retirement should be recognized over the employees'
active working life. Inherent in this concept is the requirement to use various
actuarial assumptions to predict and measure costs and obligations many years
prior to the settlement date. Major actuarial assumptions that require
significant management judgment and have a material impact on the measurement of
benefits expense and accumulated benefit obligation include discount rates,
expected return on assets, mortality rates, and projected salary increases,
among others. Changes in assumptions or judgments related to any of these
variables could result in significant volatility in the Company's financial
condition and results of operations. As a result, accounting for the Company's
pension expense and obligation is considered a significant estimate. The
estimation process and the potential materiality of the amounts involved result
in this item being identified as critical.



COVID-19



The World Health Organization declared a global pandemic in the first quarter of
2020 due to the spread of the coronavirus ("COVID-19") around the world. The
Company was considered an essential business and implemented procedures to
protect its employees, customers and the community and still serve their banking
needs. Branch lobbies were closed in 2021 and again briefly from January 18,
2022 to March 7, 2022. During this time the Company utilized drive through
windows and courier service to handle transactions, new accounts were opened
electronically with limited in person contact for document signing and
verification of identification, and lenders accepted applications by appointment
with limited in person contact.



The SBA implemented the Paycheck Protection Program ("PPP") to support small
business operations with loans during the shutdown and into the following
months. The Company worked diligently to support both our customers and
noncustomers within our footprint with these loans, originating a total of 1,080
PPP loans totaling $87,061 and associated fees of $3,824 through the SBA
program. As of March 31, 2022, there are 25 loans outstanding with a balance of
$2,061 and unamortized fees of $56.



Based on the Company's capital levels, current underwriting policies, low
loan-to-deposit ratio, loan concentration diversification and rural operating
environment, management believes that it is well positioned to support its
customers and communities and to manage the economic risks and uncertainties
associated with COVID-19 pandemic and remain adequately capitalized.




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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

Overview (Dollars in thousands)




Net income for the three months ended March 31, 2022 was $2,528 or $0.74 per
share, compared to $3,801 or $1.17 in the same period in 2021, a decrease of
33.49%. During the three months ended March 31, 2022, noninterest income
decreased 25.99% and noninterest expense increased 11.24% during the same
period.



Results of Operations



As shown in Table I, the 2022 year to date tax equivalent net interest income
increased $377 or 4.89% compared to the same period in 2021. The tax equivalent
adjustment to net interest income totaled $27 for the first three months of
2022. The yield on earning assets decreased .75%, while the cost of funds
decreased .21% compared to the same period in 2021.



The combination of the decrease in yield on assets and the decrease in cost of
funds coupled with changes in balance sheet leverage resulted in the net
interest margin decreasing to 2.82% for the three months ended March 31, 2022, a
decrease of 62 basis points when compared to the same period in 2021. A schedule
of the net interest margin for the three-month periods ended March 31, 2022 and
2021 can be found in Table I.



The following table provides detail on the components of tax equivalent net interest income (dollars in thousands):



GAAP Financial Measurements:                      March 31, 2022       March 31, 2021
Interest Income - Loans                          $          7,539     $          8,270
Interest Income - Securities and Other
Interest-Earnings Assets                                    1,522          

476

Interest Expense - Deposits                                   845          

795

Interest Expense - Other Borrowings                           159          

273

Total Net Interest Income                        $          8,057     $    

7,678


Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income
- Loans & Securities                                           27          

29

Total Tax Benefit on Tax-Exempt Interest
Income                                                         27          

29

Tax-Equivalent Net Interest Income               $          8,084     $    
     7,707



The decrease in noninterest income of $872 for the three-month period March 31,
2022 compared to the same period in 2021 is due primarily to a decrease in
mortgage banking income ($930) and in investment and insurance income ($96) due
to a slowdown in refinance activity. This was offset by an increase in ATM and
check card fees ($43) and other income ($58).



Noninterest expense for the three months ended March 31, 2022 increased $864 as
compared to 2021. Expenses increased primarily in the areas of salaries and
benefits ($413), occupancy expenses ($45), advertising ($42) and
telecommunication and data processing expense ($361). Expansion into the
Winchester and Waynesboro markets led to increased salary, benefits, and
occupancy expenses. Advertising increased as a result of increased marketing
efforts in markets where larger banks were leaving. Telecommunications and data
processing increased due to a focus on infrastructure improvements, digital
enhancements, and online capabilities.



