10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

[X]   Quarterly report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2018.

[  ]   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 ofIncorporation or Organization)	(I.R.S. EmployerIdentification No.)

P. O. Box 1111

Timberville, Virginia 22853

(Address of Principal Executive Offices) (Zip Code)

(540) 896-8941 

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “an emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ☐	Accelerated filer ☑	Non-accelerated filer ☐	(Do not check if a smaller reporting company)
Smaller reporting company ☐		Emerging growth company ☐

       If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes[ ] No [X]

State the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 6, 2018
Common Stock, par value - $5	3,228,984 shares

F & M BANK CORP.

Index

Part I	Financial Information	3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets – June 30, 2018 and December 31, 2017	3
	Consolidated Statements of Income – Three Months Ended June 30, 2018 and 2017	4
	Consolidated Statements of Income – Six Months Ended June 30, 2018 and 2017	5
	Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2018 and 2017	6
	Consolidated Statements of Changes in Stockholders’ Equity – Six Months Ended June 30, 2018 and 2017	7
	Consolidated Statements of Cash Flows – Six MonthsEnded June 30, 2018 and 2017	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49
Part II	Other Information	50
Item 1.	Legal Proceedings	50
Item 1a.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	50
Signatures		51
Certifications		52

2

Part I Financial Information

Item 1 Financial Statements

F & M BANK CORP.

Consolidated Balance Sheets

(Dollars in thousands, except per share data)

	June 30,	December 31,
	2018	2017*
	(Unaudited)
Assets
Cash and due from banks	$9,735	$10,622
Money market funds	1,565	1,285
Federal funds sold	2,064	-
Cash and cash equivalents	13,364	11,907
Securities:
Held to maturity – fair value of $122 and $125 in 2018 and 2017, respectively	122	125
Available for sale	8,263	28,615
Other investments	14,771	12,503
Loans held for sale	49,821	39,775
Loans held for investment	634,122	616,974
Less: allowance for loan losses	(7,105)	(6,044)
Net loans held for investment	627,017	610,930
Other real estate owned, net	2,034	1,984
Bank premises and equipment, net	17,487	15,894
Interest receivable	1,983	2,007
Goodwill	2,956	2,881
Bank owned life insurance	19,166	13,950
Other assets	13,684	12,699
Total assets	$770,668	$753,270
Liabilities
Deposits:
Noninterest bearing	$163,809	$162,233
Interest bearing	404,757	406,944
Total deposits	568,566	569,177
Short-term debt	46,000	25,296
Accrued liabilities	16,904	17,789
Long-term debt	47,434	49,733
Total liabilities	678,904	661,995
Stockholders’ Equity
Preferred Stock $25 par value, 400,000 shares authorized, 322,510 and 324,150 issued and	$7,488	$7,529
outstanding for June 30, 2018 and December 31, 2017, respectively
Common stock, $5 par value, 6,000,000 shares authorized, 3,242,462 and 3,255,036 shares issued	16,212	16,275
and outstanding for June 30, 2018 and December 31, 2017, respectively.
Additional paid in capital – common stock	9,796	10,225
Retained earnings	61,989	60,814
Non-controlling interest in consolidated subsidiaries	554	574
Accumulated other comprehensive loss	(4,275)	(4,142)
Total stockholders’ equity	$91,764	$91,275
Total liabilities and stockholders’ equity	$770,668	$753,270

*2017 derived from audited consolidated financial statements.

See notes to unaudited consolidated financial statements

3

F & M BANK CORP.

Consolidated Statements of Income

(Dollars in thousands)

(Unaudited)

	Three Months Ended
	June 30,
Interest and Dividend income	2018	2017
Interest and fees on loans held for investment	$8,529	$7,906
Interest and fees on loans held for sale	308	271
Interest from money market funds and federal funds sold	5	18
Interest on debt securities – taxable	120	61
Total interest and dividend income	8,962	8,256
Interest expense
Total interest on deposits	766	633
Interest from short-term debt	126	24
Interest from long-term debt	223	268
Total interest expense	1,115	925
Net interest income	7,847	7,331
Provision for Loan Losses	1,350	-
Net Interest Income After Provision for Loan Losses	6,497	7,331
Noninterest income
Service charges on deposit accounts	358	335
Investment services and insurance income, net	223	187
Mortgage banking income, net	615	613
Title insurance income	306	355
Income on bank owned life insurance	112	112
Low income housing partnership losses	(192)	(201)
ATM and check card fees	388	351
Other operating income	189	130
Total noninterest income	1,999	1,882
Noninterest expense
Salaries	3,047	2,628
Employee benefits	953	852
Occupancy expense	286	254
Equipment expense	259	207
FDIC insurance assessment	48	90
Other real estate owned, net	17	12
Marketing expense	129	122
Legal and professional fees	95	79
ATM and check card fees	195	178
Telecommunication and data processing expense	417	352
Directors fees	114	116
Bank franchise tax	146	164
Other operating expenses	927	963
Total noninterest expense	6,633	6,017
Income before income taxes	1,863	3,196
Income tax expense	159	809
Net Income	1,704	2,387
Net income attributable to non-controlling interest	16	59
Net Income attributable to F & M Bank Corp.	$1,688	$2,328
Dividends paid/accumulated on preferred stock	104	105
Net income available to common stockholders	$1,584	$2,223

Per Common Share Data
Net income – basic	$.49	$.68
Net income – diluted	$.47	$.64
Cash dividends on common stock	$.25	$.23
Weighted average common shares outstanding – basic	3,250,749	3,272,352
Weighted average common shares outstanding – diluted	3,609,812	3,637,030

See notes to unaudited consolidated financial statements

4

F & M BANK CORP.

Consolidated Statements of Income

(Dollars in thousands)

(Unaudited)

	Six Months Ended
	June 30,
Interest and Dividend income	2018	2017
Interest and fees on loans held for investment	$17,010	$15,609
Interest and fees on loans held for sale	458	445
Interest from money market funds and federal funds sold	25	75
Interest on debt securities – taxable	212	137
Total interest and dividend income	17,705	16,266
Interest expense
Total interest on deposits	1,505	1,249
Interest from short-term debt	136	32
Interest from long-term debt	453	550
Total interest expense	2,094	1,831
Net interest income	15,611	14,435
Provision for Loan Losses	2,030	-
Net Interest Income After Provision for Loan Losses	13,581	14,435
Noninterest income
Service charges on deposit accounts	724	651
Investment services and insurance income	420	361
Mortgage banking income, net	1,135	1,113
Title insurance income	562	554
Income on bank owned life insurance	222	224
Low income housing partnership losses	(384)	(386)
ATM and check card fees	735	681
Gain on prepayment of long-term debt	-	504
Loss on sale of other investments	-	(42)
Other operating income	318	268
Total noninterest income	3,732	3,928
Noninterest expense
Salaries	6,147	5,362
Employee benefits	1,876	1,805
Occupancy expense	537	503
Equipment expense	517	393
FDIC insurance assessment	96	180
Other real estate owned, net	2	26
Marketing expense	231	257
Legal and professional fees	199	175
ATM and check card fees	356	346
Telecommunication and data processing expense	751	675
Directors fees	228	243
Bank franchise tax	312	324
Other operating expenses	1,858	1,683
Total noninterest expense	13,110	11,972
Income before income taxes	4,203	6,391
Income tax expense	538	1,686
Net Income	3,665	4,705
Net income attributable to non-controlling interest	5	32
Net Income attributable to F & M Bank Corp.	$3,660	$4,673
Dividends paid/accumulated on preferred stock	207	209
Net income available to common stockholders	$3,453	$4,464
Per Common Share Data
Net income – basic	$1.06	$1.36
Net income – diluted	$1.01	$1.29
Cash dividends on common stock	.70	$.45
Weighted average common shares outstanding – basic	3,253,007	3,272,318
Weighted average common shares outstanding – diluted	3,612,601	3,635,999

See notes to unaudited consolidated financial statements

5

F & M BANK CORP.

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

	Six Months Ended June 30,		Three Months Ended June 30,
	2018	2017	2018	2017
Net Income	$3,660	$4,673	$1,688	$2,328
Other comprehensive (loss):
Unrealized holding (losses)
on available-for-sale securities	(168)	(2)	(22)	(1)
Tax effect	35	1	4	-
Unrealized holding (losses), net of tax	(133)	(1)	(18)	(1)
Total other comprehensive (loss)	(133)	(1)	(18)	(1)
Total comprehensive income	$3,527	$4,672	$1,670	$2,327
Comprehensive income attributable to noncontrolling interests	$5	$32	$16	$59
Comprehensive income attributable to F&M Bank Corp.	$3,532	$4,704	$1,686	$2,386

See notes to unaudited consolidated financial statements

6

F & M BANK CORP.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Dollars in thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2018	2017
Balance, beginning of period	$91,275	$86,682
Comprehensive income
Net income – F & M Bank Corp	3,660	4,673
Net income attributable to non-controlling interest	5	32
Other comprehensive (loss)	(133)	(1)
Total comprehensive income	3,532	4,704
Minority interest capital distributions	(25)	(150)
Issuance of common stock	154	105
Repurchase of common stock	(624)	-
Repurchase of preferred stock	(63)	(24)
Dividends paid	(2,485)	(1,644)
Balance, end of period	$91,764	$89,673

See notes to unaudited consolidated financial statements

7

F & M BANK CORP.

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Six Months Ended June 30,
	2018	2017
Cash flows from operating activities
Net income	$3,660	$4,673
Reconcile net income to net cash provided by operating activities:
Depreciation	563	430
Amortization of intangibles	33	-
Amortization of securities	3	2
Proceeds from loans held for sale originated	22,918	38,767
Loans held for sale originated	(21,813)	(37,445)
Gain on sale of loans held for sale originated	(1,105)	(1,138)
Gain on prepayment of long-term debt	-	(504)
Provision for loan losses	2,030	-
Decrease (increase) in interest receivable	24	(110)
Increase in other assets	(566)	(435)
Decrease in accrued liabilities	(1,317)	(1,421)
Amortization of limited partnership investments	384	386
Income from life insurance investment	(222)	(224)
Gain on the sale of fixed assets	(9)	-
Loss on sale of investments	-	42
Gain on sale and valuation adjustments for other real estate owned	(30)	-
Net cash provided by operating activities	4,553	3,023
Cash flows from investing activities
Purchase of investments available for sale and other investments	(3,361)	(41,436)
Purchase of title insurance company	(75)	(304)
Proceeds from maturity of investments available for sale	20,893	41,316
Proceeds from the sale of investments	-	55
Net increase in loans held for investment	(18,137)	(12,132)
Net (increase) decrease in loans held for sale participations	(10,046)	10,784
Purchase of bank owned life insurance	(5,000)	-
Proceeds from the sale of fixed assets	9	-
Proceeds from the sale of other real estate owned	-	74
Net purchase of property and equipment	(2,156)	(2,114)
Net cash used in investing activities	(17,873)	(3,757)
Cash flows from financing activities
Net change in deposits	(611)	(599)
Net change in short-term debt	20,704	10,000
Dividends paid in cash	(2,485)	(1,644)
Proceeds from issuance of common stock	154	105
Repurchase of preferred stock	(63)	(24)
Repurchase of common stock	(624)	-
Repayments of long-term debt	(2,298)	(11,795)
Net cash provided by (used in) financing activities	14,777	(3,957)
Net (decrease) increase in Cash and Cash Equivalents	1,457	(4,691)
Cash and cash equivalents, beginning of period	11,907	16,355
Cash and cash equivalents, end of period	$13,364	$11,664
Supplemental Cash Flow information:
Cash paid for:
Interest	$2,087	$1,836
Taxes	1,357	2,530
Supplemental non-cash disclosures:
Transfer from loans to other real estate owned	20	6
Change in unrealized gain (loss) on securities available for sale	(168)	(2)

See notes to unaudited consolidated financial statements

8

Note 1.

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited consolidated financial statements including the accounts of Farmers & Merchants Bank, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., VBS Mortgage, LLC (dba F&M Mortgage), (net of non-controlling interest) and VSTitle, LLC and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the information and footnotes required by U. S. GAAP for complete financial statements. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”).

The accompanying unaudited consolidated financial statements include the accounts of the Company, the Bank and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations

The Company, through its subsidiary Farmers & Merchants Bank (the “Bank”), operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Federal Reserve Bank. The Bank provides services to customers primarily located in Rockingham, Shenandoah, Page and Augusta Counties in Virginia. Services are provided at thirteen branch offices and a Dealer Finance Division. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance, Inc., Farmers & Merchants Financial Services, Inc. (FMFS), F&M Mortgage, and VSTitle, LLC (VST). The Company purchased VSTitle, a title company headquartered in Harrisonburg, VA with offices in Harrisonburg, Fishersville and Charlottesville, VA on January 1, 2017.

Basis of Presentation

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, goodwill and intangibles, fair value, the valuation of deferred tax assets and liabilities, pension accounting and the valuation of foreclosed real estate. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for fair presentation of the results of operations in these financial statements, have been made.

Reclassification

Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.

9

Note 1.

Summary of Significant Accounting Policies, continued

Earnings per Share

Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding.  In calculating diluted EPS net income available to common stockholders is used as the numerator and the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had been issued.  The dilutive effect of conversion of preferred stock is reflected in the diluted earnings per share calculation.

Net income available to common stockholders represents consolidated net income adjusted for preferred dividends declared.

The following table provides a reconciliation of net income to net income available to common stockholders for the periods presented:  

(dollars in thousands)	For the Six months ended	For the Three months ended	For the Six months ended	For the Three months ended
	June 30, 2018	June 30, 2018	June 30, 2017	June 30, 2017
Earnings available to common stockholders:
Net income	$3,665	$1,704	$4,705	$2,387
Non-controlling interest income	5	16	32	59
Preferred stock dividends	207	104	209	105
Net income available to common stockholders	$3,453	$1,584	$4,464	$2,223

The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated:

	Six months ended June 30, 2018			Six months ended June 30, 2017
	Income	Weighted Average Shares	Per Share Amounts	Income	Weighted Average Shares	Per Share Amounts
Basic EPS	$3,453	3,253,007	$1.06	$4,464	3,272,318	$1.36
Effect of Dilutive Securities:
Convertible Preferred Stock	207	359,594	(.05)	209	363,681	(0.07)
Diluted EPS	$3,660	3,612,601	$1.01	$4,673	3,635,999	$1.29

	Three months ended June 30, 2018			Three months ended June 30, 2017
	Income	Weighted Average Shares	Per Share Amounts	Income	Weighted Average Shares	Per Share Amounts
Basic EPS	$1,584	3,250,749	$.49	$2,223	3,273,352	$.68
Effect of Dilutive Securities:
Convertible Preferred Stock	104	359,063	(.02)	105	363,678	(0.04)
Diluted EPS	$1,688	3,609,812	$.47	$2,328	3,637,030	$.64

10

Note 2.

Investment Securities

Investment securities available for sale are carried in the consolidated balance sheets at their approximate fair value. Investment securities held to maturity are carried in the consolidated balance sheets at their amortized cost at June 30, 2018 and December 31, 2017 are as follows:

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
June 30, 2018
U. S. Treasuries	$122	$-	$-	$122
December 31, 2017
U. S. Treasuries	$125	$-	$-	$125

The amortized cost and fair value of securities available for sale are as follows:

	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Fair Value
June 30, 2018
U. S. Government sponsored enterprises	$7,999	$-	$183	$7,816
Mortgage-backed obligations of federal agencies	457	-	10	447
Total Securities Available for Sale	$8,456	$-	$193	$8,263
December 31, 2017
U. S. Treasuries	$19,998	$-	$-	$19,998
U.S. Government sponsored enterprises	7,999	-	19	7,980
Mortgage-backed obligations of federal agencies	508	-	6	502
Equity securities1	135	-	-	135
Total Securities Available for Sale	$28,640	$-	$25	$28,615

1 Transferred to other investments on January 1, 2018 upon adoption of ASU 2016-01

The amortized cost and fair value of securities at June 30, 2018, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Held to Maturity		Securities Available for Sale
	Amortized	Fair	Amortized	Fair
(dollars in thousands)	Cost	Value	Cost	Value
Due in one year or less	$-	$-	$-	$-
Due after one year through five years	122	122	7,999	7,816
Due after five years	-	-	457	447
Due after ten years	-	-	-	-
Total	$122	$122	$8,456	$8,263

There were no gains or losses on sales of available for sale securities in the three or six month periods ended June 30, 2018 or 2017. There were also no securities with other than temporary impairment and no securities that had been in a continues loss position in excess of twelve months as of June 30, 2018 and December 31, 2017.

11

Note 2.          Investment Securities, continued

A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type of June 30, 2018 and December 31, 2017 were as follows:

	Less than 12 Months		More than 12 Months		Total
	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
June 30, 2018
U. S. Government sponsored enterprises	$7,816	$(183)	$-	$-	$7,816	$(183)
Mortgage-backed obligations of federal agencies	447	(10)	-	-	447	(10)
Total	$8,263	$(193)	$-	$-	$8,263	$(193)

	Less than 12 Months		More than 12 Months		Total
	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
December 31, 2017
U. S. Government sponsored enterprises	$3,981	$(19)	$-	$-	$3,981	$(19)
Mortgage-backed obligations of federal agencies	502	(6)	-	-	502	(6)
Total	$4,483	$(25)	$-	$-	$4,483	$(25)

Other investments consist of investments in twenty low-income housing and historic equity partnerships (carrying basis of $8,523), stock in the Federal Home Loan Bank (carrying basis $4,644) and various other investments (carrying basis $1,604). The interests in low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted as to sales. The fair values of these securities are estimated to approximate their carrying value as of June 30, 2018. At June 30, 2018, the Company was committed to invest an additional $4,398 in seven low-income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. This additional investment has been reflected in the above carrying basis and in accrued liabilities on the consolidated balance sheet. During the first quarter of 2017, both Farmers & Merchants Financial Services and F&M Mortgage ended their relationship with Bankers Title Virginia resulting in a consolidated loss of $42.

Note 3. 

Loans

Loans held for investment outstanding at June 30, 2018 and December 31, 2017 are summarized as follows: 

(dollars in thousands)	2018	2017
Construction/Land Development	$67,079	$71,620
Farmland	16,500	13,606
Real Estate	184,674	184,546
Multi-Family	9,829	10,298
Commercial Real Estate	156,041	148,906
Home Equity – closed end	10,742	11,606
Home Equity – open end	55,837	54,739
Commercial & Industrial – Non-Real Estate	41,275	36,912
Consumer	5,216	6,633
Dealer Finance	83,962	75,169
Credit Cards	2,967	2,939
Total	$634,122	$616,974

The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of Atlanta totaling $182,373 and $218,523 as of June 30, 2018 and December 31, 2017, respectively. The Company maintains a blanket lien on its entire residential real estate portfolio and certain commercial and home equity loans.

12

Note 3.  

Loans, continued

The following is a summary of information pertaining to impaired loans (dollars in thousand):

  

	June 30, 2018			December 31, 2017
		Unpaid			Unpaid
	Recorded	Principal	Related	Recorded	Principal	Related
	Investment	Balance	Allowance	Investment	Balance	Allowance
Impaired loans without a valuation allowance:
Construction/Land Development	$4,478	$4,478	$-	$4,352	$5,269	$-
Farmland	1,984	1,984	-	1,984	1,984	-
Real Estate	1,688	1,688	-	1,273	1,273	-
Multi-Family	-	-	-	-	-	-
Commercial Real Estate	291	291	-	6,229	6,229	-
Home Equity – closed end	-	-	-	-	-	-
Home Equity – open end	-	-	-	-	347	-
Commercial & Industrial – Non-Real Estate	-	-	-	-	-	-
Consumer	-	-	-	8	8	-
Credit cards	-	-	-	-	-	-
Dealer Finance	33	33	-	31	31	-
	8,474	8,474	-	13,877	15,141	-
Impaired loans with a valuation allowance
Construction/Land Development	7,463	8,023	2,154	4,998	4,998	1,661
Farmland	-	-		-	-	-
Real Estate	110	110	7	1,188	1,188	209
Multi-Family	-	-		-	-	-
Commercial Real Estate	5,898	5,898	1,586	-	-	-
Home Equity – closed end	-	-		-	-	-
Home Equity – open end	-	-		-	-	-
Commercial & Industrial – Non-Real Estate	-	-		-	-	-
Consumer	11	11	2	-	-	-
Credit cards	-	-		-	-	-
Dealer Finance	229	229	7	47	47	12
	13,711	14,271	3,756	6,233	6,233	1,882
Total impaired loans	$22,185	$22,745	$3,756	$20,110	$21,374	$1,882

The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.

Loans held for sale consists of loans originated by F&M Mortgage for sale in the secondary market, and the Bank’s commitment to purchase residential mortgage loan participations from Northpointe Bank. The volume of loans purchased from Northpointe fluctuates due to a number of factors including changes in secondary market rates, which affects demand for mortgage loans; the number of participating banks involved in the program; the number of mortgage loan originators selling loans to the lead bank and the funding capabilities of the lead bank. Loans held for sale as of June 30, 2018 and December 31, 2017 were $49,821 and $39,775, respectively.

13

Note 3.  

Loans Held for Investment, continued

The following is a summary of the average investment and interest income recognized for impaired loans (dollars in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	Average Recorded	Interest Income	Average Recorded	Interest Income	Average Recorded	Interest Income	Average Recorded	Interest Income
	Investment	Recognized	Investment	Recognized	Investment	Recognized	Investment	Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$4,759	$45	$4,734	$47	$4,929	$79	$4,374	$50
Farmland	1,984	62	1,858	-	1,984	62	1,239	-
Real Estate	837	(6)	750	14	982	11	756	17
Multi-Family	-	-	-	-	-	-	-	-
Commercial Real Estate	797	4	100	2	2,608	9	719	3
Home Equity – closed end	-	-	-	-	-	-	-	-
Home Equity – open end	-	-	347	6	116	-	347	-
Commercial & Industrial – Non-Real Estate	-	-	166	-	-	-	167	6
Consumer and credit cards	-	-	11	-	3	-	12	-
Dealer Finance	33	-	20	1	32	1	13	1
	8,410	105	7,986	70	10,654	162	7,627	77
Impaired loans with a valuation allowance:
Construction/Land Development	$7,417	$64	$6,512	$97	$6,610	$98	$6,539	$140
Farmland	-	-	-	-	-	-	-	-
Real Estate	1,283	9	1,199	31	1,251	27	1,201	31
Multi-Family	-	-	-	-	-	-	-	-
Commercial Real Estate	5,407	73	-	-	3,605	141	317	-
Home Equity – closed end	-	-	-	-	-	-	-	-
Home Equity – open end	-	-	-	-	-	-	-	-
Commercial & Industrial – Non-Real Estate	-	-	-	-	-	-	-	-
Consumer and credit card	12	-	-	-	8	1	-	-
Dealer Finance	198	4	65	-	148	8	72	1
	14,317	150	7,776	128	11,622	275	8,129	172
Total Impaired Loans	$22,727	$255	$15,762	$198	$22,276	$437	$15,756	$249

14

Note 3. 

Loans, continued

The following table presents the aging of the recorded investment of past due loans (dollars in thousands) as of June 30, 2018 and December 31, 2017:

	30-59 Days Past due	60-89 Days Past Due	Greater than 90 Days	Total Past Due	Current	Total Loan Receivable	Non-Accrual Loans	Recorded Investment >90 days & accruing
June 30, 2018
Construction/Land Development	$1,465	$52	$5,367	$6,884	$60,195	$67,079	$5,927	$-
Farmland	-	-	-	-	16,500	16,500	-	-
Real Estate	1,772	1,215	1,496	4,483	180,191	184,674	1,345	899
Multi-Family	174	-	-	174	9,655	9,829	-	-
Commercial Real Estate	4,153	4,895	218	9,266	146,775	156,041	6,460	-
Home Equity – closed end	-	15	-	15	10,727	10,742	-	-
Home Equity – open end	539	258	158	955	54,882	55,837	133	26
Commercial & Industrial – Non- Real Estate	201	150	-	351	40,924	41,275	-	-
Consumer	117	15	10	142	5,074	5,216	-	10
Dealer Finance	1,066	262	93	1,421	82,541	83,962	161	-
Credit Cards	30	5	16	51	2,916	2,967	-	16
Total	$9,517	$6,867	$7,358	$23,742	$610,380	$634,122	$14,026	$951

	30-59 Days Past due	60-89 Days Past Due	Greater than 90 Days	Total Past Due	Current	Total Loan Receivable	Non-Accrual Loans	Recorded Investment >90 days & accruing
December 31, 2017
Construction/Land Development	$167	$5,459	$3,908	$9,534	$62,086	$71,620	$3,908	$-
Farmland	-	-	-	-	13,606	13,606	-	-
Real Estate	2,858	1,954	560	5,372	179,174	184,546	1,720	143
Multi-Family	179	-	-	179	10,119	10,298	-	-
Commercial Real Estate	544	-	-	544	148,362	148,906	-	-
Home Equity – closed end	-	25	-	25	11,581	11,606	3	-
Home Equity – open end	454	165	268	887	53,852	54,739	448	-
Commercial & Industrial – Non- Real Estate	108	36	595	739	36,173	36,912	599	-
Consumer	43	5	-	48	6,585	6,633	-	-
Dealer Finance	1,300	252	189	1,741	73,428	75,169	226	54
Credit Cards	30	8	1	39	2,900	2,939	-	1
Total	$5,683	$7,904	$5,521	$19,108	$597,866	$616,974	$6,904	$198

At June 30, 2018 and December 31, 2017, other real estate owned included $177 and $207 of foreclosed residential real estate. The Company has $465 of consumer mortgages for which foreclosure is in process at June 30, 2018 and $103 at December 31, 2017.

Nonaccrual loans at June 30, 2018 and June 30, 2017, would have earned approximately $252 and $42, respectively, in interest income had they been accruing loans.

15

Note 4. 

