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

in
VST on January 3, 2022.




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

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





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



Forward-Looking Statements



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




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


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

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





Critical Accounting Policies




The accounting and reporting policies of the Company are in accordance with U.S.
GAAP and conform to general practices within the banking industry. 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. The Company evaluates its critical accounting estimates and
assumptions on an ongoing basis and updates them as needed. Management has
discussed the Company's critical accounting policies and estimates with the
Audit Committee of the Board of Directors of the Company.



The Company's critical accounting policies used in the preparation of the
Consolidated Financial Statements as of September 30, 2022 were unchanged from
the policies disclosed in the Company's Annual Report on Form 10-K for the year
ended December 31, 2021 within the section "Management's Discussion and Analysis
of Financial Condition and Results of Operations."



Overview




Net income for the nine months ended September 30, 2022 was $6,621 or $1.92 per
share, compared to $9,162 or $2.72 in the same period in 2021, a decrease of
27.73%. During the nine months ended September 30, 2022, noninterest income
decreased 27.99% and noninterest expense increased 5.18% during the same period.



During the three months ended September 30, 2022, net income was $2,304 or $0.67
per share, compared to $2,272 or $0.66 in the same period in 2021, an increase
of 1.41%.



Results of Operations



As shown in Table I, the 2022 year to date tax equivalent net interest income
increased $2,812 or 11.98% compared to the same period in 2021. The tax
equivalent adjustment to net interest income totaled $102 for the first nine
months of 2022. The yield on earning assets decreased .11%, while the cost of
funds decreased .01% compared to the same period in 2021.



The three months ended September 30, 2022 tax equivalent net interest income
increased $1,177 or 14.72% compared to the same period in 2021. The tax
equivalent adjustment to net interest income totaled $41 for the three months
ended September 30, 2022.



Year to date, the decrease in yield on assets coupled with changes in balance
sheet leverage resulted in the net interest margin decreasing to 3.03% for the
nine months ended September 30, 2022, a decrease of 12 basis points when
compared to the same period in 2021. For the three months ended September 30,
2022, the net interest margin increased 16 basis points when compared to the
same period in 2021. Rate increases in the loan portfolio rose quicker than
rates paid on deposits; long term debt reflects the repayment of a portion of
the subordinated debt. A schedule of the net interest margin for the three- and
nine-month periods ended September 30, 2022 and 2021 can be found in Table

I.




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

Results of Operations, continued

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





GAAP Financial Measurements:              September 30, 2022            September 30, 2021
                                          Nine           Three          Nine           Three
                                         Months         Months         Months         Months
Interest Income - Loans                $    24,474     $   8,910     $    24,749     $   8,225
Interest Income - Securities and
Other Interest-Earnings Assets               5,608         2,102           1,871           830
Interest Expense - Deposits                  3,060         1,378           2,464           851
Interest Expense - Other Borrowings            832           503             762           238
Total Net Interest Income              $    26,190     $   9,131     $

23,394 $ 7,966



Non-GAAP Financial Measurements:
Add: Tax Benefit on Tax-Exempt
Interest Income - Loans & Securities           102            41              86            29
Total Tax Benefit on Tax-Exempt
Interest Income                                102            41              86            29

Tax-Equivalent Net Interest Income $ 26,292 $ 9,172 $ 23,480 $ 7,995






The decrease in noninterest income of $2,630 for the nine-month period ending
September 30, 2022 compared to the same period in 2021 is due primarily to
decreases in mortgage banking income ($2,167) and title insurance income ($392).
The decrease in noninterest income of $943 for the three months ended September
30, 2022 is primarily due to decreases in mortgage banking income ($848) and
title insurance income ($180). Mortgage banking income decreased in both the
three and nine-month periods due to a decrease in refinance and purchase
activity at F&M Mortgage as the Federal Reserve increased interest rates. The
decline in mortgage activity directly impacted title insurance income.



Noninterest expense for the nine months ended September 30, 2022 increased
$1,275 as compared to 2021. Increases in the areas of salaries and benefits
($1,223) and telecommunication and data processing ($470) were offset by
decreases in impairment of long-lived assets ($171) and other expenses ($631).
Expansion into the Winchester and Waynesboro markets, higher overall salaries,
staff additions, and stock grant expense led to increased salary, benefits and
data processing expenses. Other operating expenses for the nine months ended
September 30, 2021 included one-time expenses: loss on the sale of bank property
($112), donation of bank property ($162) and prepayment penalties on FHLB debt
repayments ($228), that were not incurred in 2022. The increase in noninterest
expense of $102 for the three months ended September 30, 2022 is primarily due
to increases in salaries and benefits ($353) and FDIC insurance assessment
($110), that were offset by a decrease in other operating expenses ($364).