Balance Sheet


Federal Funds Sold and Interest Bearing Bank Deposits

The Company's subsidiary bank invests a portion of its excess liquidity in
either federal funds sold or interest-bearing bank deposits. Federal funds sold
offer daily liquidity and pay market rates of interest that at quarter end were
benchmarked at 0.50% to 2.25% by the Federal Reserve. Actual rates received vary
slightly based upon money supply and demand among banks. Interest bearing bank
deposits are held either in money market accounts or as short-term certificates
of deposits. The Company held $31,994 and $76,667 in federal funds sold at March
31, 2022 and December 31, 2021, respectively. Growth in excess funds has been
due to strong deposit growth, and the decrease from December 31, 2021 to March
31, 2022 was due to the Company deploying these funds into the investment
portfolio. Interest bearing bank deposits have decreased by $142 since year
end
from $2,938 to $2,796.




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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)



Securities


The Company's securities portfolio serves to assist the Company with asset
liability management. With the growth in deposits, the Company has worked to
strategically invest the excess funds into the investment portfolio. This has
resulted in an increase in the investments available for sale of $57,940 since
December 31, 2021.



The securities portfolio consists of investment securities commonly referred to
as securities held to maturity and securities available for sale. Securities are
classified as Held to Maturity investment securities when management has the
intent and ability to hold the securities to maturity. Held to Maturity
Investment securities are carried at amortized cost. Securities available for
sale include securities that may be sold in response to general market
fluctuations, liquidity needs and other similar factors. Securities available
for sale are recorded at fair value. Unrealized holding gains and losses on
available for sale securities are excluded from earnings and reported (net of
deferred income taxes) as a separate component of stockholders' equity. The
low-income housing projects included in other investments are held for the tax
losses and credits that they provide.



As of March 31, 2022, the fair value of securities available for sale was below
their cost by $20,329. The portfolio is made up of primarily treasuries,
agencies and mortgage-backed obligations of federal agencies, as well as
Securities issued by States and political subdivisions in the U.S. and Corporate
debt securities. The average maturity is 5.14 years. Efforts to deploy excess
funds in an uncertain rate environment has resulted in a mixture of maturities.



In reviewing investments as of March 31, 2022, there were no securities which
met the definition for other than temporary impairment. Management continues to
re-evaluate the portfolio for impairment on a quarterly basis.



Loan Portfolio



The Company operates primarily in the counties of Rockingham, Shenandoah, and
Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in
western Virginia. The local economy benefits from a variety of businesses
including agri-business, manufacturing, service businesses and several
universities and colleges. The Bank is an active residential mortgage and
residential construction lender and generally makes commercial loans to small
and mid-size businesses and farms within its primary service area. There are no
loan concentrations as defined by regulatory guidelines.



Loans Held for Investment of $659,560 decreased $2,861 on March 31, 2022 compared to $662,421 at December 31, 2021. Net of PPP, loans grew $3,014 or 0.46% since December 31, 2021. Loan growth in the home equity - open end and dealer finance segments of the portfolio were offset by declines in construction, commercial real estate and PPP segments.

Loans Held for Sale totaled $2,479 on March 31, 2022, a decrease of $2,408 compared to $4,887 at December 31, 2021. At March 31, 2022 this balance was F&M mortgage loans, which are typically subject to seasonal fluctuations and refinance activity.

Nonperforming loans include nonaccrual loans and loans 90 days or more past due.
Nonaccrual loans are loans on which interest accruals have been suspended or
discontinued permanently. Nonperforming loans totaled $4,751 on March 31, 2022
compared to $5,465 at December 31, 2021. The decrease in nonperforming loans
from year end is primarily due to one loan paying off, one loan moving to
accrual status, and amortization. Although the potential exists for loan losses
beyond what is currently provided for in the allowance for loan losses,
management believes the Bank is generally well secured and continues to actively
work with its customers to effect payment.