Allowance for Loan Losses

A summary of changes in the allowance for loan losses (dollars in thousands) for June 30, 2018 and December 31, 2017 is as follows:

June 30, 2018	Beginning Balance	Charge-offs	Recoveries	Provision	Ending Balance	Individually Evaluated for Impairment	Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$2,547	$47	$122	$167	$2,789	$2,154	$635
Farmland	25	-	-	-	25	-	25
Real Estate	719	53	12	(261)	417	7	410
Multi-Family	19	-	-	(2)	17	-	17
Commercial Real Estate	482	-	1	1,366	1,849	1,586	263
Home Equity – closed end	66	3	3	(17)	49	-	49
Home Equity – open end	209	-	3	(42)	170	-	170
Commercial & Industrial – Non-Real Estate	337	544	57	425	275	-	275
Consumer	148	13	5	(75)	65	2	63
Dealer Finance	1,440	1,036	528	471	1,403	7	1,396
Credit Cards	52	21	17	(2)	46	-	46
Total	$6,044	$1,717	$748	$2,030	$7,105	$3,756	$3,349

December 31, 2017	Beginning Balance	Charge-offs	Recoveries	Provision	Ending Balance	Individually Evaluated for Impairment	Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$3,381	$620	$-	$(214)	$2,547	$1,661	$886
Farmland	34	-	-	(9)	25	-	25
Real Estate	843	-	2	(126)	719	209	510
Multi-Family	23	-	-	(6)	19	-	19
Commercial Real Estate	705	-	13	(236)	482	-	482
Home Equity – closed end	75	7	25	(27)	66	-	66
Home Equity – open end	470	26	53	(288)	209	-	209
Commercial & Industrial – Non-Real Estate	586	179	72	(142)	337	-	337
Consumer	78	136	28	178	148	-	148
Dealer Finance	1,289	1,806	1,143	814	1,440	12	1,428
Credit Cards	59	98	37	54	52	-	52
Total	$7,543	$2,872	$1,373	$-	$6,044	$1,882	$4,162

16

Note 4. 

Allowance for Loan Losses, continued

The following table presents the recorded investment in loans (dollars in thousands) based on impairment method as of June 30, 2018 and December 31, 2017: 

June 30, 2018	Loan Receivable	Individually Evaluated for Impairment	Collectively Evaluated for Impairment
Construction/Land Development	$67,079	$11,941	$55,138
Farmland	16,500	1,984	14,516
Real Estate	184,674	1,798	182,876
Multi-Family	9,829	-	9,829
Commercial Real Estate	156,041	6,189	149,853
Home Equity – closed end	10,742	-	10,742
Home Equity –open end	55,837	-	55,837
Commercial & Industrial – Non-Real Estate	41,275	-	41,275
Consumer	5,216	11	5,205
Dealer Finance	83,962	262	83,699
Credit Cards	2,967	-	2,967
	$634,122	$22,185	$611,937
Total

December 31, 2017	Loan Receivable	Individually Evaluated for Impairment	Collectively Evaluated for Impairment
Construction/Land Development	$71,620	$9,350	$62,270
Farmland	13,606	1,984	11,622
Real Estate	184,546	2,461	182,085
Multi-Family	10,298	-	10,298
Commercial Real Estate	148,906	6,229	142,677
Home Equity – closed end	11,606	-	11,606
Home Equity –open end	54,739	-	54,739
Commercial & Industrial – Non-Real Estate	36,912	-	36,912
Consumer	6,633	8	6,625
Dealer Finance	75,169	78	75,091
Credit Cards	2,939	-	2,939
	$616,974	$20,110	$596,864
Total

17

Note 4. 

Allowance for Loan Losses, continued

The following table shows the Company’s loan portfolio broken down by internal loan grade (dollars in thousands) as of June 30, 2018 and December 31, 2017:

June 30, 2018	Grade 1 Minimal Risk	Grade 2 Modest Risk	Grade 3 Average Risk	Grade 4 Acceptable Risk	Grade 5 Marginally Acceptable	Grade 6 Watch	Grade 7 Substandard	Grade 8 Doubtful	Total
Construction/Land Development	$-	$1,657	$15,517	$32,841	$7,011	$113	$9,940	$-	$67,079
Farmland	62	-	4,410	5,806	3,744	494	1,984	-	16,500
Real Estate	-	1,603	53,790	100,205	21,918	2,573	4,585	-	184,674
Multi-Family	-	185	2,757	6,713	174	-	-	-	9,829
Commercial Real Estate	-	3,064	45,988	89,682	8,203	2,545	6,559	-	156,041
Home Equity – closed end	-	-	3,346	5,432	1,949	15	-	-	10,742
Home Equity – open end	223	1,910	19,897	29,687	3,618	307	195	-	55,837
Commercial & Industrial (Non-Real Estate)	229	1,532	18,386	18,078	2,451	535	64	-	41,275
Consumer (excluding dealer)	30	274	3,057	906	910	19	20	-	5,216
Total	$544	$10,225	$167,148	$289,350	$49,978	$6,601	$23,347	$-	$547,193

	Credit Cards	Dealer Finance
Performing	$2,951	$83,801
Non-performing	16	161
Total	$2,967	$83,962

18

Note 4.   

Allowance for Loan Losses, continued

December 31, 2017	Grade 1 Minimal Risk	Grade 2 Modest Risk	Grade 3 Average Risk	Grade 4 Acceptable Risk	Grade 5 Marginally Acceptable	Grade 6 Watch	Grade 7 Substandard	Grade 8 Doubtful	Total
Construction/Land Development	$-	$690	$12,974	$30,197	$9,165	$3,520	$15,074	$-	$71,620
Farmland	63		3,153	4,120	3,793	494	1,983	-	13,606
Real Estate	-	1,512	53,764	101,606	19,734	4,660	3,270	-	184,546
Multi-Family	-	228	4,780	5,111	179	-	-	-	10,298
Commercial Real Estate	-	3,525	45,384	89,195	9,012	634	1,156	-	148,906
Home Equity – closed end	-	-	3,535	5,410	1,279	1,379	3	-	11,606
Home Equity – open end	235	1,598	17,383	30,888	3,945	176	514	-	54,739
Commercial & Industrial (Non-Real Estate)	262	1,595	13,297	19,442	1,480	207	629	-	36,912
Consumer (excluding dealer)	34	490	2,226	88	1,065	2,254,	476	-	6,633
Total	$594	$9,638	$156,496	$286,057	$49,652	$13,324	$23,105	$-	$538,866

	Credit Cards	Dealer Finance
Performing	$2,938	$75,116
Non-performing	1	53
Total	$2,939	$75,169

Description of internal loan grades:

Grade 1 – Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.

Grade 2 – Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.

Grade 3 – Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.

Grade 4 – Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must be covered through additional long term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.

19

Note 4.  

Allowance for Loan Losses, continued

Grade 5 – Marginally acceptable: Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing as agreed, but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.

Grade 6 – Watch: Loans are currently protected, but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Grade 8 – Doubtful: The loan has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful.

Credit card and dealer finance loans are classified as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days or more.

20

Note 5.

Employee Benefit Plan

The Bank has a qualified noncontributory defined benefit pension plan which covers substantially all of its full-time employees hired before April 1, 2012. The benefits are primarily based on years of service and earnings. The Company uses December 31st as the measurement date for the defined benefit pension plan. The Bank does not expect to contribute to the pension plan in 2018.

On January 1, 2018 the Company adopted ASU No.2017-07,“Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers are required to present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Employee benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components of net periodic benefit cost separately (e.g., Other Noninterest Expense) from the line item that includes the service cost.  The Company adopted ASU No.2017-07 on January 1, 2018 and re-classified non-servicing components of net periodic pension cost from compensation expense to other noninterest expense. ASU No.2017-07 did not have a material impact on the Company’s Consolidated Financial Statements.

  The following is a summary of net periodic pension costs for the three and six month periods ended June 30, 2018 and 2017:

	Six Months Ended		Three Months Ended
	June 30, 2018	June 30, 2017	June 30, 2018	June 30, 2017
Service cost	$384	$348	$192	$174
Interest cost	248	244	124	122
Expected return on plan assets	(462)	(426)	(231)	(213)
Amortization of prior service cost	(8)	(8)	(4)	(4)
Amortization of net loss	152	142	76	71
Net periodic pension cost	$314	$300	$157	$150

Note 6. 

Fair Value

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations are involved to determine the fair value of financial assets in markets that are not active.

The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

21

Note 6.

Fair Value, continued

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Derivatives

The Company’s derivatives are recorded at fair value based on third party vendor supplied information using discounted cash flow analysis from observable-market based inputs, which are considered Level 2 inputs.

The following tables present the balances of financial assets measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 (dollars in thousands):

June 30, 2018	Total	Level 1	Level 2	Level 3
U.S. Government sponsored enterprises	$7,816	$-	$7,816	$-
Mortgage-backed obligations of federal agencies	447	-	447	-
Total securities available for sale	$8,263	$-	$8,263	$-

December 31, 2017	Total	Level 1	Level 2	Level 3
U. S. Treasuries	$19,998	$19,998	$-	$-
U.S. Government sponsored enterprises	7,980	-	7,980	-
Mortgage-backed obligations of federal agencies	502	-	502	-
Equity securities1	135	-	135	-
Total securities available for sale	$28,615	$19,998	$8,617	$-

1 Transferred to other investments on January 1, 2018 upon adoption of ASU 2016-01

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:

Loans Held for Sale

Loans held for sale are short-term loans purchased at par for resale to investors at the par value of the loan and loans originated by F&M Mortgage for sale in the secondary market. Loan participations are generally repurchased within 15 days.  Loans originated for sale by F&M Mortgage are recorded at lower of cost or market. No market adjustments were required at June 30, 2018 or December 31, 2017; therefore, loans held for sale were carried at cost. Because of the short-term nature and fixed repurchase price, the book value of these loans approximate fair value at June 30, 2018 and December 31, 2017.

22

Note 6.

Fair Value, continued

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Troubled debt restructurings are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure.

Loans measured using the fair value of collateral method are categorized in Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate. The Company bases collateral method fair valuation upon the “as-is” value of independent appraisals or evaluations.

The value of real estate collateral is determined by an independent appraisal utilizing an income or market valuation approach.  Appraisals conducted by an independent, licensed appraiser outside of the Company as observable market data is categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 3) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

As of June 30, 2018 and December 31, 2017, the fair value measurements for impaired loans with specific allocations were primarily based upon the fair value of the collateral.

The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands):

June 30, 2018	Total	Level 1	Level 2	Level 3
Construction/Land Development	$5,309	$-	$-	$5,309
Real Estate	103	-	-	103
Commercial Real Estate	4,312	-	-	4,312
Consumer	9	-	-	9
Dealer Finance	222	-	-	222
Impaired loans	$9,955	$-	$-	$9,955

December 31, 2017	Total	Level 1	Level 2	Level 3
Construction/Land Development	$3,337	$-	-	$3,337
Real Estate	979	-	-	979
Dealer Finance	35	-	-	35
Impaired loans	$4,351	$-	$-	$4,351

23

Note 6.   

Fair Value, continued

The following table presents information about Level 3 Fair Value Measurements for June 30, 2018:

(dollars in thousands)	Fair Value at June 30, 2018	Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$ 9,995	Discounted appraised value	Discount for selling costs and marketability	2%-19% (Average 4.9%)

The following table presents information about Level 3 Fair Value Measurements for December 31, 2017:

 

(dollars in thousands)	Fair Value at December 31, 2017	Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$ 4,351	Discounted appraised value	Discount for selling costs and marketability	3%-19% (Average 5.5%)

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a level two input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.

The Company markets other real estate owned both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

The following table summarizes the Company’s other real estate owned that were measured at fair value on a nonrecurring basis as of June 30, 2018 and December 31, 2017 (dollars in thousands).

June 30, 2018	Total	Level 1	Level 2	Level 3
Other real estate owned	$2,034	-	-	$2,034

December 31, 2017	Total	Level 1	Level 2	Level 3
Other real estate owned	$1,984	-	-	$1,984

The following table presents information about Level 3 Fair Value Measurements for June 30, 2018:

(dollars in thousands)	Fair Value at June 30, 2018	Valuation Technique	Significant Unobservable Inputs	Range
Other real estate owned	$ 2,034	Discounted appraised value	Discount for selling costs	2.5%-10% (Average 4%)

The following table presents information about Level 3 Fair Value Measurements for December 31, 2017:

	Fair Value at December 31, 2017	Valuation Technique	Significant Unobservable Inputs	Range
(dollars in thousands)
Other real estate owned	$ 1,984	Discounted appraised value	Discount for selling costs	5%-15% (Average 8%)

24

Note 7. Disclosures about Fair Value of Financial Instruments

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2018 and December 31, 2017. For short-term financial assets such as cash and cash equivalents and short-term liabilities, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as noninterest bearing demand, interest bearing demand and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity. Fair values for June 30, 2018 are estimated under the exit price notion in accordance with the prospective adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” Fair values for December 31, 2017 are estimated under the guidance in effect for that period, which did not require use of the exit price notion.

The estimated fair values, and related carrying amounts (dollars in thousands), of the Company’s financial instruments are as follows:

		Fair Value Measurements at June 30, 2018 Using
(dollars in thousands)	Carrying Amount	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Fair Value at June 30, 2018
Assets:
Cash and cash equivalents	$13,364	$13,364	$-	$-	$13,364
Securities	8,385	-	8,385	-	8,385
Loans held for sale	49,821	-	49,821	-	49,821
Loans held for investment, net	627,017	-	-	615,424	615,424
Interest receivable	1,983	-	1,983	-	1,983
Bank owned life insurance	19,166	-	19,166	-	19,166
Total	$719,736	$13,364	$79,355	$615,424	$708,143
Liabilities:
Deposits	$568,566	$-	$406,830	$163,871	$570,701
Short-term debt	46,000	-	46,000	-	46,000
Long-term debt	47,434	-	-	47,524	47,524
Interest payable	267	-	267	-	267
Total	$662,267	$-	$453,097	$211,395	$664,492

25

Note 7. Disclosures About Fair Value of Financial Instruments, continued

		Fair Value Measurements at December 31, 2017 Using
(dollars in thousands)	Carrying Amount	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)	Fair Value at December 31, 2017
Assets:
Cash and cash equivalents	$11,907	$11,907	$-	$-	$11,907
Securities	28,740	19,998	8,742	-	28,740
Loans held for sale	39,775	-	39,775	-	39,775
Loans held for investment, net	610,930	-	-	646,703	646,703
Interest receivable	2,007	-	2,007	-	2,007
Bank owned life insurance	13,950	-	13,950	-	13,950
Total	$707,309	$31,905	$64,474	$646,703	$743,082
Liabilities:
Deposits	$569,177	$-	$403,907	$167,210	$571,117
Short-term debt	25,296	-	25,296	-	25,296
Long-term debt	49,733	-	-	49,869	49, 869
Interest payable	260	-	260	-	260
Total	$644,466	$-	$429,463	$217,079	$646,542

Note 8. 

Troubled Debt Restructuring

In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings by adjusting the loan grades of such loans, which are considered in the qualitative factors within the allowance. Defaults resulting in charge-offs affect the historical loss experience ratios which are a component of the allowance for loan loss methodology. Additionally, specific reserves may be established on restructured loans which are evaluated individually for impairment.

During the six months ended June 30, 2018, there were sixteen loan modifications that were considered to be troubled debt restructurings. Six of these loans were modified during the three months ended June 30, 2018 and ten loan modifications that would be considered a troubled debt restructuring were modified during the first quarter of 2018. Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.

	June 30, 2018
		Pre-Modification	Post-Modification
(dollars in thousands)		Outstanding	Outstanding
Troubled Debt Restructurings	Number of Contracts	Recorded Investment	Recorded Investment
Commercial Real Estate	1	$1,002	$1,002
Real Estate	2	1,255	1,255
Consumer	13	196	196
Total	16	$2,453	$2,453

26

Note 8.

Troubled Debt Restructuring, continued

At June 30, 2018, there were no loans restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.

During the six months ended June 30, 2017, there was one loan modification that was considered to be a troubled debt restructuring. This loan was modified during the three months ended June 30, 2017, there were no loan modifications that would be considered a troubled debt restructuring during the second quarter of 2017.

	Six Months ended June 30, 2017
		Pre-Modification	Post-Modification
(dollars in thousands)		Outstanding	Outstanding
	Number of Contracts	Recorded Investment	Recorded Investment
Troubled Debt Restructurings
Consumer	1	$20	$20
Total	1	$20	$20

At June 30, 2017, there was one loan restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.

	June 30, 2017
		Pre-Modification	Post-Modification
		Outstanding	Outstanding
	Number of Contracts	Recorded Investment	Recorded Investment
Troubled Debt Restructurings
Real Estate	1	$67	$67
Total	1	$67	$67

27

Note 9. 

Accumulated Other Comprehensive Loss

The balances in accumulated other comprehensive loss are shown in the following tables for June 30, 2018 and 2017:

(dollars in thousands)	Unrealized Securities Gains (Losses)	Adjustments Related to Pension Plan	Accumulated Other Comprehensive Loss
Balance at December 31, 2017	$(20)	$(4,122)	$(4,142)
Change in unrealized securities gains (losses), net of tax	(133)	-	(133)
Change in unfunded pension liability, net of tax	-	-	-
Balance at June 30, 2018	$(153)	$(4,122)	$(4,275)

(dollars in thousands)	Unrealized Securities Gains (Losses)	Adjustments Related to Pension Plan	Accumulated Other Comprehensive Loss
Balance at December 31, 2016	$6	$(3,171)	$(3,165)
Change in unrealized securities gains (losses), net of tax	(1)	-	(1)
Change in unfunded pension liability, net of tax	-	-	-
Balance at June 30, 2017	$5	$(3,171)	$(3,166)

There were no reclassifications adjustments reported on the consolidated statements of income during the three or six months ended June 30, 2018 or 2017.

Note 10.    

Business Segments

The Company utilizes its subsidiaries to provide multiple business segments including retail banking, mortgage banking, title insurance services, investment services and credit life and accident and health insurance products related to lending. Revenues from retail banking operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage banking operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee income and interest earned on mortgage loans held for sale. Revenues from title insurance services, investment services and insurance products consist of commissions on products provided.

28

Note 10. 

Business Segments, continued

The following tables represent revenues and expenses by segment for the three and six months ended June 30, 2018 and June 30, 2017.

	Six Months Ended June 30, 2018
	F&M Bank	F&M Mortgage	TEB Life/FMFS	VS Title	Parent Only	Eliminations	F&M Bank Corp. Consolidated
Revenues:
Interest Income	$17,620	$71	$71	$-	$-	$(57)	$17,705
Service charges on deposits	724	-	-	-	-	-	724
Investment services and insurance income	-	-	431	-	-	(11)	420
Mortgage banking income, net	-	1,135	-	-	-	-	1,135
Title insurance income	-	109	-	453	-	-	562
Gain on prepayment of long-term debt	-	-	-	-	-	-	-
Loss on investments	-	-	-	-	-	-	-
Other operating income	843	48	-	-	-	-	891
Total income	19,187	1,363	502	453	-	(68)	21,437
Expenses:
Interest Expense	2,097	54	-	-	-	(57)	2,094
Provision for loan losses	2,030	-	-	-	-	-	2,030
Salary and benefit expense	6,564	831	283	345	-	-	8,023
Other operating expenses	4,496	456	28	89	29	(11)	5,087
Total expense	15,187	1,341	311	434	29	(68)	17,234
Net income (loss) before taxes	4,000	22	191	19	(29)	-	4,203
Income tax expense	284	-	36	-	218	-	538
Net income (loss)	$3,716	$22	$155	$19	$(247)	$-	$3,665
Net income attributable to non-controlling interest	-	5	-	-	-	-	5
Net Income attributable to F & M Bank Corp.	$3,716	$17	$155	$19	$(247)	$-	$3,660
Total Assets	$772,244	$8,332	$6,910	$707	$91,480	$(109,005)	$770,668
Goodwill	$2,670	$65	$-	$57	$164	$-	$2,956

29

Note 10.   

Business Segments, continued

	Three months ended June 30, 2018
	F&M Bank	F&M Mortgage	TEB Life/FMFS	VS Title	Parent Only	Eliminations	F&M Bank Corp. Consolidated
Revenues:
Interest Income	$8,916	$42	$36	$-	$-	$(32)	$8,962
Service charges on deposits	358	-	-	-	-	-	358
Investment services and insurance income	-	-	228	-	-	(5)	223
Mortgage banking income, net	-	615	-	-	-	-	615
Title insurance income	-	47	-	259	-	-	306
Gain on prepayment of long-term debt	-	-	-	-	-	-	-
Loss on investments	-	-	-	-	-	-	-
Other operating income	450	47	-	-	-	-	497
Total income	9,724	751	264	259	-	(37)	10,961
Expenses:
Interest Expense	1,116	31	-	-	-	(32)	1,115
Provision for loan losses	1,350	-	-	-	-	-	1,350
Salary and benefit expense	3,268	416	137	179	-	-	4,000
Other operating expenses	2,317	246	18	42	15	(5)	2,633
Total expense	8,051	693	155	221	15	(37)	9,098
Net income (loss) before taxes	1,673	58	109	38	(15)	-	1,863
Income tax expense	144	-	21	-	(6)	-	159
Net income (loss)	$1,529	$58	$88	$38	$(9)	$-	$1,704
Net income attributable to non-controlling interest	-	16	-	-	-	-	16
Net Income attributable to F & M Bank Corp.	$1,529	$42	$88	$38	$(9)	$-	$1,688

30

Note 10. 

Business Segments, continued

	Six Months Ended June 30, 2017
	F&M Bank	VBS Mortgage	TEB Life/FMFS	VS Title	Parent Only	Eliminations	F&M Bank Corp. Consolidated
Revenues:
Interest Income	$16,171	$65	$75	$-	$-	$(45)	$16,266
Service charges on deposits	651	-	-	-	-	-	651
Investment services and insurance income	1	-	360	-	-	-	361
Mortgage banking income, net	-	1,113	-	-	-	-	1,113
Title insurance income	-	-	-	554	-	-	554
Gain on prepayment of long-term debt	504	-	-	-	-	-	504
Loss on investments	-	(40)	(2)	-	-	-	(42)
Other operating income	787	-	-	-	-	-	787
Total income	18,114	1,138	433	554	-	(45)	20,194
Expenses:
Interest Expense	1,834	42	-	-	-	(45)	1,831
Provision for loan losses	-	-	-	-	-	-	-
Salary expense	5,977	616	234	340	-	-	7,167
Other operating expenses	4,220	470	17	94	4	-	4,805
Total expense	12,031	1,128	251	434	4	(45)	13,803
Net income (loss) before taxes	6,083	10	182	120	(4)	-	6,391
Income tax expense	1,669	-	53	-	(36)	-	1,686
Net income (loss)	$4,414	$10	$129	$120	$32	$-	$4,705
Net income attributable to non-controlling interest	-	3	-	29	-	-	32
Net Income attributable to F & M Bank Corp.	$4,414	$7	$129	$91	$32	$-	$4,673
Total Assets	$746,193	$6,027	$6,630	$274	$89,909	$(104,770)	$744,263
Goodwill	$2,670	$-	$-	$-	$304	$-	$2,974

31

Note 10. 

Business Segments, continued

	Three Months Ended June 30, 2017
	F&M Bank	VBS Mortgage	TEB Life/FMFS	VS Title	Parent Only	Eliminations	F&M Bank Corp. Consolidated
Revenues:
Interest Income	$8,210	$30	$38	$-	$-	$(22)	$8,256
Service charges on deposits	335	-	-	-	-	-	335
Investment services and insurance income	-	-	187	-	-	-	187
Mortgage banking income, net	-	613	-	-	-	-	613
Title insurance income	-	-	-	355	-	-	355
Gain on prepayment of long-term debt	-	-	-	-	-	-	-
Loss on investments	-	-	-	-	-	-	-
Other operating income	392	-	-	-	-	-	392
Total income	8,937	643	225	355	-	(22)	10,138
Expenses:
Interest Expense	927	20	-	-	-	(22)	925
Provision for loan losses	-	-	-	-	-	-	-
Salary and benefit expense	2,968	211	119	182	-	-	3,480
Other operating expenses	2,160	320	13	43	1	-	2,537
Total expense	6,055	551	132	225	1	(22)	6,942
Net income (loss) before taxes	2,882	92	93	130	(1)	-	3,196
Income tax expense	801	-	26	-	(18)	-	809
Net income (loss)	$2,081	$92	$67	$130	$17	$-	$2,387
Net income attributable to non-controlling interest	-	28	-	31	-	-	59
Net Income attributable to F & M Bank Corp.	$2,081	$64	$67	$99	$17	$-	$2,328

Note 11.   

Debt

Short-term Debt

The Company utilizes short-term debt such as Federal funds purchased and Federal Home Loan Bank of Atlanta (FHLB) short term borrowings to support the loans held for sale participation program and 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 need of the Company. Short-term debt totaled $46 million at June 30, 2018 and has increased $20.7 million from $25.3 million at December 31, 2017 due to an increase in the loans held for sale as well as internal loan growth and a slight decline in deposits.

Long-term Debt

The Company utilizes the FHLB advance program to fund loan growth and provide liquidity. The interest rates on long-term debt are fixed at the time of the advance and range from 1.16% to 2.56%; the weighted average interest rate was 1.87% and 1.86% at June 30, 2018 and December 31, 2017, respectively. The balance of these obligations at June 30, 2018 and December 31, 2017 were $47,339 and $49,554 respectively. The Company recognized a gain of $504 on prepayment of two FHLB advances totaling $10,000 during the first quarter of 2017 and there were no additional borrowings in 2017 or 2018. FHLB advances include a $5 million line of credit at FHLB that is pledged to the Commonwealth of Virginia to secure public funds.

