10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2015.

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 000-13273

F & M BANK CORP.

Virginia	54-1280811
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer 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 þ No o

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

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting Company	þ
(Do not check if a smaller reporting company)

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

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 November 12, 2015
Common Stock, par value - $5	3,284,654 shares

F & M BANK CORP.

Index
		Page
Part I	Financial Information	3
Item 1.	Financial Statements
	Consolidated Statements of Income – Three Months Ended September 30, 2015 and 2014	3
	Consolidated Statements of Income – Nine Months Ended September 30, 2015 and 2014	4
	Consolidated Statements of Comprehensive Income – Nine Months Ended September 30, 2015 and 2014	5
	Consolidated Balance Sheets – September 30, 2015 and December 31, 2014	6
	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2015 and 2014	7
	Consolidated Statements of Changes in Stockholders’ Equity – Nine Months Ended September 30, 2015 and 2014	8
	Notes to Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	37
Part II	Other Information	38
Item 1.	Legal Proceedings	38
Item 1a.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	38
Signatures		39
Certifications

2

Part I Financial Information

Item 1 Financial Statements

F & M BANK CORP.

Consolidated Statements of Income

(Unaudited)

(In Thousands of Dollars Except per Share Amounts)

	Three Months Ended
	September 30,
Interest income	2015			2014
Interest and fees from loans held for investment	$	7,086		$	6,665
Interest and fees from loans held for sale		295			164
Interest from federal funds sold		4			7
Interest from investment securities		66			37
Total interest income		7,451			6,873
Interest expense
Interest from demand deposits		112			165
Interest from savings accounts		64			31
Interest from time deposits over $100,000		122			145
Interest from other time deposits		228			273
Total interest from deposits		526			614
Interest from short-term debt		24			2
Interest from long-term debt		172			292
Total interest expense		722			908
Net interest income		6,729			5,965
Provision for loan losses		-			750
Net interest income after provision for loan losses		6,729			5,215
Noninterest income
Service charges		257			275
Insurance and other commissions		260			202
Other		352			400
Income from bank owned life insurance		119			118
Total noninterest income		988			995
Noninterest expense
Salaries		1,974			1,767
Employee benefits		555			514
Occupancy expense		164			150
Equipment expense		166			160
FDIC insurance assessment		132			180
Other		1,503			1,152
Total noninterest expense		4,494			3,923
Income before income taxes		3,223			2,287
Income tax expense		994			726
Consolidated net income – F&M Bank Corp.		2,229			1,561
Net income - Noncontrolling interest (income) loss		(39	)		8
Net Income – F & M Bank Corp	$	2,190		$	1,569
Dividends paid on preferred stock		128			-
Net income available to common stockholders	$	2,062		$	1,569
Per share data
Net income available to common stockholders- basic	$	.63		$	.48
Net income available to common stockholders– diluted	$	.59			.48
Cash dividends	$	.18		$	.17
Weighted average common shares outstanding – basic		3,291,133			3,289,743
Weighted average common shares outstanding - diluted		3,735,533			3,289,743

See accompanying notes to Unaudited Consolidated Financial Statements

3

F & M BANK CORP.

Consolidated Statements of Income

(In Thousands of Dollars except per Share Amounts)

(Unaudited)

	Nine Months Ended
	September 30,
Interest income	2015			2014
Interest and fees from loans held for investment	$	20,813		$	19,443
Interest and fees from loans held for sale		808			228
Interest from federal funds sold		12			31
Interest from investment securities		202			136
Total interest income		21,835			19,838
Interest expense
Interest from demand deposits		426			501
Interest from savings accounts		134			88
Interest from time deposits over $100,000		367			453
Interest from other time deposits		700			857
Total interest from deposits		1,627			1,899
Interest from short-term debt		54			6
Interest from long-term debt		424			872
Total interest expense		2,105			2,777
Net interest income		19,730			17,061
Provision for loan losses		300			2,250
Net interest income after provision for loan losses		19,430			14,811
Noninterest income
Service charges		719			786
Insurance and other commissions		770			378
Other		1,037			1,192
Income from bank owned life insurance		354			349
Total noninterest income		2,880			2,705
Noninterest expense
Salaries		5,667			5,114
Employee benefits		1,718			1,491
Occupancy expense		504			465
Equipment expense		480			442
FDIC insurance assessment		522			540
OREO expenses/losses		516			-
Other		3,965			3,410
Total noninterest expense		13,372			11,462
Income before income taxes		8,938			6,054
Income tax expense		2,586			1,844
Consolidated net income – F&M Bank Corp.		6,352			4,210
Net income - Noncontrolling interest (income) loss		(115	)		26
Net Income – F & M Bank Corp	$	6,237		$	4,236
Dividend paid/accumulated on preferred stock		383			-
Net income available to common stockholders	$	5,854		$	4.236
Per share data
Net income available to common stockholders- basic	$	1.78		$	1.38
Net income available to common stockholders– diluted	$	1.67			1.38
Cash dividends	$	.54		$	.51
Weighted average common shares outstanding - basic		3,292,709			3,061,432
Weighted average common shares outstanding – diluted		3,737,109			3,061,432

See accompanying notes to Unaudited Consolidated Financial Statements

4

F & M BANK CORP.

Consolidated Statements of Comprehensive Income

(In Thousands of Dollars)

(Unaudited)

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2015			2014			2015			2014
Net Income:
Net Income – F & M Bank Corp	$	6,237		$	4,236		$	2,190		$	1,569
Net Income (loss) attributable to noncontrolling interest		115			(26	)		39			(8	)
Consolidated net income		6,352			4,210			2,229			1,561
Other comprehensive income:
Unrealized holding gains on available-for-sale securities		44			20			21			25
Tax effect		(15	)		(7	)		(7	)		(9	)
Unrealized holding gain, net of tax		29			13			14			16
Total other comprehensive income		29			13			14			16
Comprehensive income	$	6,381		$	4,223		$	2,243		$	1,577

See accompanying notes to Unaudited Consolidated Financial Statements

5

F & M BANK CORP.

Consolidated Balance Sheets

(In Thousands of Dollars Except per Share Amounts)

	September 30,			December 31,
	2015			2014
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	6,420		$	6,241
Money market funds		490			911
Federal funds sold		-			16,051
Cash and cash equivalents		6,910			23,203
Securities:
Held to maturity – fair value of $125 in 2015 and $125 in 2014		125			125
Available for sale		13,173			13,215
Other investments		10,845			8,964
Loans held for sale		55,482			13,382
Loans held for investment		540,415			518,202
Less: allowance for loan losses		(8,870	)		(8,725	)
Net loans held for investment		531,545			509,477
Other real estate owned		2,462			3,507
Bank premises and equipment, net		7,369			6,458
Interest receivable		1,655			1,675
Goodwill		2,670			2,670
Bank owned life insurance		12,928			12,581
Other assets		10,937			10,051
Total assets	$	656,101		$	605,308
Liabilities
Deposits:
Noninterest bearing	$	126,299		$	112,198
Interest bearing:
Demand		75,316			93,694
Money market accounts		26,581			25,900
Savings		86,093			64,249
Time deposits over $100,000		61,089			79,813
All other time deposits		108,439			115,651
Total deposits		483,817			491,505
Short-term debt		38,239			14,358
Accrued liabilities		13,314			11,772
Long-term debt		38,893			9,875
Total liabilities		574,263			527,510
Stockholders’ Equity
Preferred Stock $5 par value, 400,000 shares authorized, issued and outstanding		9,425			9,425
Common stock, $5 par value, 6,000,000 shares authorized, 3,284,513 and
3,287,470 shares issued and outstanding		16,423			16,459
Additional paid in capital – common stock		11,135			11,260
Retained earnings		46,629			42,554
Noncontrolling interest		524			426
Accumulated other comprehensive loss		(2,298	)		(2,326	)
Total stockholders’ equity		81,838			77,798
Total liabilities and stockholders’ equity	$	656,101		$	605,308

See accompanying notes to Unaudited Consolidated Financial Statements

6

F & M BANK CORP.

Consolidated Statements of Cash Flows

(In Thousands of Dollars)

(Unaudited)

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities
Net income	$	6,237		$	4,236
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		525			449
Amortization of security premiums, net		109			61
Origination of loans held for sale		(56,301	)		(41,385	)
Sale of loans originated and held for sale		55,298			39,799
Provision for loan losses		300			2,250
(Increase) Decrease in interest receivable		20			(38	)
Increase in other assets		(916	)		(2,492	)
Increase (decrease) in accrued expenses		1,660			(65	)
Amortization of limited partnership investments		470			456
Income from bank owned life insurance		(354	)		(348	)
Loss on Other Real Estate Owned		511			43
Net adjustments		1,322			(1,270	)
Net cash provided by operating activities		7,559			2,966
Cash flows from investing activities
Purchase of investments available for sale		(10,540	)		(8,614	)
Proceeds from maturity of investments available for sale		8,167			27,323
Purchase of investments held to maturity		-			(125	)
Proceeds from maturity of investments held to maturity		-			106
Net increase in loans held for investment		(22,195	)		(10,740	)
Net increase in participation loans held for sale		(41,098	)		(32,376	)
Proceeds from the sale of other real estate owned		361			779
Purchase of property and equipment		(1,435	)		(391	)
Net cash used in investing activities		(66,740	)		(24,038	)
Cash flows from financing activities
Increase in demand and savings deposits		18,248			22,845
Decrease in time deposits		(25,936	)		646
Increase  in short-term debt		23,881			361
Cash dividends paid		(2,161	)		(1,545	)
Proceeds from issuance of common stock		99			12,080
Repurchase of common stock		(261	)		-
Proceeds from long-term debt		30,000			10,000
Repayment of long-term debt		(982	)		(6,500	)
Net cash provided by financing activities		42,888			37,887
Net (Decrease) Increase in Cash and Cash Equivalents		(16,293	)		16,815
Cash and cash equivalents, beginning of period		23,203			6,545
Cash and cash equivalents, end of period	$	6,910		$	23,360
Supplemental disclosure
Cash paid for:
Interest expense	$	2,126		$	2,745
Income taxes		1,500			1,300
Transfers from loans to Other Real Estate Owned		155			2,930
Noncash exchange of other real estate owned		(328	)		(780	)

See accompanying notes to Unaudited Consolidated Financial Statements

7

F & M BANK CORP.

Consolidated Statements of Changes in Stockholders’ Equity

(In Thousands of Dollars)

(Unaudited)

	Nine Months Ended
	September 30,
	2015			2014
Balance, beginning of period	$	77,798		$	54,141
Comprehensive income
Net income – F & M Bank Corp		6,237			4,236
Net income attributable to noncontrolling interest		115			(26	)
Net change in unrealized appreciation on securities available for sale, net of taxes		29			13
Total comprehensive income		6,381			4,223
Minority interest capital distributions		(18	)		15
Issuance of common stock		99			12,080
Repurchase of common stock		(261	)		-
Dividends paid		(2,161	)		(1,545	)
Balance, end of period	$	81,838		$	68,914

See accompanying notes to Unaudited Consolidated Financial Statements

8

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 1. Summary of significant accounting policies

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 of America 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 September 30, 2015 and the results of operations for the quarters and nine month periods ended September 30, 2015 and 2014.  The notes included herein should be read in conjunction with the notes to financial statements included in the 2014 annual report to shareholders of 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.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and gains or losses on certain derivative contracts, are reported as a separate component of the equity section of the balance sheet. Such items, along with operating net income, are components of comprehensive income.

Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

Loans Held for Investment

Loans are carried on the balance sheet net of any unearned interest and the allowance for loan losses.  Interest income on loans is determined using the effective interest method on the daily amount of principal outstanding except where serious doubt exists as to collectability of the loan, in which case the accrual of income is discontinued.

Loans Held for Sale

These loans consist of fixed rate loans made through its subsidiary, VBS Mortgage and loans purchased from NorthPointe Bank, Grand Rapids, MI.

Allowance for Loan Losses

The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance that management considers adequate to absorb potential losses in the portfolio.  Loans are charged against the allowance when management believes the collectability of the principal is unlikely.  Recoveries of amounts previously charged-off are credited to the allowance. Management’s determination of the adequacy of the allowance is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, and other risk factors.  Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, particularly those affecting real estate values.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

9

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 1. Summary of significant accounting policies, continued

Allowance for Loan Losses, continued

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Nonaccrual Loans

Loans are placed on nonaccrual status when they become ninety days or more past due, unless there is an expectation that the loan will either be brought current or paid in full in a reasonable period of time.

Earnings per Share

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

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

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

	For the Nine months ended		For the Quarter ended		For the Nine months ended		For the Quarter ended
	September 30, 2015		September 30, 2015		September 30, 2014		September 30, 2014
Earnings available to common stockholders:
Net income	$	6,351,521	$	2,229,213	$	4,210,028	$	1,561,179
Minority interest		115,397		39,273		26,300		8,208
Preferred stock dividends		382,500		127,500		-		-
Net income available to common stockholders	$	5,853,624	$	2,062,440	$	4,236,328	$	1,569,387

10

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 1. Summary of significant accounting policies, continued

Earnings per Share, continued

The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated.   Preferred stock was not issued at September 30, 2014 therefore there is no prior year data presented.

