-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RVIoaGzerbl6ZYKDdezSK1jrZHRkaqVYK+aStRJNoF9v6V1Q6E3cnLr/UhPJ7jj/ RubUEwQANGFf2xztuMW4TA== 0000930609-06-000022.txt : 20060515 0000930609-06-000022.hdr.sgml : 20060515 20060515141816 ACCESSION NUMBER: 0000930609-06-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20060331 FILED AS OF DATE: 20060515 DATE AS OF CHANGE: 20060515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: F&M BANK CORP CENTRAL INDEX KEY: 0000740806 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 541280811 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-13273 FILM NUMBER: 06839500 BUSINESS ADDRESS: STREET 1: P.O. BOX 1111 CITY: TIMBERVILLE STATE: VA ZIP: 22853 BUSINESS PHONE: 540-896-8941 MAIL ADDRESS: STREET 1: P. O. BOX 1111 CITY: TIMBERVILLE STATE: VA ZIP: 22853 10-Q 1 fm2006march10q.txt FORM 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 March 31, 2006. [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 000-13273 F & M BANK CORP. Virginia 54-1280811 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one) Large accelerated filer Accelerated filer Non-accelerated filer X ---- ---- ---- 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 May 1, 2006 Common Stock, par value - $5 2,398,402 shares 1 F & M BANK CORP. INDEX Page PART I FINANCIAL INFORMATION 2 Item 1. Financial Statements Consolidated Statements of Income - Three Months Ended March 31, 2006 and 2005 2 Consolidated Balance Sheets - March 31, 2006 and December 31, 2005 3 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2006 and 2005 4 Consolidated Statements of Changes in Stockholders' Equity - Three Months March 31, 2006 and 2005 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 20 Item 4. Controls and Procedures 20 PART II OTHER INFORMATION 21 Item 1. Legal Proceedings 21 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 21 Item 3. Defaults upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits 21 SIGNATURES 22 2 Part I Financial Information Item 1 Financial Statements F & M BANK CORP. CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars Except per Share Amounts) (Unaudited) Three Months Ended March 31, 2006 2005 ---------- --------- Interest Income Interest and fees on loans held for investment $ 4,809 $ 4,067 Interest and fees on loans held for sale 132 Interest on federal funds sold 12 16 Interest on interest bearing deposits 26 27 Dividends on equity securities 104 101 Interest on debt securities 184 183 -------- ------ Total Interest Income 5,135 4,526 -------- ------ Interest Expense Interest on demand deposits 75 44 Interest on savings accounts 131 110 Interest on time deposits over $100,000 370 208 Interest on time deposits 879 681 -------- ------ Total interest on deposits 1,455 1,043 Interest on short-term debt 160 130 Interest on long-term debt 250 314 -------- ------ Total Interest Expense 1,865 1,487 -------- ------ Net Interest Income 3,270 3,039 Provision for Loan Losses 60 90 -------- ------ Net Interest Income after Provision for Loan Losses 3,210 2,949 -------- ------ Noninterest Income Service charges 272 205 Insurance and other commissions 54 55 Other 184 320 Income on bank owned life insurance 66 62 Security gains (losses) -------- ------ Total Noninterest Income 576 642 -------- ------ Noninterest Expense Salaries 997 830 Employee benefits 346 304 Occupancy expense 104 102 Equipment expense 122 106 Intangible amortization 69 69 Other 596 630 -------- ------ Total Noninterest Expense 2,234 2,041 -------- ------ Income before Income Taxes 1,552 1,550 Income Taxes 467 383 -------- ------ Net Income $ 1,085 $ 1,167 ======== ====== Per Share Data Net Income $ .45 $ .48 ======= ====== Cash Dividends $ .20 $ .19 ======= ====== Weighted Average Shares Outstanding 2,401,644 2,410,697 ========= ========= The accompanying notes are an integral part of these statements. 3 F & M BANK CORP. CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars) March 31, December 31, ASSETS 2006 2005 --------- --------- (Unaudited) (Audited) Cash and due from banks $ 6,750 $ 7,904 Interest bearing deposits in banks 2,383 2,228 Fed funds sold 125 2,487 Securities held to maturity (note 2) 110 110 Securities available for sale (note 2) 29,952 28,507 Other investments 6,491 6,304 Loans held for sale 3,528 Loans held for investment (note 3) 292,510 277,398 Less allowance for loan losses (note 4) (1,718) (1,673) --------- -------- Net Loans Held for Investment 290,792 275,725 Bank premises and equipment 6,372 5,757 Interest receivable 1,500 1,367 Deposit intangible 1,357 1,426 Goodwill 2,639 2,639 Bank owned life insurance (note 5) 5,400 5,333 Other assets 2,779 3,013 --------- -------- Total Assets $ 356,650 $ 346,328 ========= ======== LIABILITIES Deposits Noninterest bearing demand $ 47,519 $ 46,325 Interest bearing Demand 38,240 38,970 Savings deposits 42,534 43,855 Time deposits over $100,000 37,313 35,462 Time deposits 103,689 102,697 --------- -------- Total Deposits 269,295 267,309 Short-term debt 17,987 14,345 Long-term debt 25,913 22,808 Accrued expenses 6,166 5,299 --------- -------- Total Liabilities 319,361 309,761 --------- -------- STOCKHOLDERS' EQUITY Common stock, $5 par value, 2,400,002 and 2,402,037 issued and outstanding, in 2006 and 2005, respectively 12,000 12,010 Surplus Retained earnings 25,695 25,136 Accumulated other comprehensive income (loss) (406) (579) -------- -------- Total Stockholders' Equity 37,289 36,567 --------- -------- Total Liabilities and Stockholders' Equity $ 356,650 $ 346,328 ========= ======== The accompanying notes are an integral part of these statements. 