A summary of credit ratios for nonaccrual loans is as follows (in thousands):



                                                            March 31,       December
                                                               2022         31, 2021
Allowance for loan losses                                   $    7,389    
$     7,748
Nonaccrual loans                                            $    4,751     $     5,465
Total Loans                                                 $  659,560     $   662,421
Allowance for loan losses to Total Loans                          1.12 %          1.17 %
Nonaccrual Loans to Total Loans                                   0.72 %          0.83 %
Allowance for loan losses to Nonaccrual loans                   155.53 %   
    141.77 %





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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)



Allowance for Loan Losses


The allowance for loan losses provides for the risk that borrowers will be unable to repay their obligations. The risk associated with real estate and installment notes to individuals is based upon employment, the local and national economies and consumer confidence, and the value of the underlying collateral. All of these affect the ability of borrowers to repay indebtedness. The risk associated with commercial lending is substantially based on the strength of the local and national economies.

Management evaluates the allowance for loan losses on a quarterly basis in light
of national and local economic trends, changes in the nature and volume of the
loan portfolio and trends in past due and criticized loans. Specific factors
evaluated include loan review reports, past due reports, historical loan loss
experience and changes in the financial strength of individual borrowers that
have been included on the Bank's watch list or schedule of classified loans.



In evaluating the portfolio, loans are segregated by segment with identified
potential losses, pools of loans by type, with separate weighting for past dues
and a general allowance based on a variety of criteria. Loans with identified
potential losses include examiner and bank classified loans. Classified
relationships in excess of $500,000 and loans identified as troubled debt
restructurings are reviewed individually for impairment under ASC 310. A variety
of factors are considered when reviewing these credits, including borrower cash
flow, payment history, fair value of collateral, company management, industry,
and economic factors. Loans that are not reviewed for impairment are categorized
by call report code and an estimate is calculated based on actual loss
experience over the last three years.



A general allowance for inherent losses has been established to reflect other
unidentified losses within the portfolio. The general allowance is calculated
using nine qualitative factors identified in the 2006 Interagency Policy
Statement on the allowance for loan losses. The general allowance assists in
managing recent changes in portfolio risk that may not be captured in
individually impaired loans, or in the homogeneous pools based on loss
histories. The Board approves the loan loss provision for each quarter based on
this evaluation.


The allowance for loan losses of $7,389 at March 31, 2022 is equal to 1.12% of
loans held for investment. This compares to an allowance of $7,748, or 1.17% at
December 31, 2021.



Due to increasing interest rates, loan portfolio growth over the last 12 months,
and deteriorating economic conditions, the qualitative reserve increased. This
was offset by improvements in the unemployment rate, a decrease in historical
loss rates and paydowns on individually impaired loans. The Company is
monitoring the economic effects of increased inflation, building costs, and used
car prices, as well as a rising interest rate environment. The Company continues
to manage the classified, past due and non-performing loans, which are all at
lower levels than December 31, 2021, Classified loans (internally rated
substandard or watch) decreased from a total of $43,230 at December 31, 2021 to
$40,313 at March 31, 2022, past due loans on accrual decreased from $3,226 at
December 31, 2021 to $2,414 at March 31, 2022, and non-performing loans
decreased from $5,508 at December 31, 2021 to $4,805 at March 31, 2022.
Management is closely monitoring the effects of economic conditions on the loan
portfolio and makes adjustments to specific reserves, the environmental factors
and the provision for loan losses as necessary.



Deposits and Other Borrowings


The Company's main source of funding is comprised of deposits received from
individuals, governmental entities and businesses located within the Company's
service area. Deposit accounts include demand deposits, savings, money market
and certificates of deposit. Total deposits at March 31, 2022 have increased
$32,000 since December 31, 2021. Noninterest bearing deposits increased $17,683
while interest bearing increased $14,317. The increase in deposits is due to a
focus on deposit growth as an organization as well as excess funds that
customers are holding due to the pandemic. The Bank participates in the CDARS
(Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep)
programs. These programs, CDARS for certificates of deposit and ICS for demand
and savings, allow the Bank to accept customer deposits in excess of FDIC limits
and through reciprocal agreements with other network participating banks by
offering FDIC insurance up to as much as $50 million in deposits. At March 31,
2022 and December 31, 2021 the Company had a total of $257 in CDARS accounts;
and, $95,976 and $94,948 in ICS accounts, respectively.