	Nine months ended September 30, 2015							Quarter ended September 30, 2015
	Income		Shares		Per Share			Income		Shares		Per Share
Basic common EPS	$	5,853,624		3,292,709	$	1.78		$	2,062,440		3,291,133	$	0.63
Effect of dilutive securities:
Convertible preferred stock		382,500		444,400		(0.08	)		127,500		444,400		(0.04	)
Diluted common EPS	$	6,236,124		3,737,109	$	1.67		$	2,189,940		3,735,533	$	0.59

Note 2. Investment Securities

Investment securities available for sale are carried in the consolidated balance sheets at their approximate market value, amortized cost and unrealized gains and losses at September 30, 2015 and December 31, 2014 are reflected in the table below.  The amortized costs of investment securities held to maturity are carried in the consolidated balance sheets and their approximate market values at September 30, 2015 and December 31, 2014 are as follows (in thousands):

	2015				2014
			Market				Market
	Cost		Value		Cost		Value
Securities held to maturity
U. S. Treasury and agency obligations	$	125	$	125	$	125	$	125
Total	$	125	$	125	$	125	$	125

			September 30, 2015 Unrealized				Market
	Cost		Gains		Losses		Value
Securities available for sale
U. S. Treasury	$	4,018	$	29	$	-	$	4,047
Government sponsored enterprises		8,115		10		6		8,119
Mortgage-backed securities		858		14		-		872
Corporate equities		135		-		-		135
Total	$	13,126	$	53	$	6	$	13,173

			December 31, 2014 Unrealized				Market
	Cost		Gains		Losses		Value
Securities available for sale
U. S. Treasury	$	4,026	$	-	$	6	$	4,020
Government sponsored enterprises		8,039		9		10		8,038
Mortgage-backed securities		1,011		11		-		1,022
Corporate equities		135		-		-		135
Total	$	13,211	$	20	$	16	$	13,215

11

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 2. Investment Securities, continued

The amortized cost and fair value of securities at September 30, 2015, by contractual maturity are shown below (in thousands).  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Held to Maturity				Securities Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	125	$	125	$	-	$	-
Due after one year through five years		-		-		12,133		12,166
Due after five years		-		-		993		1,007
Total	$	125	$	125	$	13,126	$	13,173

There were no gains and losses on sales of securities in the third quarter or nine month period ended September 30 of 2015 or 2014.  There were also no securities with an other than temporary impairment.

The fair value and gross unrealized losses for securities, segregated by the length of time that individual securities have been in a continuous gross unrealized loss position, at September 30, 2015 and December 31, 2014 were as follows (dollars in thousands):

	Less than 12 Months					More than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2015
U. S. Treasury	$	-	$	-		$	-	$	-		$	-	$	-
Government sponsored Enterprises		4,013		(6	)		-		-			4,013		(6	)
Total	$	4,013	$	(6	)	$	-	$	-		$	4,013	$	(6	)
December 31, 2014
U. S. Treasury	$	4,020	$	(6	)	$	-	$	-		$	4,020	$	(6	)
Government sponsored Enterprises		2,004		(2	)		1,991		(8	)		3,995		(10	)
Total	$	6,024	$	(8	)	$	1,991	$	(8	)	$	8,015	$	(16	)

Other investments, which consist of stock of correspondent banks and investments in low income housing projects, increased since December 31, 2014.  This increase is due to FHLB stock repurchases which were partially offset with an increase in the Federal Reserve Bank Stock holding requirement.

Note 3. Loans Held for Investment

Loans outstanding at September 30, 2015 and December 31, 2014 are summarized as follows

	2015		2014
Construction/Land Development	$	68,597	$	67,181
Farmland		12,739		12,507
Real Estate		165,324		162,249
Multi-Family		11,949		11,775
Commercial Real Estate		127,197		122,305
Home Equity – closed end		9,270		9,394
Home Equity – open end		55,202		52,182
Commercial & Industrial – Non-Real Estate		27,545		28,161
Consumer		7,979		9,110
Dealer Finance		52,032		40,633
Credit Cards		2,581		2,705
Total	$	540,415	$	518,202

12

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 3. Loans Held for Investment, continued

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

			Unpaid				Average		Interest
September 30, 2015	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$	3,307	$	3,445	$	-	$	4,349	$	110
Farmland		-		-		-		-		-
Real Estate		1,051		1,051		-		543		43
Multi-Family		-		-		-		-		-
Commercial Real Estate		322		322		-		1,162		13
Home Equity – closed end		-		-		-		-		-
Home Equity – open end		1,559		1,559		-		1,281		82
Commercial & Industrial – Non-Real Estate		183		183		-		189		9
Consumer		19		19		-		4		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		2
		6,441		6,579				7,528		259
Impaired loans with a valuation allowance
Construction/Land Development		12,258		12,258		2,063		13,074		220
Farmland		-		-		-		-		-
Real Estate		753		753		52		817		43
Multi-Family		-		-		-		-		-
Commercial Real Estate		895		895		24		925		3
Home Equity – closed end		-		-		-		-		-
Home Equity – open end		1,649		1,649		47		330		58
Commercial & Industrial – Non-Real Estate		-		-		-		-		-
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		40		40		11		32		3
		15,595		15,595		2,197		15,178		327
Total impaired loans	$	22,036	$	22,174	$	2,197	$	22,706	$	586

The Recorded Investment is defined as the principal balance less principal payments and charge-offs.

13

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 3. Loans Held for Investment, continued

			Unpaid				Average		Interest
December 31, 2014	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$	4,982	$	5,402	$	-	$	5,412	$	251
Farmland		-		-		-		1,163		-
Real Estate		141		141		-		85		5
Multi-Family		-		-		-		-		-
Commercial Real Estate		1,159		1,459		-		1,450		66
Home Equity – closed end		-		-		-		123		-
Home Equity – open end		1,649		1,649		-		330		57
Commercial & Industrial – Non-Real Estate		191		191		-		237		11
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		-
		8,122		8,842				8,800		390
Impaired loans with a valuation allowance
Construction/Land Development		12,976		14,749		1,469		12,056		326
Farmland		-		-		-		-		-
Real Estate		926		926		101		988		105
Multi-Family		-		-		-		-		-
Commercial Real Estate		938		938		47		1,030		4
Home Equity – closed end		-		-		-		72		-
Home Equity – open end		-		-		-		40		-
Commercial & Industrial – Non-Real Estate		-		-		-		-		-
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		-
		14,840		16,613		1,617		14,186		435
Total impaired loans	$	22,962	$	25,455	$	1,617	$	22,986	$	825

14

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 4. Allowance for Loan Losses

A summary of the allowance for loan losses follows (in thousands):

For the nine months ended September 30, 2015	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,738	$	138	$	83	$	471		$	5,154	$	2,063	$	3,091
Farmland		102		-		-		(15	)		87		-		87
Real Estate		623		25		-		(112	)		486		51		435
Multi-Family		95		-		-		(13	)		82		-		82
Commercial Real Estate		126		-		47		(78	)		95		24		71
Home Equity – closed end		188		26		6		(8	)		160		-		160
Home Equity – open end		154		51		-		82			185		48		137
Commercial & Industrial – Non-Real Estate		1,014		-		60		(246	)		828		-		828
Consumer		214		23		23		(9	)		205		-		205
Dealer Finance		1,336		111		20		232			1,477		11		1,466
Credit Cards		135		56		36		(4	)		111		-		111
Total	$	8,725	$	430	$	275	$	300		$	8,870	$	2,197	$	6,673

For the year ended December 31, 2014	Beginning Balance			Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,007		$	1,611	$	223	$	2,119		$	4,738	$	1,469	$	3,269
Farmland		(2	)		-		-		104			102		-		102
Real Estate		400			208		-		431			623		101		522
Multi-Family		-			-		-		95			95		-		95
Commercial Real Estate		777			-		108		(759	)		126		47		79
Home Equity – closed end		157			-		-		31			188		-		188
Home Equity – open end		476			80		-		(242	)		154		-		154
Commercial & Industrial – Non-Real Estate		1,464			385		356		(421	)		1,014		-		1,014
Consumer		156			33		33		58			214		-		214
Dealer Finance		628			107		6		809			1,336		-		1,336
Credit Cards		121			46		35		25			135		-		135
Total	$	8,184		$	2,470	$	761	$	2,250		$	8,725	$	1,617	$	7,108

15

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 4. Allowance for Loan Losses, continued

September 30, 2015	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	68,597	$	15,565	$	53,032
Farmland		12,739		-		12,739
Real Estate		165,324		1,804		163,520
Multi-Family		11,949		-		11,949
Commercial Real Estate		127,197		1,217		125,980
Home Equity – closed end		9,270		-		9,270
Home Equity –open end		55,202		3,208		51,994
Commercial & Industrial – Non-Real Estate		27,545		183		27,362
Consumer		7,979		19		7,960
Dealer Finance		52,032		40		51,992
Credit Cards		2,581		-		2,581
	$	540,415	$	22,036	$	518,379
Total

Recorded Investment in Loan Receivables (in thousands)

December 31, 2014	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	67,181	$	17,958	$	49,223
Farmland		12,507		-		12,507
Real Estate		162,249		1,067		161,182
Multi-Family		11,775		-		11,775
Commercial Real Estate		122,305		2,097		120,208
Home Equity – closed end		9,394		-		9,394
Home Equity –open end		52,182		1,649		50,533
Commercial & Industrial – Non-Real Estate		28,161		191		27,970
Consumer		9,110		-		9,110
Dealer Finance		40,633				40,633
Credit Cards		2,705		-		2,705
	$	518,202	$	22,962	$	495,240
Total

Aging of Past Due Loans Receivable (in thousands) as of September 30, 2015

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Non-Accrual Loans		Total Past Due		Current		Total Loan Receivable
September 30, 2015
Construction/Land Development	$	254	$	2,030	$	-	$	4,761	$	7,045	$	61,552	$	68,597
Farmland		-		-		-		-		-		12,739		12,739
Real Estate		2,954		1,118		62		1,066		5,200		160,124		165,324
Multi-Family		-		-		-		-		-		11,949		11,949
Commercial Real Estate		315		-		-		-		315		126,882		127,197
Home Equity – closed end		42		4		-		-		46		9,224		9,270
Home Equity – open end		520		224		30		41		815		54,387		55,202
Commercial & Industrial – Non- Real Estate		33		59		-		75		167		27,378		27,545
Consumer		44		15		-		-		59		7,920		7,979
Dealer Finance		706		286		-		349		1,341		50,691		52,032
Credit Cards		36		8		2		-		46		2,535		2,581
Total	$	4,904	$	3,744	$	94	$	6,292	$	15,034	$	525,381	$	540,415

16

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 4. Allowance for Loan Losses, continued

Aging of Past Due Loans Receivable (in thousands) as of December 31, 2014

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Non-Accrual Loans		Total Past Due		Current		Total Loan Receivable
December 31, 2014
Construction/Land Development	$	205	$	166	$	-	$	4,508	$	4,879	$	62,302	$	67,181
Farmland		-		-		-		-		-		12,507		12,507
Real Estate		5,085		635		-		973		6,693		155,556		162,249
Multi-Family		-		-		-		-		-		11,775		11,775
Commercial Real Estate		747		-		-		1,165		1,912		120,393		122,305
Home Equity – closed end		162		15		-		10		187		9,207		9,394
Home Equity – open end		730		25		-		143		898		51,284		52,182
Commercial & Industrial – Non- Real Estate		-		-		-		14		14		28,147		28,161
Consumer		290		9		-		-		299		8,811		9,110
Dealer Finance		696		189		-		161		1,046		39,587		40,633
Credit Cards		36		-		1		-		37		2,668		2,705
Total	$	7,951	$	1,039	$	1	$	6,974	$	15,965	$	502,237	$	518,202

CREDIT QUALITY INDICATORS (in thousands)

AS OF SEPTEMBER 30, 2015

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	342	$	8,053	$	31,514	$	8,538	$	5,757	$	14,393	$	-	$	68,597
Farmland		66		-		1,936		3,688		4,968		2,081		-		-		12,739
Real Estate		-		1,028		56,568		72,890		23,131		8,297		3,410		-		165,324
Multi-Family		-		410		3,974		3,078		4,487		-		-		-		11,949
Commercial Real Estate		-		1,721		27,312		69,002		20,126		7,733		1,303		-		127,197
Home Equity – closed end		-		-		3,675		3,772		1,682		123		18		-		9,270
Home Equity – open end		-		1,713		14,955		29,700		4,400		399		4,035		-		55,202
Commercial & Industrial (Non-Real Estate)		523		75		6,941		17,304		2,130		461		111		-		27,545
Total	$	589	$	5,289	$	123,414	$	230,948	$	69,462	$	24,851	$	23,270	$	-	$	477,823

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,579	$	59,662
Non performing		2		349
Total	$	2,581	$	60,011

17

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 4. Allowance for Loan Losses, continued

CREDIT QUALITY INDICATORS (in thousands)

AS OF DECEMBER 31, 2014

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	165	$	8,460	$	24,227	$	9,605	$	3,815	$	20,909	$	-	$	67,181
Farmland		68		-		1,640		3,451		5,228		-		2,120		-		12,507
Real Estate		-		629		60,290		66,464		23,934		7,083		3,849		-		162,249
Multi-Family		-		468		4,145		2,183		4,979		-		-		-		11,775
Commercial Real Estate		-		1,687		22,800		65,653		19,058		10,571		2,536		-		122,305
Home Equity – closed end		-		-		4,327		3,090		1,812		154		11		-		9,394
Home Equity – open end		-		1,555		13,433		28,425		4,309		1,936		2,524		-		52,182
Commercial & Industrial (Non-Real Estate)		643		74		4,692		18,039		3,948		735		30		-		28,161
Total	$	711	$	4,578	$	119,787	$	211,532	$	72,873	$	24,294	$	31,979	$	-	$	465,754

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,704	$	49,582
Non performing		1		161
Total	$	2,705	$	49,743

Description of loan grades:

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

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

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

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

18

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 4. Allowance for Loan Losses, continued

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

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

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

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

19

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 5. Employee Benefit Plan

The Bank has a qualified noncontributory defined benefit pension plan that covers substantially all of its employees.  The benefits are primarily based on years of service and earnings.  The Bank contributed $750,000 to the plan in the first quarter of 2015 and does not anticipate additional contributions for the 2015 plan year.  The following is a summary of net periodic pension costs for the nine month and three month periods ended September 30, 2015 and 2014.

	Nine Months Ended						Three Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Service cost	$	486,251		$	375,771		$	162,084		$	125,257
Interest cost		308,208			283,281			102,736			94,427
Expected return on plan assets		(629,114	)		(523,689	)		(209,705	)		(174,563	)
Amortization of net obligation at transition		-			-			-			-
Amortization of prior service cost		(11,427	)		(11,427	)		(3,809	)		(3,809	)
Amortization of net (gain) or loss		135,482			27,084			45,161			9,028
Net periodic pension cost	$	289,400		$	151,020		$	96,467		$	50,340

Note 6. Fair Value

Accounting Standards Codification (ASC) 820, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement

The following sections provide a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. Treasury, U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

20

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 6. Fair Value, continued

Impaired Loans: ASC 820 applies to loans measured for impairment using the practical expedients permitted by ASC 310 including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral.