4 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) (Unaudited) Three Months Ended March 31, 2006 2005 ------- ------ Cash Flows from Operating Activities: Net income $ 1,085 $ 1,167 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 135 116 Amortization of security premiums 27 36 Net (increase) decrease in loans held for sale 3,528 34,306 Provision for loan losses 60 90 Intangible amortization 69 69 (Increase) decrease in interest receivable (133) (30) Decrease in other assets 15 87 Increase in accrued expenses 1,010 19 Gain on security transactions Amortization of limited partnership investments 92 64 Income from life insurance investment (66) (62) -------- ------ Net Adjustments 4,737 34,695 -------- ------ Net Cash Provided by Operating Activities 5,822 35,862 -------- ------ Cash Flows from Investing Activities: Purchase of investments available for sale (2,281) (10,044) Proceeds from sales of investments available for sale 500 Proceeds from maturity of investments available for sale 282 1,630 Net increase in loans held for investment (15,127) (17,546) Purchase of property and equipment (751) (28) Change in federal funds sold 2,362 1,017 Net (increase) decrease in interest bearing bank deposits (155) 5,472 -------- ------ Net Cash Used in Investing Activities (15,170) (19,499) -------- ------ Cash Flows from Financing Activities: Net change in demand and savings deposits (857) 2,041 Net change in time deposits 2,842 7,018 Net change in short-term debt 3,642 (31,695) Cash dividends paid (482) (457) Repurchase of common stock (56) (61) Change in federal funds purchased 2,020 Proceeds of long-term debt 5,000 5,000 Repayment of long-term debt (1,895) (1,922) -------- ------ Net Cash Provided (Used) by Financing Activities 8,194 (18,056) -------- ------ Net Decrease (Increase) in Cash and Cash Equivalents (1,154) (1,693) Cash and Cash Equivalents, Beginning of Period 7,904 7,938 -------- ------ Cash and Cash Equivalents, End of Period $ 6,750 $ 6,245 ======== ====== Supplemental Disclosure Cash paid for: Interest expense $ 1,826 $ 1,445 Income taxes 220 The accompanying notes are an integral part of these statements. 5 F & M BANK CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of Dollars) (Unaudited) Three Months Ended March 31, 2006 2005 ---------- ---------- Balance, beginning of period $ 36,567 $ 34,260 Comprehensive Income Net income 1,085 1,167 Net change in unrealized appreciation on securities available for sale, net of taxes 173 (225) --------- -------- Total comprehensive income 1,258 942 Repurchase of common stock (56) (61) Dividends declared (480) (457) --------- -------- Balance, end of period $ 37,289 $ 34,684 ========= ======== The accompanying notes are an integral part of these statements. 6 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 ACCOUNTING PRINCIPLES: The consolidated financial statements include the accounts of F & M Bank Corp. and its subsidiaries (the "Company"). Significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements conform to accounting principles generally accepted in the United States and to general industry practices. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of March 31, 2006 and the results of operations for the three month periods ended March 31, 2006 and March 31, 2005. The notes included herein should be read in conjunction with the notes to financial statements included in the 2005 annual report to stockholders of the F & M Bank Corp. The Company does not expect the anticipated adoption of any newly issued accounting standards to have a material impact on future operations or financial position. NOTE 2 INVESTMENT SECURITIES: The amounts at which investment securities are carried in the consolidated balance sheets and their approximate market values at March 31, 2006 and December 31, 2005 are as follows: 2006 2005 ------------------- ----------------- Market Market Cost Value Cost Value ------ ------- -------- --------- Securities Held to Maturity U. S. Treasury and Agency obligations $ 110 $ 110 $ 110 $ 110 ------ ------- ------- ------ Total $ 110 $ 110 $ 110 $ 110 ====== ======= ======= ====== 2006 2005 ----------------- ---------------- Market Market Value Cost Value Cost ------ ------ -------- ------- Securities Available for Sale U. S. Treasury and Agency obligations $17,860 $ 17,993 $ 15,820 $16,007 Equity securities 6,121 6,372 6,458 6,875 Mortgage-backed securities 3,236 3,314 3,510 3,604 Corporate Bonds 2,370 2,500 2,354 2,500 Municipals 365 375 365 375 ------ ------- ------- ------ Total $29,952 $ 30,554 $ 28,507 $29,361 ====== ======= ======= ====== 7 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENT NOTE 3 LOANS HELD FOR INVESTMENT: Loans outstanding at March 31, 2006 and December 31, 2005 are summarized as follows: 2006 2005 ----- ---- Real Estate Construction $ 38,451 $ 33,540 Residential 139,394 137,087 Commercial and agricultural 96,167 88,656 Installment loans to individuals 16,889 16,434 Credit cards 1,506 1,616 Other 103 65 ------ ------- Total $292,510 $277,398 ======= ======= NOTE 4 ALLOWANCE FOR LOAN LOSSES: A summary of transactions in the allowance for loan losses follows: Three Months Ended March 31, 2006 2005 ---- ---- Balance, beginning of period $1,673 $1,511 Provisions charged to operating expenses 60 90 Net (charge-offs) recoveries: Loan recoveries 11 19 Loan charge-offs (26) (54) ------- ----- Total Net Charge-Offs * (15) (35) ------ ----- Balance, End