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 3% to 3.25% by the Federal Reserve. Actual rates received vary
slightly based upon money supply and demand among banks. Interest bearing bank
deposits are held either in money market accounts or as short-term certificates
of deposits. The Company held $12,695 and $76,667 in federal funds sold at
September 30, 2022 and December 31, 2021, respectively. Growth in excess funds
has been due to strong deposit growth, and the decrease from December 31, 2021
to September 30, 2022 was due to the Company deploying these funds into the
investment portfolio. Interest bearing bank deposits have decreased by $2,626
since year end from $2,938 to $312 due to the maturity of certificates of
deposit held at other banks.



Securities




The Company's securities portfolio serves to assist the Company with asset
liability management. With the growth in deposits, the Company has worked to
strategically invest the excess funds into the investment portfolio. This has
resulted in an increase in the investments available for sale of $26,578 since
December 31, 2021.




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





Securities, continued



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 September 30, 2022, the fair value of securities available for sale was
below their cost by $51,789. The portfolio is made up of primarily treasuries,
agencies and mortgage-backed obligations of federal agencies, as well as
securities issued by States and political subdivisions in the U.S. and Corporate
debt securities. The average maturity is 5.30 years. Efforts to deploy excess
funds in an uncertain rate environment has resulted in a mixture of maturities.

In reviewing investments as of September 30, 2022, there were no securities which met the definition for other than temporary impairment. Management continues to re-evaluate the portfolio for impairment on a quarterly basis.





Loan Portfolio



The Company operates primarily in the counties of Rockingham, Shenandoah, and
Augusta, and the cities of Harrisonburg, Staunton, Waynesboro and Winchester in
western Virginia. The local economy benefits from a variety of businesses
including agri-business, manufacturing, service businesses and several
universities and colleges. The Bank is an active residential mortgage and
residential construction lender and generally makes commercial loans to small
and mid-size businesses and farms within its primary service area. The Bank has
a concentration in real estate loans secured by poultry farms as defined by
regulatory guidelines.



Loans Held for Investment of $699,592 increased $37,171 during the nine months
ended September 30, 2022 compared to $662,421 at December 31, 2021. Net of PPP,
loans grew $45,085 or 6.89% since December 31, 2021. Loan growth occurred in the
farmland, multi-family, commercial real estate, commercial and industrial - non
real estate, and dealer finance segments of the portfolio; while declines
occurred in the construction, real estate and PPP segments.



Loans Held for Sale totaled $3,310 on September 30, 2022, a decrease of $1,577
compared to $4,887 at December 31, 2021. Loans Held for Sale consists of F&M
mortgage loans, which are subject to changes in interest rates, seasonal
fluctuations, and refinance activity.



Nonperforming loans include nonaccrual loans and loans 90 days or more past due.
Nonaccrual loans are loans on which interest accruals have been suspended or
discontinued permanently. Nonperforming loans totaled $2,408 on September 30,
2022 compared to $5,508 at December 31, 2021. The decrease in nonperforming
loans from year end is primarily due to one loan paying off, one loan moving to
accrual status, and amortization. Although the potential exists for loan losses
beyond what is currently provided for in the allowance for loan losses,
management believes the Bank is generally well secured and continues to actively
work with its customers to effect payment.



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



                                                            September       December
                                                            30, 2022        31, 2021

Allowance for loan losses                                  $     7,513
$     7,748
Nonaccrual loans                                           $     2,360     $     5,465
Total loans                                                $   699,592     $   662,421
Allowance for loan losses to Total loans                          1.07 %          1.17 %
Nonaccrual Loans to Total Loans                                   0.34 %          0.83 %
Allowance for loan losses to Nonaccrual loans                   318.35 %   

    141.77 %





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





Allowance for Loan Losses

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


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



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



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



The allowance for loan losses of $7,513 at September 30, 2022 is equal to 1.07%
of loans held for investment. This compares to an allowance of $7,748, or 1.17%
at December 31, 2021.