Other Real Estate Owned: Certain assets such as other real estate owned (OREO) are measured at the lower of carrying amount or fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of ASC 820.

Derivative Financial Instruments: The equity derivative contracts are purchased as part of our Indexed Certificate of Deposit (ICD) program and are an offset of an asset and liability.  ICD values are measured on the S&P 500 Index.

For level 3 assets and liabilities measured at fair value on a recurring basis or non-recurring basis as of September 30, 2014 and December 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at September 30, 2015		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	13,398	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%
Other Real Estate Owned	$	2,462	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%

	Fair Value at December 31, 2014		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	13,223	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%
Other Real Estate Owned	$	3,507	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%

21

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 6. Fair Value, continued

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands).

September 30, 2015	Total		Level 1		Level 2		Level 3
U.S. Treasury Securities	$	4,047	$	-	$	4,047
Government sponsored enterprises		8,119		-		8,119		-
Mortgage-backed securities		872		-		872		-
Marketable equities		135		-		135		-
Investment securities available for sale	$	13,173	$	-	$	13,173	$	-
Total assets at fair value	$	13,173	$	-	$	13,173	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-
Derivative financial instruments at fair value	$	34	$	-	$	34	$	-

December 31, 2014	Total		Level 1		Level 2		Level 3
U. S. Treasuries	$	4,020	$	-	$	4,020	$	-
Government sponsored enterprises		8,038		-		8,038		-
Mortgage-backed securities		1,022		-		1,022		-
Marketable equities		135		-		135		-
Investment securities available for sale		13,215		-		13,215		-
Total assets at fair value		13,215		-		13,215		-
Total liabilities at fair value	$	-	$	-	$	-	$	-
Derivative financial instruments at fair value	$	33	$	-	$	33	$	-

22

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 6. Fair Value, continued

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis

September 30, 2015	Total		Level 1		Level 2		Level 3
Other Real Estate Owned	$	2,462		-		-	$	2,462
				-		-
Construction/Land Development		10,195		-		-		10,195
Farmland		-		-		-		-
Real Estate		702		-		-		702
Multi-Family		-		-		-		-
Commercial Real Estate		871		-		-		871
Home Equity – closed end		-		-		-		-
Home Equity – open end		1,601		-		-		1,601
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		29		-		-		29
Total Impaired loans		13,398		-		-		13,398
Total assets at fair value	$	15,860	$	-	$	-	$	15,860
Total liabilities at fair value	$	-	$	-	$	-	$	-

The table below presents the recorded amount of assets and liabilities measured at fair value on a non-recurring basis (in thousands).  The Company has determined that Other Real Estate Owned and Impaired Loans are Level 3.

December 31, 2014	Total		Level 1		Level 2		Level 3
Other Real Estate Owned	$	3,507		-		-	$	3,507
				-		-
Construction/Land Development		11,507		-		-		11,507
Farmland		-		-		-		-
Real Estate		825		-		-		825
Multi-Family		-		-		-		-
Commercial Real Estate		891		-		-		891
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		-		-		-		-
Total Impaired loans		13,223		-		-		13,223
Total assets at fair value	$	16,730		-	$	-	$	16,730
Total liabilities at fair value	$	-	$	-	$	-	$	-

23

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 7. Disclosures About Fair Value of Financial Instruments

ASC 825 “Financial Instruments” defines the fair value of a financial instrument as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation or sale.  As the majority of the Bank’s financial instruments lack an available trading market, significant estimates, assumptions and present value calculations are required to determine estimated fair value.  The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2015 and December 31, 2014.  This table excludes financial instruments for which the carrying amount approximates the fair value, which would be Level 1; inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. All financial instruments above and below are considered Level 2 with the exception of impaired loans of $13,398,000 and $13,223,000 at September 30, 2015 and December 31, 2014, respectively, which are considered level 3.  Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument (in thousands).

	September 30, 2015				December 31, 2014
	Estimated		Carrying		Estimated		Carrying
	Fair Value		Value		Fair Value		Value
Financial Assets
Loans, gross	$	568,774	$	540,415	$	551,338	$	518,202
Financial Liabilities
Time deposits	$	170,548	$	169,528		196,826		195,464
Long-term debt	$	39,610	$	38,893		9,862		9,875

The carrying value of cash and cash equivalents, other investments, deposits with no stated maturities, short-term borrowings, and accrued interest approximate fair value. The fair value of securities was calculated using the most recent transaction price or a pricing model, which takes into consideration maturity, yields and quality.  The remaining financial instruments were valued based on the present value of estimated future cash flows, discounted at various rates in effect for similar instruments entered into as of the end of each respective period shown above.

Note 8. Troubled Debt Restructuring

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

In the nine months ended September 30, 2015, there were fifteen loan modifications that were considered to be troubled debt restructurings.  Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.

	Nine months ended September 30, 2015
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
Troubled Debt Restructurings	Number of Contracts		Recorded Investment		Recorded Investment
Commercial		1	$	978	$	978
Real Estate		5		3,342		3,342
Home Equity		5		1,648		1,648
Consumer		4		40		40
Total		15	$	6,008	$	6,008

24

F & M BANK CORP.

Notes to (unaudited) Consolidated Financial Statements

Note 8. Troubled Debt Restructuring, continued

During the quarter ended September 30, 2015, there were seven loan modifications that were considered to be troubled debt restructurings.

	Three Months ended September 30, 2015
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Commercial		1	$	978	$	978
Real Estate		1		612	$	612
Home Equity		5		1,648		1,648
Total		7	$	3,238	$	3,238

There were no troubled debt restructurings from the previous twelve months that went into default in 2015.  A restructured loan is considered in default when it becomes 90 days past due.

In the nine months ended September 30, 2014, there were three (one loan during quarter ended September 30, 2014) loan modifications that were considered to be troubled debt restructurings.  Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.

	Nine months ended September 30, 2014
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Commercial			$	-	$	-
Real Estate		2		181		181
Home Equity				-		-
Credit Cards				-		-
Consumer		1		23		23
Total			$	204	$	204

 There were no troubled debt restructurings from the previous twelve months that went into default in 2014.  A restructured loan is considered in default when it becomes 90 days past due.

25

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

F & M Bank Corp. (Company)  incorporated in Virginia in 1983, is a one-bank holding company pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956, which provides financial services through its wholly-owned subsidiary Farmers & Merchants Bank (Bank). TEB Life Insurance Company (TEB) and Farmers & Merchants Financial Services (FMFS) are wholly-owned subsidiaries of the Bank. The Bank also holds a majority ownership in VBS Mortgage LLC (VBS).

The Bank is a full service commercial bank offering a wide range of banking and financial services through its ten branch offices as well as its loan production offices located in Penn Laird, VA (which specializes in providing automobile financing through a network of automobile dealers) and in Fishersville, VA.  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. VBS originates conventional and government sponsored mortgages through their offices in Harrisonburg and Woodstock, VA.

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

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

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.

26

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Critical Accounting Policies

General

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The financial information contained within the statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. 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) ASC 450 “Contingencies”, which requires that losses be accrued when they are probable of occurring and estimable and (ii) ASC 310 “Receivables”, which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.  For further discussion refer to page 31 in the Management Discussion and Analysis.

Goodwill and Intangibles

ASC 805 “Business Combinations” and ASC 350 “Intangibles” require 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. ASC 350 prescribes the accounting for goodwill and intangible assets subsequent to initial recognition. The provisions of ASC 350 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. ASC 350 also requires that reporting units be identified for the purpose of assessing potential future impairments of goodwill.

Securities Impairment

For a complete discussion of securities impairment see Note 2 of the Notes to Consolidated Financial Statements.

Overview

Net income for the nine months ended September 30, 2015 was $6,237,000 or $1.78 per share, compared to $4,236,000 or $1.38 in the same period in 2014, an increase of 47.24%. Noninterest income increased 6.47% and noninterest expense increased 16.66% during the same period.  Net income from Bank operations adjusted for income or loss from Parent activities is as follows:

In thousands	2015		2014
Net Income from Bank Operations	$	6,090	$	4,141
Income from Parent Company Activities		147		95
Net Income for the nine months ended September 30	$	6,237	$	4,236

27

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

Results of Operations

As shown in Table I on page 35, the 2015 year to date tax equivalent net interest income increased $2,660,000 or 15.52% compared to the same period in 2014.  Third quarter tax equivalent net interest income increased $735,000 or 12.26% compared to September 30, 2014.  The tax equivalent adjustment to net interest income totaled $65,000 for the quarter.  The year to date yield on earning assets decreased .02%, while the cost of funds decreased .27% compared to the same period in 2014.  The cost of long term debt decreased due to the redemption of the subordinated debt agreements and reduced cost of FHLB advances, this was the primary driver of the reduction of cost of funds.

Year to date, the combination of the increase in yield on assets and the decrease in cost of funds coupled with changes in balance sheet leverage has resulted in the net interest margin increasing to 4.45%, an increase of .16% when compared to the same period in 2014.  Third quarter net interest margin increased to 4.41%, an increase of .05% when compared to September 30, 2014. A schedule of the net interest margin for the nine month and three month periods ended September 30, 2015 and 2014 can be found in Table I on page 35.

The Interest Sensitivity Analysis contained in Table II on page 36 indicates the Company is in an asset sensitive position in the one year time horizon.  This would indicate that in a rising rate environment net interest income and net interest margin would increase as a result of assets repricing faster than liabilities. As the notes to the table indicate, the data was based in part on assumptions as to when certain assets or liabilities would mature or reprice. Approximately 39.88% of rate sensitive assets and 40.22% of rate sensitive liabilities are subject to repricing within one year. Liquid assets have been used to pay off maturing long term FHLB borrowings, which when coupled with depositors reluctance to tie up funds at historically low rates has resulted in the decrease in the positive GAP position in the one year time period.

Noninterest income increased $175,000 or 6.47% for the nine month period ended September 30, 2015.  The increase is primarily due to an increase in insurance and other commissions from the bank subsidiaries.  The noninterest income for the quarter ended September 30, 2015 decreased $7,000 or .70% over the same period in 2014.

Noninterest expense increased $1,910,000 for the nine month period ended September 30, 2015 as compared to 2014. Areas of expense increase were salary and benefits and losses related to other real estate owned.  The Company’s operating costs have always compared favorably to the peer group (Holding Companies with Consolidated Assets of $500 million to $1 billion) due to an excellent asset to employee ratio and below average facilities costs.

28

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

Balance Sheet

Federal Funds Sold and Interest Bearing Bank Deposits

The Company’s subsidiary bank invests a portion of its excess liquidity in either federal funds sold or interest bearing bank deposits. Federal funds sold offer daily liquidity and pay market rates of interest that at quarter end were benchmarked at 0% to .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. Combined balances in fed funds sold and interest bearing bank deposits have deceased since year end 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 and as security for certain public funds and repurchase agreements.

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 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 stockholders’ equity.

As of September 30, 2015, the market value of securities available for sale exceeded the cost by $47,000. The portfolio is made up of primarily agency securities with an average portfolio life of just under three years. This short average life results in less portfolio volatility and positions the Bank to redeploy assets in response to rising rates. There are no additional scheduled maturities in 2015.

In reviewing investments as of September 30, 2105, there were no securities which met the definition for other than temporary impairment.  Management continues to re-evaluate the portfolio for impairment on a quarterly basis.

Loan Portfolio

The Company operates in a predominately rural area that includes the counties of Rockingham, Page, Shenandoah and Augusta in the western portion of Virginia. The local economy benefits from a variety of businesses including agri-business, manufacturing, service businesses and several universities and colleges.  The Bank is an active residential mortgage and residential construction lender and generally makes commercial loans to small and mid size businesses and farms within its primary service area.

Lending is geographically diversified within the service area.  The only concentration within the portfolio is in construction and development lending.  Management and the Board of Directors review this concentration and other potential areas of concentration quarterly.

29

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

Loans Held for Investment of $540,415,000 increased $22.2 million at September 30, 2015 compared to December 31, 2014.  The dealer finance portfolio increased $11.4 million, commercial real estate increased $4.9 million, real estate increased $3.1 million and open ended home equities increased $3.0 million.  These increases were offset by decreases in consumer loans of $1.1 million.

Loans Held for Sale totaled 55,482,000 at September 30, 2015, an increase of $42,100,000 compared to December 31, 2014.  The secondary market loan originations have remained strong throughout 2015.  Average balances and income from loans held for sale are detailed in the Table 1 on page 36.

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.  Nonperforming loans totaled $6,386,000 at September 30, 2015 compared to $6,975,000 at December 31, 2014.  Although the potential exists for loan losses, management believes the bank is generally well secured and continues to actively work with its customers to effect payment.  As of September 30, 2015, the Company holds $2,462,000 of real estate which was acquired through foreclosure. This is a decrease of $1,045,000 compared to December 31, 2013.

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

	September 30, 2015			December 31, 2014
Nonaccrual Loans
Real Estate	$	5,828		$	5,481
Commercial		75			1,179
Home Equity		41			153
Other		348			161
		6.292			6,974
Loans past due 90 days or more (excluding nonaccrual)
Real Estate		62			-
Commercial		-			-
Home Equity		30			-
Other		2			1
		94			1
Total Nonperforming loans	$	6,386		$	6,975
Restructured Loans current and performing:
Real Estate		10,766			3,913
Commercial		1,482			518
Home Equity		1,649			290
Other		34			22
Nonperforming loans as a percentage of loans held for investment		1.18	%		1.35	%
Net loan losses  to average loans outstanding (held for investment)		.03	%		.33	%
Allowance for loan and lease losses to nonperforming loans		138.90	%		125.09	%

30

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

Allowance for Loan Losses

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

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

In evaluating the portfolio, loans are segregated into loans with identified potential losses and pools of loans by type 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 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 ASC 450.

Loans that are not impaired are categorized by call report code and an estimate is calculated based on actual loss experience over the last two years.  Dealer finance loans utilize a five year loss history.  The Company will monitor the net losses for this division and adjust based on how the portfolio performs since the department was established in 2012. A general allowance for inherent losses has been established to reflect other unidentified losses within the portfolio. The general allowance is calculated using eight environmental factors (loan growth, unemployment, past due/criticized loans, interest rates, changes in underwriting practices, local real estate industry conditions, and experience of lending staff) with a range for worst and best case.  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 two year loss histories. The Board approves the loan loss provision for each quarter based on this evaluation. An effort is made to keep the actual allowance at or above the midpoint of the range established by the evaluation process.