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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)



Short-term borrowings



The Company utilizes short-term debt such as Federal funds purchased and FHLB
short term borrowings to provide liquidity. Federal funds purchased are
unsecured overnight borrowings from other financial institutions. FHLB short
term debt, which is secured by the loan portfolio, can be a daily rate variable
loan that acts as a line of credit or a fixed rate advance, depending on the
needs of the Company. With the growth in deposits and excess liquidity, the
Company has not utilized the short-term debt facilities for 2021 or 2022.



Long-term borrowings



The Company's subsidiary bank borrows funds on a fixed rate basis as needed.
These borrowings are used to support the Bank's lending program and allow the
Bank to manage interest rate risk by laddering maturities and matching funding
terms to the terms of various types in the loan portfolio. FHLB long term
advances totaled $10,000 on March 31, 2022, and December 31, 2021.



On July 29, 2020, the Company sold and issued to certain institutional
accredited investors $5,000 in aggregate principal amount of 5.75% fixed rated
subordinated notes due July 31, 2027 (the "2027 Notes") and $7,000 in aggregate
principal amount of 6.00% fixed to floating rate subordinated notes due July 31,
2030 (the "2030 Notes"). The 2027 Notes will bear interest at 5.75% per annum,
payable semi-annually in arrears. Beginning on July 31, 2022 through maturity,
the 2027 Notes may be redeemed, at the Company's option, on any scheduled
interest payment date. The 2027 Notes will mature on July 31, 2027. The 2030
Notes will initially bear interest at 6.00% per annum, beginning July 29, 2020
to but excluding July 31, 2025, payable semi-annually in arrears. From and
including July 31, 2025 through July 30, 2030, or up to an early redemption
date, the interest rate shall reset quarterly to an interest rate per annum
equal to the then current three-month SOFR plus 593 basis points, payable
quarterly in arrears. Beginning on July 31, 2025 through maturity, the 2030
Notes may be redeemed, at the Company's option, on any scheduled interest
payment date. The 2030 Notes will mature on July 31, 2030. The subordinated
notes, net of issuance costs totaled $11,780 at March 31, 2022.



Capital


The Company seeks to maintain a strong capital base to expand facilities, promote public confidence, support current operations and grow at a manageable level.




At March 31, 2022, the Bank had Common Equity Tier I capital of 13.72% of risked
weighted assets, Tier I capital of 13.72% of risk weighted assets and combined
Tier I and II capital of 14.70% of risk weighted assets. Regulatory minimums at
this date were 4.5%, 6% and 8%, respectively. At December 31, 2021, the Bank had
Common Equity Tier I capital of 13.95% of risk weighted assets, Tier I capital
of 13.95% of risk weighted assets and combined Tier I and II capital of 15.00%
of risk weighted assets. The Bank has maintained capital levels far above the
minimum requirements. In the unlikely event that such capital levels are not
met, regulatory agencies are empowered to require the Bank to raise additional
capital and/or reallocate present capital.



In addition, the regulatory agencies have issued guidelines requiring the
maintenance of a capital leverage ratio. The leverage ratio is computed by
dividing Tier I capital by average total assets. The regulators have established
a minimum of 4% for this ratio but can increase the minimum requirement based
upon an institution's overall financial condition. At March 31, 2022, the Bank
reported a leverage ratio of 8.47%, compared to 8.62% at December 31, 2021. The
Bank's leverage ratio was substantially above the minimum. The Bank also
reported a capital conservation buffer of 6.70% at March 31, 2022 and 7.00% at
December 31, 2021. The capital conservation buffer is designed to strengthen an
institution's financial resilience during economic cycles. Financial
institutions are required to maintain a minimum buffer as required by the Basel
III final rules in order to avoid restrictions on capital distributions and
other payments.



Liquidity



Liquidity is the ability to meet present and future financial obligations
through either the sale or maturity of existing assets or the acquisition of
additional funds through liability management. Liquid assets include cash,
interest-bearing deposits with banks, federal funds sold, investments and loans
maturing within one year. The Company's ability to obtain deposits and purchase
funds at favorable rates determines its liquidity exposure. As a result of the
Company's management of liquid assets and the ability to generate liquidity
through liability funding, management believes that the Company maintains
overall liquidity sufficient to satisfy its depositors' requirements and meet
its customers' credit needs.