In addition, the Company has a note payable to purchase a lot adjacent to one of the Bank branches for $85 at June 30, 2018 that is payable in one annual payment on January 1, 2019. There was $170 outstanding on this note at December 31, 2017. VS Title, LLC has a note payable for vehicle purchases with a balance of $10 at June 30, 2018.

32

Note 12.  

Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), overdraft fees, monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Investment Services and Insurance Income

Investment services and insurance income primarily consists of commissions received on mutual funds and other investment sales. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.

Title Insurance Income

VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate transaction is completed.

ATM and Check Card Fees

ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.

Other

Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

Other service charges include revenue from processing wire transfers, online payment fees, cashier’s checks, mobile banking fees and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

33

Note 12.    

Revenue Recognition, continued

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30, 2018 and 2017. Noninterest income out-of-scope of Topic 606 in 2017 included onetime gains on prepayment of debt of $504.

	Six Months Ended June 30,		Three Months Ended June 30,
	2018	2017	2018	2017
Noninterest Income (in thousands)
In-scope of Topic 606:
Service Charges on Deposits	$724	$651	$358	$335
Investment Services and Insurance Income	420	361	223	187
Title Insurance Income	562	554	306	355
ATM and check card fees	735	681	388	351
Other	250	240	134	118
Noninterest Income (in-scope of Topic 606)	2,691	2,487	1,409	1,348
Noninterest Income (out-of-scope of Topic 606)	1,041	1,441	590	536
Total Noninterest Income	$3,732	$3,928	$1,999	$1,882

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of June 30, 2018 and December 31, 2017, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

34

Item 2.  

Management's Discussion and Analysis of Financial Condition and Results of Operations

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) and Farmers & Merchants Financial Services (FMFS) are wholly-owned subsidiaries of the Bank. The Bank also holds a majority ownership in VBS Mortgage LLC (dba F&M Mortgage) and F & M Bank Corp. holds a majority ownership in VSTitle LLC (VST), with the remaining minority interest owned by F&M Mortgage.

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, VA (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, and Woodstock, VA.VS Title provides title insurance services through their offices in Harrisonburg, Fishersville, and Charlottesville, VA.

The Company’s primary trade area services customers in Rockingham County, Shenandoah County, Page County and Augusta County.

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, 2017 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. 

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: 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, and consumer spending and savings habits.

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

35

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Critical Accounting Policies

General

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“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 (formerly SFAS No. 5) “Contingencies”, which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC 310 (formerly SFAS No. 114), “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 loan portfolio; the findings of internal credit quality assessments and results from external bank regulatory examinations. 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 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. 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.

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.

36

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Critical Accounting Policies (continued)

Goodwill and Intangibles

In June 2001, the Financial Accounting Standards Board issued ASC 805, Business Combinations and ASC 350, Intangibles. The provisions of ASC 350 discontinue the amortization of goodwill and intangible assets with indefinite lives. Instead, these assets are subject to an annual impairment review and more frequently if certain impairment indicators are in evidence. ASC 350 also requires that reporting units be identified for the purpose of assessing potential future impairments of goodwill. The Company adopted ASC 350 on January 1, 2002. Goodwill totaled $2,639 at January 1, 2002. As of December 31, 2008, the Company recognized $31 in additional goodwill related to the purchase of 70% ownership in F&M Mortgage. In 2017, the Company recognized $211 in goodwill and $285 in intangibles related to the purchase of VST. The goodwill is not amortized but is tested for impairment at least annually. Based on this testing, there were no impairment charges for 2017, 2016 or 2015. The intangibles related to the VST purchase are amortized over periods up to 15 years with $33 and $53 recorded in 2018 and 2017, respectively.

At June 30, 2018, a preliminary goodwill of $75 was recorded for VSTitle’s acquisition of a small title company in Harrisonburg. The amount is subject to change during the measurement period.

Income Tax

The determination of income taxes represents results in income and expense being recognized in different periods for financial reporting purposes versus for the purpose of computing income taxes currently payable. Deferred taxes are provided on such temporary differences and are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Further, the Company seeks strategies that minimize the tax effect of implementing its business strategies. Management makes judgments regarding the ultimate consequence of long-term tax planning strategies, including the likelihood of future recognition of deferred tax benefits. As a result, it is considered a significant estimate.

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 Plan Accounting

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 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.

37

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Critical Accounting Policies (continued)

Other Real Estate Owned (OREO)

OREO is held for sale and represents real estate acquired through or in lieu of foreclosure. OREO is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The Company’s policy is to carry OREO on its balance sheet at the lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.

Overview

Net income for the six months ended June 30, 2018 was $3,660 or $1.01 per diluted share, compared to $4,673 or $1.29 in the same period in 2017, a decrease of 21.68%. During the six months ended June 30, 2018, noninterest income decreased 4.99% and noninterest expense increased 9.51% during the same period. Net income from Bank operations adjusted for income from Parent activities, is as follows:

In thousands	2018	2017
Net Income from Bank Operations	$3,888	$4,550
Income from Parent Company Activities	(228)	123
Net Income for the six months ended June 30	$3,660	$4,673

During the three months ended June 30, 2018, net income was $1,688 or $.47 per diluted share, compared to $2,328 or $.64 in the same period in 2017, a decrease of 27.49%. In the three months ended June 30, 2018, noninterest income increased 6.22% and noninterest expense increased 10.24%.

In thousands	2018	2017
Net Income from Bank Operations	$1,659	$2,212
Income from Parent Company Activities (2018	29	116
Net Income for the three months ended June 30	$1,688	$2,328

As shown in Table I, the 2018 year to date tax equivalent net interest income increased $1,147 or 7.91% compared to the same period in 2017. The tax equivalent adjustment to net interest income totaled $41 for the first six months of 2018. The yield on earning assets increased .33%, while the cost of funds increased .13% compared to the same period in 2017.

The three months ended June 30, 2018 tax equivalent net interest income increased $500 or 6.79% compared to the same period in 2017. The tax equivalent adjustment to net interest income totaled $20 for the three months ended June 30, 2018.

Year to date, the combination of the increase in yield on assets and the increase in cost of funds coupled with changes in balance sheet leverage has resulted in the net interest margin increasing to 4.73% at June 30, 2018, an increase of 27 basis points when compared to the same period in 2017. A schedule of the net interest margin for the three and six month periods ended June 30, 2018 and 2017 can be found in Table I.

38

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Results of Operations

The following table provides detail on the components of tax equivalent net interest income:

 

GAAP Financial Measurements: (Dollars in thousands).	June 30, 2018		June 30, 2017
	Six Months	Three Months	Six Months	Three Months
Interest Income – Loans	$17,468	$8,837	$16,054	$8,177
Interest Income - Securities and Other Interest-Earnings Assets	237	125	212	79
Interest Expense – Deposits	1,505	766	1,249	633
Interest Expense - Other Borrowings	589	349	582	292
Total Net Interest Income	15,611	7,847	14,435	7,331
Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt Interest Income – Loans	41	20	70	36
Total Tax Benefit on Tax-Exempt Interest Income	41	20	70	36
Tax-Equivalent Net Interest Income	$15,652	$7,867	$14,505	$7,367

The Interest Sensitivity Analysis contained in Table II indicates the Company is in an asset sensitive position in the one year time horizon. As the notes to the table indicate, the data was based in part on assumptions as to when certain assets or liabilities would mature or reprice. Approximately 41.83% of rate sensitive assets and 36.63% of rate sensitive liabilities are subject to repricing within one year. Due to the relatively flat yield curve, management has kept deposit rates low. The growth in earning assets and the growth in noninterest bearing accounts has resulted in the decrease in the positive GAP position in the one year time period.

The decrease in noninterest income of $196 for the six-month period June 30, 2018 is primarily due to the 2017 gain on prepayment of FHLB debt of $504 in the first quarter of 2017. Exclusive of the FHLB debt gain, noninterest income increased 9%. Other areas of increase are service charges on deposits ($73), ATM and check card fees ($54) and investment services and insurance ($59). The increase in noninterest income of $117 for the three months ended June 30, 2018 is primarily due to growth in investment services and insurance ($36) and ATM and check card fees ($37). For the three months ended June 30, 2018 noninterest income increased 6.22%.

Noninterest expense for the six months ended June 30, 2018 increased $1,138 as compared to 2017. Expenses increased in the areas of salaries and benefits ($856), equipment expense ($124) and telecommunications and data processing ($76). For the three months ended June 30, 2018 noninterest expense increased $616. Areas of increase were salary and benefits ($520), equipment expense ($52) and telecommunications and data processing ($65). Increases in salaries and benefits relate to normal salary increases, additional staff to support new branch locations, employee increases at F&M Mortgage and VSTitle, and increased cost of insurance. Equipment and telecommunications and data processing also increased as a result of branching activities.

39

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

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 1.75% to 2.00% 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. Balances in federal funds sold and interest bearing bank deposits have increased since year end due to changes in the composition of the balances sheet.

Securities

The Company’s securities portfolio serves to assist the Company with asset liability management.

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 June 30, 2018, the fair value of securities available for sale was below their cost by $193. The portfolio is made up of primarily agency securities with an average portfolio life of just over three years. This short average life results in less portfolio volatility and positions the Bank to redeploy assets in response to rising rates. There are no securities that will mature in 2018.

In reviewing investments as of June 30, 2018, 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 in a predominately rural area that includes the counties of Rockingham, Page, Shenandoah and Augusta in the western portion of 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 $634,122 increased $17,148 at June 30, 2018 compared to December 31, 2017. The following categories experienced growth: farmland, real estate, commercial real estate, home equity-open end, commercial and industrial, credit cards and dealer finance.

Loans Held for Sale totaled $49,821 at June 30, 2018, an increase of $10,046 compared to December 31, 2017. The Northpointe participation loan program is typically subject to seasonal fluctuations.

40

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Loan Portfolio (continued)

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 $14,977 at June 30, 2018 compared to $7,102 at December 31, 2017. The increase in nonaccrual loans is primarily due to two commercial relationships which have been reviewed for impairment and properly provisioned at June 30, 2018. Although the potential exists for loan losses, management believes the bank is generally well secured and continues to actively work with its customers to effect payment. As of June 30, 2018 and December 31, 2017, the Company held $2,034 and $1,984 of real estate which was acquired through foreclosure, respectively.

The following is a summary of information pertaining to risk elements and nonperforming loans (in thousands):

	June 30, 2018	December 31, 2017
Nonaccrual Loans
Real Estate	$7,272	$5,628
Commercial	6,460	599
Home Equity	133	451
Other	161	226
Loans past due 90 days or more (excluding nonaccrual)
Real Estate	899	143
Commercial	-	-
Home Equity	26	-
Other	26	55
Total Nonperforming loans	$14,977	$7,102
Restructured Loans current and performing:
Real Estate	7,486	7,710
Commercial	-	-
Home Equity	-	-
Other	268	78
Nonperforming loans as a percentage of loans held for investment	2.36%	1.15%
Net charge offs to total loans held for investment	.15%	.24%
Allowance for loan and lease losses to nonperforming loans	47.44%	85.10%

41

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (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. 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 internally generated 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 into loans 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 impaired are categorized by call report code into unimpaired and classified loans. For unimpaired loans an estimate is calculated based on actual loss experience over the last five years, for loans of that type. Dealer finance loans utilize a two-year loss history. The Company monitors the net losses for this division and adjusts based on how the portfolio performs since the department was established in 2012.  For classified loans, loans are grouped by call code and past due or adverse risk rating. Loss rates are assigned based on actual loss experience over the last five years multiplied by a risk factor. The Dealer finance loans are given a higher risk factor for past due and adverse risk ratings based on back testing of the risk factors.

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 $7,105 at June 30, 2018 is equal to 1.12% of loans held for investment. This compares to an allowance of $6,044 (.98%) at December 31, 2017. The Company experienced an increase in nonperforming loans during the fourth quarter of 2017 and first half of 2018. As a result, the Bank has recorded a $2,030 provision for loan losses in the first half of 2018. In addition, past due and adversely risk rated loans have higher allocation factors within the allowance for loan losses calculation. The increase in nonperforming loans is attributable to two relationships ($8.1 million) that have been reviewed for impairment and have specific reserves of $2.3 million in the allowance for loan losses. Management will continue to monitor nonperforming and past due loans and will make necessary adjustments to specific reserves and provision for loan losses should conditions change regarding collateral values or cash flow expectations.

42

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

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 June 30, 2018 have decreased $611 since December 31, 2017. Noninterest bearing deposits increased $1,576 while interest bearing decreased $2,187. The decrease in deposits is consistent with the first half of 2017, commercial accounts decline due to tax and bonus payouts during this time of year. 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. The Bank also has the ability to bid on One-Way buy deposits through the CDARs network and has participated in this program to supplement core deposits. At June 30, 2018 and December 31, 2017 the Company had a total of $3.1 million and $1.2 million in CDARS funding and $16 million and $16.7 million in ICS funding, respectively.

Short-term borrowings

Short-term debt consists of federal funds purchased, daily rate credit obtained from the Federal Home Loan Bank (FHLB), and short-term fixed rate FHLB borrowings. Federal funds purchased are overnight borrowings obtained from the Bank’s primary correspondent bank to manage short-term liquidity needs. Borrowings from the FHLB have been used to finance loans held for sale and also to finance the increase in short-term residential and commercial construction loans. As of June 30, 2018, short-term debt consisted of $40,000 in FHLB short-term borrowings and $6,000 in FHLB daily rate credit. This compared to FHLB short-term borrowings of $20,000 at December 31, 2017. There were no balances in Federal funds purchased at June 30, 2018 or December 31, 2017.

Long-term borrowings

Borrowings from the FHLB continue to be an important source of funding. The Company’s subsidiary bank borrows funds on a fixed rate basis. These borrowings are used to fund loan growth and also assist the Bank in matching the maturity of its fixed rate real estate loan portfolio with the maturity of its debt and thus reduce its exposure to interest rate changes. There were no new borrowings in 2018. Long term FHLB borrowings totaled $47,339 and $49,554 at June 30, 2018 and December 31, 2017.

The Company also has a note payable on a lot adjacent to one of the branches in the amount of $85 and $170 at June 30, 2018 and December 31, 2017. VS Title, LLC has a vehicle loan with a balance of $10 at June 30, 2018 and December 31, 2017.

43

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

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.

In March 2015, the Bank implemented the Basel III capital requirements, which introduced the Common Equity Tier I ratio in addition to the two previous capital guidelines of Tier I capital (referred to as core capital) and Tier II capital (referred to as supplementary capital). At June 30, 2018, the Bank had Common Equity Tier I capital of 13.84%, Tier I capital of 13.84% of risk weighted assets and combined Tier I and II capital of 14.92% of risk weighted assets. Regulatory minimums at this date were 4.5%, 6% and 8%, respectively. At December 30, 2017, the Bank had Common Equity Tier I capital of 13.86%, Tier I capital of 13.86% of risk weighted assets and combined Tier I and II capital of 15.08% of risk weighted assets. Regulatory minimums at this date were 4.5%, 6% and 8%, respectively. The Bank has maintained capital levels far above the minimum requirements throughout the year. 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 June 30, 2018 and December 31, 2017, the Bank reported a leverage ratio of 12.24% and 11.83%, respectively, which was also substantially above the minimum. The Bank also reported a capital conservation buffer of 6.92% at June 30, 2018 and 7.41% at December 31, 2017. 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. Beginning January 1, 2017, a capital conservation buffer of 0.625% became effective. The capital conservation buffer for 2018 is 1.25% and will gradually be increased through January 1, 2019 to 2.5%.

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.

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, with Zions Bank and Pacific Coast Bankers Bank. The Bank also has a line of credit with the Federal Home Loan Bank of Atlanta that allows for secured borrowings.

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.

As of June 30, 2018, the Company had a cumulative Gap Rate Sensitivity Ratio of 15.61% for the one year repricing period. This generally indicates that earnings would increase in an increasing interest rate environment as assets reprice more quickly than liabilities. However, in actual practice, this may not be the case as balance sheet leverage, funding needs and competitive factors within the market could dictate the need to raise deposit rates more quickly. Management constantly monitors the Company’s interest rate risk and has decided the current position is acceptable for a well-capitalized community bank.

A summary of asset and liability repricing opportunities is shown in Table II.

44

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Effect of Newly Issued Accounting Standards

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2017-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements by gathering data on current lease agreements and analyzing the capital impact of expected right of use assets that will be recorded. No changes are expected regarding total lease expense.

During June 2016, the FASB issued 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 amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements and has formed a Current Expected Credit Losses steering committee which has chosen a vendor and is in the beginning stages of set up.

During January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. The amendments in this ASU simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Public business entities that are U.S. Securities and Exchange Commission (SEC) filers should adopt the amendments in this ASU for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.

45

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Effect of Newly Issued Accounting Standards, continued

During March 2017, the FASB issued ASU 2017‐08, “Receivables—Nonrefundable Fees and Other Costs (Subtopic 310‐20), Premium Amortization on Purchased Callable Debt Securities.” The amendments in this ASU shorten the amortization period for certain callable debt securities purchased at a premium. Upon adoption of the standard, premiums on these qualifying callable debt securities will be amortized to the earliest call date. Discounts on purchased debt securities will continue to be accreted to maturity. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Upon transition, entities should apply the guidance on a modified retrospective basis, with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption and provide the disclosures required for a change in accounting principle. The Company does not expect this standard to have a material impact on the financial statements.

In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments provide targeted improvements to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Specifically, the amendments include clarifications related to: measurement elections, transition requirements, and adjustments associated with equity securities without readily determinable fair values; fair value measurement requirements for forward contracts and purchased options on equity securities; presentation requirements for hybrid financial liabilities for which the fair value option has been elected; and measurement requirements for liabilities denominated in a foreign currency for which the fair value option has been elected. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Early adoption is permitted. The Company is currently assessing the impact that ASU 2018‐03 will have on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, “Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The amendments expand the scope of Topic 718 to include share-based payments issued to non-employees for goods or services, which were previously excluded. The amendments will align the accounting for share-based payments to nonemployees and employees more similarly. The amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted.The Company does not have stock compensation and therefore this standard will have no material impact.

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).

46

TABLE I

F & M BANK CORP.

Net Interest Margin Analysis

(on a fully taxable equivalent basis)

(Dollar Amounts in Thousands)

	Six Months Ended			Six Months Ended			Three Months Ended			Three Months Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Average		Income/	Average		Income/	Average		Income/	Average		Income/	Average
	Balance2,4	Expense	Rates	Balance2,4	Expense	Rates	Balance2,4	Expense	Rates	Balance2,4	Expense	Rates
Interest income
Loans held for investment1,2	$624,278	$17,051	5.51%	$592,729	$15,679	5.33%	$628,381	$8,549	5.46%	$597,126	$7,942	5.33%
Loans held for sale	26,226	458	3.52%	32,145	445	2.79%	38,602	308	3.20%	38,193	271	2.85%
Federal funds sold	2,676	18	1.36%	18,143	71	.79%	886	2	.91%	7,695	17	.89%
Interest bearing deposits	1,087	7	1.30%	1,098	4	.73%	1,069	3	1.13%	670	1	.60%
Investments
Taxable 3	13,552	212	3.15%	11,194	137	2.47%	13,522	120	3.56%	11,022	61	2.22%
Partially taxable	124	-	-	125	-	-	124	-	-	125	-	-
Total earning assets	$667,943	$17,746	5.36%	$655,434	$16,336	5.03%	$682,584	$8,982	5.28%	$654,831	$8,292	5.08%
Interest Expense
Demand deposits	115,632	267	.47%	119,388	254	.43%	115,410	136	.47%	118,560	129	.43%
Savings	123,090	275	.45%	111,755	247	.45%	124,595	140	.45%	112,015	126	.45%
Time deposits	164,141	963	1.18%	155,593	748	.97%	163,024	490	1.20%	154,971	378	.98%
Short-term debt	13,945	136	1.98%	15,982	32	.42%	24,935	126	2.03%	18,688	24	.52%
Long-term debt	48,291	453	1.89%	55,390	550	2.00%	47,731	223	1.87%	52,311	268	2.06%
Total interest bearing liabilities	$465,099	$2,094	.91%	$458,108	$1,831	.81%	$475,695	$1,115	.94%	$456,545	$925	.81%
Tax equivalent net interest income		$15,652			$14,505			$7,867			$7,367
Net interest margin			4.73%			4.46%			4.62%			4.51%

1 Interest income on loans includes loan fees.

2 Loans held for investment include nonaccrual loans.

3 An incremental income tax rate of 21% was used to calculate the tax equivalent income on nontaxable and partially taxable investments and loans in 2018 and 34% was used in 2017.

4 Average balance information is reflective of historical cost and has not been adjusted for changes in market value annualized.

47

TABLE II

F & M BANK CORP.

Interest Sensitivity Analysis

June 30, 2018

(Dollars In Thousands)

The following table presents the Company’s interest sensitivity.

	0 – 3	4 – 12	1 – 5	Over 5	Not
	Months	Months	Years	Years	Classified	Total
Uses of funds
Loans
Commercial	$38,292	$37,062	$118,281	$30,010	$-	$223,645
Installment	3,870	2,330	66,273	16,705	-	89,178
Real estate loans for investments	94,715	58,442	155,413	9,762	-	318,332
Loans held for sale	49,821	-	-	-	-	49,821
Credit cards	2,967	-	-	-	-	2,967
Interest bearing bank deposits	1,565	-	-	-	-	1,565
Federal funds sold	2,064					2,064
Investment securities	-	-	7,938	447	-	8,385
Total	$193,294	$97,834	$347,905	$56,924	$-	$695,957
Sources of funds
Interest bearing demand deposits	$-	$31,110	$67,493	$18,191	$-	$116,794
Savings deposits	-	25,246	75,736	25,245	-	126,227
Certificates of deposit $100,000 and over	6,148	20,722	32,907	-	-	59,777
Other certificates of deposit	12,658	31,100	58,201	-	-	101,959
Short-term borrowings	46,000	-	-	-	-	46,000
Long-term borrowings	1,108	8,406	33,795	4,125	-	47,434
Total	$65,914	$116,584	$268,132	$47,561	$-	$498,191
Discrete Gap	$127,380	$(18,750)	$79,773	$9,363	$-	$197,766
Cumulative Gap	$127,380	$108,630	$188,403	$197,766	$197,766
Ratio of Cumulative Gap to Total Earning Assets	18.30%	15.61%	27.07%	28.42%	28.42%

Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as of June 30, 2018. In preparing the above table, no assumptions were made with respect to loan prepayments. Loan principal payments are included in the earliest period in which the loan matures or can reprice. Investment securities included in the table consist of securities held to maturity and securities available for sale. Principal payments on installment loans scheduled prior to maturity are included in the period of maturity or repricing. Proceeds from the redemption of investments and deposits are included in the period of maturity. Estimated maturities of deposits, which have no stated maturity dates, were derived from guidance contained in FDICIA 305.

48

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Company considers interest rate risk to be a significant market risk and has systems in place to measure the exposure of net interest income to adverse movement in interest rates. Interest rate shock analyses provide management with an indication of potential economic loss due to future rate changes. There have not been any changes which would significantly alter the results disclosed as of December 31, 2017 in the Company’s 2017 Form 10-K, Item 7A or Part II.

Item 4.

Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective as of June 30, 2018 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.

49

Part II    

Other Information

Item 1.   Legal Proceedings

There are no material pending legal proceedings other than ordinary routine litigation incidental to its business, to which the Company is a party or of which the property of the Company is subject.

Item 1a. Risk Factors –

There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds –None

Item 3.   Defaults Upon Senior Securities – None

Item 4.   Mine Safety Disclosures None

Item 5.   Other Information – None

Item 6.   Exhibits

(a)           

Exhibits

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).
101	The following materials from F&M Bank Corp.’s Quarterly Report on Form 10Q for the period ended March 31, 2018, formatted in Extensible Business Reporting Language (XBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith).

50

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

F & M BANK CORP.
By:	/s/ Mark C. Hanna
	Mark C. Hanna
	President and Chief Executive Officer

By:	/s/ Carrie A. Comer
	Carrie A. Comer
	Executive Vice President and Chief Financial Officer

August 8, 2018

51

Exhibit Index:

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).
101	The following materials from F&M Bank Corp.’s Quarterly Report on Form 10Q for the period ended March 31, 2018, formatted in Extensible Business Reporting Language (XBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith).

52

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(Chapter 63, Title 18 USC Section 1350 (A) and (B)

I, Mark C. Hanna, certify that:

1. 

I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.;

2. 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. 

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. 

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) 

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) 

Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) 

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. 

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) 

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) 

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: August 8, 2018	By:	/s/ Mark C. Hanna
		Mark C. Hanna
		President & Chief Executive Officer

A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(Chapter 63, Title 18 USC Section 1350 (A) and (B)

I, Carrie A. Comer, certify that:

1. 

I have reviewed this quarterly report on Form 10-Q of F & M Bank Corp.;

2. 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. 

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. 

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) 

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) 

Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) 

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) 

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. 