The allowance for loan losses of $8,870,000 at September 30, 2015 is equal to 1.64% of loans held for investment. This compares to an allowance of $8,725,000 (1.68%) at December 31, 2014.  Based on the evaluation of the loan portfolio described above, management has funded the allowance a total of $300,000 in the first nine months of 2015.  Net charge-offs year to date totaled $155,000.

The overall level of the allowance has been increasing for several years and now approximates the national peer group average.  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.

31

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

Deposits and Other Borrowings

The Company's main source of funding is comprised of deposits received from individuals, governmental entities and businesses located within the Company's service area.  Deposit accounts include demand deposits, savings, money market and certificates of deposit.  Total deposits have decreased $7,688,000 since December 31, 2014.  Time deposits decreased $25,936,000 during this period while demand deposits and savings deposits increased $18,248,000.  The increase in demand deposits and savings deposits is a result of new account growth during the year.  The Bank also participates in the CDARS program.  CDARS (Certificate of Deposit Account Registry Service) is a program that allows the bank to accept customer deposits in excess of FDIC limits and through reciprocal agreements with other network participating banks by offering FDIC insurance up to as much as $50 million in deposits. The CDARS program also allows the Bank to purchase funds through its One-Way Buy program. At quarter end the Bank had a total of $12.1 million in CDARS funding, which is a decrease of $18.0 million over December 31, 2014.

Short-term debt

Short-term debt consists of federal funds purchased, daily rate credit obtained from the Federal Home Loan Bank (FHLB), short-term fixed rate FHLB borrowings and commercial repurchase agreements (repos). 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. Borrowings from the FHLB have been used to finance loans held for sale and also to finance the increase in short-term residential and commercial construction loans.  As of September 30, 2015 there were $30,000,000 in FHLB short-term borrowings, federal funds purchased totaled $3,542,000 and commercial repurchase agreements totaled $4,697,000.  This compared to FHLB short term borrowings of $10,000,000 and commercial repurchase agreements of $3,423,000 at December 31, 2014.

Long-term debt

Borrowings from the FHLB continue to be an important source of funding.  The Company’s subsidiary bank borrows funds on a fixed rate basis.  These borrowings are used to fund loan growth and also assist the Bank in matching the maturity of its fixed rate real estate loan portfolio with the maturity of its debt and thus reduce its exposure to interest rate changes.  There were $982,000 of scheduled repayments and $30,000,000 in additional borrowings during the nine months ended September 30, 2015.

32

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

Capital

The Company successfully completed a private placement of common stock ($12 million) in March 2014 and a public offering of mandatorily convertible preferred stock in December 2014 ($10 million).  The Company intends to use the proceeds from the common stock for general corporate purposes, including organic growth, new market expansion and possible future acquisitions.  The Company used the proceeds from the preferred stock offering to redeem subordinated debt agreements.

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

March 31, 2015 the Company implemented the Basel III capital requirements.  As ofSeptember 30, 2015 total risk based capital and leverage ratios of 15.80% and 12.57%, respectively, as compared to year end of 17.35% and 12.88%, respectively. For the same period, Bank-only total risk based capital and leverage ratios were 15.71% and 12.50%, respectively, as compared to year end of 17.12% and 12.70%, respectively. Both the Company and the Bank also began reporting common equity tier 1 capital ratios of 12.95% and 14.46%, respectively.  For both the Company and the Bank these ratios are in excess of regulatory minimums to be considered “well capitalized”.

Liquidity

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

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

Interest Rate Sensitivity

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

As of September 30, 2015, the Company had a cumulative Gap Rate Sensitivity Ratio of 11.21% for the one year repricing period. This generally indicates that earnings would increase in an increasing interest rate environment as assets reprice more quickly than liabilities. However, in actual practice, this may not be the case as balance sheet leverage, funding needs and competitive factors within the market could dictate the need to raise deposit rates more quickly.  Management constantly monitors the Company’s interest rate risk and has decided the current position is acceptable for a well-capitalized community bank.

A summary of asset and liability repricing opportunities is shown in Table II, on page 37.

33

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

Effect of Newly Issued Accounting Standards

In June 2015, the FASB issued amendments to clarify the Accounting Standards Codification (ASC), correct unintended application of guidance, and make minor improvements to the ASC that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments were effective upon issuance (June 12, 2015) for amendments that do not have transition guidance. Amendments that are subject to transition guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with

Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its 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).

34

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, 2015							September 30, 2014							September 30, 2015							September 30, 2014
Average			Income/		Average					Income/		Average					Income/		Average					Income/		Average
	Balance2,4		Expense		Rates			Balance2,4		Expense		Rates5			Balance2,4		Expense		Rates			Balance2,4		Expense		Rates5
Interest income
Loans held for investment1,2	$	529,007	$	20,878		5.28	%	$	490,970	$	19,516		5.31	%	$	536,507	$	7,086		5.24	%	$	500,623	$	6,692		5.30	%
Loans held for sale		39,813		808		2.71	%		8,684		228		3.51	%		42,335		295		2.76	%		18,718		164		3.48	%
Federal funds sold		7,394		12		.22	%		19,392		31		.21	%		7,643		4		.21	%		11,743		7		.24	%
Interest bearing deposits		1,388		-		-			891		-		-			1,506		-		-			1,139		-		-
Investments
Taxable 3		17,416		202		1.55	%		13,347		137		1.37	%		17,895		66		1.44	%		13,644		38		1.11	%
Partially taxable		125		-		-			116		-		-			125		-		-			113		-		-
Total earning assets	$	595,143	$	21,900		4.92	%	$	533,400	$	19,912		4.99	%	$	606,011	$	7,451		4.88	%	$	545,980	$	6,901		5.01	%
Interest Expense
Demand deposits		115,081		426		.49	%		117,542		501		.57	%		103,357		112		.43	%		114,996		165		.57	%
Savings		72,611		134		.25	%		58,940		88		.20	%		81,579		64		.31	%		61,910		31		.20	%
Time deposits		174,696		1,067		.82	%		195,282		1,309		.90	%		170,834		350		.81	%		193,883		416		.85	%
Short-term debt		34,198		54		.21	%		3,556		7		.26	%		37,404		24		.25	%		3,808		3		.31	%
Long-term debt		26,741		424		2.12	%		22,277		872		5.23	%		33,443		172		2.04	%		23,995		292		4.83	%
Total interest bearing liabilities	$	423,327	$	2,105		.66	%	$	397,597	$	2,777		.93	%	$	426,617	$	722		.67	%	$	398,592	$	907		.90	%
Tax equivalent net interest income 1			$	19,795						$	17,135						$	6,729						$	5,994
Net interest margin						4.45	%						4.29	%						4.41	%						4.36	%

1 Interest income on loans includes loan fees.

2 Loans held for investment include nonaccrual loans.

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

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

35

TABLE II

F & M BANK CORP.

Interest Sensitivity Analysis

September 30, 2015

(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	$	26,732		$	13,510		$	125,786		$	13,402		$	-		$	179,430
Installment		3,560			826			43,285			12,340			-			60,011
Real estate loans for investments		93,922			45,922			155,369			3,180			-			298,393
Loans held for sale		55,481			-			-			-			-			55,481
Credit cards		2,581			-			-			-			-			2,581
Federal funds sold		-			-			-			-			-			-
Interest bearing bank deposits		490			-			-			-			-			490
Investment securities		125			-			12,166			872			135			13,298
Total	$	182,891		$	60,258		$	336,606		$	29,794		$	135		$	609,684
Sources of funds
Interest bearing demand deposits	$	-		$	28,353		$	58,480		$	15,063		$	-		$	101,896
Savings deposits		-			17,218			51,656			17,219			-			86,093
Certificates of deposit $100,000 and over		15,115			18,183			27,791			-			-			61,089
Other certificates of deposit		12,926			41,838			53,675			-			-			108,439
Short-term borrowings		38,239			-			-			-			-			38,239
Long-term borrowings		733			2,196			24,214			11,750			-			38,893
Total	$	67,013		$	107,788		$	215,816		$	44,032		$	-		$	434,649
Discrete Gap	$	115,878		$	(47,530	)	$	120,790		$	(14,238	)	$	135		$	175,035
Cumulative Gap	$	115,878		$	68,348		$	189,138		$	174,900		$	175,035
Ratio of Cumulative Gap to Total Earning Assets		19.01	%		11.21	%		31.02	%		28.69	%		28.71	%

Table II reflects the earlier of the maturity or repricing dates for various assets and liabilities as of September 30, 2015.  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.

36

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 recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and 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.

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)-15(e) of the Act), have concluded that the Company’s disclosure controls and procedures are effective for purposes of Rule 13(a)-15(b).

Changes in Internal Controls

The findings of the internal auditor are presented to management of the Bank and to the Audit Committee of the Company.  During the period covered by this report, there were no changes to the internal controls over financial reporting of the Company that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

37

Part II                 Other Information

Item 1.	Legal Proceedings
	There are no material pending legal proceedings other than ordinary routine litigation incidental to its business, to which the Company is a party or of which the property of the Company is subject.
Item 1a.	Risk Factors –
	There have been no material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds –None
Item 3.	Defaults Upon Senior Securities – None
Item 4.	Mine Safety Disclosures None
Item 5.	Other Information – None
Item 6.	Exhibits

(a)           Exhibits

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101	The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended September 30, 2014, formatted in Extensible Business Reporting Language (XBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith).

38

Signatures

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

F & M BANK CORP.

/s/ Dean W. Withers

Dean W. Withers

President and Chief Executive Officer

/s/ Carrie A. Comer

Carrie A. Comer

Senior Vice President and Chief Financial Officer

November 12, 2015

39

Exhibit Index:

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) (filed herewith).
32	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101	The following materials from F&M Bank Corp.’s Quarterly Report on Form 10-Q for the period ended September 30, 2014, formatted in Extensible Business Reporting Language (XBRL), include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) related notes (filed herewith).

40

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

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

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

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

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

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

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

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

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

Dated:  November 12, 2015                                                                 /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-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

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

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

I, Carrie A. Comer, certify that:

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

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

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

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

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

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

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

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

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

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

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

Dated: November 12, 2015                                                                  /s/ Carrie A. Comer                                                              

Carrie A. Comer

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

Exhibit 32

CERTIFICATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER,

SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

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

The undersigned, as the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer of F & M Bank Corp., respectively, certify that, to the best of each such individual’s knowledge and belief, the Quarterly Report on Form 10-Q for the period ended September 30, 2014, which accompanies this certification fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of F & M Bank Corp. at the dates and for the periods indicated.  The foregoing certification is made pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and shall not be relied upon for any other purpose.  The undersigned expressly disclaims any obligation to update the foregoing certification except as required by law.

 /s/ Dean W. Withers                                                              

Dean W. Withers

President and Chief Executive Officer

/s/ Carrie A. Comer                                                              

Carrie A. Comer

Senior Vice President and Chief Financial Officer

November 12, 2015

XML

5. Employee Benefit Plan (Details Narrative) $ in Thousands	9 Months Ended
	Sep. 30, 2015 USD ($)
Employee Benefit Plan Details Narrative
Contribution to employee benefit plan	$ 750,000

XML

4. Allowance for Loan Losses (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Beginning Balance	$ 8,725	$ 8,184
Charge-offs	430	2,470
Recoveries	275	761
Provision	300	2,250
Ending Balance	8,870	8,725
Individually Evaluated for Impairment	2,197	1,617
Collectively Evaluated for Impairment	6,673	7,108
Construction/Land Development [Member]
Beginning Balance	4,738	4,007
Charge-offs	138	1,611
Recoveries	83	223
Provision	471	2,119
Ending Balance	5,154	4,738
Individually Evaluated for Impairment	2,063	1,469
Collectively Evaluated for Impairment	3,091	3,269
Farmland [Member]
Beginning Balance	$ 102	$ (2)
Charge-offs
Recoveries
Provision	$ (15)	$ 104
Ending Balance	$ 87	$ 102
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 87	$ 102
Real Estate [Member]
Beginning Balance	623	400
Charge-offs	$ 25	$ 208
Recoveries
Provision	$ (112)	$ 431
Ending Balance	486	623
Individually Evaluated for Impairment	51	101
Collectively Evaluated for Impairment	435	$ 522
Multi-Family [Member]
Beginning Balance	$ 95
Charge-offs
Recoveries
Provision	$ (13)	$ 95
Ending Balance	$ 82	$ 95
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 82	$ 95
Commercial [Member]
Beginning Balance	$ 126	$ 777
Charge-offs
Recoveries	$ 47	$ 108
Provision	(78)	(759)
Ending Balance	95	126
Individually Evaluated for Impairment	24	47
Collectively Evaluated for Impairment	71	79
Home Equity - Closed End [Member]
Beginning Balance	188	$ 157
Charge-offs	26
Recoveries	6
Provision	(8)	$ 31
Ending Balance	$ 160	$ 188
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 160	$ 188
Home Equity [Member]
Beginning Balance	154	476
Charge-offs	$ 51	$ 80
Recoveries
Provision	$ 82	$ (242)
Ending Balance	185	$ 154
Individually Evaluated for Impairment	48
Collectively Evaluated for Impairment	137	$ 154
Commercial & Industrial - Non-Real Estate [Member]
Beginning Balance	$ 1,014	1,464
Charge-offs		385
Recoveries	$ 60	356
Provision	(246)	(421)
Ending Balance	$ 828	$ 1,014
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 828	$ 1,014
Consumer [Member]
Beginning Balance	214	156
Charge-offs	23	33
Recoveries	23	33
Provision	(9)	58
Ending Balance	$ 205	$ 214
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 205	$ 214
Dealer Finance [Member]
Beginning Balance	1,336	628
Charge-offs	111	107
Recoveries	20	6
Provision	232	809
Ending Balance	1,477	$ 1,336
Individually Evaluated for Impairment	11
Collectively Evaluated for Impairment	1,466	$ 1,336
Credit Cards [Member]
Beginning Balance	135	121
Charge-offs	56	46
Recoveries	36	35
Provision	(4)	25
Ending Balance	$ 111	$ 135
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 111	$ 135

XML

8. Troubled Debt Restructuring (Tables)

9 Months Ended

Sep. 30, 2015

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Asset Types

Troubled debt restructuring

Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.