of Period $1,718 $1,566 ===== ===== *Components of Net Charge-Offs Real Estate Commercial 1 1 Installment (16) (36) ------ ----- Total $ (15) $ (35) ====== ===== 8 F & M BANK CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 BANK OWNED LIFE INSURANCE (BOLI): The Bank currently offers a variety of benefit plans to all full time employees. While the costs of these plans are generally tax deductible to the Bank, the cost has been escalating greatly in recent years. The Bank has determined that the benefits offered are necessary in order to attract and retain good employees. To help offset the growth in these costs, the Bank decided to enter into BOLI contracts. Dividends received on these policies are tax-deferred and are anticipated to be tax exempt as the death benefits under the policies are exempt from income taxation. Rates of return on a tax-equivalent basis are very favorable when compared to other long-term assets which the Bank could obtain. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations F & M Bank Corp. (Company) is a one-bank holding company organized under Virginia law which provides financial services through its wholly-owned subsidiaries Farmers & Merchants Bank (Bank) and TEB Life Insurance Company (TEB). Farmers & Merchants Financial Services (FMFS) is a wholly-owned subsidiary of the Bank. The Bank is a full service commercial bank offering a wide range of banking and financial services through its eight branch offices. Two new branches have been approved by the regulatory authorities. One office is approximately two miles east of the Harrisonburg city limits on Route 33. This office will be owned by the Bank and is currently under construction. The opening date for this branch is anticipated to be during the late summer of 2006. The second office will be located at 700 East Main Street, Luray, Virginia. This is a leased facility and was recently vacated by another bank; remodeling of this facility is expected to take approximately two months. The targeted opening date for this branch is late June 2006. The Bank also operates a courier service which picks up commercial deposits on a daily basis in the Harrisonburg area. TEB reinsures credit life and accident and health insurance sold by the Bank in connection with its lending activities. FMFS provides title insurance, brokerage services and property/casualty insurance to customers of the Bank. The Company's primary trade area services customers in Rockingham County, Shenandoah County, the southern part of Page County and the northern part of Augusta County. The addition of the Luray branch will increase the Company's service area to include eastern and northern Page 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 or this Form 10Q. 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. 10 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 ("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. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss factors as one factor in determining the inherent loss that may be present in its loan portfolio. Actual losses could differ significantly from the historical factors that are used. The fair value of the investment portfolio is based on period end valuations but changes daily with the market. 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. 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) Statement of Financial Accounting Standard ("SFAS") No. 5, Accounting for Contingencies, which requires that losses be accrued when they are probable of occurring and estimable and (ii) SFAS No. 114, Accounting by Creditors for Impairment of a Loan, 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. Goodwill and Intangibles In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Additionally, it further clarifies the criteria for the initial recognition and measurement of intangible assets separate from goodwill. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001 and prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of SFAS No. 142 discontinue the amortization of goodwill and intangible assets with indefinite lives. Instead, these assets will be subject to at least an annual impairment review and more frequently if certain impairment indicators are in evidence. SFAS No. 142 also requires that reporting units be identified for the purpose of assessing potential future impairments of goodwill. Core deposit intangibles are amortized on a straight-line basis over ten years. The Company adopted SFAS 147 on January 1, 2002 and determined that the core deposit intangible will continue to be amortized over the estimated useful life. Securities Impairment The Company evaluates each of its investments in securities, debt and equity, under guidelines contained in SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. These guidelines require the Company to determine whether a decline in value below original cost is other than temporary. In making its determination, management considers current market conditions, historical trends in the individual securities, and historical trends in the total market. Expectations are developed regarding potential returns from dividend reinvestment and price appreciation over a reasonable holding period (five years). 