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) 

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) 

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:  August 8, 2018	By:	/s/ Carrie A. Comer
		Carrie A. Comer
		Executive Vice President & Chief Financial Officer

A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided to F & M Bank Corp. and will be retained by F & M Bank Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32

Exhibit 32

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER,

SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

Pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)

The undersigned, as the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer of F & M Bank Corp., respectively, certify that, to the best of each such individual’s knowledge and belief, the Quarterly Report on Form 10-Q for the period ended June 30, 2018, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of F & M Bank Corp. at the dates and for the periods indicated. The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose. The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

By:	/s/ Mark C. Hanna
	Mark C. Hanna
	President and Chief Executive Officer

By:	/s/ Carrie A. Comer
	Carrie A. Comer
	Executive Vice President & Chief Financial Officer

August 8, 2018

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 06, 2018
Document And Entity Information
Entity Registrant Name	F&M BANK CORP
Entity Central Index Key	0000740806
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,228,984
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2018

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Assets
Cash and due from banks	$ 9,735	$ 10,622	[1]
Money market funds	1,565	1,285	[1]
Federal funds sold	2,064	0	[1]
Cash and cash equivalents	13,364	11,907	[1]
Securities:
Held to maturity – fair value of $122 and $125 in 2018 and 2017, respectively	122	125	[1]
Available for sale	8,263	28,615	[1]
Other investments	14,771	12,503	[1]
Loans held for sale	49,821	39,775	[1]
Loans held for investment	634,122	616,974	[1]
Less: allowance for loan losses	(7,105)	(6,044)	[1]
Net loans held for investment	627,017	610,930	[1]
Other real estate owned, net	2,034	1,984	[1]
Bank premises and equipment, net	17,487	15,894	[1]
Interest receivable	1,983	2,007	[1]
Goodwill	2,956	2,881	[1]
Bank owned life insurance	19,166	13,950	[1]
Other assets	13,684	12,699	[1]
Total assets	770,668	753,270	[1]
Deposits:
Noninterest bearing	163,809	162,233	[1]
Interest bearing	404,757	406,944	[1]
Total deposits	568,566	569,177	[1]
Short-term debt	46,000	25,296	[1]
Accrued liabilities	16,904	17,789	[1]
Long-term debt	47,434	49,733	[1]
Total liabilities	678,904	661,995	[1]
Stockholders' Equity
Preferred Stock $25 par value, 400,000 shares authorized, 322,510 and 324,150 issued and outstanding for June 30, 2018 and December 31, 2017, respectively	7,488	7,529	[1]
Common stock, $5 par value, 6,000,000 shares authorized, 3,242,462 and 3,255,036 shares issued and outstanding for June 30, 2018 and December 31, 2017, respectively.	16,212	16,275	[1]
Additional paid in capital - common stock	9,796	10,225	[1]
Retained earnings	61,989	60,814	[1]
Noncontrolling interest in consolidated subsidiaries	554	574	[1]
Accumulated other comprehensive loss	(4,275)	(4,142)	[1]
Total stockholders' equity	91,764	91,275
Total liabilities and stockholders' equity	$ 770,668	$ 753,270	[1]

[1] 2017 Derived from audited consolidated financial statements.

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Assets
Held to maturity - fair value	$ 122	$ 125
STOCKHOLDERS EQUITY:
Preferred Stock, par value	$ 25	$ 25
Preferred Stock shares authorized	400,000	400,000
Preferred Stock shares issued	322,510	324,150
Preferred Stock shares outstanding	322,510	324,150
Common stock, par value	$ 5	$ 5
Common stock shares authorized	6,000,000	6,000,000
Common stock shares issued	3,242,462	3,255,036
Common stock shares outstanding	3,242,462	3,255,036

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Interest and Dividend income
Interest and fees on loans held for investment	$ 8,529	$ 7,906	$ 17,010	$ 15,609
Interest and fees on loans held for sale	308	271	458	445
Interest from money market funds and federal funds sold	5	18	25	75
Interest on debt securities - taxable	120	61	212	137
Total interest and dividend income	8,962	8,256	17,705	16,266
Interest expense
Interest on deposits	766	633	1,505	1,249
Interest from short-term debt	126	24	136	32
Interest from long-term debt	223	268	453	550
Total interest expense	1,115	925	2,094	1,831
Net interest income	7,847	7,331	15,611	14,435
Provision for loan losses	1,350	0	2,030	0
Net interest income after provision for loan losses	6,497	7,331	13,581	14,435
Noninterest income
Service charges on deposit accounts	358	335	724	651
Investment services and insurance income	223	187	420	361
Mortgage banking income, net	615	613	1,135	1,113
Title insurance income	306	355	562	554
Income on bank owned life insurance	112	112	222	224
Low income housing partnership losses	(192)	(201)	(384)	(386)
ATM and check card fees	388	351	735	681
Gain on prepayment of long-term debt			0	504
Loss on sale of other investments			0	(42)
Other operating income	189	130	318	268
Total noninterest income	1,999	1,882	3,732	3,928
Noninterest expense
Salaries	3,047	2,628	6,147	5,362
Employee benefits	953	852	1,876	1,805
Occupancy expense	286	254	537	503
Equipment expense	259	207	517	393
FDIC insurance assessment	48	90	96	180
Other real estate owned, net	17	12	2	26
Marketing expense	129	122	231	257
Legal and professional fees	95	79	199	175
ATM and check card fees	195	178	356	346
Telecommunication and data processing expense	417	352	751	675
Directors fees	114	116	228	243
Bank franchise tax	146	164	312	324
Other operating expenses	927	963	1,858	1,683
Total noninterest expense	6,633	6,017	13,110	11,972
Income before income taxes	1,863	3,196	4,203	6,391
Income tax expense	159	809	538	1,686
Net Income	1,704	2,387	3,665	4,705
Net income attributable to noncontrolling interest	16	59	5	32
Net income attributable to F & M Bank Corp.	1,688	2,328	3,660	4,673
Dividends paid/accumulated on preferred stock	104	105	207	209
Net income available to common stockholders	$ 1,584	$ 2,223	$ 3,453	$ 4,464
Per Common Share Data
Net income - basic	$ 0.49	$ 0.68	$ 1.06	$ 1.36
Net income - diluted	0.47	0.64	1.01	1.29
Cash dividends on common stock	$ 0.25	$ 0.23	$ .70	$ 0.45
Weighted average shares outstanding - basic	3,250,749	3,272,352	3,253,007	3,272,318
Weighted average shares outstanding - diluted	3,609,812	3,637,030	3,612,601	3,635,999

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net Income:
Net Income	$ 1,688	$ 2,328	$ 3,660	$ 4,673
Other comprehensive (loss):
Unrealized holding gains (losses) on available-for-sale securities	(22)	(1)	(168)	(2)
Tax effect	4	0	35	1
Unrealized holding gain (loss), net of tax	(18)	(1)	(133)	(1)
Total other comprehensive (loss)	(18)	(1)	(133)	(1)
Total comprehensive income	1,670	2,327	3,527	4,672
Comprehensive income (loss) attributable to noncontrolling interests	16	59	5	32
Comprehensive income attributable to F&M Bank Corp.	$ 1,686	$ 2,386	$ 3,532	$ 4,704

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) $ in Thousands	USD ($)
Balance, beginning of period at Dec. 31, 2016	$ 86,682
Comprehensive income
Net income attributable to F & M Bank Corp.	4,673
Net income attributable to noncontrolling interest	32
Other comprehensive (loss)	(1)
Total comprehensive income	4,704
Minority interest capital distributions	(150)
Issuance of common stock	105
Repurchase of common stock	0
Repurchase of preferred stock	(24)
Dividends paid	(1,644)
Balance, end of period at Jun. 30, 2017	89,673
Balance, beginning of period at Dec. 31, 2017	91,275
Comprehensive income
Net income attributable to F & M Bank Corp.	3,660
Net income attributable to noncontrolling interest	5
Other comprehensive (loss)	(133)
Total comprehensive income	3,532
Minority interest capital distributions	(25)
Issuance of common stock	154
Repurchase of common stock	(624)
Repurchase of preferred stock	(63)
Dividends paid	(2,485)
Balance, end of period at Jun. 30, 2018	$ 91,764

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities
Net income	$ 3,660	$ 4,673
Reconcile net income to net cash provided by operating activities:
Depreciation	563	430
Amortization of intangibles	33	0
Amortization of securities	3	2
Proceeds from loans held for sale originated	22,918	38,767
Loans held for sale originated	(21,813)	(37,445)
Gain on sale of loans held for sale originated	(1,105)	(1,138)
Gain on prepayment of long-term debt	0	(504)
Provision for loan losses	2,030	0
Decrease (increase) in interest receivable	24	(110)
Increase in other assets	(566)	(435)
Decrease in accrued liabilities	(1,317)	(1,421)
Amortization of limited partnership investments	384	386
Income from life insurance investment	(222)	(224)
Gain on the sale of fixed assets	(9)	0
Loss on sale of other investments	0	42
Gain on foreclosure of and valuation adjustments for other real estate owned	(30)	0
Net cash provided by operating activities	4,553	3,023
Cash flows from investing activities
Purchase of investments available for sale and other investments	(3,361)	(41,436)
Purchase of title insurance company	(75)	(304)
Proceeds from maturity of investments available for sale	20,893	41,316
Proceeds from the sale of investments	0	55
Net increase in loans held for investment	(18,137)	(12,132)
Net (increase) decrease in loans held for sale participations	(10,046)	10,784
Purchase of bank owned life insurance	(5,000)	0
Proceeds from the sale of fixed assets	9	0
Proceeds from the sale of other real estate owned	0	74
Net purchase of property and equipment	(2,156)	(2,114)
Net cash provided by investing activities	(17,873)	(3,757)
Cash flows from financing activities
Net change in deposits	(611)	(599)
Net change in short-term debt	20,704	10,000
Dividends paid in cash	(2,485)	(1,644)
Proceeds from issuance of common stock	154	105
Repurchase of preferred stock	(63)	(24)
Repurchase of common stock	(624)	0
Repayments of long-term debt	(2,298)	(11,795)
Net cash provided by (used in) financing activities	14,777	(3,957)
Net (decrease) increase in Cash and Cash Equivalents	1,457	(4,691)
Cash and cash equivalents, beginning of period	11,907	16,355
Cash and cash equivalents, end of period	13,364	11,664
Cash paid for:
Interest	2,087	1,836
Taxes	1,357	2,530
Supplemental non-cash disclosures:
Transfer from loans to other real estate owned	20	6
Change in unrealized gain (loss) on securities available for sale	$ (168)	$ (2)

XML

1. Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2018

Summary Of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited consolidated financial statements including the accounts of Farmers & Merchants Bank, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., VBS Mortgage, LLC (dba F&M Mortgage), (net of non-controlling interest) and VSTitle, LLC and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the information and footnotes required by U. S. GAAP for complete financial statements. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”).

The accompanying unaudited consolidated financial statements include the accounts of the Company, the Bank and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations

The Company, through its subsidiary Farmers & Merchants Bank (the “Bank”), operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Federal Reserve Bank. The Bank provides services to customers primarily located in Rockingham, Shenandoah, Page and Augusta Counties in Virginia. Services are provided at thirteen branch offices and a Dealer Finance Division. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance, Inc., Farmers & Merchants Financial Services, Inc. (FMFS), F&M Mortgage, and VSTitle, LLC (VST). The Company purchased VSTitle, a title company headquartered in Harrisonburg, VA with offices in Harrisonburg, Fishersville and Charlottesville, VA on January 1, 2017.

Basis of Presentation

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, goodwill and intangibles, fair value, the valuation of deferred tax assets and liabilities, pension accounting and the valuation of foreclosed real estate. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for fair presentation of the results of operations in these financial statements, have been made.

Reclassification

Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.

Earnings per Share

Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding.  In calculating diluted EPS net income available to common stockholders is used as the numerator and the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had been issued.  The dilutive effect of conversion of preferred stock is reflected in the diluted earnings per share calculation.

Net income available to common stockholders represents consolidated net income adjusted for preferred dividends declared.

The following table provides a reconciliation of net income to net income available to common stockholders for the periods presented:  

(dollars in thousands)	For the Six months ended		For the Three months ended		For the Six months ended		For the Three months ended
	June 30, 2018		June 30, 2018		June 30, 2017		June 30, 2017
Earnings available to common stockholders:
Net income	$	3,665	$	1,704	$	4,705	$	2,387
Non-controlling interest income		5		16		32		59
Preferred stock dividends		207		104		209		105
Net income available to common stockholders	$	3,453	$	1,584	$	4,464	$	2,223

The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated:

	Six months ended June 30, 2018							Six months ended June 30, 2017
	Income		Weighted Average Shares		Per Share Amounts			Income		Weighted Average Shares		Per Share Amounts
Basic EPS	$	3,453		3,253,007	$	1.06		$	4,464		3,272,318	$	1.36
Effect of Dilutive Securities:
Convertible Preferred Stock		207		359,594		(.05	)		209		363,681		(0.07	)
Diluted EPS	$	3,660		3,612,601	$	1.01		$	4,673		3,635,999	$	1.29

	Three months ended June 30, 2018							Three months ended June 30, 2017
	Income		Weighted Average Shares		Per Share Amounts			Income		Weighted Average Shares		Per Share Amounts
Basic EPS	$	1,584		3,250,749	$	.49		$	2,223		3,273,352	$	.68
Effect of Dilutive Securities:
Convertible Preferred Stock		104		359,063		(.02	)		105		363,678		(0.04	)
Diluted EPS	$	1,688		3,609,812	$	.47		$	2,328		3,637,030	$	.64

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2. Investment Securities

6 Months Ended

Jun. 30, 2018

Fair Value Measurements Tables

2. Investment Securities

Investment securities available for sale are carried in the consolidated balance sheets at their approximate fair value. Investment securities held to maturity are carried in the consolidated balance sheets at their amortized cost at June 30, 2018 and December 31, 2017 are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
June 30, 2018
U. S. Treasuries	$	122	$	-	$	-	$	122
December 31, 2017
U. S. Treasuries	$	125	$	-	$	-	$	125

The amortized cost and fair value of securities available for sale are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2018
U. S. Government sponsored enterprises	$	7,999	$	-	$	183	$	7,816
Mortgage-backed obligations of federal agencies		457		-		10		447
Total Securities Available for Sale	$	8,456	$	-	$	193	$	8,263
December 31, 2017
U. S. Treasuries	$	19,998	$	-	$	-	$	19,998
U.S. Government sponsored enterprises		7,999		-		19		7,980
Mortgage-backed obligations of federal agencies		508		-		6		502
Equity securities1		135		-		-		135
Total Securities Available for Sale	$	28,640	$	-	$	25	$	28,615

1 Transferred to other investments on January 1, 2018 upon adoption of ASU 2016-01

The amortized cost and fair value of securities at June 30, 2018, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Held to Maturity				Securities Available for Sale
	Amortized		Fair		Amortized		Fair
(dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	-	$	-	$	-	$	-
Due after one year through five years		122		122		7,999		7,816
Due after five years		-		-		457		447
Due after ten years		-		-		-		-
Total	$	122	$	122	$	8,456	$	8,263

There were no gains or losses on sales of available for sale securities in the three or six month periods ended June 30, 2018 or 2017. There were also no securities with other than temporary impairment and no securities that had been in a continues loss position in excess of twelve months as of June 30, 2018 and December 31, 2017.

A summary of unrealized losses (in thousands) and the length of time in a continuous loss position, by security type of June 30, 2018 and December 31, 2017 were as follows:

	Less than 12 Months					More than 12 Months				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2018
U. S. Government sponsored enterprises	$	7,816	$	(183	)	$	-	$	-	$	7,816	$	(183	)
Mortgage-backed obligations of federal agencies		447		(10	)		-		-		447		(10	)
Total	$	8,263	$	(193	)	$	-	$	-	$	8,263	$	(193	)

	Less than 12 Months					More than 12 Months				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2017
U. S. Government sponsored enterprises	$	3,981	$	(19	)	$	-	$	-	$	3,981	$	(19	)
Mortgage-backed obligations of federal agencies		502		(6	)		-		-		502		(6	)
Total	$	4,483	$	(25	)	$	-	$	-	$	4,483	$	(25	)

Other investments consist of investments in twenty low-income housing and historic equity partnerships (carrying basis of $8,523), stock in the Federal Home Loan Bank (carrying basis $4,644) and various other investments (carrying basis $1,604). The interests in low-income housing and historic equity partnerships have limited transferability and the interests in the other stocks are restricted as to sales. The fair values of these securities are estimated to approximate their carrying value as of June 30, 2018. At June 30, 2018, the Company was committed to invest an additional $4,398 in seven low-income housing limited partnerships. These funds will be paid as requested by the general partner to complete the projects. This additional investment has been reflected in the above carrying basis and in accrued liabilities on the consolidated balance sheet. During the first quarter of 2017, both Farmers & Merchants Financial Services and F&M Mortgage ended their relationship with Bankers Title Virginia resulting in a consolidated loss of $42.

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3. Loans

6 Months Ended

Jun. 30, 2018

Loans Held For Investment Abstract

3. Loans

Loans held for investment outstanding at June 30, 2018 and December 31, 2017 are summarized as follows: 

(dollars in thousands)	2018		2017
Construction/Land Development	$	67,079	$	71,620
Farmland		16,500		13,606
Real Estate		184,674		184,546
Multi-Family		9,829		10,298
Commercial Real Estate		156,041		148,906
Home Equity – closed end		10,742		11,606
Home Equity – open end		55,837		54,739
Commercial & Industrial – Non-Real Estate		41,275		36,912
Consumer		5,216		6,633
Dealer Finance		83,962		75,169
Credit Cards		2,967		2,939
Total	$	634,122	$	616,974

The Company has pledged loans held for investment as collateral for borrowings with the Federal Home Loan Bank of Atlanta totaling $182,373 and $218,523 as of June 30, 2018 and December 31, 2017, respectively. The Company maintains a blanket lien on its entire residential real estate portfolio and certain commercial and home equity loans.

The following is a summary of information pertaining to impaired loans (dollars in thousand):

	June 30, 2018						December 31, 2017
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans without a valuation allowance:
Construction/Land Development	$	4,478	$	4,478	$	-	$	4,352	$	5,269	$	-
Farmland		1,984		1,984		-		1,984		1,984		-
Real Estate		1,688		1,688		-		1,273		1,273		-
Multi-Family		-		-		-		-		-		-
Commercial Real Estate		291		291		-		6,229		6,229		-
Home Equity – closed end		-		-		-		-		-		-
Home Equity – open end		-		-		-		-		347		-
Commercial & Industrial – Non-Real Estate		-		-		-		-		-		-
Consumer		-		-		-		8		8		-
Credit cards		-		-		-		-		-		-
Dealer Finance		33		33		-		31		31		-
		8,474		8,474		-		13,877		15,141		-
Impaired loans with a valuation allowance
Construction/Land Development		7,463		8,023		2,154		4,998		4,998		1,661
Farmland		-		-				-		-		-
Real Estate		110		110		7		1,188		1,188		209
Multi-Family		-		-				-		-		-
Commercial Real Estate		5,898		5,898		1,586		-		-		-
Home Equity – closed end		-		-				-		-		-
Home Equity – open end		-		-				-		-		-
Commercial & Industrial – Non-Real Estate		-		-				-		-		-
Consumer		11		11		2		-		-		-
Credit cards		-		-				-		-		-
Dealer Finance		229		229		7		47		47		12
		13,711		14,271		3,756		6,233		6,233		1,882
Total impaired loans	$	22,185	$	22,745	$	3,756	$	20,110	$	21,374	$	1,882

The Recorded Investment is defined as the original principal balance less principal payments, charge-offs and nonaccrual payments applied to principal.

Loans held for sale consists of loans originated by F&M Mortgage for sale in the secondary market, and the Bank’s commitment to purchase residential mortgage loan participations from Northpointe Bank. The volume of loans purchased from Northpointe fluctuates due to a number of factors including changes in secondary market rates, which affects demand for mortgage loans; the number of participating banks involved in the program; the number of mortgage loan originators selling loans to the lead bank and the funding capabilities of the lead bank. Loans held for sale as of June 30, 2018 and December 31, 2017 were $49,821 and $39,775, respectively.

The following is a summary of the average investment and interest income recognized for impaired loans (dollars in thousands):

	Three Months Ended June 30,									Six Months Ended June 30,
	2018					2017				2018				2017
	Average Recorded		Interest Income			Average Recorded		Interest Income		Average Recorded		Interest Income		Average Recorded		Interest Income
	Investment		Recognized			Investment		Recognized		Investment		Recognized		Investment		Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$	4,759	$	45		$	4,734	$	47	$	4,929	$	79	$	4,374	$	50
Farmland		1,984		62			1,858		-		1,984		62		1,239		-
Real Estate		837		(6	)		750		14		982		11		756		17
Multi-Family		-		-			-		-		-		-		-		-
Commercial Real Estate		797		4			100		2		2,608		9		719		3
Home Equity – closed end		-		-			-		-		-		-		-		-
Home Equity – open end		-		-			347		6		116		-		347		-
Commercial & Industrial – Non-Real Estate		-		-			166		-		-		-		167		6
Consumer and credit cards		-		-			11		-		3		-		12		-
Dealer Finance		33		-			20		1		32		1		13		1
		8,410		105			7,986		70		10,654		162		7,627		77
Impaired loans with a valuation allowance:
Construction/Land Development	$	7,417	$	64		$	6,512	$	97	$	6,610	$	98	$	6,539	$	140
Farmland		-		-			-		-		-		-		-		-
Real Estate		1,283		9			1,199		31		1,251		27		1,201		31
Multi-Family		-		-			-		-		-		-		-		-
Commercial Real Estate		5,407		73			-		-		3,605		141		317		-
Home Equity – closed end		-		-			-		-		-		-		-		-
Home Equity – open end		-		-			-		-		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-			-		-		-		-		-		-
Consumer and credit card		12		-			-		-		8		1		-		-
Dealer Finance		198		4			65		-		148		8		72		1
		14,317		150			7,776		128		11,622		275		8,129		172
Total Impaired Loans	$	22,727	$	255		$	15,762	$	198	$	22,276	$	437	$	15,756	$	249

The following table presents the aging of the recorded investment of past due loans (dollars in thousands) as of June 30, 2018 and December 31, 2017:

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loan Receivable		Non-Accrual Loans		Recorded Investment >90 days & accruing
June 30, 2018
Construction/Land Development	$	1,465	$	52	$	5,367	$	6,884	$	60,195	$	67,079	$	5,927	$	-
Farmland		-		-		-		-		16,500		16,500		-		-
Real Estate		1,772		1,215		1,496		4,483		180,191		184,674		1,345		899
Multi-Family		174		-		-		174		9,655		9,829		-		-
Commercial Real Estate		4,153		4,895		218		9,266		146,775		156,041		6,460		-
Home Equity – closed end		-		15		-		15		10,727		10,742		-		-
Home Equity – open end		539		258		158		955		54,882		55,837		133		26
Commercial & Industrial – Non- Real Estate		201		150		-		351		40,924		41,275		-		-
Consumer		117		15		10		142		5,074		5,216		-		10
Dealer Finance		1,066		262		93		1,421		82,541		83,962		161		-
Credit Cards		30		5		16		51		2,916		2,967		-		16
Total	$	9,517	$	6,867	$	7,358	$	23,742	$	610,380	$	634,122	$	14,026	$	951

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loan Receivable		Non-Accrual Loans		Recorded Investment >90 days & accruing
December 31, 2017
Construction/Land Development	$	167	$	5,459	$	3,908	$	9,534	$	62,086	$	71,620	$	3,908	$	-
Farmland		-		-		-		-		13,606		13,606		-		-
Real Estate		2,858		1,954		560		5,372		179,174		184,546		1,720		143
Multi-Family		179		-		-		179		10,119		10,298		-		-
Commercial Real Estate		544		-		-		544		148,362		148,906		-		-
Home Equity – closed end		-		25		-		25		11,581		11,606		3		-
Home Equity – open end		454		165		268		887		53,852		54,739		448		-
Commercial & Industrial – Non- Real Estate		108		36		595		739		36,173		36,912		599		-
Consumer		43		5		-		48		6,585		6,633		-		-
Dealer Finance		1,300		252		189		1,741		73,428		75,169		226		54
Credit Cards		30		8		1		39		2,900		2,939		-		1
Total	$	5,683	$	7,904	$	5,521	$	19,108	$	597,866	$	616,974	$	6,904	$	198

At June 30, 2018 and December 31, 2017, other real estate owned included $177 and $207 of foreclosed residential real estate. The Company has $465 of consumer mortgages for which foreclosure is in process at June 30, 2018 and $103 at December 31, 2017.

Nonaccrual loans at June 30, 2018 and June 30, 2017, would have earned approximately $252 and $42, respectively, in interest income had they been accruing loans.