	Nine months ended September 30, 2015
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
Troubled Debt Restructurings	Number of Contracts		Recorded Investment		Recorded Investment
Commercial		1	$	978	$	978
Real Estate		5		3,342		3,342
Home Equity		5		1,648		1,648
Consumer		4		40		40
Total		15	$	6,008	$	6,008

During the quarter ended September 30, 2015, there were seven loan modifications that were considered to be troubled debt restructurings.

	Three Months ended September 30, 2015
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Commercial		1	$	978	$	978
Real Estate		1		612	$	612
Home Equity		5		1,648		1,648
Total		7	$	3,238	$	3,238

 Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.

	Nine months ended September 30, 2014
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Commercial			$	-	$	-
Real Estate		2		181		181
Home Equity				-		-
Credit Cards				-		-
Consumer		1		23		23
Total			$	204	$	204

XML

6. Fair Value (Details 2) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Other Real Estate Owned Loans	$ 2,462	$ 3,507
Impaired loans	13,398	13,223
Total assets at fair value	$ 15,860	$ 16,730
Total liabilities at fair value
Fair Value Inputs Level 1 [Member]
Other Real Estate Owned Loans
Impaired loans
Total assets at fair value
Total liabilities at fair value
Fair Value Inputs Level 2 [Member]
Other Real Estate Owned Loans
Impaired loans
Total assets at fair value
Total liabilities at fair value
Fair Value Inputs Level 3 [Member]
Other Real Estate Owned Loans	$ 2,462	$ 3,507
Impaired loans	13,398	13,223
Total assets at fair value	$ 15,860	$ 16,730
Total liabilities at fair value
Construction/Land Development [Member]
Impaired loans	$ 10,195	$ 11,507
Construction/Land Development [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Construction/Land Development [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Construction/Land Development [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	$ 10,195	$ 11,507
Farmland [Member]
Impaired loans
Farmland [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Farmland [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Farmland [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans
Real Estate [Member]
Impaired loans	$ 702	$ 825
Real Estate [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Real Estate [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Real Estate [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	$ 702	$ 825
Multi-Family [Member]
Impaired loans
Multi-Family [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Multi-Family [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Multi-Family [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans
Commercial [Member]
Impaired loans	$ 871	$ 891
Commercial [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Commercial [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Commercial [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	$ 871	$ 891
Home Equity - Closed End [Member]
Impaired loans
Home Equity - Closed End [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Home Equity - Closed End [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Home Equity - Closed End [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans
Home Equity [Member]
Impaired loans	$ 1,601
Home Equity [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Home Equity [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Home Equity [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	$ 1,601
Commercial & Industrial - Non-Real Estate [Member]
Impaired loans
Commercial & Industrial - Non-Real Estate [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Commercial & Industrial - Non-Real Estate [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Commercial & Industrial - Non-Real Estate [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans
Consumer [Member]
Impaired loans
Consumer [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Consumer [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Consumer [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans
Credit Cards [Member]
Impaired loans
Credit Cards [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Credit Cards [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Credit Cards [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans
Dealer Finance [Member]
Impaired loans	$ 29
Dealer Finance [Member] | Fair Value Inputs Level 1 [Member]
Impaired loans
Dealer Finance [Member] | Fair Value Inputs Level 2 [Member]
Impaired loans
Dealer Finance [Member] | Fair Value Inputs Level 3 [Member]
Impaired loans	$ 29

XML

4. Allowance for Loan Losses (Details 4) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Credit cards	$ 2,581	$ 2,705
Consumer	60,011	49,743
Performing [Member]
Credit cards	2,579	2,704
Consumer	59,662	49,582
Non performing [Member]
Credit cards	2	1
Consumer	$ 349	$ 161

XML

1. Summary of significant accounting policies

9 Months Ended

Sep. 30, 2015

Summary Of Significant Accounting Policies

1. Summary of significant accounting policies

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 of America 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 September 30, 2015 and the results of operations for the quarters and nine month periods ended September 30, 2015 and 2014.  The notes included herein should be read in conjunction with the notes to financial statements included in the 2014 annual report to shareholders of 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.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and gains or losses on certain derivative contracts, are reported as a separate component of the equity section of the balance sheet. Such items, along with operating net income, are components of comprehensive income.

Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

Loans Held for Investment

Loans are carried on the balance sheet net of any unearned interest and the allowance for loan losses.  Interest income on loans is determined using the effective interest method on the daily amount of principal outstanding except where serious doubt exists as to collectability of the loan, in which case the accrual of income is discontinued.

Loans Held for Sale

These loans consist of fixed rate loans made through its subsidiary, VBS Mortgage and loans purchased from NorthPointe Bank, Grand Rapids, MI.

Allowance for Loan Losses

The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance that management considers adequate to absorb potential losses in the portfolio.  Loans are charged against the allowance when management believes the collectability of the principal is unlikely.  Recoveries of amounts previously charged-off are credited to the allowance. Management’s determination of the adequacy of the allowance is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, and other risk factors.  Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, particularly those affecting real estate values.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Nonaccrual Loans

Loans are placed on nonaccrual status when they become ninety days or more past due, unless there is an expectation that the loan will either be brought current or paid in full in a reasonable period of time.

Earnings per Share

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

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

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

	For the Nine months ended		For the Quarter ended		For the Nine months ended		For the Quarter ended
	September 30, 2015		September 30, 2015		September 30, 2014		September 30, 2014
Earnings available to common stockholders:
Net income	$	6,351,521	$	2,229,213	$	4,210,028	$	1,561,179
Minority interest		115,397		39,273		26,300		8,208
Preferred stock dividends		382,500		127,500		-		-
Net income available to common stockholders	$	5,853,624	$	2,062,440	$	4,236,328	$	1,569,387

The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated.   Preferred stock was not issued at September 30, 2014 therefore there is no prior year data presented.

	Nine months ended September 30, 2015							Quarter ended September 30, 2015
	Income		Shares		Per Share			Income		Shares		Per Share
Basic common EPS	$	5,853,624		3,292,709	$	1.78		$	2,062,440		3,291,133	$	0.63
Effect of dilutive securities:
Convertible preferred stock		382,500		444,400		(0.08	)		127,500		444,400		(0.04	)
Diluted common EPS	$	6,236,124		3,737,109	$	1.67		$	2,189,940		3,735,533	$	0.59

XML

7. Disclosures About Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Financial Assets
Loans, Estimated Fair Value	$ 568,774	$ 551,338
Loans, Carrying value	540,415	518,202
Financial Liabilities
Time deposits, Estimated Fair Value	170,548	196,826
Time deposits, Carrying Value	169,528	195,464
Long-term debt, Estimated Fair Value	39,610	9,862
Long-term debt, Carrying Value	$ 38,893	$ 9,875

XML

2. Investment Securities (Details 1) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Total, Amortized Cost	$ 125	$ 125
Total, Fair Value	125	$ 125
Held to maturity Securities [Member]
Due in one year or less, Amortized Cost	$ 125
Due after one year through five years, Amortized Cost
Due after five years, Amortized Cost
Total, Amortized Cost	$ 125
Due in one year or less, Fair Value	$ 125
Due after one year through five years, Fair Value
Due after five years, Fair Value
Total, Fair Value	$ 125
Investment securities available for sale [Member]
Due in one year or less, Amortized Cost
Due after one year through five years, Amortized Cost	$ 12,133
Due after five years, Amortized Cost	993
Total, Amortized Cost	$ 13,126
Due in one year or less, Fair Value
Due after one year through five years, Fair Value	$ 12,166
Due after five years, Fair Value	1,007
Total, Fair Value	$ 13,173

XML

2. Investment Securities (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Available-for-Sale Securities
Cost	$ 13,126	$ 13,211
Unrealized Gains	53	20
Unrealized Losses	6	16
Market Value	13,173	13,215
Held-to-Maturity Securities
Amortized Cost - Held-to-Maturity	125	125
Market Value - Held-to-Maturity	125	125
U. S. Treasury [Member]
Available-for-Sale Securities
Cost	4,018	$ 4,026
Unrealized Gains	$ 29
Unrealized Losses		$ 6
Market Value	$ 4,047	4,020
Government sponsored enterprises [Member]
Available-for-Sale Securities
Cost	8,115	8,039
Unrealized Gains	10	9
Unrealized Losses	6	10
Market Value	8,119	8,038
Mortgage Backed Securities [Member]
Available-for-Sale Securities
Cost	858	1,011
Unrealized Gains	$ 14	$ 11
Unrealized Losses
Market Value	$ 872	$ 1,022
Corporate equities [Member]
Available-for-Sale Securities
Cost	$ 135	$ 135
Unrealized Gains
Unrealized Losses
Market Value	$ 135	$ 135
U. S. Treasury and agency obligations [Member]
Held-to-Maturity Securities
Amortized Cost - Held-to-Maturity	125	125
Market Value - Held-to-Maturity	$ 125	$ 125

XML

7. Disclosures About Fair Value of Financial Instruments (Details Narrative) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Disclosures About Fair Value Of Financial Instruments Tables
Impaired loans	$ 13,398,000	$ 13,223,000

XML

2. Investment securities (Details 2) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Fair Value Less than 12 Months	$ 4,013	$ 6,024
Unrealized Losses Less than 12 Months	$ (6)	(8)
Fair Value More than 12 Months		1,991
Unrealized Losses More than 12 Months		(8)
Fair Value Total	$ 4,013	8,015
Unrealized Losses Total	$ (6)	(16)
U. S. Treasury [Member]
Fair Value Less than 12 Months		4,020
Unrealized Losses Less than 12 Months		$ (6)
Fair Value More than 12 Months
Unrealized Losses More than 12 Months
Fair Value Total		$ 4,020
Unrealized Losses Total		(6)
Government sponsored enterprises [Member]
Fair Value Less than 12 Months	$ 4,013	2,004
Unrealized Losses Less than 12 Months	$ (6)	(2)
Fair Value More than 12 Months		1,991
Unrealized Losses More than 12 Months		(8)
Fair Value Total	$ 4,013	3,995
Unrealized Losses Total	$ (6)	$ (10)

XML

3. Loans Held for Investment (Details) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Loans outstanding	$ 540,415	$ 518,202
Construction/Land Development [Member]
Loans outstanding	68,597	67,181
Farmland [Member]
Loans outstanding	12,739	12,507
Real Estate [Member]
Loans outstanding	165,324	162,249
Multi-Family [Member]
Loans outstanding	11,949	11,775
Commercial [Member]
Loans outstanding	127,197	122,305
Home Equity - Closed End [Member]
Loans outstanding	9,270	9,394
Home Equity [Member]
Loans outstanding	55,202	52,182
Commercial & Industrial - Non-Real Estate [Member]
Loans outstanding	27,545	28,161
Consumer [Member]
Loans outstanding	7,979	9,110
Dealer Finance [Member]
Loans outstanding	52,032	40,633
Credit Cards [Member]
Loans outstanding	$ 2,581	$ 2,705

XML

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) $ in Thousands	USD ($)
Balance, beginning of period at Dec. 31, 2013	$ 54,141
Comprehensive income
Net Income - F & M Bank Corp	4,236
Net income attributable to noncontrolling interest	(26)
Net change in unrealized appreciation on securities available for sale, net of taxes	13
Total comprehensive income	4,223
Minority Interest Capital Distributions	15
Issuance of common stock	$ 12,080
Repurchase of common stock
Dividends paid	$ (1,545)
Balance, end of period at Sep. 30, 2014	68,914
Balance, beginning of period at Dec. 31, 2014	77,798
Comprehensive income
Net Income - F & M Bank Corp	6,237
Net income attributable to noncontrolling interest	115
Net change in unrealized appreciation on securities available for sale, net of taxes	29
Total comprehensive income	6,381
Minority Interest Capital Distributions	(18)
Issuance of common stock	99
Repurchase of common stock	(261)
Dividends paid	(2,161)
Balance, end of period at Sep. 30, 2015	$ 81,838

XML

3. Loans Held for Investment (Details 1) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Impaired loans without a valuation allowance
Recorded Investment	$ 6,441	$ 8,122
Unpaid Principal Balance	6,579	$ 8,842
Related Allowance
Average Recorded Investment	7,528	$ 8,800
Interest Income Recognized	259	390
Impaired loans with a valuation allowance
Recorded Investment	15,595	14,840
Unpaid Principal Balance	15,595	16,613
Related Allowance	2,197	1,617
Average Recorded Investment	15,178	14,186
Interest Income Recognized	327	435
Total impaired loans
Recorded Investment	22,036	22,962
Unpaid Principal Balance	22,174	25,455
Related Allowance	2,197	1,617
Average Recorded Investment	22,706	22,986
Interest Income Recognized	586	825
Construction/Land Development [Member]
Impaired loans without a valuation allowance
Recorded Investment	3,307	4,982
Unpaid Principal Balance	$ 3,445	$ 5,402
Related Allowance
Average Recorded Investment	$ 4,349	$ 5,412
Interest Income Recognized	110	251
Impaired loans with a valuation allowance
Recorded Investment	12,258	12,976
Unpaid Principal Balance	12,258	14,749
Related Allowance	2,063	1,469
Average Recorded Investment	13,074	12,056
Interest Income Recognized	$ 220	$ 326
Farmland [Member]
Impaired loans without a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment		$ 1,163
Interest Income Recognized
Impaired loans with a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Real Estate [Member]
Impaired loans without a valuation allowance
Recorded Investment	$ 1,051	$ 141
Unpaid Principal Balance	$ 1,051	$ 141
Related Allowance
Average Recorded Investment	$ 543	$ 85
Interest Income Recognized	43	5
Impaired loans with a valuation allowance
Recorded Investment	753	926
Unpaid Principal Balance	753	926
Related Allowance	52	101
Average Recorded Investment	817	988
Interest Income Recognized	$ 43	$ 105
Multi-Family [Member]
Impaired loans without a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Impaired loans with a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Commercial [Member]
Impaired loans without a valuation allowance
Recorded Investment	$ 322	$ 1,159
Unpaid Principal Balance	$ 322	$ 1,459
Related Allowance
Average Recorded Investment	$ 1,162	$ 1,450
Interest Income Recognized	13	66
Impaired loans with a valuation allowance
Recorded Investment	895	938
Unpaid Principal Balance	895	938
Related Allowance	24	47
Average Recorded Investment	925	1,030
Interest Income Recognized	$ 3	$ 4
Home Equity - Closed End [Member]
Impaired loans without a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment		$ 123
Interest Income Recognized
Impaired loans with a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment		$ 72
Interest Income Recognized
Home Equity [Member]
Impaired loans without a valuation allowance
Recorded Investment	$ 1,559	$ 1,649
Unpaid Principal Balance	$ 1,559	$ 1,649
Related Allowance
Average Recorded Investment	$ 1,281	$ 330
Interest Income Recognized	82	$ 57
Impaired loans with a valuation allowance
Recorded Investment	1,649
Unpaid Principal Balance	1,649
Related Allowance	47
Average Recorded Investment	330	$ 40
Interest Income Recognized	58
Commercial & Industrial - Non-Real Estate [Member]
Impaired loans without a valuation allowance
Recorded Investment	183	$ 191
Unpaid Principal Balance	$ 183	$ 191
Related Allowance
Average Recorded Investment	$ 189	$ 237
Interest Income Recognized	$ 9	$ 11
Impaired loans with a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Consumer [Member]
Impaired loans without a valuation allowance
Recorded Investment	$ 19
Unpaid Principal Balance	$ 19
Related Allowance
Average Recorded Investment	$ 4
Interest Income Recognized
Impaired loans with a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Credit Cards [Member]
Impaired loans without a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Impaired loans with a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Dealer Finance [Member]
Impaired loans without a valuation allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized	$ 2
Impaired loans with a valuation allowance
Recorded Investment	40
Unpaid Principal Balance	40
Related Allowance	11
Average Recorded Investment	32
Interest Income Recognized	$ 3