Due to increasing interest rates, loan portfolio growth over the last 12 months,
and deteriorating economic conditions, the qualitative reserve increased since
December 31, 2021. This was offset by improvements in the unemployment rate, a
decrease in historical loss rates, paydowns on individually impaired loans, and
non-accrual loans returning to accruing status. The Company is monitoring the
economic effects of increased inflation, building costs, and used car prices, as
well as a rising interest rate environment. The Company continues to manage the
classified, past due and non-performing loans. Classified loans (internally
rated substandard or watch) decreased from a total of $43,230 at December 31,
2021 to $41,821 at September 30, 2022, past due loans on accrual increased from
$3,226 at December 31, 2021 to $4,586 at September 30, 2022, and non-performing
loans decreased from $5,508 at December 31, 2021 to $2,456 at September 30,
2022. Management is closely monitoring the effects of economic conditions on the
loan portfolio and makes adjustments to specific reserves, the environmental
factors and the provision for loan losses as necessary.

Deposits and Other Borrowings


The Company's main source of funding is comprised of deposits received from
individuals, governmental entities and businesses located within the Company's
service area. Deposit accounts include demand deposits, savings, money market,
and certificates of deposit. Total deposits at September 30, 2022 have increased
$37,099 since December 31, 2021. Noninterest bearing deposits increased $19,401
while interest bearing increased $17,698. The increase in deposits is due to a
focus on deposit growth as an organization as well as excess funds that
customers are holding due to the pandemic. The Bank participates in the CDARS
(Certificate of Deposit Account Registry Service) and ICS (Insured Cash Sweep)
programs. These programs, CDARS for certificates of deposit and ICS for demand
and savings, allow the Bank to accept customer deposits in excess of FDIC limits
and through reciprocal agreements with other network participating banks by
offering FDIC insurance up to as much as $50 million in deposits. At September
30, 2022 and December 31, 2021 the Company had a total of $241 and $257 in CDARS
accounts; and, $86,831 and $94,948 in ICS accounts, respectively.




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





Short-term borrowings



The Company utilizes short-term debt such as Federal funds purchased and FHLB
short-term borrowings to provide liquidity. Federal funds purchased are
unsecured overnight borrowings from other financial institutions. FHLB
short-term debt, which is secured by the loan portfolio, can be a daily rate
variable loan that acts as a line of credit or a fixed rate advance, depending
on the needs of the Company. The Company utilized the short-term debt facilities
at the FHLB beginning in the first nine months of 2022; the balance at September
30, 2022 totaled $30,000; there were no short-term borrowings at December 31,
2021.



Long-term borrowings



The Company's subsidiary bank borrows funds on a fixed rate basis as needed.
These borrowings are used to support the Bank's lending program and allow the
Bank to manage interest rate risk by laddering maturities and matching funding
terms to the terms of various types in the loan portfolio. FHLB long term
advances totaled $10,000 on December 31, 2021; there were no long-term
borrowings at September 30, 2022.



On July 29, 2020, the Company sold and issued to certain institutional
accredited investors $5,000 in aggregate principal amount of 5.75% fixed rated
subordinated notes due July 31, 2027 (the "2027 Notes") and $7,000 in aggregate
principal amount of 6.00% fixed to floating rate subordinated notes due July 31,
2030 (the "2030 Notes"). The 2027 Notes will bear interest at 5.75% per annum,
payable semi-annually in arrears. Beginning on July 31, 2022 through maturity,
the 2027 Notes may be redeemed, at the Company's option, on any scheduled
interest payment date. On July 29, 2022 the Company redeemed the $5,000 in

2027
notes.



The 2030 Notes will initially bear interest at 6.00% per annum, beginning July
29, 2020 to but excluding July 31, 2025, payable semi-annually in arrears. From
and including July 31, 2025 through July 30, 2030, or up to an early redemption
date, the interest rate shall reset quarterly to an interest rate per annum
equal to the then current three-month SOFR plus 593 basis points, payable
quarterly in arrears. Beginning on July 31, 2025 through maturity, the 2030
Notes may be redeemed, at the Company's option, on any scheduled interest
payment date. The 2030 Notes will mature on July 31, 2030. The subordinated
notes, net of issuance costs totaled $6,879 at September 30, 2022.



Capital

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


At September 30, 2022, the Bank had Common Equity Tier I capital of 12.98% of
risked weighted assets, Tier I capital of 12.98% of risk weighted assets and
combined Tier I and II capital of 13.90% of risk weighted assets. Regulatory
minimums at this date were 4.5%, 6% and 8%, respectively. At December 31, 2021,
the Bank had Common Equity Tier I capital of 13.95% of risk weighted assets,
Tier I capital of 13.95% of risk weighted assets and combined Tier I and II
capital of 15.00% of risk weighted assets. The Bank has maintained capital
levels far above the minimum requirements. In the unlikely event that such
capital levels are not met, regulatory agencies are empowered to require the
Bank to raise additional capital and/or reallocate present capital.