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4. Allowance for Loan Losses

6 Months Ended

Jun. 30, 2018

Allowance For Loan Losses

4. Allowance for Loan Losses

A summary of changes in the allowance for loan losses (dollars in thousands) for June 30, 2018 and December 31, 2017 is as follows:

June 30, 2018	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	2,547	$	47	$	122	$	167		$	2,789	$	2,154	$	635
Farmland		25		-		-		-			25		-		25
Real Estate		719		53		12		(261	)		417		7		410
Multi-Family		19		-		-		(2	)		17		-		17
Commercial Real Estate		482		-		1		1,366			1,849		1,586		263
Home Equity – closed end		66		3		3		(17	)		49		-		49
Home Equity – open end		209		-		3		(42	)		170		-		170
Commercial & Industrial – Non-Real Estate		337		544		57		425			275		-		275
Consumer		148		13		5		(75	)		65		2		63
Dealer Finance		1,440		1,036		528		471			1,403		7		1,396
Credit Cards		52		21		17		(2	)		46		-		46
Total	$	6,044	$	1,717	$	748	$	2,030		$	7,105	$	3,756	$	3,349

December 31, 2017	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	3,381	$	620	$	-	$	(214	)	$	2,547	$	1,661	$	886
Farmland		34		-		-		(9	)		25		-		25
Real Estate		843		-		2		(126	)		719		209		510
Multi-Family		23		-		-		(6	)		19		-		19
Commercial Real Estate		705		-		13		(236	)		482		-		482
Home Equity – closed end		75		7		25		(27	)		66		-		66
Home Equity – open end		470		26		53		(288	)		209		-		209
Commercial & Industrial – Non-Real Estate		586		179		72		(142	)		337		-		337
Consumer		78		136		28		178			148		-		148
Dealer Finance		1,289		1,806		1,143		814			1,440		12		1,428
Credit Cards		59		98		37		54			52		-		52
Total	$	7,543	$	2,872	$	1,373	$	-		$	6,044	$	1,882	$	4,162

The following table presents the recorded investment in loans (dollars in thousands) based on impairment method as of June 30, 2018 and December 31, 2017: 

June 30, 2018	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	67,079	$	11,941	$	55,138
Farmland		16,500		1,984		14,516
Real Estate		184,674		1,798		182,876
Multi-Family		9,829		-		9,829
Commercial Real Estate		156,041		6,189		149,853
Home Equity – closed end		10,742		-		10,742
Home Equity –open end		55,837		-		55,837
Commercial & Industrial – Non-Real Estate		41,275		-		41,275
Consumer		5,216		11		5,205
Dealer Finance		83,962		262		83,699
Credit Cards		2,967		-		2,967
Total	$	634,122	$	22,185	$	611,937

December 31, 2017	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	71,620	$	9,350	$	62,270
Farmland		13,606		1,984		11,622
Real Estate		184,546		2,461		182,085
Multi-Family		10,298		-		10,298
Commercial Real Estate		148,906		6,229		142,677
Home Equity – closed end		11,606		-		11,606
Home Equity –open end		54,739		-		54,739
Commercial & Industrial – Non-Real Estate		36,912		-		36,912
Consumer		6,633		8		6,625
Dealer Finance		75,169		78		75,091
Credit Cards		2,939		-		2,939
Total	$	616,974	$	20,110	$	596,864

The following table shows the Company’s loan portfolio broken down by internal loan grade (dollars in thousands) as of June 30, 2018 and December 31, 2017:

June 30, 2018	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	1,657	$	15,517	$	32,841	$	7,011	$	113	$	9,940	$	-	$	67,079
Farmland		62		-		4,410		5,806		3,744		494		1,984		-		16,500
Real Estate		-		1,603		53,790		100,205		21,918		2,573		4,585		-		184,674
Multi-Family		-		185		2,757		6,713		174		-		-		-		9,829
Commercial Real Estate		-		3,064		45,988		89,682		8,203		2,545		6,559		-		156,041
Home Equity – closed end		-		-		3,346		5,432		1,949		15		-		-		10,742
Home Equity – open end		223		1,910		19,897		29,687		3,618		307		195		-		55,837
Commercial & Industrial (Non-Real Estate)		229		1,532		18,386		18,078		2,451		535		64		-		41,275
Consumer (excluding dealer)		30		274		3,057		906		910		19		20		-		5,216
Total	$	544	$	10,225	$	167,148	$	289,350	$	49,978	$	6,601	$	23,347	$	-	$	547,193

	Credit Cards		Dealer Finance
Performing	$	2,951	$	83,801
Non-performing		16		161
Total	$	2,967	$	83,962

December 31, 2017	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	690	$	12,974	$	30,197	$	9,165	$	3,520	$	15,074	$	-	$	71,620
Farmland		63				3,153		4,120		3,793		494		1,983		-		13,606
Real Estate		-		1,512		53,764		101,606		19,734		4,660		3,270		-		184,546
Multi-Family		-		228		4,780		5,111		179		-		-		-		10,298
Commercial Real Estate		-		3,525		45,384		89,195		9,012		634		1,156		-		148,906
Home Equity – closed end		-		-		3,535		5,410		1,279		1,379		3		-		11,606
Home Equity – open end		235		1,598		17,383		30,888		3,945		176		514		-		54,739
Commercial & Industrial (Non-Real Estate)		262		1,595		13,297		19,442		1,480		207		629		-		36,912
Consumer (excluding dealer)		34		490		2,226		88		1,065		2,254		476		-		6,633
Total	$	594	$	9,638	$	156,496	$	286,057	$	49,652	$	13,324	$	23,105	$	-	$	538,866

	Credit Cards		Dealer Finance
Performing	$	2,938	$	75,116
Non-performing		1		53
Total	$	2,939	$	75,169

Description of internal loan grades:

Grade 1 – Minimal Risk: Excellent credit, superior asset quality, excellent debt capacity and coverage, and recognized management capabilities.

Grade 2 – Modest Risk: Borrower consistently generates sufficient cash flow to fund debt service, excellent credit, above average asset quality and liquidity.

Grade 3 – Average Risk: Borrower generates sufficient cash flow to fund debt service. Employment (or business) is stable with good future trends. Credit is very good.

Grade 4 – Acceptable Risk: Borrower’s cash flow is adequate to cover debt service; however, unusual expenses or capital expenses must be covered through additional long term debt. Employment (or business) stability is reasonable, but future trends may exhibit slight weakness. Credit history is good. No unpaid judgments or collection items appearing on credit report.

Grade 5 – Marginally acceptable: Credit to borrowers who may exhibit declining earnings, may have leverage that is materially above industry averages, liquidity may be marginally acceptable. Employment or business stability may be weak or deteriorating. May be currently performing as agreed, but would be adversely affected by developing factors such as layoffs, illness, reduced hours or declining business prospects. Credit history shows weaknesses, past dues, paid or disputed collections and judgments, but does not include borrowers that are currently past due on obligations or with unpaid, undisputed judgments.

Grade 6 – Watch: Loans are currently protected, but are weak due to negative balance sheet or income statement trends. There may be a lack of effective control over collateral or the existence of documentation deficiencies. These loans have potential weaknesses that deserve management’s close attention. Other reasons supporting this classification include adverse economic or market conditions, pending litigation or any other material weakness. Existing loans that become 60 or more days past due are placed in this category pending a return to current status.

Grade 7 – Substandard: Loans having well-defined weaknesses where a payment default and or loss is possible, but not yet probable. Cash flow is inadequate to service the debt under the current payment, or terms, with prospects that the condition is permanent. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower and there is the likelihood that collateral will have to be liquidated and/or guarantor(s) called upon to repay the debt. Generally, the loan is considered collectible as to both principal and interest, primarily because of collateral coverage, however, if the deficiencies are not corrected quickly; there is a probability of loss.

Grade 8 – Doubtful: The loan has all the characteristics of a substandard credit, but available information indicates it is unlikely the loan will be repaid in its entirety. Cash flow is insufficient to service the debt. It may be difficult to project the exact amount of loss, but the probability of some loss is great. Loans are to be placed on non-accrual status when any portion is classified doubtful.

Credit card and dealer finance loans are classified as performing or nonperforming. A loan is nonperforming when payments of principal and interest are past due 90 days or more.

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5. Employee Benefit Plan

6 Months Ended

Jun. 30, 2018

Employee Benefit Plan

5. Employee Benefit Plan

The Bank has a qualified noncontributory defined benefit pension plan which covers substantially all of its full-time employees hired before April 1, 2012. The benefits are primarily based on years of service and earnings. The Company uses December 31^st as the measurement date for the defined benefit pension plan. The Bank does not expect to contribute to the pension plan in 2018.

On January 1, 2018 the Company adopted ASU No. 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” Under the new guidance, employers are required to present the service cost component of the net periodic benefit cost in the same income statement line item (e.g., Salaries and Employee benefits) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components of net periodic benefit cost separately (e.g., Other Noninterest Expense) from the line item that includes the service cost.  The Company adopted ASU No. 2017-07 on January 1, 2018 and re-classified non-servicing components of net periodic pension cost from compensation expense to other noninterest expense. ASU No. 2017-07 did not have a material impact on the Company’s Consolidated Financial Statements.

The following is a summary of net periodic pension costs for the three and six month periods ended June 30, 2018 and 2017:

	Six Months Ended						Three Months Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Service cost	$	384		$	348		$	192		$	174
Interest cost		248			244			124			122
Expected return on plan assets		(462	)		(426	)		(231	)		(213	)
Amortization of prior service cost		(8	)		(8	)		(4	)		(4	)
Amortization of net loss		152			142			76			71
Net periodic pension cost	$	314		$	300		$	157		$	150

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6. Fair Value

6 Months Ended

Jun. 30, 2018

Fair Value Abstract

6. Fair Value

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.

Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Accounting guidance for fair value excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations are involved to determine the fair value of financial assets in markets that are not active.

The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities

Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Derivatives

The Company’s derivatives are recorded at fair value based on third party vendor supplied information using discounted cash flow analysis from observable-market based inputs, which are considered Level 2 inputs.

The following tables present the balances of financial assets measured at fair value on a recurring basis as of June 30, 2018 and December 31, 2017 (dollars in thousands):

June 30, 2018	Total		Level 1		Level 2		Level 3
U.S. Government sponsored enterprises	$	7,816	$	-	$	7,816	$	-
Mortgage-backed obligations of federal agencies		447		-		447		-
Total securities available for sale	$	8,263	$	-	$	8,263	$	-

December 31, 2017	Total		Level 1		Level 2		Level 3
U. S. Treasuries	$	19,998	$	19,998	$	-	$	-
U.S. Government sponsored enterprises		7,980		-		7,980		-
Mortgage-backed obligations of federal agencies		502		-		502		-
Equity securities1		135		-		135		-
Total securities available for sale	$	28,615	$	19,998	$	8,617	$	-

1 Transferred to other investments on January 1, 2018 upon adoption of ASU 2016-01

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:

Loans Held for Sale

Loans held for sale are short-term loans purchased at par for resale to investors at the par value of the loan and loans originated by F&M Mortgage for sale in the secondary market. Loan participations are generally repurchased within 15 days.  Loans originated for sale by F&M Mortgage are recorded at lower of cost or market. No market adjustments were required at June 30, 2018 or December 31, 2017; therefore, loans held for sale were carried at cost. Because of the short-term nature and fixed repurchase price, the book value of these loans approximate fair value at June 30, 2018 and December 31, 2017.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Troubled debt restructurings are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure.

Loans measured using the fair value of collateral method are categorized in Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate. The Company bases collateral method fair valuation upon the “as-is” value of independent appraisals or evaluations.

The value of real estate collateral is determined by an independent appraisal utilizing an income or market valuation approach.  Appraisals conducted by an independent, licensed appraiser outside of the Company as observable market data is categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 3) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

As of June 30, 2018 and December 31, 2017, the fair value measurements for impaired loans with specific allocations were primarily based upon the fair value of the collateral.

The following table summarizes the Company’s financial assets that were measured at fair value on a nonrecurring basis during the period (dollars in thousands):

June 30, 2018	Total		Level 1		Level 2		Level 3
Construction/Land Development	$	5,309	$	-	$	-	$	5,309
Real Estate		103		-		-		103
Commercial Real Estate		4,312		-		-		4,312
Consumer		9		-		-		9
Dealer Finance		222		-		-		222
Impaired loans	$	9,955	$	-	$	-	$	9,955

December 31, 2017	Total		Level 1		Level 2		Level 3
Construction/Land Development	$	3,337	$	-		-	$	3,337
Real Estate		979		-		-		979
Dealer Finance		35		-		-		35
Impaired loans	$	4,351	$	-	$	-	$	4,351

The following table presents information about Level 3 Fair Value Measurements for June 30, 2018: 

(dollars in thousands)	Fair Value at June 30, 2018	Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$ 9,995	Discounted appraised value	Discount for selling costs and marketability	2%-19% (Average 4.9%)

The following table presents information about Level 3 Fair Value Measurements for December 31, 2017:

(dollars in thousands)	Fair Value at December 31, 2017	Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$ 4,351	Discounted appraised value	Discount for selling costs and marketability	3%-19% (Average 5.5%)

Other Real Estate Owned

Certain assets such as other real estate owned (OREO) are measured at fair value less cost to sell. Valuation of other real estate owned is determined using current appraisals from independent parties, a level two input. If current appraisals cannot be obtained prior to reporting dates, or if declines in value are identified after a recent appraisal is received, appraisal values are discounted, resulting in Level 3 estimates. If the Company markets the property with a realtor, estimated selling costs reduce the fair value, resulting in a valuation based on Level 3 inputs.

The Company markets other real estate owned both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

The following table summarizes the Company’s other real estate owned that were measured at fair value on a nonrecurring basis as of June 30, 2018 and December 31, 2017 (dollars in thousands).

June 30, 2018	Total		Level 1		Level 2		Level 3
Other real estate owned	$	2,034		-		-	$	2,034

December 31, 2017	Total		Level 1		Level 2		Level 3
Other real estate owned	$	1,984		-		-	$	1,984

The following table presents information about Level 3 Fair Value Measurements for June 30, 2018: 

(dollars in thousands)	Fair Value at June 30, 2018	Valuation Technique	Significant Unobservable Inputs	Range
Other real estate owned	$ 2,034	Discounted appraised value	Discount for selling costs	2.5%-10% (Average 4%)

The following table presents information about Level 3 Fair Value Measurements for December 31, 2017: 

	Fair Value at December 31, 2017	Valuation Technique	Significant Unobservable Inputs	Range
(dollars in thousands)
Other real estate owned	$ 1,984	Discounted appraised value	Discount for selling costs	5%-15% (Average 8%)

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7. Disclosures About Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2018

Disclosures About Fair Value Of Financial Instruments

7. Disclosures About Fair Value of Financial Instruments

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of June 30, 2018 and December 31, 2017. For short-term financial assets such as cash and cash equivalents and short-term liabilities, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as noninterest bearing demand, interest bearing demand and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity. Fair values for June 30, 2018 are estimated under the exit price notion in accordance with the prospective adoption of ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” Fair values for December 31, 2017 are estimated under the guidance in effect for that period, which did not require use of the exit price notion.

The estimated fair values, and related carrying amounts (dollars in thousands), of the Company’s financial instruments are as follows:

			Fair Value Measurements at June 30, 2018 Using
(dollars in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at June 30, 2018
Assets:
Cash and cash equivalents	$	13,364	$	13,364	$	-	$	-	$	13,364
Securities		8,385		-		8,385		-		8,385
Loans held for sale		49,821		-		49,821		-		49,821
Loans held for investment, net		627,017		-		-		615,424		615,424
Interest receivable		1,983		-		1,983		-		1,983
Bank owned life insurance		19,166		-		19,166		-		19,166
Total	$	719,736	$	13,364	$	79,355	$	615,424	$	708,143
Liabilities:
Deposits	$	568,566	$	-	$	406,830	$	163,871	$	570,701
Short-term debt		46,000		-		46,000		-		46,000
Long-term debt		47,434		-		-		47,524		47,524
Interest payable		267		-		267		-		267
Total	$	662,267	$	-	$	453,097	$	211,395	$	664,492

			Fair Value Measurements at December 31, 2017 Using
(dollars in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at December 31, 2017
Assets:
Cash and cash equivalents	$	11,907	$	11,907	$	-	$	-	$	11,907
Securities		28,740		19,998		8,742		-		28,740
Loans held for sale		39,775		-		39,775		-		39,775
Loans held for investment, net		610,930		-		-		646,703		646,703
Interest receivable		2,007		-		2,007		-		2,007
Bank owned life insurance		13,950		-		13,950		-		13,950
Total	$	707,309	$	31,905	$	64,474	$	646,703	$	743,082
Liabilities:
Deposits	$	569,177	$	-	$	403,907	$	167,210	$	571,117
Short-term debt		25,296		-		25,296		-		25,296
Long-term debt		49,733		-		-		49,869		49, 869
Interest payable		260		-		260		-		260
Total	$	644,466	$	-	$	429,463	$	217,079	$	646,542

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8. Troubled Debt Restructuring

6 Months Ended

Jun. 30, 2018

Troubled Debt Restructuring Abstract

8. Troubled Debt Restructuring

In the determination of the allowance for loan losses, management considers troubled debt restructurings and subsequent defaults in these restructurings by adjusting the loan grades of such loans, which are considered in the qualitative factors within the allowance. Defaults resulting in charge-offs affect the historical loss experience ratios which are a component of the allowance for loan loss methodology. Additionally, specific reserves may be established on restructured loans which are evaluated individually for impairment.

During the six months ended June 30, 2018, there were sixteen loan modifications that were considered to be troubled debt restructurings. Six of these loans were modified during the three months ended June 30, 2018 and ten loan modifications that would be considered a troubled debt restructuring were modified during the first quarter of 2018. Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.

	June 30, 2018
			Pre-Modification		Post-Modification
(dollars in thousands)			Outstanding		Outstanding
Troubled Debt Restructurings	Number of Contracts		Recorded Investment		Recorded Investment
Commercial Real Estate		1	$	1,002	$	1,002
Real Estate		2		1,255		1,255
Consumer		13		196		196
Total		16	$	2,453	$	2,453

At June 30, 2018, there were no loans restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.

During the six months ended June 30, 2017, there was one loan modification that was considered to be a troubled debt restructuring. This loan was modified during the three months ended June 30, 2017, there were no loan modifications that would be considered a troubled debt restructuring during the second quarter of 2017.

	Six Months ended June 30, 2017
			Pre-Modification		Post-Modification
(dollars in thousands)			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Consumer		1	$	20	$	20
Total		1	$	20	$	20

At June 30, 2017, there was one loan restructured in the previous 12 months in default or on nonaccrual status. A restructured loan is considered in default when it becomes 90 days past due.

	June 30, 2017
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Real Estate		1	$	67	$	67
Total		1	$	67	$	67

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9. Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2018

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

The balances in accumulated other comprehensive loss are shown in the following tables for June 30, 2018 and 2017:

(dollars in thousands)	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2017	$	(20	)	$	(4,122	)	$	(4,142	)
Change in unrealized securities gains (losses), net of tax		(133	)		-			(133	)
Change in unfunded pension liability, net of tax		-			-			-
Balance at June 30, 2018	$	(153	)	$	(4,122	)	$	(4,275	)

(dollars in thousands)	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2016	$	6		$	(3,171	)	$	(3,165	)
Change in unrealized securities gains (losses), net of tax		(1	)		-			(1	)
Change in unfunded pension liability, net of tax		-			-			-
Balance at June 30, 2017	$	5		$	(3,171	)	$	(3,166	)

There were no reclassifications adjustments reported on the consolidated statements of income during the three or six months ended June 30, 2018 or 2017.

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10. Business Segments

6 Months Ended

Jun. 30, 2018

Business Segments

Business Segments

The Company utilizes its subsidiaries to provide multiple business segments including retail banking, mortgage banking, title insurance services, investment services and credit life and accident and health insurance products related to lending. Revenues from retail banking operations consist primarily of interest earned on loans and investment securities and service charges on deposit accounts. Mortgage banking operating revenues consist principally of gains on sales of loans in the secondary market, loan origination fee income and interest earned on mortgage loans held for sale. Revenues from title insurance services, investment services and insurance products consist of commissions on products provided.

The following tables represent revenues and expenses by segment for the three and six months ended June 30, 2018 and June 30, 2017.

	Six Months Ended June 30, 2018
	F&M Bank		F&M Mortgage		TEB Life/FMFS		VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	17,620	$	71	$	71	$	-	$	-		$	(57	)	$	17,705
Service charges on deposits		724		-		-		-		-			-			724
Investment services and insurance income		-		-		431		-		-			(11	)		420
Mortgage banking income, net		-		1,135		-		-		-			-			1,135
Title insurance income		-		109		-		453		-			-			562
Gain on prepayment of long-term debt		-		-		-		-		-			-			-
Loss on investments		-		-		-		-		-			-			-
Other operating income		843		48		-		-		-			-			891
Total income		19,187		1,363		502		453		-			(68	)		21,437
Expenses:
Interest Expense		2,097		54		-		-		-			(57	)		2,094
Provision for loan losses		2,030		-		-		-		-			-			2,030
Salary and benefit expense		6,564		831		283		345		-			-			8,023
Other operating expenses		4,496		456		28		89		29			(11	)		5,087
Total expense		15,187		1,341		311		434		29			(68	)		17,234
Net income (loss) before taxes		4,000		22		191		19		(29	)		-			4,203
Income tax expense		284		-		36		-		218			-			538
Net income (loss)	$	3,716	$	22	$	155	$	19	$	(247	)	$	-		$	3,665
Net income attributable to non-controlling interest		-		5		-		-		-			-			5
Net Income attributable to F & M Bank Corp.	$	3,716	$	17	$	155	$	19	$	(247	)	$	-		$	3,660
Total Assets	$	772,244	$	8,332	$	6,910	$	707	$	91,480		$	(109,005	)	$	770,668
Goodwill	$	2,670	$	65	$	-	$	57	$	164		$	-		$	2,956

	Three months ended June 30, 2018
	F&M Bank		F&M Mortgage		TEB Life/FMFS		VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	8,916	$	42	$	36	$	-	$	-		$	(32	)	$	8,962
Service charges on deposits		358		-		-		-		-			-			358
Investment services and insurance income		-		-		228		-		-			(5	)		223
Mortgage banking income, net		-		615		-		-		-			-			615
Title insurance income		-		47		-		259		-			-			306
Gain on prepayment of long-term debt		-		-		-		-		-			-			-
Loss on investments		-		-		-		-		-			-			-
Other operating income		450		47		-		-		-			-			497
Total income		9,724		751		264		259		-			(37	)		10,961
Expenses:
Interest Expense		1,116		31		-		-		-			(32	)		1,115
Provision for loan losses		1,350		-		-		-		-			-			1,350
Salary and benefit expense		3,268		416		137		179		-			-			4,000
Other operating expenses		2,317		246		18		42		15			(5	)		2,633
Total expense		8,051		693		155		221		15			(37	)		9,098
Net income (loss) before taxes		1,673		58		109		38		(15	)		-			1,863
Income tax expense		144		-		21		-		(6	)		-			159
Net income (loss)	$	1,529	$	58	$	88	$	38	$	(9	)	$	-		$	1,704
Net income attributable to non-controlling interest		-		16		-		-		-			-			16
Net Income attributable to F & M Bank Corp.	$	1,529	$	42	$	88	$	38	$	(9	)	$	-		$	1,688

	Six Months Ended June 30, 2017
	F&M Bank		VBS Mortgage			TEB Life/FMFS			VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	16,171	$	65		$	75		$	-	$	-		$	(45	)	$	16,266
Service charges on deposits		651		-			-			-		-			-			651
Investment services and insurance income		1		-			360			-		-			-			361
Mortgage banking income, net		-		1,113			-			-		-			-			1,113
Title insurance income		-		-			-			554		-			-			554
Gain on prepayment of long-term debt		504		-			-			-		-			-			504
Loss on investments		-		(40	)		(2	)		-		-			-			(42	)
Other operating income		787		-			-			-		-			-			787
Total income		18,114		1,138			433			554		-			(45	)		20,194
Expenses:
Interest Expense		1,834		42			-			-		-			(45	)		1,831
Provision for loan losses		-		-			-			-		-			-			-
Salary expense		5,977		616			234			340		-			-			7,167
Other operating expenses		4,220		470			17			94		4			-			4,805
Total expense		12,031		1,128			251			434		4			(45	)		13,803
Net income (loss) before taxes		6,083		10			182			120		(4	)		-			6,391
Income tax expense		1,669		-			53			-		(36	)		-			1,686
Net income (loss)	$	4,414	$	10		$	129		$	120	$	32		$	-		$	4,705
Net income attributable to non-controlling interest		-		3			-			29		-			-			32
Net Income attributable to F & M Bank Corp.	$	4,414	$	7		$	129		$	91	$	32		$	-		$	4,673
Total Assets	$	746,193	$	6,027		$	6,630		$	274	$	89,909		$	(104,770	)	$	744,263
Goodwill	$	2,670	$	-		$	-		$	-	$	304		$	-		$	2,974

	Three Months Ended June 30, 2017
	F&M Bank		VBS Mortgage		TEB Life/FMFS		VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	8,210	$	30	$	38	$	-	$	-		$	(22	)	$	8,256
Service charges on deposits		335		-		-		-		-			-			335
Investment services and insurance income		-		-		187		-		-			-			187
Mortgage banking income, net		-		613		-		-		-			-			613
Title insurance income		-		-		-		355		-			-			355
Gain on prepayment of long-term debt		-		-		-		-		-			-			-
Loss on investments		-		-		-		-		-			-			-
Other operating income		392		-		-		-		-			-			392
Total income		8,937		643		225		355		-			(22	)		10,138
Expenses:
Interest Expense		927		20		-		-		-			(22	)		925
Provision for loan losses		-		-		-		-		-			-			-
Salary and benefit expense		2,968		211		119		182		-			-			3,480
Other operating expenses		2,160		320		13		43		1			-			2,537
Total expense		6,055		551		132		225		1			(22	)		6,942
Net income (loss) before taxes		2,882		92		93		130		(1	)		-			3,196
Income tax expense		801		-		26		-		(18	)		-			809
Net income (loss)	$	2,081	$	92	$	67	$	130	$	17		$	-		$	2,387
Net income attributable to non-controlling interest		-		28		-		31		-			-			59
Net Income attributable to F & M Bank Corp.	$	2,081	$	64	$	67	$	99	$	17		$	-		$	2,328

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11. Debt

6 Months Ended

Jun. 30, 2018

Debt

Debt

Short-term Debt

The Company utilizes short-term debt such as Federal funds purchased and Federal Home Loan Bank of Atlanta (FHLB) short term borrowings to support the loans held for sale participation program and 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 need of the Company. Short-term debt totaled $46 million at June 30, 2018 and has increased $20.7 million from $25.3 million at December 31, 2017 due to an increase in the loans held for sale as well as internal loan growth and a slight decline in deposits.

Long-term Debt

The Company utilizes the FHLB advance program to fund loan growth and provide liquidity. The interest rates on long-term debt are fixed at the time of the advance and range from 1.16% to 2.56%; the weighted average interest rate was 1.87% and 1.86% at June 30, 2018 and December 31, 2017, respectively. The balance of these obligations at June 30, 2018 and December 31, 2017 were $47,339 and $49,554 respectively. The Company recognized a gain of $504 on prepayment of two FHLB advances totaling $10,000 during the first quarter of 2017 and there were no additional borrowings in 2017 or 2018. FHLB advances include a $5 million line of credit at FHLB that is pledged to the Commonwealth of Virginia to secure public funds.

In addition, the Company has a note payable to purchase a lot adjacent to one of the Bank branches for $85 at June 30, 2018 that is payable in one annual payment on January 1, 2019. There was $170 outstanding on this note at December 31, 2017. VS Title, LLC has a note payable for vehicle purchases with a balance of $10 at June 30, 2018.