XML

6. Fair Value (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Impaired loans	$ 13,398	$ 13,223
Other Real Estate Owned	2,462	3,507
Fair Value Inputs Level 3 [Member]
Impaired loans	13,398	13,223
Other Real Estate Owned	$ 2,462	$ 3,507
Fair Value Measurements, Valuation Techniques	Discounted appraised value	Discounted appraised value
Significant Unobservable Inputs	Discount for selling costs and age of appraisals	Discount for selling costs and age of appraisals
Fair Value Inputs Level 3 [Member] | Minimum [Member]
Fair Value Measurements, Valuation range	15.00%	15.00%
Fair Value Inputs Level 3 [Member] | Maximum [Member]
Fair Value Measurements, Valuation range	55.00%	55.00%

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Interest income
Interest and fees from loans held for investment	$ 7,086	$ 6,665	$ 20,813	$ 19,443
Interest and fees from loans held for sale	295	164	808	228
Interest from federal funds sold	4	7	12	31
Interest from investment securities	66	37	202	136
Total interest income	7,451	6,873	21,835	19,838
Interest expense
Interest from demand deposits	112	165	426	501
Interest from savings accounts	64	31	134	88
Interest from time deposits over $100,000	122	145	367	453
Interest from other time deposits	228	273	700	857
Total interest from deposits	526	614	1,627	1,899
Interest from short-term debt	24	2	54	6
Interest from long-term debt	172	292	424	872
Total interest expense	722	908	2,105	2,777
Net interest income	$ 6,729	5,965	19,730	17,061
Provision for loan losses		750	300	2,250
Net interest income after provision for loan losses	$ 6,729	5,215	19,430	14,811
Noninterest income
Service charges	257	275	719	786
Insurance and other commissions	260	202	770	378
Other	352	400	1,037	1,192
Income from bank owned life insurance	119	118	354	349
Total noninterest income	988	995	2,880	2,705
Noninterest expense
Salaries	1,974	1,767	5,667	5,114
Employee benefits	555	514	1,718	1,491
Occupancy expense	164	150	504	465
Equipment expense	166	160	480	442
FDIC insurance assessment	$ 132	$ 180	522	$ 540
OREO expenses/losses			516
Other	$ 1,503	$ 1,152	3,965	$ 3,410
Total noninterest expense	4,494	3,923	13,372	11,462
Income before income taxes	3,223	2,287	8,938	6,054
Income tax expense	994	726	2,586	1,844
Consolidated net income - F&M Bank Corp.	2,229	1,561	6,352	4,210
Net income - Noncontrolling interest (income) loss	(39)	8	(115)	26
Net Income - F & M Bank Corp	2,190	$ 1,569	6,237	$ 4,236
Dividend paid/accumulated on preferred stock	128		383
Net income available to common stockholders	$ 2,062	$ 1,569	$ 5,854	$ 4,236
Per share data
Net income available to common stockholders- basic	$ 0.63	$ 0.48	$ 1.78	$ 1.38
Net income available to common stockholders - diluted	0.59	0.48	1.67	1.38
Cash dividends	$ 0.18	$ 0.17	$ 0.54	$ 0.51
Weighted average common shares outstanding - basic	3,291,133	3,289,743	3,292,709	3,061,432
Weighted average common shares outstanding - diluted	3,735,533	3,289,743	3,737,109	3,061,432

XML

8. Troubled Debt Restructuring (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2015 USD ($) Integer	Sep. 30, 2015 USD ($) Integer	Sep. 30, 2014 USD ($) Integer
Number of Contracts | Integer	7	15	3
Pre-Modification Outstanding Recorded Investment	$ 3,238	$ 6,008	$ 204
Post-Modification Outstanding Recorded Investment	$ 3,238	$ 6,008	$ 204
Commercial [Member]
Number of Contracts | Integer	1	1
Pre-Modification Outstanding Recorded Investment	$ 978	$ 978
Post-Modification Outstanding Recorded Investment	$ 978	$ 978
Real Estate [Member]
Number of Contracts | Integer	1	5	2
Pre-Modification Outstanding Recorded Investment	$ 612	$ 3,342	$ 181
Post-Modification Outstanding Recorded Investment	$ 612	$ 3,342	$ 181
Home Equity [Member]
Number of Contracts | Integer	5	5
Pre-Modification Outstanding Recorded Investment	$ 1,648	$ 1,648
Post-Modification Outstanding Recorded Investment	$ 1,648	$ 1,648
Credit Cards [Member]
Number of Contracts | Integer
Pre-Modification Outstanding Recorded Investment
Post-Modification Outstanding Recorded Investment
Consumer [Member]
Number of Contracts | Integer		4	1
Pre-Modification Outstanding Recorded Investment		$ 40	$ 23
Post-Modification Outstanding Recorded Investment		$ 40	$ 23

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Assets
Held to maturity - fair value	$ 125	$ 125
STOCKHOLDERS EQUITY:
Preferred Stock, par value	$ 5	$ 5
Preferred Stock shares authorized	400,000	400,000
Preferred Stock shares issued	400,000	400,000
Preferred Stock shares outstanding	400,000	400,000
Common stock, par value	$ 5	$ 5
Common stock shares authorized	6,000,000	6,000,000
Common stock shares issued	3,284,513	3,287,470
Common stock shares outstanding	3,284,513	3,287,470

XML

4. Allowance for Loan Losses (Details 2) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
30-59 Days Past due	$ 4,904	$ 7,951
60-89 Days Past due	3,744	1,039
Greater than 90 Days (excluding non-accrual)	94	1
Non-Accrual Loans	6,292	6,974
Total past due	15,034	15,965
Current	525,381	502,237
Total Loans Receivable	540,415	518,202
Construction/Land Development [Member]
30-59 Days Past due	254	205
60-89 Days Past due	$ 2,030	$ 166
Greater than 90 Days (excluding non-accrual)
Non-Accrual Loans	$ 4,761	$ 4,508
Total past due	7,045	4,879
Current	61,552	62,302
Total Loans Receivable	$ 68,597	$ 67,181
Farmland [Member]
30-59 Days Past due
60-89 Days Past due
Greater than 90 Days (excluding non-accrual)
Non-Accrual Loans
Total past due
Current	$ 12,739	$ 12,507
Total Loans Receivable	12,739	12,507
Real Estate [Member]
30-59 Days Past due	2,954	5,085
60-89 Days Past due	1,118	$ 635
Greater than 90 Days (excluding non-accrual)	62
Non-Accrual Loans	1,066	$ 973
Total past due	5,200	6,693
Current	160,124	155,556
Total Loans Receivable	$ 165,324	$ 162,249
Multi-Family [Member]
30-59 Days Past due
60-89 Days Past due
Greater than 90 Days (excluding non-accrual)
Non-Accrual Loans
Total past due
Current	$ 11,949	$ 11,775
Total Loans Receivable	11,949	11,775
Commercial [Member]
30-59 Days Past due	$ 315	$ 747
60-89 Days Past due
Greater than 90 Days (excluding non-accrual)
Non-Accrual Loans		$ 1,165
Total past due	$ 315	1,912
Current	126,882	120,393
Total Loans Receivable	127,197	122,305
Home Equity - Closed End [Member]
30-59 Days Past due	42	162
60-89 Days Past due	$ 4	$ 15
Greater than 90 Days (excluding non-accrual)
Non-Accrual Loans		$ 10
Total past due	$ 46	187
Current	9,224	9,207
Total Loans Receivable	9,270	9,394
Home Equity [Member]
30-59 Days Past due	520	730
60-89 Days Past due	224	$ 25
Greater than 90 Days (excluding non-accrual)	30
Non-Accrual Loans	41	$ 143
Total past due	815	898
Current	54,387	51,284
Total Loans Receivable	55,202	$ 52,182
Commercial & Industrial - Non-Real Estate [Member]
30-59 Days Past due	33
60-89 Days Past due	$ 59
Greater than 90 Days (excluding non-accrual)
Non-Accrual Loans	$ 75	$ 14
Total past due	167	14
Current	27,378	28,147
Total Loans Receivable	27,545	28,161
Consumer [Member]
30-59 Days Past due	44	290
60-89 Days Past due	$ 15	$ 9
Greater than 90 Days (excluding non-accrual)
Non-Accrual Loans
Total past due	$ 59	$ 299
Current	7,920	8,811
Total Loans Receivable	7,979	9,110
Dealer Finance [Member]
30-59 Days Past due	706	696
60-89 Days Past due	$ 286	$ 189
Greater than 90 Days (excluding non-accrual)
Non-Accrual Loans	$ 349	$ 161
Total past due	1,341	1,046
Current	50,691	39,587
Total Loans Receivable	52,032	40,633
Credit Cards [Member]
30-59 Days Past due	36	$ 36
60-89 Days Past due	8
Greater than 90 Days (excluding non-accrual)	$ 2	$ 1
Non-Accrual Loans
Total past due	$ 46	$ 37
Current	2,535	2,668
Total Loans Receivable	$ 2,581	$ 2,705

XML

5. Employee Benefit Plan (Tables)

9 Months Ended

Sep. 30, 2015

EmployeeBenefitPlanTablesAbstract

Schedule of Employee Benefit Plan

The following is a summary of net periodic pension costs for the nine month and three month periods ended September 30, 2015 and 2014.

	Nine Months Ended						Three Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Service cost	$	486,251		$	375,771		$	162,084		$	125,257
Interest cost		308,208			283,281			102,736			94,427
Expected return on plan assets		(629,114	)		(523,689	)		(209,705	)		(174,563	)
Amortization of net obligation at transition		-			-			-			-
Amortization of prior service cost		(11,427	)		(11,427	)		(3,809	)		(3,809	)
Amortization of net (gain) or loss		135,482			27,084			45,161			9,028
Net periodic pension cost	$	289,400		$	151,020		$	96,467		$	50,340

XML

4. Allowance for Loan Losses (Details 3) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Construction/Land Development	$ 68,597	$ 67,181
Farmland	12,739	12,507
Real Estate	165,324	162,249
Multi-Family	11,949	11,775
Commercial Real Estate	127,197	122,305
Home Equity - closed end	9,270	9,394
Home Equity - open end	55,202	52,182
Commercial & Industrial (Non-Real Estate)	27,545	28,161
Total	$ 477,823	$ 465,754
Grade 1 Minimal Risk [Member]
Construction/Land Development
Farmland	$ 66	$ 68
Real Estate
Multi-Family
Commercial Real Estate
Home Equity - closed end
Home Equity - open end
Commercial & Industrial (Non-Real Estate)	$ 523	$ 643
Total	589	711
Grade 2 Modest Risk [Member]
Construction/Land Development	$ 342	$ 165
Farmland
Real Estate	$ 1,028	$ 629
Multi-Family	410	468
Commercial Real Estate	$ 1,721	$ 1,687
Home Equity - closed end
Home Equity - open end	$ 1,713	$ 1,555
Commercial & Industrial (Non-Real Estate)	75	74
Total	5,289	4,578
Grade 3 Average Risk [Member]
Construction/Land Development	8,053	8,460
Farmland	1,936	1,640
Real Estate	56,568	60,290
Multi-Family	3,974	4,145
Commercial Real Estate	27,312	22,800
Home Equity - closed end	3,675	4,327
Home Equity - open end	14,955	13,433
Commercial & Industrial (Non-Real Estate)	6,941	4,692
Total	123,414	119,787
Grade 4 Acceptable Risk [Member]
Construction/Land Development	31,514	24,227
Farmland	3,688	3,451
Real Estate	72,890	66,464
Multi-Family	3,078	2,183
Commercial Real Estate	69,002	65,653
Home Equity - closed end	3,772	3,090
Home Equity - open end	29,700	28,425
Commercial & Industrial (Non-Real Estate)	17,304	18,039
Total	230,948	211,532
Grade 5 Marginally Acceptable [Member]
Construction/Land Development	8,538	9,605
Farmland	4,968	5,228
Real Estate	23,131	23,934
Multi-Family	4,487	4,979
Commercial Real Estate	20,126	19,058
Home Equity - closed end	1,682	1,812
Home Equity - open end	4,400	4,309
Commercial & Industrial (Non-Real Estate)	2,130	3,948
Total	69,462	72,873
Grade 6 Watch [Member]
Construction/Land Development	5,757	$ 3,815
Farmland	2,081
Real Estate	$ 8,297	$ 7,083
Multi-Family
Commercial Real Estate	$ 7,733	$ 10,571
Home Equity - closed end	123	154
Home Equity - open end	399	1,936
Commercial & Industrial (Non-Real Estate)	461	735
Total	24,851	24,294
Grade 7 Substandard [Member]
Construction/Land Development	$ 14,393	20,909
Farmland		2,120
Real Estate	$ 3,410	$ 3,849
Multi-Family
Commercial Real Estate	$ 1,303	$ 2,536
Home Equity - closed end	18	11
Home Equity - open end	4,035	2,524
Commercial & Industrial (Non-Real Estate)	111	30
Total	$ 23,270	$ 31,979
Grade 8 Doubtful [Member]
Construction/Land Development
Farmland
Real Estate
Multi-Family
Commercial Real Estate
Home Equity - closed end
Home Equity - open end
Commercial & Industrial (Non-Real Estate)
Total

XML

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

9 Months Ended

Sep. 30, 2015

Disclosures About Fair Value Of Financial Instruments Tables

Carrying Value and Estimated Fair Value for Financial Instruments

Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument (in thousands).