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Overview Net income for the first quarter of 2006 was $1,085,000 or $.45 per share, compared to $1,167,000 or $.48 in the first quarter of 2005, a decrease of 7.03%. Core operating earnings, (exclusive of non-recurring items) totaled $1,085,000 in 2006 and $1,023,000 in 2005, an increase of 6.06%. During the first quarter, noninterest income, exclusive of securities transactions, decreased 10.28% and noninterest expense increased 9.46% during the same period. Results of Operations The 2006 year to date tax equivalent net interest margin increased $244,000 or 7.93% compared to the same period 2005. The yield on earning assets increased .73%, while the cost of funds increased .59% compared to the same period in 2005. These increases resulted as maturing assets and liabilities began repricing at higher rates. Beginning in June 2004, the Federal Reserve's Federal Open Market Committee (FOMC) reversed its accommodative monetary policy and has since raised short term interest rates, in .25% increments by a total of 3.75% through March 2006. Although the Interest Sensitivity Analysis on page 20 indicates the Company is in a liability sensitive position in the one year time horizon, the recent increase in rates has proven beneficial to the net interest margin. This has resulted due to the fact that a large portion of rate sensitive liabilities (checking and savings) do not reprice immediately with changes in market rates, but are adjusted at the discretion of management based on funding needs and competitive factors. A schedule of the net interest margin for 2006 and 2005 can be found in Table I on page 18. Noninterest income, exclusive of securities transactions, decreased $66,000 or 10.28% through March 31, 2006. Items contributing to the decrease include a $32,000 decrease in secondary market loan origination fees and a $104,000 decrease in returns on low income housing investments. The returns on these investments are principally in the form of tax credits and in 2005 included $93,000 related to the recognition of deferred state tax credits. These credits have been classified as a return on investment rather than as a reduction of income tax expense. This has been done to reflect the fact that the Company entered into these investments with the expectation that tax credits would be the primary source of investment return and to avoid a distortion of income tax expense for the period. Noninterest expense increased $193,000 in 2006. The increase is the result of a $209,000 increase in salaries and benefits expense (18.43%). The increase in salaries and benefits includes normal salary increases, growth in staff, and an increase in the cost of group insurance of 16.21% Exclusive of personnel expenses, other noninterest expenses decreased at an annualized rate of 1.76% in 2006 compared to 2005. Areas that decreased include a $19,000 decrease in FDIC insurance assessment, and $22,000 in legal and professional fees. Noninterest expense as an annualized percentage of average assets equals 2.58% which compares to 2.38% in the prior year. Operating costs continue to compare very favorably to the peer group. As stated in the most recently available Bank Holding Company Performance Report, peer group noninterest expenses averaged 3.00% of average assets. The Company's operating costs have always compared favorably to the peer group due to an excellent asset to employee ratio and below average facilities costs. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Financial Condition Federal Funds Sold and Interest Bearing Bank Deposits 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 was benchmarked at 4.75% 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. Combined balances in fed funds sold and interest bearing bank deposits have decreased due to growth in the loan portfolio. Securities The Company's securities portfolio serves several purposes. Portions of the portfolio are held to assist the Company with liquidity, asset liability management, as security for certain public funds and repurchase agreements and for long-term growth potential. The securities portfolio consists of investment securities (commonly referred to as "securities held to maturity") and securities available for sale. Securities are classified as investment securities when management has the intent and ability to hold the securities 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 market 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 shareholders' equity. As of March 31, 2006, the cost of all securities available for sale exceeded their market value by $602,000. This includes declines in value in both the equity securities held by the Company and in the value of government obligations held by the Bank. Declines in the value of the bond portfolio are the result of recent changes in short term rates within the market for fixed income securities. Management has traditionally held debt securities (regardless of classification) until maturity and thus it does not expect the fluctuations in value of these securities to have a direct impact on earnings. Investments in debt securities increased $1,782,000 in the first quarter of 2006. The portfolio is made up of primarily agency and mortgage-backed securities with an average portfolio life of approximately one and quarter years. This short average life results in less portfolio volatility and positions the Bank to redeploy assets in response to rising rates. Scheduled maturities in 2006 total $10,000,000 and these bonds have an average yield of approximately 3.50%. Based on current market rates, as these bonds mature, the funds will be reinvested at rates that are approximately 200 BP higher. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The Company's equity securities portfolio was $251,000 below cost at March 31, 2006. The decline in the value of the equities portfolio is spread over a number of asset sectors including dividend producing mutual funds that hold primarily preferred stocks. These funds have declined in value as their yields have become less favorable relative to alternative investment categories. To minimize risk the Company holds a diversified portfolio of equity investments in a number of large, regional financial institutions, a diversified portfolio of REITs and a variety of other predominantly blue-chip securities. Management continues to believe that these investments offer adequate current returns (dividends) and have the potential for future increases in value. A review of these investments as of March 31, 2006, revealed no securities that were impaired as of quarter end and 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 and Shenandoah 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. The allowance for loan losses (see subsequent section) provides for the risk that borrowers will be unable to repay their obligations and is reviewed quarterly for adequacy. 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. While lending is geographically diversified within the service area, the Company does have loan concentrations in agricultural (primarily poultry farming), construction, hotels, churches, assisted living facilities and the aforementioned mortgage participations. Management and the Board of Directors review these concentrations quarterly. Management has entered into an agreement with Gateway Bank (of California) to purchase short-term real estate loan participations. These loans have been purchased by Gateway from mortgage brokers and will be held until sold to the ultimate holder in the secondary market. All loans have firm take-out commitments and are held for periods ranging from two to sixty days, but averaging approximately fifteen days. These loans originate in several states throughout the country, however, a significant portion are from the state of California. These loans have been included with mortgage loans that the Bank has originated within its own market and designated on the balance sheet as "Loans Held for Sale". Management has funded its loans for sale through the use of short-term borrowings from the FHLB. The yield on these loans is based on a discount to the prime rate, but offers a premium over other comparable short-term investments. During the first quarter, these loan participations have averaged $557,000, with a maximum balance of $3,528,000 and $0 at quarter end. The Bank has made a commitment to purchase up to a maximum of $45,000,000 of these loans. The first three months of 2006 resulted in an increase of $15,112,000 in the Bank's core loan portfolio. The increase in the loan portfolio is reflective of the strong local economy. The growth has been concentrated within the real estate portfolio, both residential and commercial properties. Within the last year and a half, the bank hired two commercial lenders that brought experience from larger regional banks. Both these lenders have been successful in bringing loan customers from their former banks which has added to the recent growth in the portfolio. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Nonperforming loans include nonaccrual loans, loans 90 days or more past due and restructured loans. Nonaccrual loans are loans on which interest accruals have been suspended or discontinued permanently. Restructured loans are loans which have had the original interest rate or repayment terms changed due to financial hardship. Nonperforming loans totaled $235,000 at March 31, 2006 compared to $695,000 at December 31, 2005. Approximately 90% of these past due loans are secured by real estate. Although the potential exists for some loan losses, management believes the bank is generally well secured and continues to actively work with its customers to effect payment. As of March 31, 2006, the Company does not hold any real estate which was acquired through foreclosure. The following is a summary of information pertaining to risk elements and impaired loans: March 31, December 31, 2006 2005 --------- --------- Nonaccrual loans $ $ 63,000 Loans past due 90 days or more and still accruing interest 235,000 632,000 Restructured loans 0 0 --------- --------- $ 235,000 $ 695,000 Percent of loans held for investment .08% .25% Allowance for Loan Losses 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 the trend of 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 Banks watch list or schedule of classified loans. In evaluating the portfolio, loans are segregated into loans with identified potential losses and pools of loans by type (commercial, residential, consumer, credit cards). Loans with identified potential losses include examiner and bank classified loans. Classified relationships in excess of $100,000 are reviewed individually for impairment under FAS 114. A variety of factors are taken into account when reviewing these credits including borrower cash flow, payment history, fair value of collateral, company management, the industry in which the borrower is involved and economic factors. Loan relationships that are determined to have no impairment are placed back into the appropriate loan pool and reviewed under FAS 5. Loan pools are further segmented into watch list, past due over 90 days and all other loans by type. Watch list loans include loans that are 60 