In addition, the regulatory agencies have issued guidelines requiring the
maintenance of a capital leverage ratio. The leverage ratio is computed by
dividing Tier I capital by average total assets. The regulators have established
a minimum of 4% for this ratio but can increase the minimum requirement based
upon an institution's overall financial condition. At September 30, 2022, the
Bank reported a leverage ratio of 8.28%, compared to 8.62% at December 31, 2021.
The Bank's leverage ratio was substantially above the minimum. The Bank also
reported a capital conservation buffer of 5.90% at September 30, 2022 and 7.00%
at December 31, 2021. The capital conservation buffer is designed to strengthen
an institution's financial resilience during economic cycles. Financial
institutions are required to maintain a minimum buffer as required by the Basel
III final rules in order to avoid restrictions on capital distributions and

other payments.



Liquidity



Liquidity is the ability to meet present and future financial obligations
through either the sale or maturity of existing assets or the acquisition of
additional funds through liability management. Liquid assets include cash,
interest-bearing deposits with banks, federal funds sold, investments, and loans
maturing within one year. The Company's ability to obtain deposits and purchase
funds at favorable rates determines its liquidity exposure.




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Liquidity, continued

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 and with Pacific
Coast Bankers Bank, Zions Bank, and FNBB. The Bank also has a line of credit
with the Federal Home Loan Bank of Atlanta that allows for secured borrowings.
Additionally, the Bank can utilize the Federal Reserve Discount Window.



Interest Rate Sensitivity



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

Effect of Newly Issued Accounting Standards





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



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



In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurement (Topic 820):
Fair Value Measurement of Equity Securities Subject to Contractual Sale
Restrictions". ASU 2022-03 clarifies that a contractual restriction on the sale
of an equity security is not considered part of the unit of account of the
equity security and, therefore, is not considered in measuring fair value. The
ASU is effective for fiscal years, including interim periods within those fiscal
years, beginning after December 15, 2023. Early adoption is permitted. The
Company does not expect the adoption of ASU 2022-03 to have a material impact on
its consolidated financial statements.



In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2022-02, "Financial Instruments-Credit Losses (Topic
326), Troubled Debt Restructurings and Vintage Disclosures." ASU 2022-02
addresses areas identified by the FASB as part of its post-implementation review
of the credit losses standard (ASU 2016-13) that introduced the CECL model. The
amendments eliminate the accounting guidance for troubled debt restructurings by
creditors that have adopted the CECL model and enhance the disclosure
requirements for loan refinancings and restructurings made with borrowers
experiencing financial difficulty. In addition, the amendments require a public
business entity to disclose current-period gross write-offs for financing
receivables and net investment in leases by year of origination in the vintage
disclosures.




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

Effect of Newly Issued Accounting Standards, continued


The amendments in this ASU should be applied prospectively, except for the
transition method related to the recognition and measurement of TDRs, an entity
has the option to apply a modified retrospective transition method, resulting in
a cumulative-effect adjustment to retained earnings in the period of adoption.
For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal
years beginning after December 15, 2022, including interim periods within those
fiscal years. For entities that have not yet adopted ASU 2016-13, the effective
dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13. Early
adoption is permitted if an entity has adopted ASU 2016-13. An entity may elect
to early adopt the amendments about TDRs and related disclosure enhancements
separately from the amendments related to vintage disclosures. The Company is
currently assessing the impact that ASU 2022-02 will have on its consolidated
financial statements.



In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2022-01, "Derivatives and Hedging (Topic 815), Fair
Value Hedging-Portfolio Layer Method." ASU 2022-01 clarifies the guidance in ASC
815 on fair value hedge accounting of interest rate risk for portfolios of
financial assets and is intended to better align hedge accounting with an
organization's risk management strategies. In 2017, FASB issued ASU 2017-12 to
better align the economic results of risk management activities with hedge
accounting. One of the major provisions of that standard was the addition of the
last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable
financial assets or one or more beneficial interests secured by a portfolio of
prepayable financial instruments, such as mortgages or mortgage-backed
securities, the last-of-layer method allows an entity to hedge its exposure to
fair value changes due to changes in interest rates for a portion of the
portfolio that is not expected to be affected by prepayments, defaults, and
other events affecting the timing and amount of cash flows. ASU 2022-01 renames
that method the portfolio layer method. For public business entities, ASU
2022-01 is effective for fiscal years beginning after December 15, 2022, and
interim periods within those fiscal years. The Company does not expect the
adoption of ASU 2022-01 to have a material impact on its consolidated financial
statements.