	September 30, 2015				December 31, 2014
	Estimated		Carrying		Estimated		Carrying
	Fair Value		Value		Fair Value		Value
Financial Assets
Loans, gross	$	568,774	$	540,415	$	551,338	$	518,202
Financial Liabilities
Time deposits	$	170,548	$	169,528		196,826		195,464
Long-term debt	$	39,610	$	38,893		9,862		9,875

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Cash flows from operating activities
Net income	$ 6,237	$ 4,236
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	525	449
Amortization of security premiums, net	109	61
Origination of loans held for sale	(56,301)	(41,385)
Sale of loans originated and held for sale	55,298	39,799
Provision for loan losses	300	2,250
(Increase) Decrease in interest receivable	20	(38)
Increase in other assets	(916)	(2,492)
Increase (decrease) in accrued expenses	1,660	(65)
Amortization of limited partnership investments	470	456
Income from bank owned life insurance	(354)	(348)
Loss on Other Real Estate Owned	511	43
Net adjustments	1,322	(1,270)
Net cash provided by operating activities	7,559	2,966
Cash flows from investing activities
Purchase of investments available for sale	(10,540)	(8,614)
Proceeds from maturity of investments available for sale	$ 8,167	27,323
Purchase of investments held to maturity		(125)
Proceeds from maturity of investments held to maturity		106
Net increase in loans held for investment	$ (22,195)	(10,740)
Net increase in participation loans held for sale	(41,098)	(32,376)
Proceeds from the sale of other real estate owned	361	779
Purchase of property and equipment	(1,435)	(391)
Net cash used in investing activities	(66,740)	(24,038)
Cash flows from financing activities
Increase in demand and savings deposits	18,248	22,845
Decrease in time deposits	(25,936)	646
Increase in short-term debt	23,881	361
Cash dividends paid	(2,161)	(1,545)
Proceeds from issuance of common stock	99	$ 12,080
Repurchase of common stock	(261)
Proceeds from long-term debt	30,000	$ 10,000
Repayment of long-term debt	(982)	(6,500)
Net cash provided by financing activities	42,888	37,887
Net (Decrease) Increase in Cash and Cash Equivalents	(16,293)	16,815
Cash and cash equivalents, beginning of period	23,203	6,545
Cash and cash equivalents, end of period	6,910	23,360
Supplemental disclosure
Interest expense	2,126	2,745
Income taxes	1,500	1,300
Transfers from loans to Other Real Estate Owned	155	2,930
Noncash exchange of other real estate owned	$ (328)	$ (780)

XML

Consolidated Statements of Income (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Income Statement [Abstract]
Interest on time deposits	$ 100,000	$ 100,000	$ 100,000	$ 100,000

XML

1. Summary of significant accounting policies (Policies)

9 Months Ended

Sep. 30, 2015

Summary Of Significant Accounting Policies Policies

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.  Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities and gains or losses on certain derivative contracts, are reported as a separate component of the equity section of the balance sheet. Such items, along with operating net income, are components of comprehensive income.

Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

Loans Held for Investment

Loans are carried on the balance sheet net of any unearned interest and the allowance for loan losses.  Interest income on loans is determined using the effective interest method on the daily amount of principal outstanding except where serious doubt exists as to collectability of the loan, in which case the accrual of income is discontinued.

Loans Held for Sale

These loans consist of fixed rate loans made through its subsidiary, VBS Mortgage and loans purchased from NorthPointe Bank, Grand Rapids, MI.

Allowance for Loan Losses

The provision for loan losses charged to operations is an amount sufficient to bring the allowance for loan losses to an estimated balance that management considers adequate to absorb potential losses in the portfolio.  Loans are charged against the allowance when management believes the collectability of the principal is unlikely.  Recoveries of amounts previously charged-off are credited to the allowance. Management’s determination of the adequacy of the allowance is based on an evaluation of the composition of the loan portfolio, the value and adequacy of collateral, current economic conditions, historical loan loss experience, and other risk factors.  Management believes that the allowance for loan losses is adequate.  While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, particularly those affecting real estate values.  In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan by loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Nonaccrual Loans

Loans are placed on nonaccrual status when they become ninety days or more past due, unless there is an expectation that the loan will either be brought current or paid in full in a reasonable period of time.

Earnings per Share

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

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

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

	For the Nine months ended		For the Quarter ended		For the Nine months ended		For the Quarter ended
	September 30, 2015		September 30, 2015		September 30, 2014		September 30, 2014
Earnings available to common stockholders:
Net income	$	6,351,521	$	2,229,213	$	4,210,028	$	1,561,179
Minority interest		115,397		39,273		26,300		8,208
Preferred stock dividends		382,500		127,500		-		-
Net income available to common stockholders	$	5,853,624	$	2,062,440	$	4,236,328	$	1,569,387

The following table shows the effect of dilutive preferred stock conversion on the Company's earnings per share for the periods indicated.   Preferred stock was not issued at September 30, 2014 therefore there is no prior year data presented.

	Nine months ended September 30, 2015							Quarter ended September 30, 2015
	Income		Shares		Per Share			Income		Shares		Per Share
Basic common EPS	$	5,853,624		3,292,709	$	1.78		$	2,062,440		3,291,133	$	0.63
Effect of dilutive securities:
Convertible preferred stock		382,500		444,400		(0.08	)		127,500		444,400		(0.04	)
Diluted common EPS	$	6,236,124		3,737,109	$	1.67		$	2,189,940		3,735,533	$	0.59

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Nov. 12, 2015
Document And Entity Information
Entity Registrant Name	F&M BANK CORP
Entity Central Index Key	0000740806
Document Type	10-Q
Document Period End Date	Sep. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer	No
Is Entity a Voluntary Filer	No
Is Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		3,284,581
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2015

XML

1. Summary of significant accounting policies (Tables)

9 Months Ended

Sep. 30, 2015

Summary Of Significant Accounting Policies Tables

Earnings per share

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

	For the Nine months ended		For the Quarter ended		For the Nine months ended		For the Quarter ended
	September 30, 2015		September 30, 2015		September 30, 2014		September 30, 2014
Earnings available to common stockholders:
Net income	$	6,351,521	$	2,229,213	$	4,210,028	$	1,561,179
Minority interest		115,397		39,273		26,300		8,208
Preferred stock dividends		382,500		127,500		-		-
Net income available to common stockholders	$	5,853,624	$	2,062,440	$	4,236,328	$	1,569,387

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

	Nine months ended September 30, 2015							Quarter ended September 30, 2015
	Income		Shares		Per Share			Income		Shares		Per Share
Basic common EPS	$	5,853,624		3,292,709	$	1.78		$	2,062,440		3,291,133	$	0.63
Effect of dilutive securities:
Convertible preferred stock		382,500		444,400		(0.08	)		127,500		444,400		(0.04	)
Diluted common EPS	$	6,236,124		3,737,109	$	1.67		$	2,189,940		3,735,533	$	0.59

XML

Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Net Income:
Net Income - F & M Bank Corp	$ 2,190	$ 1,569	$ 6,237	$ 4,236
Net Income (loss) attributable to noncontrolling interest	39	(8)	115	(26)
Consolidated Net Income	2,229	1,561	6,352	4,210
Other comprehensive income:
Unrealized holding gains on available-for-sale securities	21	25	44	20
Tax effect	(7)	(9)	(15)	(7)
Unrealized holding gain, net of tax	14	16	29	13
Total other comprehensive income	14	16	29	13
Comprehensive income	$ 2,243	$ 1,577	$ 6,381	$ 4,223

XML

4. Allowance for Loan Losses

9 Months Ended

Sep. 30, 2015

Allowance For Loan Losses

4. Allowance for Loan Losses

A summary of the allowance for loan losses follows (in thousands):

For the nine months ended September 30, 2015	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,738	$	138	$	83	$	471		$	5,154	$	2,063	$	3,091
Farmland		102		-		-		(15	)		87		-		87
Real Estate		623		25		-		(112	)		486		51		435
Multi-Family		95		-		-		(13	)		82		-		82
Commercial Real Estate		126		-		47		(78	)		95		24		71
Home Equity – closed end		188		26		6		(8	)		160		-		160
Home Equity – open end		154		51		-		82			185		48		137
Commercial & Industrial – Non-Real Estate		1,014		-		60		(246	)		828		-		828
Consumer		214		23		23		(9	)		205		-		205
Dealer Finance		1,336		111		20		232			1,477		11		1,466
Credit Cards		135		56		36		(4	)		111		-		111
Total	$	8,725	$	430	$	275	$	300		$	8,870	$	2,197	$	6,673

For the year ended December 31, 2014	Beginning Balance			Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,007		$	1,611	$	223	$	2,119		$	4,738	$	1,469	$	3,269
Farmland		(2	)		-		-		104			102		-		102
Real Estate		400			208		-		431			623		101		522
Multi-Family		-			-		-		95			95		-		95
Commercial Real Estate		777			-		108		(759	)		126		47		79
Home Equity – closed end		157			-		-		31			188		-		188
Home Equity – open end		476			80		-		(242	)		154		-		154
Commercial & Industrial – Non-Real Estate		1,464			385		356		(421	)		1,014		-		1,014
Consumer		156			33		33		58			214		-		214
Dealer Finance		628			107		6		809			1,336		-		1,336
Credit Cards		121			46		35		25			135		-		135
Total	$	8,184		$	2,470	$	761	$	2,250		$	8,725	$	1,617	$	7,108

September 30, 2015	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	68,597	$	15,565	$	53,032
Farmland		12,739		-		12,739
Real Estate		165,324		1,804		163,520
Multi-Family		11,949		-		11,949
Commercial Real Estate		127,197		1,217		125,980
Home Equity – closed end		9,270		-		9,270
Home Equity –open end		55,202		3,208		51,994
Commercial & Industrial – Non-Real Estate		27,545		183		27,362
Consumer		7,979		19		7,960
Dealer Finance		52,032		40		51,992
Credit Cards		2,581		-		2,581
	$	540,415	$	22,036	$	518,379
Total

Recorded Investment in Loan Receivables (in thousands)

December 31, 2014	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	67,181	$	17,958	$	49,223
Farmland		12,507		-		12,507
Real Estate		162,249		1,067		161,182
Multi-Family		11,775		-		11,775
Commercial Real Estate		122,305		2,097		120,208
Home Equity – closed end		9,394		-		9,394
Home Equity –open end		52,182		1,649		50,533
Commercial & Industrial – Non-Real Estate		28,161		191		27,970
Consumer		9,110		-		9,110
Dealer Finance		40,633				40,633
Credit Cards		2,705		-		2,705
	$	518,202	$	22,962	$	495,240
Total

Aging of Past Due Loans Receivable (in thousands) as of September 30, 2015

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Non-Accrual Loans		Total Past Due		Current		Total Loan Receivable
September 30, 2015
Construction/Land Development	$	254	$	2,030	$	-	$	4,761	$	7,045	$	61,552	$	68,597
Farmland		-		-		-		-		-		12,739		12,739
Real Estate		2,954		1,118		62		1,066		5,200		160,124		165,324
Multi-Family		-		-		-		-		-		11,949		11,949
Commercial Real Estate		315		-		-		-		315		126,882		127,197
Home Equity – closed end		42		4		-		-		46		9,224		9,270
Home Equity – open end		520		224		30		41		815		54,387		55,202
Commercial & Industrial – Non- Real Estate		33		59		-		75		167		27,378		27,545
Consumer		44		15		-		-		59		7,920		7,979
Dealer Finance		706		286		-		349		1,341		50,691		52,032
Credit Cards		36		8		2		-		46		2,535		2,581
Total	$	4,904	$	3,744	$	94	$	6,292	$	15,034	$	525,381	$	540,415

Aging of Past Due Loans Receivable (in thousands) as of December 31, 2014

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Non-Accrual Loans		Total Past Due		Current		Total Loan Receivable
December 31, 2014
Construction/Land Development	$	205	$	166	$	-	$	4,508	$	4,879	$	62,302	$	67,181
Farmland		-		-		-		-		-		12,507		12,507
Real Estate		5,085		635		-		973		6,693		155,556		162,249
Multi-Family		-		-		-		-		-		11,775		11,775
Commercial Real Estate		747		-		-		1,165		1,912		120,393		122,305
Home Equity – closed end		162		15		-		10		187		9,207		9,394
Home Equity – open end		730		25		-		143		898		51,284		52,182
Commercial & Industrial – Non- Real Estate		-		-		-		14		14		28,147		28,161
Consumer		290		9		-		-		299		8,811		9,110
Dealer Finance		696		189		-		161		1,046		39,587		40,633
Credit Cards		36		-		1		-		37		2,668		2,705
Total	$	7,951	$	1,039	$	1	$	6,974	$	15,965	$	502,237	$	518,202

CREDIT QUALITY INDICATORS (in thousands)

AS OF SEPTEMBER 30, 2015

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	342	$	8,053	$	31,514	$	8,538	$	5,757	$	14,393	$	-	$	68,597
Farmland		66		-		1,936		3,688		4,968		2,081		-		-		12,739
Real Estate		-		1,028		56,568		72,890		23,131		8,297		3,410		-		165,324
Multi-Family		-		410		3,974		3,078		4,487		-		-		-		11,949
Commercial Real Estate		-		1,721		27,312		69,002		20,126		7,733		1,303		-		127,197
Home Equity – closed end		-		-		3,675		3,772		1,682		123		18		-		9,270
Home Equity – open end		-		1,713		14,955		29,700		4,400		399		4,035		-		55,202
Commercial & Industrial (Non-Real Estate)		523		75		6,941		17,304		2,130		461		111		-		27,545
Total	$	589	$	5,289	$	123,414	$	230,948	$	69,462	$	24,851	$	23,270	$	-	$	477,823