days past due, and may include restructured loans, borrowers that are highly leveraged, loans that have been upgraded from classified or loans that contain policy exceptions (term, collateral coverage, etc.). Loss estimates on these loans reflect the increased risk associated with these assets due to any of the above factors. The past due pools contain loans that are currently 90 days or more past due. Loss rates assigned reflect the fact that these loans bear a significant risk of charge-off. Loss rates vary by loan type to reflect the likelihood that collateral values will offset a portion of the anticipated losses. The remainder of the portfolio falls into pools by type of homogenous loans that do not exhibit any of the above described weaknesses. Loss rates are assigned based on historical loss rates over the prior five years. A multiplier has been applied to these loss rates to reflect the time for loans to season within the portfolio and the inherent imprecision of these estimates. All potential losses are evaluated within a range of low to high. An unallocated reserve has been established to reflect other unidentified losses within the portfolio. This helps to offset the increased risk of loss associated with fluctuations in past due trends, changes in the local and national economies, and other unusual events. The Board approves the loan loss provision for the following quarter based on this evaluation and an effort is made to keep the actual allowance at or above the midpoint of the range established by the evaluation process. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) The allowance for loan losses of $1,718,000 at March 31, 2006 is equal to ..59% of loans held for investment. This compares to an allowance of $1,673,000 (.60%) at December 31, 2005. Management has funded the allowance at a rate of $20,000 per month throughout the year of 2006, for a total of $60,000. Total charge-offs, net of recoveries, equal $15,000 year to date. This is equivalent to an annualized loss rate of .02% of total loans. In recent years, the company has had an average loss rate of .08% which is approximately one half the loss rate of its peer group. The overall level of the allowance is well below its peer group average. Management feels this is appropriate based on its loan loss history and the composition of its loan portfolio; the current allowance for loan losses is equal to approximately seven years of average loan losses. Based on historical losses, delinquency rates, collateral values of delinquent loans and a thorough review of the loan portfolio, management is of the opinion that the allowance for loan losses fairly states the estimated losses in the current portfolio. 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 have increased $1,986,000 since December 31, 2005. Time deposits increased $2,843,000 during this period while demand deposits and savings deposits decreased $857,000. Due to the growth in its loan portfolio and competition for deposits within its market, the Bank has advertised two short term certificate of deposit rate specials to attract new funds. The Bank also continues to advertise a free checking account product. The growth in deposits appears to be a result of advertising of these accounts. Short-term debt Short-term debt consists of federal funds purchased, commercial repurchase agreements (repos.) and daily rate credit from the Federal Home Loan Bank (FHLB). Commercial customers deposit operating funds into their checking account and by mutual agreement with the bank their excess funds are swept daily into the repurchase accounts. These accounts are not considered deposits and are not insured by the FDIC. The Bank pledges securities held in its investment portfolio as collateral for these short-term loans. Federal funds purchased are overnight borrowings obtained from the Bank's primary correspondent bank to manage short-term liquidity needs. Daily rate credit from the FHLB has been used to finance loans held for sale and also to finance the increase in short-term residential and commercial construction loans. Long-term debt Borrowings from the Federal Home Loan Bank of Atlanta (FHLB) continue to be an important source of funding real estate loan growth. The Company's subsidiary bank borrows funds on a fixed rate basis. These borrowings are used to fund either a fifteen-year fixed rate loan or a twenty-year loan, of which the first ten years have a fixed rate. This program allows the Bank to match the maturity of its fixed rate real estate portfolio with the maturity of its debt and thus reduce its exposure to interest rate changes. Scheduled repayments totaled $1,895,000 through March 31, 2006. Additional borrowings of $5,000,000 were obtained to assist in funding the growth in the loans held for investment. 16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) In September 2002, the Company borrowed $3 million from SunTrust Bank. This loan carries an interest rate of LIBOR + 1.10% and is variable. Payments of $230,769 plus interest began in the second quarter of 2004 and will continue for a period of thirteen quarters. Proceeds of this loan were used primarily to provide a capital contribution to the Bank. 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. As of March 31, 2006, the Company's total risk based capital and total capital to total assets ratios were 13.87% and 9.70%, respectively. Both ratios are in excess of regulatory minimums and exceed the ratios of the Company's peers. Earnings have been satisfactory to allow an increase in the first quarter dividend in 2006 of 5.26%. 