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12. Revenue Recognition

6 Months Ended

Jun. 30, 2018

Revenue Recognition [Abstract]

Revenue Recognition

On January 1, 2018, the Company adopted ASU No. 2014-09 “Revenue from Contracts with Customers” (Topic 606) and all subsequent ASUs that modified Topic 606. The implementation of the new standard did not have a material impact on the measurement or recognition of revenue; as such, a cumulative effect adjustment to opening retained earnings was not deemed necessary. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under Topic 605.

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain noninterest income streams such as fees associated with mortgage servicing rights, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees, merchant income, and annuity and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Noninterest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), overdraft fees, monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Investment Services and Insurance Income

Investment services and insurance income primarily consists of commissions received on mutual funds and other investment sales. Commissions from the sale of mutual funds and other investments are recognized on trade date, which is when the Company has satisfied its performance obligation.

Title Insurance Income

VSTitle provides title insurance and real estate settlement services. Revenue is recognized at the time the real estate transaction is completed.

ATM and Check Card Fees

ATM and Check Card Fees are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees.

Other

Other noninterest income consists of other recurring revenue streams such as safe deposit box rental fees, and other service charges. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. The Company determined that since rentals and renewals occur fairly consistently over time, revenue is recognized on a basis consistent with the duration of the performance obligation.

Other service charges include revenue from processing wire transfers, online payment fees, cashier’s checks, mobile banking fees and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30, 2018 and 2017. Noninterest income out-of-scope of Topic 606 in 2017 included onetime gains on prepayment of debt of $504.

	Six Months Ended June 30,				Three Months Ended June 30,
	2018		2017		2018		2017
Noninterest Income (in thousands)
In-scope of Topic 606:
Service Charges on Deposits	$	724	$	651	$	358	$	335
Investment Services and Insurance Income		420		361		223		187
Title Insurance Income		562		554		306		355
ATM and check card fees		735		681		388		351
Other		250		240		134		118
Noninterest Income (in-scope of Topic 606)		2,691		2,487		1,409		1,348
Noninterest Income (out-of-scope of Topic 606)		1,041		1,441		590		536
Total Noninterest Income	$	3,732	$	3,928	$	1,999	$	1,882

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of June 30, 2018 and December 31, 2017, the Company did not have any significant contract balances.

Contract Acquisition Costs

In connection with the adoption of Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. Upon adoption of Topic 606, the Company did not capitalize any contract acquisition cost.

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1. Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Principles Policies Abstract

Principles of Consolidation

The accompanying unaudited consolidated financial statements including the accounts of Farmers & Merchants Bank, TEB Life Insurance Company, Farmers & Merchants Financial Services, Inc., VBS Mortgage, LLC (dba F&M Mortgage), (net of non-controlling interest) and VSTitle, LLC and in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the information and footnotes required by U. S. GAAP for complete financial statements. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (the “2017 Form 10-K”).

The accompanying unaudited consolidated financial statements include the accounts of the Company, the Bank and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of Operations

The Company, through its subsidiary Farmers & Merchants Bank (the “Bank”), operates under a charter issued by the Commonwealth of Virginia and provides commercial banking services. As a state chartered bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions and the Federal Reserve Bank. The Bank provides services to customers primarily located in Rockingham, Shenandoah, Page and Augusta Counties in Virginia. Services are provided at thirteen branch offices and a Dealer Finance Division. The Company offers insurance, mortgage lending, title insurance and financial services through its subsidiaries, TEB Life Insurance, Inc., Farmers & Merchants Financial Services, Inc. (FMFS), F&M Mortgage, and VSTitle, LLC (VST). The Company purchased VSTitle, a title company headquartered in Harrisonburg, VA with offices in Harrisonburg, Fishersville and Charlottesville, VA on January 1, 2017.

Basis of Presentation

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, goodwill and intangibles, fair value, the valuation of deferred tax assets and liabilities, pension accounting and the valuation of foreclosed real estate. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for fair presentation of the results of operations in these financial statements, have been made.

Reclassification

Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income.

Earnings per Share

Accounting guidance specifies the computation, presentation and disclosure requirements for earnings per share (“EPS”) for entities with publicly held common stock or potential common stock such as options, warrants, convertible securities or contingent stock agreements if those securities trade in a public market. Basic EPS is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding.  In calculating diluted EPS net income available to common stockholders is used as the numerator and the denominator is increased to include the number of additional common shares that would have been outstanding if the dilutive common shares had been issued.  The dilutive effect of conversion of preferred stock is reflected in the diluted earnings per share calculation.

Net income available to common stockholders represents consolidated net income adjusted for preferred dividends declared.

The following table provides a reconciliation of net income to net income available to common stockholders for the periods presented:  

(dollars in thousands)	For the Six months ended		For the Three months ended		For the Six months ended		For the Three months ended
	June 30, 2018		June 30, 2018		June 30, 2017		June 30, 2017
Earnings available to common stockholders:
Net income	$	3,665	$	1,704	$	4,705	$	2,387
Non-controlling interest income		5		16		32		59
Preferred stock dividends		207		104		209		105
Net income available to common stockholders	$	3,453	$	1,584	$	4,464	$	2,223

The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated:

	Six months ended June 30, 2018							Six months ended June 30, 2017
	Income		Weighted Average Shares		Per Share Amounts			Income		Weighted Average Shares		Per Share Amounts
Basic EPS	$	3,453		3,253,007	$	1.06		$	4,464		3,272,318	$	1.36
Effect of Dilutive Securities:
Convertible Preferred Stock		207		359,594		(.05	)		209		363,681		(0.07	)
Diluted EPS	$	3,660		3,612,601	$	1.01		$	4,673		3,635,999	$	1.29

	Three months ended June 30, 2018							Three months ended June 30, 2017
	Income		Weighted Average Shares		Per Share Amounts			Income		Weighted Average Shares		Per Share Amounts
Basic EPS	$	1,584		3,250,749	$	.49		$	2,223		3,273,352	$	.68
Effect of Dilutive Securities:
Convertible Preferred Stock		104		359,063		(.02	)		105		363,678		(0.04	)
Diluted EPS	$	1,688		3,609,812	$	.47		$	2,328		3,637,030	$	.64

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1. Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2018

Accounting Principles Tables Abstract

Schedule of earnings per share

(dollars in thousands)	For the Six months ended		For the Three months ended		For the Six months ended		For the Three months ended
	June 30, 2018		June 30, 2018		June 30, 2017		June 30, 2017
Earnings available to common stockholders:
Net income	$	3,665	$	1,704	$	4,705	$	2,387
Non-controlling interest income		5		16		32		59
Preferred stock dividends		207		104		209		105
Net income available to common stockholders	$	3,453	$	1,584	$	4,464	$	2,223

	Six months ended June 30, 2018							Six months ended June 30, 2017
	Income		Weighted Average Shares		Per Share Amounts			Income		Weighted Average Shares		Per Share Amounts
Basic EPS	$	3,453		3,253,007	$	1.06		$	4,464		3,272,318	$	1.36
Effect of Dilutive Securities:
Convertible Preferred Stock		207		359,594		(.05	)		209		363,681		(0.07	)
Diluted EPS	$	3,660		3,612,601	$	1.01		$	4,673		3,635,999	$	1.29

	Three months ended June 30, 2018							Three months ended June 30, 2017
	Income		Weighted Average Shares		Per Share Amounts			Income		Weighted Average Shares		Per Share Amounts
Basic EPS	$	1,584		3,250,749	$	.49		$	2,223		3,273,352	$	.68
Effect of Dilutive Securities:
Convertible Preferred Stock		104		359,063		(.02	)		105		363,678		(0.04	)
Diluted EPS	$	1,688		3,609,812	$	.47		$	2,328		3,637,030	$	.64

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2. Investment Securities (Tables)

6 Months Ended

Jun. 30, 2018

Investment Securities Tables Abstract

Schedule of amortized cost and fair value for securities

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
June 30, 2018
U. S. Treasuries	$	122	$	-	$	-	$	122
December 31, 2017
U. S. Treasuries	$	125	$	-	$	-	$	125

Amortized cost and fair value of securities

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2018
U. S. Government sponsored enterprises	$	7,999	$	-	$	183	$	7,816
Mortgage-backed obligations of federal agencies		457		-		10		447
Total Securities Available for Sale	$	8,456	$	-	$	193	$	8,263
December 31, 2017
U. S. Treasuries	$	19,998	$	-	$	-	$	19,998
U.S. Government sponsored enterprises		7,999		-		19		7,980
Mortgage-backed obligations of federal agencies		508		-		6		502
Equity securities1		135		-		-		135
Total Securities Available for Sale	$	28,640	$	-	$	25	$	28,615

1 Transferred to other investments on January 1, 2018 upon adoption of ASU 2016-01

Schedule of gain and losses on sales of debt and equity securities

	Securities Held to Maturity				Securities Available for Sale
	Amortized		Fair		Amortized		Fair
(dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	-	$	-	$	-	$	-
Due after one year through five years		122		122		7,999		7,816
Due after five years		-		-		457		447
Due after ten years		-		-		-		-
Total	$	122	$	122	$	8,456	$	8,263

Schedule of securities with unrealized losses

	Less than 12 Months					More than 12 Months				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2018
U. S. Government sponsored enterprises	$	7,816	$	(183	)	$	-	$	-	$	7,816	$	(183	)
Mortgage-backed obligations of federal agencies		447		(10	)		-		-		447		(10	)
Total	$	8,263	$	(193	)	$	-	$	-	$	8,263	$	(193	)

	Less than 12 Months					More than 12 Months				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2017
U. S. Government sponsored enterprises	$	3,981	$	(19	)	$	-	$	-	$	3,981	$	(19	)
Mortgage-backed obligations of federal agencies		502		(6	)		-		-		502		(6	)
Total	$	4,483	$	(25	)	$	-	$	-	$	4,483	$	(25	)

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3. Loans (Tables)

6 Months Ended

Jun. 30, 2018

Loans Held For Investment Tables Abstract

Schedule of loans outstanding

(dollars in thousands)	2018		2017
Construction/Land Development	$	67,079	$	71,620
Farmland		16,500		13,606
Real Estate		184,674		184,546
Multi-Family		9,829		10,298
Commercial Real Estate		156,041		148,906
Home Equity – closed end		10,742		11,606
Home Equity – open end		55,837		54,739
Commercial & Industrial – Non-Real Estate		41,275		36,912
Consumer		5,216		6,633
Dealer Finance		83,962		75,169
Credit Cards		2,967		2,939
Total	$	634,122	$	616,974

Schedule impaired loans

	June 30, 2018						December 31, 2017
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans without a valuation allowance:
Construction/Land Development	$	4,478	$	4,478	$	-	$	4,352	$	5,269	$	-
Farmland		1,984		1,984		-		1,984		1,984		-
Real Estate		1,688		1,688		-		1,273		1,273		-
Multi-Family		-		-		-		-		-		-
Commercial Real Estate		291		291		-		6,229		6,229		-
Home Equity – closed end		-		-		-		-		-		-
Home Equity – open end		-		-		-		-		347		-
Commercial & Industrial – Non-Real Estate		-		-		-		-		-		-
Consumer		-		-		-		8		8		-
Credit cards		-		-		-		-		-		-
Dealer Finance		33		33		-		31		31		-
		8,474		8,474		-		13,877		15,141		-
Impaired loans with a valuation allowance
Construction/Land Development		7,463		8,023		2,154		4,998		4,998		1,661
Farmland		-		-				-		-		-
Real Estate		110		110		7		1,188		1,188		209
Multi-Family		-		-				-		-		-
Commercial Real Estate		5,898		5,898		1,586		-		-		-
Home Equity – closed end		-		-				-		-		-
Home Equity – open end		-		-				-		-		-
Commercial & Industrial – Non-Real Estate		-		-				-		-		-
Consumer		11		11		2		-		-		-
Credit cards		-		-				-		-		-
Dealer Finance		229		229		7		47		47		12
		13,711		14,271		3,756		6,233		6,233		1,882
Total impaired loans	$	22,185	$	22,745	$	3,756	$	20,110	$	21,374	$	1,882

	Three Months Ended June 30,									Six Months Ended June 30,
	2018					2017				2018				2017
	Average Recorded		Interest Income			Average Recorded		Interest Income		Average Recorded		Interest Income		Average Recorded		Interest Income
	Investment		Recognized			Investment		Recognized		Investment		Recognized		Investment		Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$	4,759	$	45		$	4,734	$	47	$	4,929	$	79	$	4,374	$	50
Farmland		1,984		62			1,858		-		1,984		62		1,239		-
Real Estate		837		(6	)		750		14		982		11		756		17
Multi-Family		-		-			-		-		-		-		-		-
Commercial Real Estate		797		4			100		2		2,608		9		719		3
Home Equity – closed end		-		-			-		-		-		-		-		-
Home Equity – open end		-		-			347		6		116		-		347		-
Commercial & Industrial – Non-Real Estate		-		-			166		-		-		-		167		6
Consumer and credit cards		-		-			11		-		3		-		12		-
Dealer Finance		33		-			20		1		32		1		13		1
		8,410		105			7,986		70		10,654		162		7,627		77
Impaired loans with a valuation allowance:
Construction/Land Development	$	7,417	$	64		$	6,512	$	97	$	6,610	$	98	$	6,539	$	140
Farmland		-		-			-		-		-		-		-		-
Real Estate		1,283		9			1,199		31		1,251		27		1,201		31
Multi-Family		-		-			-		-		-		-		-		-
Commercial Real Estate		5,407		73			-		-		3,605		141		317		-
Home Equity – closed end		-		-			-		-		-		-		-		-
Home Equity – open end		-		-			-		-		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-			-		-		-		-		-		-
Consumer and credit card		12		-			-		-		8		1		-		-
Dealer Finance		198		4			65		-		148		8		72		1
		14,317		150			7,776		128		11,622		275		8,129		172
Total Impaired Loans	$	22,727	$	255		$	15,762	$	198	$	22,276	$	437	$	15,756	$	249

Schedule of recorded investment

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loan Receivable		Non-Accrual Loans		Recorded Investment >90 days & accruing
June 30, 2018
Construction/Land Development	$	1,465	$	52	$	5,367	$	6,884	$	60,195	$	67,079	$	5,927	$	-
Farmland		-		-		-		-		16,500		16,500		-		-
Real Estate		1,772		1,215		1,496		4,483		180,191		184,674		1,345		899
Multi-Family		174		-		-		174		9,655		9,829		-		-
Commercial Real Estate		4,153		4,895		218		9,266		146,775		156,041		6,460		-
Home Equity – closed end		-		15		-		15		10,727		10,742		-		-
Home Equity – open end		539		258		158		955		54,882		55,837		133		26
Commercial & Industrial – Non- Real Estate		201		150		-		351		40,924		41,275		-		-
Consumer		117		15		10		142		5,074		5,216		-		10
Dealer Finance		1,066		262		93		1,421		82,541		83,962		161		-
Credit Cards		30		5		16		51		2,916		2,967		-		16
Total	$	9,517	$	6,867	$	7,358	$	23,742	$	610,380	$	634,122	$	14,026	$	951

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days		Total Past Due		Current		Total Loan Receivable		Non-Accrual Loans		Recorded Investment >90 days & accruing
December 31, 2017
Construction/Land Development	$	167	$	5,459	$	3,908	$	9,534	$	62,086	$	71,620	$	3,908	$	-
Farmland		-		-		-		-		13,606		13,606		-		-
Real Estate		2,858		1,954		560		5,372		179,174		184,546		1,720		143
Multi-Family		179		-		-		179		10,119		10,298		-		-
Commercial Real Estate		544		-		-		544		148,362		148,906		-		-
Home Equity – closed end		-		25		-		25		11,581		11,606		3		-
Home Equity – open end		454		165		268		887		53,852		54,739		448		-
Commercial & Industrial – Non- Real Estate		108		36		595		739		36,173		36,912		599		-
Consumer		43		5		-		48		6,585		6,633		-		-
Dealer Finance		1,300		252		189		1,741		73,428		75,169		226		54
Credit Cards		30		8		1		39		2,900		2,939		-		1
Total	$	5,683	$	7,904	$	5,521	$	19,108	$	597,866	$	616,974	$	6,904	$	198

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4. Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2018

Allowance For Loan Losses Tables Abstract

Summary loan loss allowance transactions

June 30, 2018	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	2,547	$	47	$	122	$	167		$	2,789	$	2,154	$	635
Farmland		25		-		-		-			25		-		25
Real Estate		719		53		12		(261	)		417		7		410
Multi-Family		19		-		-		(2	)		17		-		17
Commercial Real Estate		482		-		1		1,366			1,849		1,586		263
Home Equity – closed end		66		3		3		(17	)		49		-		49
Home Equity – open end		209		-		3		(42	)		170		-		170
Commercial & Industrial – Non-Real Estate		337		544		57		425			275		-		275
Consumer		148		13		5		(75	)		65		2		63
Dealer Finance		1,440		1,036		528		471			1,403		7		1,396
Credit Cards		52		21		17		(2	)		46		-		46
Total	$	6,044	$	1,717	$	748	$	2,030		$	7,105	$	3,756	$	3,349

December 31, 2017	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	3,381	$	620	$	-	$	(214	)	$	2,547	$	1,661	$	886
Farmland		34		-		-		(9	)		25		-		25
Real Estate		843		-		2		(126	)		719		209		510
Multi-Family		23		-		-		(6	)		19		-		19
Commercial Real Estate		705		-		13		(236	)		482		-		482
Home Equity – closed end		75		7		25		(27	)		66		-		66
Home Equity – open end		470		26		53		(288	)		209		-		209
Commercial & Industrial – Non-Real Estate		586		179		72		(142	)		337		-		337
Consumer		78		136		28		178			148		-		148
Dealer Finance		1,289		1,806		1,143		814			1,440		12		1,428
Credit Cards		59		98		37		54			52		-		52
Total	$	7,543	$	2,872	$	1,373	$	-		$	6,044	$	1,882	$	4,162

Schedule of recorded investment in loan receivables

June 30, 2018	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	67,079	$	11,941	$	55,138
Farmland		16,500		1,984		14,516
Real Estate		184,674		1,798		182,876
Multi-Family		9,829		-		9,829
Commercial Real Estate		156,041		6,189		149,853
Home Equity – closed end		10,742		-		10,742
Home Equity –open end		55,837		-		55,837
Commercial & Industrial – Non-Real Estate		41,275		-		41,275
Consumer		5,216		11		5,205
Dealer Finance		83,962		262		83,699
Credit Cards		2,967		-		2,967
Total	$	634,122	$	22,185	$	611,937

December 31, 2017	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	71,620	$	9,350	$	62,270
Farmland		13,606		1,984		11,622
Real Estate		184,546		2,461		182,085
Multi-Family		10,298		-		10,298
Commercial Real Estate		148,906		6,229		142,677
Home Equity – closed end		11,606		-		11,606
Home Equity –open end		54,739		-		54,739
Commercial & Industrial – Non-Real Estate		36,912		-		36,912
Consumer		6,633		8		6,625
Dealer Finance		75,169		78		75,091
Credit Cards		2,939		-		2,939
Total	$	616,974	$	20,110	$	596,864

Schedule of loan portfolio by internal loan grade

June 30, 2018	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	1,657	$	15,517	$	32,841	$	7,011	$	113	$	9,940	$	-	$	67,079
Farmland		62		-		4,410		5,806		3,744		494		1,984		-		16,500
Real Estate		-		1,603		53,790		100,205		21,918		2,573		4,585		-		184,674
Multi-Family		-		185		2,757		6,713		174		-		-		-		9,829
Commercial Real Estate		-		3,064		45,988		89,682		8,203		2,545		6,559		-		156,041
Home Equity – closed end		-		-		3,346		5,432		1,949		15		-		-		10,742
Home Equity – open end		223		1,910		19,897		29,687		3,618		307		195		-		55,837
Commercial & Industrial (Non-Real Estate)		229		1,532		18,386		18,078		2,451		535		64		-		41,275
Consumer (excluding dealer)		30		274		3,057		906		910		19		20		-		5,216
Total	$	544	$	10,225	$	167,148	$	289,350	$	49,978	$	6,601	$	23,347	$	-	$	547,193

	Credit Cards		Dealer Finance
Performing	$	2,951	$	83,801
Non-performing		16		161
Total	$	2,967	$	83,962

December 31, 2017	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	690	$	12,974	$	30,197	$	9,165	$	3,520	$	15,074	$	-	$	71,620
Farmland		63				3,153		4,120		3,793		494		1,983		-		13,606
Real Estate		-		1,512		53,764		101,606		19,734		4,660		3,270		-		184,546
Multi-Family		-		228		4,780		5,111		179		-		-		-		10,298
Commercial Real Estate		-		3,525		45,384		89,195		9,012		634		1,156		-		148,906
Home Equity – closed end		-		-		3,535		5,410		1,279		1,379		3		-		11,606
Home Equity – open end		235		1,598		17,383		30,888		3,945		176		514		-		54,739
Commercial & Industrial (Non-Real Estate)		262		1,595		13,297		19,442		1,480		207		629		-		36,912
Consumer (excluding dealer)		34		490		2,226		88		1,065		2,254		476		-		6,633
Total	$	594	$	9,638	$	156,496	$	286,057	$	49,652	$	13,324	$	23,105	$	-	$	538,866

	Credit Cards		Dealer Finance
Performing	$	2,938	$	75,116
Non-performing		1		53
Total	$	2,939	$	75,169

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5. Employee Benefit Plan (Tables)

6 Months Ended

Jun. 30, 2018

Employee Benefit Plan Tables Abstract

Schedule of employee benefit plan

	Six Months Ended						Three Months Ended
	June 30, 2018			June 30, 2017			June 30, 2018			June 30, 2017
Service cost	$	384		$	348		$	192		$	174
Interest cost		248			244			124			122
Expected return on plan assets		(462	)		(426	)		(231	)		(213	)
Amortization of prior service cost		(8	)		(8	)		(4	)		(4	)
Amortization of net loss		152			142			76			71
Net periodic pension cost	$	314		$	300		$	157		$	150

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6. Fair Value (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value

Schedule of assets and liabilities at fair value on recurring basis

June 30, 2018	Total		Level 1		Level 2		Level 3
U.S. Government sponsored enterprises	$	7,816	$	-	$	7,816	$	-
Mortgage-backed obligations of federal agencies		447		-		447		-
Total securities available for sale	$	8,263	$	-	$	8,263	$	-

December 31, 2017	Total		Level 1		Level 2		Level 3
U. S. Treasuries	$	19,998	$	19,998	$	-	$	-
U.S. Government sponsored enterprises		7,980		-		7,980		-
Mortgage-backed obligations of federal agencies		502		-		502		-
Equity securities1		135		-		135		-
Total securities available for sale	$	28,615	$	19,998	$	8,617	$	-

1 Transferred to other investments on January 1, 2018 upon adoption of ASU 2016-01

Schedule of assets and liabilities at fair value on non-recurring basis

June 30, 2018	Total		Level 1		Level 2		Level 3
Construction/Land Development	$	5,309	$	-	$	-	$	5,309
Real Estate		103		-		-		103
Commercial Real Estate		4,312		-		-		4,312
Consumer		9		-		-		9
Dealer Finance		222		-		-		222
Impaired loans	$	9,955	$	-	$	-	$	9,955

December 31, 2017	Total		Level 1		Level 2		Level 3
Construction/Land Development	$	3,337	$	-		-	$	3,337
Real Estate		979		-		-		979
Dealer Finance		35		-		-		35
Impaired loans	$	4,351	$	-	$	-	$	4,351

Schedule of fair value measurements

(dollars in thousands)	Fair Value at June 30, 2018	Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$ 9,995	Discounted appraised value	Discount for selling costs and marketability	2%-19% (Average 4.9%)

(dollars in thousands)	Fair Value at December 31, 2017	Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$ 4,351	Discounted appraised value	Discount for selling costs and marketability	3%-19% (Average 5.5%)

June 30, 2018	Total		Level 1		Level 2		Level 3
Other real estate owned	$	2,034		-		-	$	2,034

December 31, 2017	Total		Level 1		Level 2		Level 3
Other real estate owned	$	1,984		-		-	$	1,984

(dollars in thousands)	Fair Value at June 30, 2018	Valuation Technique	Significant Unobservable Inputs	Range
Other real estate owned	$ 2,034	Discounted appraised value	Discount for selling costs	2.5%-10% (Average 4%)

	Fair Value at December 31, 2017	Valuation Technique	Significant Unobservable Inputs	Range
(dollars in thousands)
Other real estate owned	$ 1,984	Discounted appraised value	Discount for selling costs	5%-15% (Average 8%)

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7. Disclosures About Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2018

Disclosures About Fair Value Of Financial Instruments Tables Abstract

Schedule of carrying value and estimated fair value for financial instruments

			Fair Value Measurements at June 30, 2018 Using
(dollars in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at June 30, 2018
Assets:
Cash and cash equivalents	$	13,364	$	13,364	$	-	$	-	$	13,364
Securities		8,385		-		8,385		-		8,385
Loans held for sale		49,821		-		49,821		-		49,821
Loans held for investment, net		627,017		-		-		615,424		615,424
Interest receivable		1,983		-		1,983		-		1,983
Bank owned life insurance		19,166		-		19,166		-		19,166
Total	$	719,736	$	13,364	$	79,355	$	615,424	$	708,143
Liabilities:
Deposits	$	568,566	$	-	$	406,830	$	163,871	$	570,701
Short-term debt		46,000		-		46,000		-		46,000
Long-term debt		47,434		-		-		47,524		47,524
Interest payable		267		-		267		-		267
Total	$	662,267	$	-	$	453,097	$	211,395	$	664,492