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



In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic
805): Accounting for Contract Assets and Contract Liabilities from Contracts
with Customers". The ASU requires entities to apply Topic 606 to recognize and
measure contract assets and contract liabilities in a business combination. The
amendments improve comparability after the business combination by providing
consistent recognition and measurement guidance for revenue contracts with
customers acquired in a business combination and revenue contracts with
customers not acquired in a business combination. The ASU is effective for
fiscal years, including interim periods within those fiscal years, beginning
after December 15, 2022. Entities should apply the amendments prospectively and
early adoption is permitted. The Company does not expect the adoption of ASU
2021-08 to have a material impact on its consolidated financial statements.





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

Effect of Newly Issued Accounting Standards, continued





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



In May 2021, the FASB issued ASU 2021-04, "Earnings Per Share (Topic 260), Debt
- Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock
Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's
Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or
Exchanges of Freestanding Equity - Classified Written Call Options (a consensus
of the FASB Emerging Issues Task Force)." The ASU addresses how an issuer should
account for modifications or an exchange of freestanding written call options
classified as equity that is not within the scope of another Topic. Early
adoption is permitted. ASU 2021-04 was effective for the Company on January 1,
2022. The adoption of ASU 201-04 did not have a material impact on the Company's
consolidated financial statements.

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

Existence of Securities and Exchange Commission Web Site

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






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                                                                         TABLE I

                                F & M BANK CORP.

                          Net Interest Margin Analysis

                     (on a fully taxable equivalent basis)

                         (Dollar Amounts in Thousands)



                          Nine Months Ended                         Nine Months Ended                        Three Months Ended                         Three Months Ended
                          September 30, 2022                        September 30, 2021                       September 30, 2022

September 30, 2021


                  Average       Income/       Average       Average      Income/       Average        Average       Income/      Average        Average       Income/       Average
                  Balance       Expense       Rates1        Balance      Expense       Rates1         Balance       Expense       Rates1        Balance       Expense       Rates1
Interest
income
Loans held
for
investment2,3   $   675,420     $ 24,423          4.83 %   $ 668,826     $ 24,646          4.93 %   $   696,539     $  8,894         5.07 %   $   660,837     $  8,244          4.95 %
Loans held
for sale              4,099           90          2.94 %       5,139          161          4.19 %         4,380           29         2.63 %             -            -
Federal funds
sold                 26,605           83          0.42 %     137,715           99          0.10 %         8,451           48         2.25 %       180,285           55          0.12 %
Interest
bearing
deposits              1,789            5          0.37 %       1,949            1          0.07 %           188            1         2.11 %         3,220            1          0.12 %
Investments
Taxable 4           440,419        5,281          1.60 %     175,445        1,672          1.27 %       447,944        1,947         1.72 %       225,655          743          1.31 %
Partially
taxable                 125            1          1.07 %         125            1          1.07 %           125            -            -             125            -             -
Tax exempt           12,081          301          3.33 %       6,215          126          2.71 %        12,917          134         4.12 %         6,194           41          2.63 %
Total earning
assets          $ 1,160,538     $ 30,184          3.48 %   $ 995,414     $ 26,706          3.59 %   $ 1,170,544     $ 11,053         3.75 %   $ 1,076,316     $  9,084          3.35 %
Interest
Expense
Demand
deposits            182,383          453          0.33 %     133,827          185          0.18 %       186,614          247         0.53 %       152,828           78          0.20 %
Savings             505,759        1,917          0.51 %     392,741        1,189          0.40 %       512,414          897         0.69 %       439,957          451          0.41 %

Time deposits       120,975          690          0.76 %     130,567        1,090          1.12 %       121,907          234         0.76 %       131,156          322          0.97 %
Short-term
debt                 16,403          204          1.66 %           -            -             -          30,080          158         2.08 %             -            -             -
Long-term
debt                 15,772          628          5.32 %      31,160       

  762          3.27 %         9,334          345        14.66 %        29,401          238          3.21 %
Total
interest
bearing

liabilities     $   841,292     $  3,892          0.62 %   $ 688,295     $ 

3,226          0.63 %   $   860,349     $  1,881         0.87 %   $   753,342     $  1,089          0.57 %

Tax
equivalent
net interest
income                          $ 26,292                                 $ 23,480                                   $  9,172                                  $  7,995

Net interest
margin                                            3.03 %                                   3.15 %                                    3.11 %                                     2.95 %

____________________



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

nontaxable and partially taxable investments and loans.

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


    adjusted for changes in market value annualized.





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