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 also maintains lines of credit with correspondent financial institutions. The Company's subsidiary 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 March 31, 2006, the Company had a cumulative Gap Rate Sensitivity Ratio of (5.38%) for the one year repricing period. This generally indicates that earnings would decrease in an increasing interest rate environment as liabilities reprice more quickly than assets. However, in actual practice, this may not be the case as loans tied to the prime rate of interest will reprice immediately with an increase in short term market rates, while deposit rates will remain stable until competitive market conditions dictate the necessity for an increase in rates. 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. Stock Repurchase On June 12, 2003, the Board authorized the repurchase of 50,000 shares of the Company's outstanding common stock. Management has been authorized to repurchase shares from time to time in the open market or through privately negotiated transactions when market conditions warrant. The repurchased shares are accounted for as retired stock. During the first quarter of 2006 2,035 shares were repurchased, at an average cost of $27.64 per share. 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Effect of Newly Issued Accounting Standards The Company does not believe that any newly issued but as yet unapplied accounting standards will have a material impact on the Company's financial position or operations. 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). 18 TABLE 1
F & M BANK CORP. NET INTEREST MARGIN ANALYSIS (ON A FULLY TAXABLE EQUIVALENT BASIS) (Dollar Amounts in Thousands) Three Months Ended Three Months Ended March 31, 2006 March 31, 2005 ------------------------- ----------------------- Average Income/ Average Income/ Balance(2) Expense Rates Balance(2) Expense Rates ------- ------- ----- ------- ------- ----- Interest Income Loans held for investment(1,2) $281,824 $4,830 6.86% $259,055 $4,082 6.39% Loans held for sale 569 13,904 132 3.85 Federal funds sold 1,156 12 4.15 2,530 16 2.56 Interest bearing deposits 2,094 26 4.97 6,495 27 1.69 Investments Taxable (3) 19,675 200 4.07 23,693 199 3.36 Partially taxable 6,686 113 6.76 6,974 104 5.97 Tax exempt (2,3) 375 4 4.27 375 4 4.27 ------ ----- ---- ------- ----- ---- Total Earning Assets 312,379 5,185 6.64 313,026 4,564 5.91 ------- ----- ---- ------- ----- ---- Interest Expense Demand deposits 37,889 75 .79 38,155 44 .47 Savings 42,998 131 1.22 49,034 110 .91 Time deposits 139,943 1,249 3.57 123,128 890 2.93 Short-term debt 15,258 160 4.19 21,749 130 2.42 Long-term debt 23,074 250 4.33 31,442 314 4.05 ------- ----- ----- ------- ----- ---- Total Interest Bearing Liabilities $259,162 1,865 2.88 $263,508 1,488 2.29 ======= ----- ----- ======= ----- ---- Net Interest Margin (1) 3,320 $3,076 ===== ===== Net Yield on Interest Earning Assets 4.25% 3.98% ===== =====
(1) Interest income on loans includes loan fees. (2) An incremental income tax rate of 34% was used to calculate the tax equivalent income on nontaxable and partially taxable investments and loans. (3) Average balance information is reflective of historical cost and has not been adjusted for changes in market value. 19 TABLE II F & M BANK CORP. INTEREST SENSITIVITY ANALYSIS March 31, 2006 (In Thousands of Dollars) 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 $ 46,141 $ 7,276 $ 75,873 $ 5,328 $ $134,618 Installment 4,614 989 10,066 1,323 16,992 Real estate for investments 22,557 6,163 92,099 18,575 139,394 Real estate for sale Credit cards 1,506 1,506 Federal funs sold 125 125 Interest bearing bank deposits 799 1,188 397 2,384 Investment securities 4,982 7,116 11,445 6,519 30,062 ------ ------ ------- ------ ----- ------- Total 80,724 22,732 189,880 25,226 6,519 325,081 ------ ------ ------- ------ ----- ------- Sources of Funds Interest bearing demand deposits 11,767 21,572 4,902 38,241 Savings deposits 8,507 25,520 8,507 42,534 Certificates of deposit $100,000 and over 4,525 16,317 16,471 37,313 Other certificates of deposit 13,680 41,034 48,975 103,689 Short-term borrowings 17,987 17,987 Long-term borrowings 3,395 3,741 16,184 2,593 25,913 ------ ------ ------- ------ ------ ------- Total 39,587 81,366 128,722 16,002 265,677 ------ ------ ------- ------ ------ ------- Discrete Gap 41,137 (58,634) 61,158 9,224 6,519 59,404 Cumulative Gap 41,137 (17,497) 43,661 52,885 59,404 Ratio of Cumulative Gap to Total 12.65% (5.38)% 13.43% 16.27% 18.27% Earning Assets Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as of September 30, 2005. 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. 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. 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures As a result of the enactment of the Sarbanes-Oxley Act of 2002, issuers such as F & M Bank Corp. that file periodic reports under the Securities Exchange Act of 1934 (the "Act") are required to include in those reports certain information concerning the issuer's controls and procedures for complying with the disclosure requirements of the federal securities laws. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports it files or submits under the Act, is communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We have established our disclosure controls and procedures to ensure that material information related to the Company is made known to our principal executive officers and principal financial officer on a regular basis, in particular during the periods in which our quarterly and annual reports are being prepared. These disclosure controls and procedures consist principally of communications between and among the Chief Executive Officer and the Chief Financial Officer, and the other executive officers of the Company and its subsidiaries to identify any new transactions, events, trends, contingencies or other matters that may be material to the Company's operations. As required, we will evaluate the effectiveness of these disclosure controls and procedures on a quarterly basis, and most recently did so as of the end of the period covered by this report. The Company's Chief Executive Officer and Chief Financial Officer, based on their evaluation as of the end of the period covered by this quarterly report of the Company's disclosure controls and procedures (as defined in Rule 13(a)-14(e) of the Securities Exchange Act of 1934), have concluded that the Company's disclosure controls and procedures are adequate and effective for purposes of Rule 13(a)-14(e) and timely, alerting them to financial information relating to the Company required to be included in the Company's filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Changes in Internal Controls During the period reported upon, the only significant change in F & M Bank Corp.'s internal controls was an increase in the lending limit of the management loan committee from $800,000 to $1,500,000. No other changes were made pertaining to its financial reporting and control of its assets or in other factors that could significantly affect these controls since the date of their evaluation. Due to the nature of the Company's business as stewards of assets of customers; internal controls are of the utmost importance. The Company has established procedures during the normal course of business to reasonably ensure that fraudulent activity of either a material amount to these results or in any amount is not occurring. In addition to these controls and review by executive officers, the Company retains the services of S. B. Hoover, LLP, a public accounting firm, to complete regular internal audits, which examine the processes and procedures of the Company and the Bank to ensure that these processes are reasonably effective to prevent internal or external fraud and that the processes comply with relevant regulatory guidelines of all relevant banking authorities. The findings of S. B. Hoover are presented to management of the Bank and to the Audit Committee of the Company. 21 Part II Other Information Item 1. Legal Proceedings - Not Applicable Item 1a. Risk Factors - There have been no material changes from the risk factors previously disclosed in Item 1a of the Corporation's Form 10k filed on March 24, 2006. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds- Not Applicable Item 3. Defaults Upon Senior Securities - Not Applicable Item 4. Submission of Matters to a Vote of Security Holders- Not Applicable Item 5. Other Information - Not Applicable Item 6. Exhibits (a)Exhibits 3 i Restated Articles of Incorporation of F & M Bank Corp. are incorporated by reference to Exhibits to F & M Bank Corp.'s 2001 Form 10K filed March 1, 2002. 3 ii Amended and Restated Bylaws of F & M Bank Corp. are incorporated by reference to Exhibits to F & M Bank Corp.'s Form 10K filed March 1, 2002. 31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith). 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith). 32 Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sabanes-Oxley Act of 2002 (filed herewith). 22 Signature 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. /s/ DEAN W. WITHERS ---------------------------- Dean W. Withers President and Chief Executive Officer /s/ NEIL W. HAYSLETT ---------------------------- Neil W. Hayslett Senior Vice President and Chief Financial Officer May 12, 2006 EX-31 2 exhibit311formarch10q2006.txt EXHIBIT 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, Dean W. Withers, 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) 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 (c) 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: May 12, 2006 /s/ DEAN W. WITHERS ------------------------- Dean W. Withers 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 3 exhibit312formarch10q2006.txt EXHIBIT 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, Neil W. Hayslett, 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) 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 (c) 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: May 12, 2006 /s/ NEIL W. HAYSLETT ------------------------- Neil W. Hayslett Senior 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 4 exhibit32formarch10q2006.txt EXHIBIT 32 Exhibit 32 CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER Pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350) The undersigned, as the President and Chief Executive Officer and Senior 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 September 30, 2004, 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 ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 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. /s/ DEAN W. WITHERS ------------------------ Dean W. Withers President and Chief Executive Officer /s/ NEIL W. HAYSLETT ------------------------ Neil W. Hayslett Senior Vice President & Chief Financial Officer May 12, 2006 -----END PRIVACY-ENHANCED MESSAGE-----