			Fair Value Measurements at December 31, 2017 Using
(dollars in thousands)	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at December 31, 2017
Assets:
Cash and cash equivalents	$	11,907	$	11,907	$	-	$	-	$	11,907
Securities		28,740		19,998		8,742		-		28,740
Loans held for sale		39,775		-		39,775		-		39,775
Loans held for investment, net		610,930		-		-		646,703		646,703
Interest receivable		2,007		-		2,007		-		2,007
Bank owned life insurance		13,950		-		13,950		-		13,950
Total	$	707,309	$	31,905	$	64,474	$	646,703	$	743,082
Liabilities:
Deposits	$	569,177	$	-	$	403,907	$	167,210	$	571,117
Short-term debt		25,296		-		25,296		-		25,296
Long-term debt		49,733		-		-		49,869		49, 869
Interest payable		260		-		260		-		260
Total	$	644,466	$	-	$	429,463	$	217,079	$	646,542

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8. Troubled Debt Restructuring (Tables)

6 Months Ended

Jun. 30, 2018

Troubled Debt Restructuring Abstract

Schedule of troubled debt restructuring

	June 30, 2018
			Pre-Modification		Post-Modification
(dollars in thousands)			Outstanding		Outstanding
Troubled Debt Restructurings	Number of Contracts		Recorded Investment		Recorded Investment
Commercial Real Estate		1	$	1,002	$	1,002
Real Estate		2		1,255		1,255
Consumer		13		196		196
Total		16	$	2,453	$	2,453

	Six Months ended June 30, 2017
			Pre-Modification		Post-Modification
(dollars in thousands)			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Consumer		1	$	20	$	20
Total		1	$	20	$	20

	June 30, 2017
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Real Estate		1	$	67	$	67
Total		1	$	67	$	67

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9. Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2018

Accumulated Other Comprehensive Loss

Schedule of accumulated other comprehensive loss

(dollars in thousands)	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2017	$	(20	)	$	(4,122	)	$	(4,142	)
Change in unrealized securities gains (losses), net of tax		(133	)		-			(133	)
Change in unfunded pension liability, net of tax		-			-			-
Balance at June 30, 2018	$	(153	)	$	(4,122	)	$	(4,275	)

(dollars in thousands)	Unrealized Securities Gains (Losses)			Adjustments Related to Pension Plan			Accumulated Other Comprehensive Loss
Balance at December 31, 2016	$	6		$	(3,171	)	$	(3,165	)
Change in unrealized securities gains (losses), net of tax		(1	)		-			(1	)
Change in unfunded pension liability, net of tax		-			-			-
Balance at June 30, 2017	$	5		$	(3,171	)	$	(3,166	)

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10. Business Segments (Tables)

6 Months Ended

Jun. 30, 2018

Business Segments Tables Abstract

Schedule of business segments

	Six Months Ended June 30, 2018
	F&M Bank		F&M Mortgage		TEB Life/FMFS		VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	17,620	$	71	$	71	$	-	$	-		$	(57	)	$	17,705
Service charges on deposits		724		-		-		-		-			-			724
Investment services and insurance income		-		-		431		-		-			(11	)		420
Mortgage banking income, net		-		1,135		-		-		-			-			1,135
Title insurance income		-		109		-		453		-			-			562
Gain on prepayment of long-term debt		-		-		-		-		-			-			-
Loss on investments		-		-		-		-		-			-			-
Other operating income		843		48		-		-		-			-			891
Total income		19,187		1,363		502		453		-			(68	)		21,437
Expenses:
Interest Expense		2,097		54		-		-		-			(57	)		2,094
Provision for loan losses		2,030		-		-		-		-			-			2,030
Salary and benefit expense		6,564		831		283		345		-			-			8,023
Other operating expenses		4,496		456		28		89		29			(11	)		5,087
Total expense		15,187		1,341		311		434		29			(68	)		17,234
Net income (loss) before taxes		4,000		22		191		19		(29	)		-			4,203
Income tax expense		284		-		36		-		218			-			538
Net income (loss)	$	3,716	$	22	$	155	$	19	$	(247	)	$	-		$	3,665
Net income attributable to non-controlling interest		-		5		-		-		-			-			5
Net Income attributable to F & M Bank Corp.	$	3,716	$	17	$	155	$	19	$	(247	)	$	-		$	3,660
Total Assets	$	772,244	$	8,332	$	6,910	$	707	$	91,480		$	(109,005	)	$	770,668
Goodwill	$	2,670	$	65	$	-	$	57	$	164		$	-		$	2,956

	Three months ended June 30, 2018
	F&M Bank		F&M Mortgage		TEB Life/FMFS		VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	8,916	$	42	$	36	$	-	$	-		$	(32	)	$	8,962
Service charges on deposits		358		-		-		-		-			-			358
Investment services and insurance income		-		-		228		-		-			(5	)		223
Mortgage banking income, net		-		615		-		-		-			-			615
Title insurance income		-		47		-		259		-			-			306
Gain on prepayment of long-term debt		-		-		-		-		-			-			-
Loss on investments		-		-		-		-		-			-			-
Other operating income		450		47		-		-		-			-			497
Total income		9,724		751		264		259		-			(37	)		10,961
Expenses:
Interest Expense		1,116		31		-		-		-			(32	)		1,115
Provision for loan losses		1,350		-		-		-		-			-			1,350
Salary and benefit expense		3,268		416		137		179		-			-			4,000
Other operating expenses		2,317		246		18		42		15			(5	)		2,633
Total expense		8,051		693		155		221		15			(37	)		9,098
Net income (loss) before taxes		1,673		58		109		38		(15	)		-			1,863
Income tax expense		144		-		21		-		(6	)		-			159
Net income (loss)	$	1,529	$	58	$	88	$	38	$	(9	)	$	-		$	1,704
Net income attributable to non-controlling interest		-		16		-		-		-			-			16
Net Income attributable to F & M Bank Corp.	$	1,529	$	42	$	88	$	38	$	(9	)	$	-		$	1,688

	Six Months Ended June 30, 2017
	F&M Bank		VBS Mortgage			TEB Life/FMFS			VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	16,171	$	65		$	75		$	-	$	-		$	(45	)	$	16,266
Service charges on deposits		651		-			-			-		-			-			651
Investment services and insurance income		1		-			360			-		-			-			361
Mortgage banking income, net		-		1,113			-			-		-			-			1,113
Title insurance income		-		-			-			554		-			-			554
Gain on prepayment of long-term debt		504		-			-			-		-			-			504
Loss on investments		-		(40	)		(2	)		-		-			-			(42	)
Other operating income		787		-			-			-		-			-			787
Total income		18,114		1,138			433			554		-			(45	)		20,194
Expenses:
Interest Expense		1,834		42			-			-		-			(45	)		1,831
Provision for loan losses		-		-			-			-		-			-			-
Salary expense		5,977		616			234			340		-			-			7,167
Other operating expenses		4,220		470			17			94		4			-			4,805
Total expense		12,031		1,128			251			434		4			(45	)		13,803
Net income (loss) before taxes		6,083		10			182			120		(4	)		-			6,391
Income tax expense		1,669		-			53			-		(36	)		-			1,686
Net income (loss)	$	4,414	$	10		$	129		$	120	$	32		$	-		$	4,705
Net income attributable to non-controlling interest		-		3			-			29		-			-			32
Net Income attributable to F & M Bank Corp.	$	4,414	$	7		$	129		$	91	$	32		$	-		$	4,673
Total Assets	$	746,193	$	6,027		$	6,630		$	274	$	89,909		$	(104,770	)	$	744,263
Goodwill	$	2,670	$	-		$	-		$	-	$	304		$	-		$	2,974

	Three Months Ended June 30, 2017
	F&M Bank		VBS Mortgage		TEB Life/FMFS		VS Title		Parent Only			Eliminations			F&M Bank Corp. Consolidated
Revenues:
Interest Income	$	8,210	$	30	$	38	$	-	$	-		$	(22	)	$	8,256
Service charges on deposits		335		-		-		-		-			-			335
Investment services and insurance income		-		-		187		-		-			-			187
Mortgage banking income, net		-		613		-		-		-			-			613
Title insurance income		-		-		-		355		-			-			355
Gain on prepayment of long-term debt		-		-		-		-		-			-			-
Loss on investments		-		-		-		-		-			-			-
Other operating income		392		-		-		-		-			-			392
Total income		8,937		643		225		355		-			(22	)		10,138
Expenses:
Interest Expense		927		20		-		-		-			(22	)		925
Provision for loan losses		-		-		-		-		-			-			-
Salary and benefit expense		2,968		211		119		182		-			-			3,480
Other operating expenses		2,160		320		13		43		1			-			2,537
Total expense		6,055		551		132		225		1			(22	)		6,942
Net income (loss) before taxes		2,882		92		93		130		(1	)		-			3,196
Income tax expense		801		-		26		-		(18	)		-			809
Net income (loss)	$	2,081	$	92	$	67	$	130	$	17		$	-		$	2,387
Net income attributable to non-controlling interest		-		28		-		31		-			-			59
Net Income attributable to F & M Bank Corp.	$	2,081	$	64	$	67	$	99	$	17		$	-		$	2,328

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12. Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2018

Revenue Recognition Tables Abstract

Summary of noninterest income, segregated by revenue streams

	Six Months Ended June 30,				Three Months Ended June 30,
	2018		2017		2018		2017
Noninterest Income (in thousands)
In-scope of Topic 606:
Service Charges on Deposits	$	724	$	651	$	358	$	335
Investment Services and Insurance Income		420		361		223		187
Title Insurance Income		562		554		306		355
ATM and check card fees		735		681		388		351
Other		250		240		134		118
Noninterest Income (in-scope of Topic 606)		2,691		2,487		1,409		1,348
Noninterest Income (out-of-scope of Topic 606)		1,041		1,441		590		536
Total Noninterest Income	$	3,732	$	3,928	$	1,999	$	1,882

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1. Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Earnings available to common stockholders:
Net income	$ 1,704	$ 2,387	$ 3,665	$ 4,705
Noncontrolling interest income	16	59	5	32
Preferred stock dividends	104	105	207	209
Net income available to common stockholders	$ 1,584	$ 2,223	$ 3,453	$ 4,464

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1. Summary of Significant Accounting Policies (Details 1) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Summary Of Significant Accounting Policies
Basic EPS, Income	$ 1,584	$ 2,223	$ 3,453	$ 4,464
Effect of Dilutive Securities Convertible Preferred Stock, Income	104	105	207	209
Diluted EPS, Income	$ 1,688	$ 2,328	$ 3,660	$ 4,673
Diluted EPS, Shares	3,250,749	3,272,352	3,253,007	3,272,318
Effect of Dilutive Securities Convertible Preferred Stock, Shares	359,063	363,678	359,594	363,681
Diluted EPS, Shares	3,609,812	3,637,030	3,612,601	3,635,999
Basic EPS, Per Shares	$ 0.49	$ 0.68	$ 1.06	$ 1.36
Effect of Dilutive Securities Convertible Preferred Stock, Per Shares	(.02)	(.04)	(.05)	(.07)
Diluted EPS, Per Shares	$ 0.47	$ 0.64	$ 1.01	$ 1.29

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2. Investment Securities (Details) - USD ($) $ in Thousands		6 Months Ended	12 Months Ended
		Jun. 30, 2018	Dec. 31, 2017
Securities available for sale
Cost		$ 8,456	$ 28,640
Unrealized Gains		0	0
Unrealized Losses		193	25
Market Value		8,263	28,615	[1]
U. S. Treasury and agency obligations [Member]
Securities held to maturity
Cost		122	125
Market Value		122	125
Securities available for sale
Unrealized Gains			0
Unrealized Losses			0
U. S. Treasuries [Member]
Securities available for sale
Cost			19,998
Unrealized Gains			0
Unrealized Losses			0
Market Value			19,998
Government Sponsored Enterprises [Member]
Securities available for sale
Cost		7,999	7,999
Unrealized Gains		0	0
Unrealized Losses		183	19
Market Value		7,816	7,980
Mortgage-backed securities [Member]
Securities available for sale
Cost		457	508
Unrealized Gains		0	0
Unrealized Losses		10	6
Market Value		$ 447	502
Marketable Equities [Member]
Securities available for sale
Cost	[2]		135
Unrealized Gains	[2]		0
Unrealized Losses	[2]		0
Market Value	[2]		$ 135

[1] 2017 Derived from audited consolidated financial statements.

[2] Transferred to other investments on January 1, 2018 upon adoption of ASU 2016-01.

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2. Investment Securities (Details 1) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	[1]
Total, Amortized Cost	$ 122	$ 125
Securities Held to Maturity [Member]
Due in one year or less, Amortized Cost	0
Due after one year through five years, Amortized Cost	122
Due after five years, Amortized Cost	0
Due after ten years, Amortized Cost	0
Total, Amortized Cost	122
Due in one year or less, Fair Value	0
Due after one year through five years, Fair Value	122
Due after five years, Fair Value	0
Due after ten years, Fair Value	0
Total, Fair Value	122
Securities Available for Sale [Member]
Due in one year or less, Amortized Cost	0
Due after one year through five years, Amortized Cost	7,999
Due after five years, Amortized Cost	457
Due after ten years, Amortized Cost	0
Total, Amortized Cost	8,456
Due in one year or less, Fair Value	0
Due after one year through five years, Fair Value	7,816
Due after five years, Fair Value	447
Due after ten years, Fair Value	0
Total, Fair Value	$ 8,263

[1] 2017 Derived from audited consolidated financial statements.

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2. Investment Securities (Details 2) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Fair Value Less than 12 Months	$ 8,263	$ 4,483
Unrealized Losses Less than 12 Months	(193)	(25)
Fair Value More than 12 Months	0	0
Unrealized Losses More than 12 Months	0	0
Fair Value Total	8,263	4,483
Unrealized Losses Total	(193)	(25)
Government sponsored Enterprises [Member]
Fair Value Less than 12 Months	7,816	3,981
Unrealized Losses Less than 12 Months	(183)	(19)
Fair Value More than 12 Months	0	0
Unrealized Losses More than 12 Months	0	0
Fair Value Total	7,816	3,981
Unrealized Losses Total	(183)	(19)
Mortgage-backed securities [Member]
Fair Value Less than 12 Months	447	502
Unrealized Losses Less than 12 Months	(10)	(6)
Fair Value More than 12 Months	0	0
Unrealized Losses More than 12 Months	0	0
Fair Value Total	447	502
Unrealized Losses Total	$ (10)	$ (6)

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2. Investment Securities (Details Narrative) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Invetment Securities Details 3Abstract
Other investments	$ 14,771	$ 12,503	[1]

[1] 2017 Derived from audited consolidated financial statements.

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3. Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Loans outstanding	$ 634,122	$ 616,974
Construction/Land Development [Member]
Loans outstanding	67,079	71,620
Farmland [Member]
Loans outstanding	16,500	13,606
Real Estate [Member]
Loans outstanding	184,674	184,546
Multi-Family [Member]
Loans outstanding	9,829	10,298
Commercial Real Estate [Member]
Loans outstanding	156,041	148,906
Home Equity - Closed End [Member]
Loans outstanding	10,742	11,606
Home Equity [Member]
Loans outstanding	55,837	54,739
Commercial & Industrial - Non-Real Estate [Member]
Loans outstanding	41,275	36,912
Consumer [Member]
Loans outstanding	5,216	6,633
Dealer Finance [Member]
Loans outstanding	83,962	75,169
Credit Cards [Member]
Loans outstanding	$ 2,967	$ 2,939

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3. Loans (Details 1) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Impaired loans without a valuation allowance
Recorded Investment	$ 8,474		$ 8,474		$ 13,877
Unpaid Principal Balance	8,474		8,474		15,141
Related Allowance	0		0		0
Average Recorded Investment	8,410	$ 7,986	10,654	$ 7,627
Interest Income Recognized	105	70	162	77
Impaired loans with a valuation allowance
Recorded Investment	13,711		13,711		6,233
Unpaid Principal Balance	14,271		14,271		6,233
Related Allowance	3,756		3,756		1,882
Average Recorded Investment	14,317	7,776	11,622	8,129
Interest Income Recognized	150	128	275	172
Total impaired loans
Recorded Investment	22,185		22,185		20,110
Unpaid Principal Balance	22,745		22,745		21,374
Related Allowance	3,756		3,756		1,882
Average Recorded Investment	22,727	15,762	22,276	15,756
Interest Income Recognized	255	198	437	249
Construction/Land Development [Member]
Impaired loans without a valuation allowance
Recorded Investment	4,478		4,478		4,352
Unpaid Principal Balance	4,478		4,478		5,269
Related Allowance	0		0		0
Average Recorded Investment	4,759	4,734	4,929	4,374
Interest Income Recognized	45	47	79	50
Impaired loans with a valuation allowance
Recorded Investment	7,463		7,463		4,998
Unpaid Principal Balance	8,023		8,023		4,998
Related Allowance	2,154		2,154		1,661
Average Recorded Investment	7,417	6,512	6,610	6,539
Interest Income Recognized	64	97	98	140
Farmland [Member]
Impaired loans without a valuation allowance
Recorded Investment	1,984		1,984		1,984
Unpaid Principal Balance	1,984		1,984		1,984
Related Allowance	0		0		0
Average Recorded Investment	1,984	1,858	1,984	1,239
Interest Income Recognized	62	0	62	0
Impaired loans with a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance					0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Real Estate [Member]
Impaired loans without a valuation allowance
Recorded Investment	1,688		1,688		1,273
Unpaid Principal Balance	1,688		1,688		1,273
Related Allowance	0		0		0
Average Recorded Investment	837	750	982	756
Interest Income Recognized	(6)	14	11	17
Impaired loans with a valuation allowance
Recorded Investment	110		110		1,188
Unpaid Principal Balance	110		110		1,188
Related Allowance	7		7		209
Average Recorded Investment	1,283	1,199	1,251	1,201
Interest Income Recognized	9	31	27	31
Multi-Family [Member]
Impaired loans without a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Impaired loans with a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance					0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Commercial Real Estate [Member]
Impaired loans without a valuation allowance
Recorded Investment	291		291		6,229
Unpaid Principal Balance	291		291		6,229
Related Allowance	0		0		0
Average Recorded Investment	797	100	2,608	719
Interest Income Recognized	4	2	9	3
Impaired loans with a valuation allowance
Recorded Investment	5,898		5,898		0
Unpaid Principal Balance	5,898		5,898		0
Related Allowance	1,586		1,586		0
Average Recorded Investment	5,407	0	3,605	317
Interest Income Recognized	73	0	141	0
Home Equity - Closed End [Member]
Impaired loans without a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Impaired loans with a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance					0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Home Equity [Member]
Impaired loans without a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		347
Related Allowance	0		0		0
Average Recorded Investment	0	347	116	347
Interest Income Recognized	0	6	0	0
Impaired loans with a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance					0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Commercial & Industrial - Non-Real Estate [Member]
Impaired loans without a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
Average Recorded Investment	0	166	0	167
Interest Income Recognized	0	0	0	6
Impaired loans with a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance					0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Consumer [Member]
Impaired loans without a valuation allowance
Recorded Investment	0		0		8
Unpaid Principal Balance	0		0		8
Related Allowance	0		0		0
Impaired loans with a valuation allowance
Recorded Investment	11		11		0
Unpaid Principal Balance	11		11		0
Related Allowance	2		2		0
Credit Cards [Member]
Impaired loans without a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
Impaired loans with a valuation allowance
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance					0
Dealer Finance [Member]
Impaired loans without a valuation allowance
Recorded Investment	33		33		31
Unpaid Principal Balance	33		33		31
Related Allowance	0		0		0
Average Recorded Investment	33	20	32	13
Interest Income Recognized	0	1	1	1
Impaired loans with a valuation allowance
Recorded Investment	229		229		47
Unpaid Principal Balance	229		229		47
Related Allowance	7		7		$ 12
Average Recorded Investment	198	65	148	72
Interest Income Recognized	4	0	8	1
Consumer and Credit Cards [Member]
Impaired loans without a valuation allowance
Average Recorded Investment	0	11	3	12
Interest Income Recognized	0	0	0	0
Impaired loans with a valuation allowance
Average Recorded Investment	12	0	8	0
Interest Income Recognized	$ 0	$ 0	$ 1	$ 0

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3. Loans (Details 2) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
30-59 Days Past due	$ 9,517	$ 5,683
60-89 Days Past due	6,867	7,904
Greater than 90 Days (excluding non-accrual)	7,358	5,521
Total past due	23,742	19,108
Current	610,380	597,866
Total Loans Receivable	634,122	616,974
Non-Accrual Loans	14,026	6,904
Recorded Investment >90 days & accruing	951	198
Credit Cards [Member]
30-59 Days Past due	30	30
60-89 Days Past due	5	8
Greater than 90 Days (excluding non-accrual)	16	1
Total past due	51	39
Current	2,916	2,900
Total Loans Receivable	2,967	2,939
Non-Accrual Loans	0	0
Recorded Investment >90 days & accruing	16	1
Construction/Land Development [Member]
30-59 Days Past due	1,465	167
60-89 Days Past due	52	5,459
Greater than 90 Days (excluding non-accrual)	5,367	3,908
Total past due	6,884	9,534
Current	60,195	62,086
Total Loans Receivable	67,079	71,620
Non-Accrual Loans	5,927	3,908
Recorded Investment >90 days & accruing	0	0
Farmland [Member]
30-59 Days Past due	0	0
60-89 Days Past due	0	0
Greater than 90 Days (excluding non-accrual)	0	0
Total past due	0	0
Current	16,500	13,606
Total Loans Receivable	16,500	13,606
Non-Accrual Loans	0	0
Recorded Investment >90 days & accruing	0	0
Real Estate [Member]
30-59 Days Past due	1,772	2,858
60-89 Days Past due	1,215	1,954
Greater than 90 Days (excluding non-accrual)	1,496	560
Total past due	4,483	5,372
Current	180,191	179,174
Total Loans Receivable	184,674	184,546
Non-Accrual Loans	1,345	1,720
Recorded Investment >90 days & accruing	899	143
Multi-Family [Member]
30-59 Days Past due	174	179
60-89 Days Past due	0	0
Greater than 90 Days (excluding non-accrual)	0	0
Total past due	174	179
Current	9,655	10,119
Total Loans Receivable	9,829	10,298
Non-Accrual Loans	0	0
Recorded Investment >90 days & accruing	0	0
Commercial Real Estate [Member]
30-59 Days Past due	4,153	544
60-89 Days Past due	4,895	0
Greater than 90 Days (excluding non-accrual)	218	0
Total past due	9,266	544
Current	146,775	148,362
Total Loans Receivable	156,041	148,906
Non-Accrual Loans	6,460	0
Recorded Investment >90 days & accruing	0	0
Home Equity - Closed End [Member]
30-59 Days Past due	0	0
60-89 Days Past due	15	25
Greater than 90 Days (excluding non-accrual)	0	0
Total past due	15	25
Current	10,727	11,581
Total Loans Receivable	10,742	11,606
Non-Accrual Loans	0	3
Recorded Investment >90 days & accruing	0	0
Home Equity [Member]
30-59 Days Past due	539	454
60-89 Days Past due	258	165
Greater than 90 Days (excluding non-accrual)	158	268
Total past due	955	887
Current	54,882	53,852
Total Loans Receivable	55,837	54,739
Non-Accrual Loans	133	448
Recorded Investment >90 days & accruing	26	0
Commercial & Industrial - Non-Real Estate [Member]
30-59 Days Past due	201	108
60-89 Days Past due	150	36
Greater than 90 Days (excluding non-accrual)	0	595
Total past due	351	739
Current	40,924	36,173
Total Loans Receivable	41,275	36,912
Non-Accrual Loans	0	599
Recorded Investment >90 days & accruing	0	0
Consumer [Member]
30-59 Days Past due	117	43
60-89 Days Past due	15	5
Greater than 90 Days (excluding non-accrual)	10	0
Total past due	142	48
Current	5,074	6,585
Total Loans Receivable	5,216	6,633
Non-Accrual Loans	0	0
Recorded Investment >90 days & accruing	10	0
Dealer Finance [Member]
30-59 Days Past due	1,066	1,300
60-89 Days Past due	262	252
Greater than 90 Days (excluding non-accrual)	93	189
Total past due	1,421	1,741
Current	82,541	73,428
Total Loans Receivable	83,962	75,169
Non-Accrual Loans	161	226
Recorded Investment >90 days & accruing	$ 0	$ 54

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3. Loans (Details Narrative) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Loans
Pledged loans	$ 182,373	$ 218,523
Loans held for sale	49,821	39,775	[1]
Foreclosed residential real estate in other real estate	$ 177	$ 207

[1] 2017 Derived from audited consolidated financial statements.