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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)



Liquidity, continued



Additional sources of liquidity available to the Company include, but are not
limited to, loan repayments, the ability to obtain deposits through the
adjustment of interest rates and the purchasing of federal funds. To further
meet its liquidity needs, the Company's subsidiary bank also maintains a line of
credit with its primary correspondent financial institution and with Pacific
Coast Bankers Bank, Zions Bank, and FNBB. The Bank also has a line of credit
with the Federal Home Loan Bank of Atlanta that allows for secured borrowings.
Additionally, the Bank can utilize the Federal Reserve Discount Window.



Interest Rate Sensitivity



In conjunction with maintaining a satisfactory level of liquidity, management
must also control the degree of interest rate risk assumed on the balance sheet.
Managing this risk involves regular monitoring of interest sensitive assets
relative to interest sensitive liabilities over specific time intervals. The
Company monitors its interest rate sensitivity periodically and makes
adjustments as needed. There are no off-balance sheet items that will impair
future liquidity.


Effect of Newly Issued Accounting Standards




In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2016-13, "Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments." The
amendments in this ASU, among other things, require the measurement of all
expected credit losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and supportable
forecasts. Financial institutions and other organizations will now use
forward-looking information to better inform their credit loss estimates. Many
of the loss estimation techniques applied today will still be permitted,
although the inputs to those techniques will change to reflect the full amount
of expected credit losses. In addition, the ASU amends the accounting for credit
losses on available-for-sale debt securities and purchased financial assets with
credit deterioration. The FASB has issued multiple updates to ASU 2016-13 as
codified in Topic 326, including ASU's 2019-04, 2019-05, 2019-10, 2019-11,
2020-02, and 2020-03. These ASU's have provided for various minor technical
corrections and improvements to the codification as well as other transition
matters. Smaller reporting companies who file with the U.S. Securities and
Exchange Commission (SEC) and all other entities who do not file with the SEC
are required to apply the guidance for fiscal years, and interim periods within
those years, beginning after December 15, 2022. The Company is currently
assessing the impact that ASU 2016-13 will have on its consolidated financial
statements and has created a CECL model to run parallel for 2022. All data has
been archived under the current model.



Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB)
119. SAB 119 updated portions of SEC interpretative guidance to align with FASB
ASC 326, "Financial Instruments - Credit Losses." It covers topics including (1)
measuring current expected credit losses; (2) development, governance, and
documentation of a systematic methodology; (3) documenting the results of a
systematic methodology; and (4) validating a systematic methodology.



In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2020-04 "Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting."
These amendments provide temporary optional guidance to ease the potential
burden in accounting for reference rate reform. The ASU provides optional
expedients and exceptions for applying generally accepted accounting principles
to contract modifications and hedging relationships, subject to meeting certain
criteria, that reference LIBOR or another reference rate expected to be
discontinued. It is intended to help stakeholders during the global market-wide
reference rate transition period. The guidance is effective for all entities as
of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2021-01 "Reference Rate Reform (Topic 848): Scope." This ASU clarifies
that certain optional expedients and exceptions in Topic 848 for contract
modifications and hedge accounting apply to derivatives that are affected by the
discounting transition. The ASU also amends the expedients and exceptions in
Topic 848 to capture the incremental consequences of the scope clarification and
to tailor the existing guidance to derivative instruments affected by the
discounting transition. An entity may elect to apply ASU No. 2021-01 on contract
modifications that change the interest rate used for margining, discounting, or
contract price alignment retrospectively as of any date from the beginning of
the interim period that includes March 12, 2020, or prospectively to new
modifications from any date within the interim period that includes or is
subsequent to January 7, 2021, up to the date that financial statements are
available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible
hedging relationships existing as of the beginning of the interim period that
includes March 12, 2020, and to new eligible hedging relationships entered into
after the beginning of the interim period that includes March 12, 2020.




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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands) (Continued)

Effect of Newly Issued Accounting Standards, continued




The Company is preparing loan agreements, other than SWAP loans, to transition
from LIBOR by the end of second quarter 2022. The SWAP loans have amended Rate
Protection Agreements executed by the borrower in preparation to transition
from
LIBOR by the swap holder.