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4. Allowance for Loan Losses (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Beginning Balance	$ 6,044	$ 7,543
Charge-offs	1,717	2,872
Recoveries	748	1,373
Provision	2,030	0
Ending Balance	7,105	6,044
Individually Evaluated for Impairment	3,756	1,882
Collectively Evaluated for Impairment	3,349	4,162
Construction/Land Development [Member]
Beginning Balance	2,547	3,381
Charge-offs	47	620
Recoveries	122	0
Provision	167	(214)
Ending Balance	2,789	2,547
Individually Evaluated for Impairment	2,154	1,661
Collectively Evaluated for Impairment	635	886
Farmland [Member]
Beginning Balance	25	34
Charge-offs	0	0
Recoveries	0	0
Provision	0	(9)
Ending Balance	25	25
Individually Evaluated for Impairment	0	0
Collectively Evaluated for Impairment	25	25
Real Estate [Member]
Beginning Balance	719	843
Charge-offs	53	0
Recoveries	12	2
Provision	(261)	(126)
Ending Balance	417	719
Individually Evaluated for Impairment	7	209
Collectively Evaluated for Impairment	410	510
Multi-Family [Member]
Beginning Balance	19	23
Charge-offs	0	0
Recoveries	0	0
Provision	(2)	(6)
Ending Balance	17	19
Individually Evaluated for Impairment	0	0
Collectively Evaluated for Impairment	17	19
Commercial Real Estate [Member]
Beginning Balance	482	705
Charge-offs	0	0
Recoveries	1	13
Provision	1,366	(236)
Ending Balance	1,849	482
Individually Evaluated for Impairment	1,586	0
Collectively Evaluated for Impairment	263	482
Home Equity - Closed End [Member]
Beginning Balance	66	75
Charge-offs	3	7
Recoveries	3	25
Provision	(17)	(27)
Ending Balance	49	66
Individually Evaluated for Impairment	0	0
Collectively Evaluated for Impairment	49	66
Home Equity [Member]
Beginning Balance	209	470
Charge-offs	0	26
Recoveries	3	53
Provision	(42)	(288)
Ending Balance	170	209
Individually Evaluated for Impairment	0	0
Collectively Evaluated for Impairment	170	209
Commercial & Industrial - Non-Real Estate [Member]
Beginning Balance	337	586
Charge-offs	544	179
Recoveries	57	72
Provision	425	(142)
Ending Balance	275	337
Individually Evaluated for Impairment	0	0
Collectively Evaluated for Impairment	275	337
Consumer [Member]
Beginning Balance	148	78
Charge-offs	13	136
Recoveries	5	28
Provision	(75)	178
Ending Balance	65	148
Individually Evaluated for Impairment	2	0
Collectively Evaluated for Impairment	63	148
Dealer Finance [Member]
Beginning Balance	1,440	1,289
Charge-offs	1,036	1,806
Recoveries	528	1,143
Provision	471	814
Ending Balance	1,403	1,440
Individually Evaluated for Impairment	7	12
Collectively Evaluated for Impairment	1,396	1,428
Credit Cards [Member]
Beginning Balance	52	59
Charge-offs	21	98
Recoveries	17	37
Provision	(2)	54
Ending Balance	46	52
Individually Evaluated for Impairment	0	0
Collectively Evaluated for Impairment	$ 46	$ 52

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4. Allowance for Loan Losses (Details 1) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Loan Receivable	$ 634,122	$ 616,974
Loans Individually Evaluated for Impairment	22,185	20,110
Loans Collectively Evaluated for Impairment	611,937	596,864
Construction/Land Development [Member]
Loan Receivable	67,079	71,620
Loans Individually Evaluated for Impairment	11,941	9,350
Loans Collectively Evaluated for Impairment	55,138	62,270
Farmland [Member]
Loan Receivable	16,500	13,606
Loans Individually Evaluated for Impairment	1,984	1,984
Loans Collectively Evaluated for Impairment	14,516	11,622
Real Estate [Member]
Loan Receivable	184,674	184,546
Loans Individually Evaluated for Impairment	1,798	2,461
Loans Collectively Evaluated for Impairment	182,876	182,085
Multi-Family [Member]
Loan Receivable	9,829	10,298
Loans Individually Evaluated for Impairment	0	0
Loans Collectively Evaluated for Impairment	9,829	10,298
Commercial Real Estate [Member]
Loan Receivable	156,041	148,906
Loans Individually Evaluated for Impairment	6,189	6,229
Loans Collectively Evaluated for Impairment	149,853	142,677
Home Equity - Closed End [Member]
Loan Receivable	10,742	11,606
Loans Individually Evaluated for Impairment	0	0
Loans Collectively Evaluated for Impairment	10,742	11,606
Home Equity [Member]
Loan Receivable	55,837	54,739
Loans Individually Evaluated for Impairment	0	0
Loans Collectively Evaluated for Impairment	55,837	54,739
Commercial & Industrial - Non-Real Estate [Member]
Loan Receivable	41,275	36,912
Loans Individually Evaluated for Impairment	0	0
Loans Collectively Evaluated for Impairment	41,275	36,912
Consumer [Member]
Loan Receivable	5,216	6,633
Loans Individually Evaluated for Impairment	11	8
Loans Collectively Evaluated for Impairment	5,205	6,625
Dealer Finance [Member]
Loan Receivable	83,962	75,169
Loans Individually Evaluated for Impairment	262	78
Loans Collectively Evaluated for Impairment	83,699	75,091
Credit Cards [Member]
Loan Receivable	2,967	2,939
Loans Individually Evaluated for Impairment	0	0
Loans Collectively Evaluated for Impairment	$ 2,967	$ 2,939

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4. Allowance for Loan Losses (Details 2) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Construction/Land Development	$ 67,079	$ 71,620
Farmland	16,500	13,606
Real Estate	184,674	184,546
Multi-Family	9,829	10,298
Commercial Real Estate	156,041	148,906
Home Equity - closed end	10,742	11,606
Home Equity - open end	55,837	54,739
Commercial & Industrial (Non-Real Estate)	41,275	36,912
Consumer (excluding dealer)	5,216	6,633
Total	547,193	538,866
Grade 1 Minimal Risk [Member]
Construction/Land Development	0	0
Farmland	62	63
Real Estate	0	0
Multi-Family	0	0
Commercial Real Estate	0	0
Home Equity - closed end	0	0
Home Equity - open end	223	235
Commercial & Industrial (Non-Real Estate)	229	262
Consumer (excluding dealer)	30	34
Total	544	594
Grade 2 Modest Risk [Member]
Construction/Land Development	1,657	690
Farmland	0	0
Real Estate	1,603	1,512
Multi-Family	185	228
Commercial Real Estate	3,064	3,525
Home Equity - closed end	0	0
Home Equity - open end	1,910	1,598
Commercial & Industrial (Non-Real Estate)	1,532	1,595
Consumer (excluding dealer)	274	490
Total	10,225	9,638
Grade 3 Average Risk [Member]
Construction/Land Development	15,517	12,974
Farmland	4,410	3,153
Real Estate	53,790	53,764
Multi-Family	2,757	4,780
Commercial Real Estate	45,988	45,384
Home Equity - closed end	3,346	3,535
Home Equity - open end	19,897	17,383
Commercial & Industrial (Non-Real Estate)	18,386	13,297
Consumer (excluding dealer)	3,057	2,226
Total	167,148	156,496
Grade 4 Acceptable Risk [Member]
Construction/Land Development	32,841	30,197
Farmland	5,806	4,120
Real Estate	100,205	101,606
Multi-Family	6,713	5,111
Commercial Real Estate	89,682	89,195
Home Equity - closed end	5,432	5,410
Home Equity - open end	29,687	30,888
Commercial & Industrial (Non-Real Estate)	18,078	19,442
Consumer (excluding dealer)	906	88
Total	289,350	286,057
Grade 5 Marginally Acceptable [Member]
Construction/Land Development	7,011	9,165
Farmland	3,744	3,793
Real Estate	21,918	19,734
Multi-Family	174	179
Commercial Real Estate	8,203	9,012
Home Equity - closed end	1,949	1,279
Home Equity - open end	3,618	3,945
Commercial & Industrial (Non-Real Estate)	2,451	1,480
Consumer (excluding dealer)	910	1,065
Total	49,978	49,652
Grade 6 Watch [Member]
Construction/Land Development	113	3,520
Farmland	494	494
Real Estate	2,573	4,660
Multi-Family	0	0
Commercial Real Estate	2,545	634
Home Equity - closed end	15	1,379
Home Equity - open end	307	176
Commercial & Industrial (Non-Real Estate)	535	207
Consumer (excluding dealer)	19	2,254
Total	6,601	13,324
Grade 7 Substandard [Member]
Construction/Land Development	9,940	15,074
Farmland	1,984	1,983
Real Estate	4,585	3,270
Multi-Family	0	0
Commercial Real Estate	6,559	1,156
Home Equity - closed end	0	3
Home Equity - open end	195	514
Commercial & Industrial (Non-Real Estate)	64	629
Consumer (excluding dealer)	20	476
Total	23,347	23,105
Grade 8 Doubtful [Member]
Construction/Land Development	0	0
Farmland	0	0
Real Estate	0	0
Multi-Family	0	0
Commercial Real Estate	0	0
Home Equity - closed end	0	0
Home Equity - open end	0	0
Commercial & Industrial (Non-Real Estate)	0	0
Consumer (excluding dealer)	0	0
Total	$ 0	$ 0

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4. Allowance for Loan Losses (Details 3) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Credit cards	$ 2,967	$ 2,939
Dealer Finance	83,962	75,169
Performing [Member]
Credit cards	2,951	2,938
Dealer Finance	83,801	75,116
Non performing [Member]
Credit cards	16	1
Dealer Finance	$ 161	$ 53

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5. Employee Benefit Plan (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Employee Benefit Plan Details Abstract
Service cost	$ 192	$ 174	$ 384	$ 348
Interest cost	124	122	248	244
Expected return on plan assets	(231)	(213)	(462)	(426)
Amortization of prior service cost	(4)	(4)	(8)	(8)
Amortization of net loss	76	71	152	142
Net periodic pension cost	$ 157	$ 150	$ 314	$ 300

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6. Fair Value (Details) - USD ($) $ in Thousands		Jun. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
U. S. Treasuries			$ 19,998
U. S. Government sponsored enterprises		$ 7,816	7,980
Mortgage-backed obligations of federal agencies		447	502
Equity securities	[1]		135
Total securities available for sale		8,263	28,615
Fair Value Inputs Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
U. S. Treasuries			19,998
U. S. Government sponsored enterprises		0	0
Mortgage-backed obligations of federal agencies		0	0
Equity securities	[1]		0
Total securities available for sale		0	19,998
Fair Value Inputs Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
U. S. Treasuries			0
U. S. Government sponsored enterprises		7,816	7,980
Mortgage-backed obligations of federal agencies		447	502
Equity securities	[1]		135
Total securities available for sale		8,263	8,617
Fair Value Inputs Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
U. S. Treasuries			0
U. S. Government sponsored enterprises		0	0
Mortgage-backed obligations of federal agencies		0	0
Equity securities	[1]		0
Total securities available for sale		$ 0	$ 0

[1] Transferred to other investments on January 1, 2018 upon adoption of ASU 2016-01.

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6. Fair Value (Details 1) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Impaired loans	$ 9,955	$ 4,351
Fair Value Inputs Level 1 [Member]
Impaired loans	0	0
Fair Value Inputs Level 2 [Member]
Impaired loans	0	0
Fair Value Inputs Level 3 [Member]
Impaired loans	9,955	4,351
Construction/Land Development [Member]
Impaired loans	5,309	3,337
Construction/Land Development [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans	0	0
Construction/Land Development [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans	0	0
Construction/Land Development [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	5,309	3,337
Real Estate [Member]
Impaired loans	103	979
Real Estate [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans	0	0
Real Estate [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans	0	0
Real Estate [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	103	979
Commercial Real Estate [Member]
Impaired loans	4,312
Commercial Real Estate [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans	0
Commercial Real Estate [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans	0
Commercial Real Estate [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	4,312
Consumer [Member]
Impaired loans	9
Consumer [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans	0
Consumer [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans	0
Consumer [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	9
Dealer Finance [Member]
Impaired loans	222	35
Dealer Finance [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans	0	0
Dealer Finance [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans	0	0
Dealer Finance [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	$ 222	$ 35

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6. Fair Value (Details 2) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Impaired Loans	$ 9,955	$ 4,351
Fair Value Inputs Level 3 [Member]
Impaired Loans	9,955	4,351
Other Real Estate Owned	$ 2,034	$ 1,984
Valuation Technique Impaired Loans	Discounted appraised value	Discounted appraised value
Valuation Technique Other Real Estate Owned	Discounted appraised value	Discounted appraised value
Significant Unobservable Inputs Impaired Loans	Discount for selling costs and marketability	Discount for selling costs and marketability
Significant Unobservable Inputs Other Real Estate Owned	Discount for selling costs	Discount for selling costs
Average Impaired Loans	4.90%	5.50%
Average Other Real Estate Owned	4.00%	8.00%
Fair Value Inputs Level 3 [Member] | Minimum [Member]
Range Impaired Loans	2.00%	3.00%
Range Other Real Estate Owned	2.50%	5.00%
Fair Value Inputs Level 3 [Member] | Maximum [Member]
Range Impaired Loans	19.00%	19.00%
Range Other Real Estate Owned	10.00%	15.00%

XML

7. Disclosures About Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Assets:
Cash and cash equivalents, Carrying amount	$ 13,364	$ 11,907	[1]
Cash and cash equivalents, Fair value	13,364	11,907
Securities, Carrying amount	8,385	28,740
Securities, Fair value	8,385	28,740
Loans held for sale, Carrying Amount	49,821	39,775
Loans held for sale, Fair Value	49,821	39,775
Loans held for investment, net, Carrying Amount	627,017	610,930
Loans held for investment, net, Fair Value	615,424	646,703
Interest receivable, Carrying Amount	1,983	2,007	[1]
Interest receivable, Fair Value	1,983	2,007
Bank owned life insurance, Carrying Amount	19,166	13,950	[1]
Bank owned life insurance, Fair Value	19,166	13,950
Total Assets, Carrying Amount	719,736	707,309
Total Assets, Fair Value	708,143	743,082
Liabilities
Deposits, Carrying Amount	568,566	569,177
Deposits, Fair Value	570,701	571,117
Short-term debt, Carrying Amount	46,000	25,296
Short-term debt, Fair Value	46,000	25,296
Long-term debt, Carrying Amount	47,434	49,733
Long-term debt, Fair Value	47,524	49,869
Interest payable, Carrying Amount	267	260
Interest payable, Fair Value	267	260
Total Liabilities, Carrying Amount	662,267	644,466
Total Liabilities, Fair Value	664,492	646,542
Fair Value Inputs Level 1 [Member]
Assets:
Cash and cash equivalents, Fair value	13,364	11,907
Securities, Fair value	0	19,998
Loans held for sale, Fair Value	0	0
Loans held for investment, net, Fair Value	0	0
Interest receivable, Fair Value	0	0
Bank owned life insurance, Fair Value	0	0
Total Assets, Fair Value	13,364	31,905
Liabilities
Deposits, Fair Value	0	0
Short-term debt, Fair Value	0	0
Long-term debt, Fair Value	0	0
Interest payable, Fair Value	0	0
Total Liabilities, Fair Value	0	0
Fair Value Inputs Level 2 [Member]
Assets:
Cash and cash equivalents, Fair value	0	0
Securities, Fair value	8,385	8,742
Loans held for sale, Fair Value	49,821	39,775
Loans held for investment, net, Fair Value	0	0
Interest receivable, Fair Value	1,983	2,007
Bank owned life insurance, Fair Value	19,166	13,950
Total Assets, Fair Value	79,355	64,474
Liabilities
Deposits, Fair Value	406,830	403,907
Short-term debt, Fair Value	46,000	25,296
Long-term debt, Fair Value	0	0
Interest payable, Fair Value	267	260
Total Liabilities, Fair Value	453,097	429,463
Fair Value Inputs Level 3 [Member]
Assets:
Cash and cash equivalents, Fair value	0	0
Securities, Fair value	0	0
Loans held for sale, Fair Value	0	0
Loans held for investment, net, Fair Value	615,424	646,703
Interest receivable, Fair Value	0	0
Bank owned life insurance, Fair Value	0	0
Total Assets, Fair Value	615,424	646,703
Liabilities
Deposits, Fair Value	163,871	167,210
Short-term debt, Fair Value	0	0
Long-term debt, Fair Value	47,524	49,869
Interest payable, Fair Value	0	0
Total Liabilities, Fair Value	$ 211,395	$ 217,079

[1] 2017 Derived from audited consolidated financial statements.

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8. Troubled Debt Restructuring (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($) Integer	Jun. 30, 2017 USD ($) Integer
Number of Contracts | Integer	16	1
Pre-Modification Outstanding Recorded Investment	$ 2,453	$ 20
Post-Modification Outstanding Recorded Investment	$ 2,453	$ 20
Commercial Real Estate [Member]
Number of Contracts | Integer	1
Pre-Modification Outstanding Recorded Investment	$ 1,002
Post-Modification Outstanding Recorded Investment	$ 1,002
Real Estate [Member]
Number of Contracts | Integer	2
Pre-Modification Outstanding Recorded Investment	$ 1,255
Post-Modification Outstanding Recorded Investment	$ 1,255
Consumer [Member]
Number of Contracts | Integer	13	1
Pre-Modification Outstanding Recorded Investment	$ 196	$ 20
Post-Modification Outstanding Recorded Investment	$ 196	$ 20

XML

9. Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Unrealized Securities Gains (Losses) [Member]
Beginning balance	$ (20)	$ 6
Change in unrealized securities gains (losses), net of tax	(133)	(1)
Change in unfunded pension liability, net of tax	0	0
Ending balance	(153)	5
Adjustments Related to Pension Plan [Member]
Beginning balance	(4,122)	(3,171)
Change in unrealized securities gains (losses), net of tax	0	0
Change in unfunded pension liability, net of tax	0	0
Ending balance	(4,122)	(3,171)
Accumulated Other comprehensive Income (Loss) [Member]
Beginning balance	(4,142)	(3,165)
Change in unrealized securities gains (losses), net of tax	(133)	(1)
Change in unfunded pension liability, net of tax	0	0
Ending balance	$ (4,275)	$ (3,166)

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10. Business Segments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017	[1]
Interest Income	$ 8,962	$ 8,256	$ 17,705	$ 16,266
Service charges on deposits	358	335	724	651
Investment services and insurance income	223	187	420	361
Mortgage banking income, net	615	613	1,135	1,113
Title insurance income	306	355	562	554
Gain on prepayment of long-term debt			0	(504)
Expenses:
Interest Expense	1,115	925	2,094	1,831
Provision for loan losses	1,350	0	2,030	0
Income tax expense (benefit)	159	809	538	1,686
Net income (loss)	1,704	2,387	3,665	4,705
Total Assets	770,668		770,668		$ 753,270
Goodwill	2,956		2,956		$ 2,881
F&M Bank Member
Interest Income	8,916	8,210	17,620	16,171
Service charges on deposits	358	335	724	651
Investment services and insurance income	0	0	0	1
Mortgage banking income, net	0	0	0	0
Title insurance income	0	0	0	0
Gain on prepayment of long-term debt	0	0	0	504
Loss on investments	0	0	0	0
Other operating income	450	392	843	787
Total income	9,724	8,937	19,187	18,114
Expenses:
Interest Expense	1,116	927	2,097	1,834
Provision for loan losses	1,350	0	2,030	0
Salary and benefit expense	3,268	2,968	6,564	5,977
Other operating expenses	2,317	2,160	4,496	4,220
Total expense	8,051	6,055	15,187	12,031
Income before income taxes	1,673	2,882	4,000	6,083
Income tax expense (benefit)	144	801	284	1,669
Net income (loss)	1,529	2,081	3,716	4,414
Net (income)/loss attributable to noncontrolling interest	0	0	0	0
Net income attributable to F & M Bank Corp.	1,529	2,081	3,716	4,414
Total Assets	772,244	746,193	772,244	746,193
Goodwill	2,670	2,670	2,670	2,670
F&M Mortgage
Interest Income	42	30	71	65
Service charges on deposits	0	0	0	0
Investment services and insurance income	0	0	0	0
Mortgage banking income, net	615	613	1,135	1,113
Title insurance income	47	0	109	0
Gain on prepayment of long-term debt	0	0	0	0
Loss on investments	0	0	0	(40)
Other operating income	47	0	48	0
Total income	751	643	1,363	1,138
Expenses:
Interest Expense	31	20	54	42
Provision for loan losses	0	0	0	0
Salary and benefit expense	416	211	831	616
Other operating expenses	246	320	456	470
Total expense	693	551	1,341	1,128
Income before income taxes	58	92	22	10
Income tax expense (benefit)	0	0	0	0
Net income (loss)	58	92	22	10
Net (income)/loss attributable to noncontrolling interest	16	28	5	3
Net income attributable to F & M Bank Corp.	42	64	17	7
Total Assets	8,332	6,027	8,332	6,027
Goodwill	65	0	65	0
TEB Life/FMFS
Interest Income	36	38	71	75
Service charges on deposits	0	0	0	0
Investment services and insurance income	228	187	431	360
Mortgage banking income, net	0	0	0	0
Title insurance income	0	0	0	0
Gain on prepayment of long-term debt	0	0	0	0
Loss on investments	0	0	0	(2)
Other operating income	0	0	0	0
Total income	264	225	502	433
Expenses:
Interest Expense	0	0	0	0
Provision for loan losses	0	0	0	0
Salary and benefit expense	137	119	283	234
Other operating expenses	18	13	28	17
Total expense	155	132	311	251
Income before income taxes	109	93	191	182
Income tax expense (benefit)	21	26	36	53
Net income (loss)	88	67	155	129
Net (income)/loss attributable to noncontrolling interest	0	0	0	0
Net income attributable to F & M Bank Corp.	88	67	155	129
Total Assets	6,910	6,630	6,910	6,630
Goodwill	0	0	0	0
VS Title
Interest Income	0	0	0	0
Service charges on deposits	0	0	0	0
Investment services and insurance income	0	0	0	0
Mortgage banking income, net	0	0	0	0
Title insurance income	259	355	453	554
Gain on prepayment of long-term debt	0	0	0	0
Loss on investments	0	0	0	0
Other operating income	0	0	0	0
Total income	259	355	453	554
Expenses:
Interest Expense	0	0	0	0
Provision for loan losses	0	0	0	0
Salary and benefit expense	179	182	345	340
Other operating expenses	42	43	89	94
Total expense	221	225	434	434
Income before income taxes	38	130	19	120
Income tax expense (benefit)	0	0	0	0
Net income (loss)	38	130	19	120
Net (income)/loss attributable to noncontrolling interest	0	31	0	29
Net income attributable to F & M Bank Corp.	38	99	19	91
Total Assets	707	274	707	274
Goodwill	57	0	57	0
Parent Only
Interest Income	0	0	0	0
Service charges on deposits	0	0	0	0
Investment services and insurance income	0	0	0	0
Mortgage banking income, net	0	0	0	0
Title insurance income	0	0	0	0
Gain on prepayment of long-term debt	0	0	0	0
Loss on investments	0	0	0	0
Other operating income	0	0	0	0
Total income	0	0	0	0
Expenses:
Interest Expense	0	0	0	0
Provision for loan losses	0	0	0	0
Salary and benefit expense	0	0	0	0
Other operating expenses	15	1	29	4
Total expense	15	1	29	4
Income before income taxes	(15)	(1)	(29)	(4)
Income tax expense (benefit)	(6)	(18)	218	(36)
Net income (loss)	(9)	17	(247)	32
Net (income)/loss attributable to noncontrolling interest	0	0	0	0
Net income attributable to F & M Bank Corp.	(9)	17	(247)	32
Total Assets	91,480	89,909	91,480	89,909
Goodwill	164	304	164	304
Eliminations
Interest Income	(32)	(22)	(57)	(45)
Service charges on deposits	0	0	0	0
Investment services and insurance income	(5)	0	(11)	0
Mortgage banking income, net	0	0	0	0
Title insurance income	0	0	0	0
Gain on prepayment of long-term debt	0	0	0	0
Loss on investments	0	0	0	0
Other operating income	0	0	0	0
Total income	(37)	(22)	(68)	(45)
Expenses:
Interest Expense	(32)	(22)	(57)	(45)
Provision for loan losses	0	0	0	0
Salary and benefit expense	0	0	0	0
Other operating expenses	(5)	0	(11)	0
Total expense	(37)	(22)	(68)	(45)
Income before income taxes	0	0	0	0
Income tax expense (benefit)	0	0	0	0
Net income (loss)	0	0	0	0
Net (income)/loss attributable to noncontrolling interest	0	0	0	0
Net income attributable to F & M Bank Corp.	0	0	0	0
Total Assets	(109,005)	(104,770)	(109,005)	(104,770)
Goodwill	0	0	0	0
F&M Bank Corp Consolidated
Interest Income	8,962	8,256	17,705	16,266
Service charges on deposits	358	335	724	651
Investment services and insurance income	223	187	420	361
Mortgage banking income, net	615	613	1,135	1,113
Title insurance income	306	355	562	554
Gain on prepayment of long-term debt	0	0	0	504
Loss on investments	0	0	0	(42)
Other operating income	497	392	891	787
Total income	10,961	10,138	21,437	20,194
Expenses:
Interest Expense	1,115	925	2,094	1,831
Provision for loan losses	1,350	0	2,030	0
Salary and benefit expense	4,000	3,480	8,023	7,167
Other operating expenses	2,633	2,537	5,087	4,805
Total expense	9,098	6,942	17,234	13,803
Income before income taxes	1,863	3,196	4,203	6,391
Income tax expense (benefit)	159	809	538	1,686
Net income (loss)	1,704	2,387	3,665	4,705
Net (income)/loss attributable to noncontrolling interest	16	59	5	32
Net income attributable to F & M Bank Corp.	1,688	2,328	3,660	4,673
Total Assets	770,668	744,263	770,668	744,263
Goodwill	$ 2,956	$ 2,974	$ 2,956	$ 2,974

[1] 2017 Derived from audited consolidated financial statements.

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11. Debt (Details Narrative) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Debt Details Narrative Abstract
Short term debt	$ 46,000		$ 25,296	[1]
Weighted average interest rate	1.87%		1.86%
Debt obligations	$ 47,339		$ 49,554
Gain on prepayment	0	$ (504)
Note payable balance	$ 85		$ 170

[1] 2017 Derived from audited consolidated financial statements.

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12. Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Total noninterest income	$ 1,999	$ 1,882	$ 3,732	$ 3,928
Service Charges on Deposits
Total noninterest income	358	335	724	651
Investment Services and Insurance Income
Total noninterest income	223	187	420	361
Title Insurance Income
Total noninterest income	306	355	562	554
ATM and check card fees
Total noninterest income	388	351	735	681
Other
Total noninterest income	134	118	250	240
Noninterest Income (in-scope of Topic 606)
Total noninterest income	1,409	1,348	2,691	2,487
Noninterest Income (out-of-scope of Topic 606)
Total noninterest income	$ 590	$ 536	$ 1,041	$ 1,441