In August 2020, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2020-06 "Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity." The ASU simplifies accounting for
convertible instruments by removing major separation models required under
current U.S. GAAP. Consequently, more convertible debt instruments will be
reported as a single liability instrument and more convertible preferred stock
as a single equity instrument with no separate accounting for embedded
conversion features. The ASU removes certain settlement conditions that are
required for equity contracts to qualify for the derivative scope exception,
which will permit more equity contracts to qualify for it. The ASU also
simplifies the diluted earnings per share (EPS) calculation in certain areas. In
addition, the amendment updates the disclosure requirements for convertible
instruments to increase the information transparency. For public business
entities, excluding smaller reporting companies, the amendments in the ASU are
effective for fiscal years beginning after December 15, 2021, and interim
periods within those fiscal years. For all other entities, the standard will be
effective for fiscal years beginning after December 15, 2023, including interim
periods within those fiscal years. Early adoption is permitted. The Company does
not expect the adoption of ASU 2020-06 to have a material impact on its
consolidated financial statements.



In May 2021, the FASB issued ASU 2021-04, "Earnings Per Share (Topic 260), Debt
- Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock
Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's
Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or
Exchanges of Freestanding Equity - Classified Written Call Options (a consensus
of the FASB Emerging Issues Task Force)." The ASU addresses how an issuer should
account for modifications or an exchange of freestanding written call options
classified as equity that is not within the scope of another Topic. Early
adoption is permitted. ASU 2021-04 was effective for the Company on January 1,
2022. The adoption of ASU 2021-04 did not have a material impact on its
consolidated financial statements.



Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material effect on the Company's financial position, result of operations or cash flows.

Existence of Securities and Exchange Commission Web Site

The Securities and Exchange Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including F & M Bank Corp. and the address is (http: //www.sec.gov).




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                                                                         TABLE I

                                F & M BANK CORP.

                          Net Interest Margin Analysis

                     (on a fully taxable equivalent basis)

                         (Dollar Amounts in Thousands)



                              Three Months Ended                             Three Months Ended
                                March 31, 2022                                 March 31, 2021
                                       Income/       Average        Average        Income/       Average
                 Average Balance       Expense        Rates1        Balance        Expense        Rates1
Interest
income
Loans held
for
investment2,3   $         656,099     $   7,522           4.65 %   $  673,744     $   8,196           4.93 %
Loans held
for sale                    3,683            29           3.19 %       13,221            94           2.88 %
Federal funds
sold                       64,813            24           0.15 %       87,157            15           0.07 %
Interest
bearing
deposits                    2,845             1           0.14 %          884             -           0.11 %
Investments
Taxable                   423,751         1,444           1.38 %      126,973           427           1.37 %
Partially
taxable4                      125             1           1.62 %          125             1           1.62 %
Tax exempt4                10,250            67           2.65 %        6,237            42           2.73 %
Total earning
assets          $       1,161,566     $   9,088           3.17 %   $  908,341     $   8,775           3.92 %
Interest
Expense
Demand
deposits                  188,344           103           0.22 %      114,699            44           0.16 %
Savings                   492,458           503           0.41 %      347,332           351           0.41 %
Time deposits             122,471           239           0.79 %      129,142           400           1.26 %
Long-term
debt                       21,776           159           2.96 %       32,531           273           3.40 %
Total
interest
bearing
liabilities     $         825,049     $   1,004           0.49 %   $  623,704     $   1,068           0.70 %

Tax
equivalent
net interest
income                                $   8,084                                   $   7,707

Net interest
margin                                                    2.82 %                                      3.44 %




____________

1   Annualized.
2   Interest income on loans includes loan fees.
3   Loans held for investment include nonaccrual loans.
4   Income tax rate of 21% was used to calculate the tax equivalent income on

nontaxable and partially taxable investments and loans.

Average balance information is reflective of historical cost and has not been

    adjusted for changes in market value annualized.





         40

  Table of Contents

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Financials (USD)
Sales 2021 45,4 M - -
Net income 2021 10,7 M - -
Net cash 2021 65,8 M - -
P/E ratio 2021 9,22x
Yield 2021 3,62%
Capitalization 101 M 101 M -
EV / Sales 2020 0,73x
EV / Sales 2021 0,74x
Nbr of Employees 152
Free-Float 81,8%
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Income Statement Evolution
Managers and Directors
Mark C. Hanna President, Chief Executive Officer & Director
Carrie A. Comer Chief Financial Officer & Executive Vice President
Michael W. Pugh Chairman
Barton E Black EVP, Chief Operating, Strategy & Risk Officer
Daniel J. Harshman Independent Director
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