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,579	$	59,662
Non performing		2		349
Total	$	2,581	$	60,011

CREDIT QUALITY INDICATORS (in thousands)

AS OF DECEMBER 31, 2014

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	165	$	8,460	$	24,227	$	9,605	$	3,815	$	20,909	$	-	$	67,181
Farmland		68		-		1,640		3,451		5,228		-		2,120		-		12,507
Real Estate		-		629		60,290		66,464		23,934		7,083		3,849		-		162,249
Multi-Family		-		468		4,145		2,183		4,979		-		-		-		11,775
Commercial Real Estate		-		1,687		22,800		65,653		19,058		10,571		2,536		-		122,305
Home Equity – closed end		-		-		4,327		3,090		1,812		154		11		-		9,394
Home Equity – open end		-		1,555		13,433		28,425		4,309		1,936		2,524		-		52,182
Commercial & Industrial (Non-Real Estate)		643		74		4,692		18,039		3,948		735		30		-		28,161
Total	$	711	$	4,578	$	119,787	$	211,532	$	72,873	$	24,294	$	31,979	$	-	$	465,754

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,704	$	49,582
Non performing		1		161
Total	$	2,705	$	49,743

Description of loan grades:

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

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

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

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

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

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

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

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

XML

3. Loans Held for Investment

9 Months Ended

Sep. 30, 2015

Loans Held For Investment

3. Loans Held for Investment

Loans outstanding at September 30, 2015 and December 31, 2014 are summarized as follows

	2015		2014
Construction/Land Development	$	68,597	$	67,181
Farmland		12,739		12,507
Real Estate		165,324		162,249
Multi-Family		11,949		11,775
Commercial Real Estate		127,197		122,305
Home Equity – closed end		9,270		9,394
Home Equity – open end		55,202		52,182
Commercial & Industrial – Non-Real Estate		27,545		28,161
Consumer		7,979		9,110
Dealer Finance		52,032		40,633
Credit Cards		2,581		2,705
Total	$	540,415	$	518,202

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

			Unpaid				Average		Interest
September 30, 2015	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$	3,307	$	3,445	$	-	$	4,349	$	110
Farmland		-		-		-		-		-
Real Estate		1,051		1,051		-		543		43
Multi-Family		-		-		-		-		-
Commercial Real Estate		322		322		-		1,162		13
Home Equity – closed end		-		-		-		-		-
Home Equity – open end		1,559		1,559		-		1,281		82
Commercial & Industrial – Non-Real Estate		183		183		-		189		9
Consumer		19		19		-		4		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		2
		6,441		6,579				7,528		259
Impaired loans with a valuation allowance
Construction/Land Development		12,258		12,258		2,063		13,074		220
Farmland		-		-		-		-		-
Real Estate		753		753		52		817		43
Multi-Family		-		-		-		-		-
Commercial Real Estate		895		895		24		925		3
Home Equity – closed end		-		-		-		-		-
Home Equity – open end		1,649		1,649		47		330		58
Commercial & Industrial – Non-Real Estate		-		-		-		-		-
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		40		40		11		32		3
		15,595		15,595		2,197		15,178		327
Total impaired loans	$	22,036	$	22,174	$	2,197	$	22,706	$	586

The Recorded Investment is defined as the principal balance less principal payments and charge-offs.

			Unpaid				Average		Interest
December 31, 2014	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$	4,982	$	5,402	$	-	$	5,412	$	251
Farmland		-		-		-		1,163		-
Real Estate		141		141		-		85		5
Multi-Family		-		-		-		-		-
Commercial Real Estate		1,159		1,459		-		1,450		66
Home Equity – closed end		-		-		-		123		-
Home Equity – open end		1,649		1,649		-		330		57
Commercial & Industrial – Non-Real Estate		191		191		-		237		11
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		-
		8,122		8,842				8,800		390
Impaired loans with a valuation allowance
Construction/Land Development		12,976		14,749		1,469		12,056		326
Farmland		-		-		-		-		-
Real Estate		926		926		101		988		105
Multi-Family		-		-		-		-		-
Commercial Real Estate		938		938		47		1,030		4
Home Equity – closed end		-		-		-		72		-
Home Equity – open end		-		-		-		40		-
Commercial & Industrial – Non-Real Estate		-		-		-		-		-
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		-
		14,840		16,613		1,617		14,186		435
Total impaired loans	$	22,962	$	25,455	$	1,617	$	22,986	$	825

XML

6. Fair Value (Tables)

9 Months Ended

Sep. 30, 2015

Fair Value Tables

Fair value measurements

For level 3 assets and liabilities measured at fair value on a recurring basis or non-recurring basis as of September 30, 2014 and December 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at September 30, 2015		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	13,398	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%
Other Real Estate Owned	$	2,462	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%

	Fair Value at December 31, 2014		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	13,223	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%
Other Real Estate Owned	$	3,507	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%

Schedule Assets and Liabilities at Fair Value on Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands).

September 30, 2015	Total		Level 1		Level 2		Level 3
U.S. Treasury Securities	$	4,047	$	-	$	4,047
Government sponsored enterprises		8,119		-		8,119		-
Mortgage-backed securities		872		-		872		-
Marketable equities		135		-		135		-
Investment securities available for sale	$	13,173	$	-	$	13,173	$	-
Total assets at fair value	$	13,173	$	-	$	13,173	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-
Derivative financial instruments at fair value	$	34	$	-	$	34	$	-

December 31, 2014	Total		Level 1		Level 2		Level 3
U. S. Treasuries
Government sponsored enterprises	$	4,020	$	-	$	4,020	$	-
Mortgage-backed securities		8,038		-		8,038		-
Marketable equities		1,022		-		1,022		-
Investment securities available for sale		135		-		135		-
		13,215		-		13,215		-
Total assets at fair value
Total liabilities at fair value	$	-	$	-	$	-	$	-
Derivative financial instruments at fair value	$	33	$	-	$	33	$	-

Schedule of Assets and Liabilities at Fair Value on Non-recurring Basis

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis

September 30, 2015	Total		Level 1		Level 2		Level 3
Other Real Estate Owned	$	2,462		-		-	$	2,462
				-		-
Construction/Land Development		10,195		-		-		10,195
Farmland		-		-		-		-
Real Estate		702		-		-		702
Multi-Family		-		-		-		-
Commercial Real Estate		871		-		-		871
Home Equity – closed end		-		-		-		-
Home Equity – open end		1,601		-		-		1,601
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		29		-		-		29
Total Impaired loans		13,398		-		-		13,398
Total assets at fair value	$	15,860	$	-	$	-	$	15,860
Total liabilities at fair value	$	-	$	-	$	-	$	-

The table below presents the recorded amount of assets and liabilities measured at fair value on a non-recurring basis (in thousands).  The Company has determined that Other Real Estate Owned and Impaired Loans are Level 3.

December 31, 2014	Total		Level 1		Level 2		Level 3
Other Real Estate Owned	$	3,507		-		-	$	3,507
				-		-
Construction/Land Development		11,507		-		-		11,507
Farmland		-		-		-		-
Real Estate		825		-		-		825
Multi-Family		-		-		-		-
Commercial Real Estate		891		-		-		891
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		-		-		-		-
Total Impaired loans		13,223		-		-		13,223
Total assets at fair value	$	16,730		-	$	-	$	16,730
Total liabilities at fair value	$	-	$	-	$	-	$	-

XML

2. Investment Securities (Tables)

9 Months Ended

Sep. 30, 2015

Investment Securities Tables

Securities Impairment

The amortized costs of investment securities held to maturity are carried in the consolidated balance sheets and their approximate market values at September 30, 2015 and December 31, 2014 are as follows (in thousands):

	2015				2014
			Market				Market
	Cost		Value		Cost		Value
Securities held to maturity
U. S. Treasury and agency obligations	$	125	$	125	$	125	$	125
Total	$	125	$	125	$	125	$	125

			September 30, 2015 Unrealized				Market
	Cost		Gains		Losses		Value
Securities available for sale
U. S. Treasury	$	4,018	$	29	$	-	$	4,047
Government sponsored enterprises		8,115		10		6		8,119
Mortgage-backed securities		858		14		-		872
Corporate equities		135		-		-		135
Total	$	13,126	$	53	$	6	$	13,173

			December 31, 2014 Unrealized				Market
	Cost		Gains		Losses		Value
Securities available for sale
U. S. Treasury	$	4,026	$	-	$	6	$	4,020
Government sponsored enterprises		8,039		9		10		8,038
Mortgage-backed securities		1,011		11		-		1,022
Corporate equities		135		-		-		135
Total	$	13,211	$	20	$	16	$	13,215

Schedule Amortized Cost and Fair Value for Securities

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Held to Maturity				Securities Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	125	$	125	$	-	$	-
Due after one year through five years		-		-		12,133		12,166
Due after five years		-		-		993		1,007
Total	$	125	$	125	$	13,126	$	13,173

Schedule of Securities with Unrealized Losses

The fair value and gross unrealized losses for securities, segregated by the length of time that individual securities have been in a continuous gross unrealized loss position, at September 30, 2015 and December 31, 2014 were as follows (dollars in thousands):

	Less than 12 Months					More than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2015
U. S. Treasury	$	-	$	-		$	-	$	-		$	-	$	-
Government sponsored Enterprises		4,013		(6	)		-		-			4,013		(6	)
Total	$	4,013	$	(6	)	$	-	$	-		$	4,013	$	(6	)
December 31, 2014
U. S. Treasury	$	4,020	$	(6	)	$	-	$	-		$	4,020	$	(6	)
Government sponsored Enterprises		2,004		(2	)		1,991		(8	)		3,995		(10	)
Total	$	6,024	$	(8	)	$	1,991	$	(8	)	$	8,015	$	(16	)

XML

7. Disclosures About Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2015

Disclosures About Fair Value Of Financial Instruments

7. Disclosures About Fair Value of Financial Instruments

ASC 825 “Financial Instruments” defines the fair value of a financial instrument as the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced liquidation or sale.  As the majority of the Bank’s financial instruments lack an available trading market, significant estimates, assumptions and present value calculations are required to determine estimated fair value.  The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of September 30, 2015 and December 31, 2014.  This table excludes financial instruments for which the carrying amount approximates the fair value, which would be Level 1; inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. All financial instruments above and below are considered Level 2 with the exception of impaired loans of $13,398,000 and $13,223,000 at September 30, 2015 and December 31, 2014, respectively, which are considered level 3.  Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument (in thousands).

	September 30, 2015				December 31, 2014
	Estimated		Carrying		Estimated		Carrying
	Fair Value		Value		Fair Value		Value
Financial Assets
Loans, gross	$	568,774	$	540,415	$	551,338	$	518,202
Financial Liabilities
Time deposits	$	170,548	$	169,528		196,826		195,464
Long-term debt	$	39,610	$	38,893		9,862		9,875

The carrying value of cash and cash equivalents, other investments, deposits with no stated maturities, short-term borrowings, and accrued interest approximate fair value. The fair value of securities was calculated using the most recent transaction price or a pricing model, which takes into consideration maturity, yields and quality.  The remaining financial instruments were valued based on the present value of estimated future cash flows, discounted at various rates in effect for similar instruments entered into as of the end of each respective period shown above.

XML

5. Employee Benefit Plan

9 Months Ended

Sep. 30, 2015

Employee Benefit Plan

5. Employee Benefit Plan

The Bank has a qualified noncontributory defined benefit pension plan that covers substantially all of its employees.  The benefits are primarily based on years of service and earnings.  The Bank contributed $750,000 to the plan in the first quarter of 2015 and does not anticipate additional contributions for the 2015 plan year.  The following is a summary of net periodic pension costs for the nine month and three month periods ended September 30, 2015 and 2014.

	Nine Months Ended						Three Months Ended
	September 30, 2015			September 30, 2014			September 30, 2015			September 30, 2014
Service cost	$	486,251		$	375,771		$	162,084		$	125,257
Interest cost		308,208			283,281			102,736			94,427
Expected return on plan assets		(629,114	)		(523,689	)		(209,705	)		(174,563	)
Amortization of net obligation at transition		-			-			-			-
Amortization of prior service cost		(11,427	)		(11,427	)		(3,809	)		(3,809	)
Amortization of net (gain) or loss		135,482			27,084			45,161			9,028
Net periodic pension cost	$	289,400		$	151,020		$	96,467		$	50,340

XML

6. Fair Value

9 Months Ended

Sep. 30, 2015

Fair Value

6. Fair Value

Accounting Standards Codification (ASC) 820, defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement

The following sections provide a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. Treasury, U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

Impaired Loans: ASC 820 applies to loans measured for impairment using the practical expedients permitted by ASC 310 including impaired loans measured at an observable market price (if available), or at the fair value of the loan’s collateral (if the loan is collateral dependent). Fair value of the loan’s collateral, when the loan is dependent on collateral, is determined by appraisals or independent valuation which is then adjusted for the cost related to liquidation of the collateral.

Other Real Estate Owned: Certain assets such as other real estate owned (OREO) are measured at the lower of carrying amount or fair value less cost to sell. We believe that the fair value component in its valuation follows the provisions of ASC 820.

Derivative Financial Instruments: The equity derivative contracts are purchased as part of our Indexed Certificate of Deposit (ICD) program and are an offset of an asset and liability.  ICD values are measured on the S&P 500 Index.

For level 3 assets and liabilities measured at fair value on a recurring basis or non-recurring basis as of September 30, 2014 and December 31, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

	Fair Value at September 30, 2015		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	13,398	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%
Other Real Estate Owned	$	2,462	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%

	Fair Value at December 31, 2014		Valuation Technique	Significant Unobservable Inputs	Range
Impaired Loans	$	13,223	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%
Other Real Estate Owned	$	3,507	Discounted appraised value	Discount for selling costs and age of appraisals		15%-55	%

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis (in thousands).

September 30, 2015	Total		Level 1		Level 2		Level 3
U.S. Treasury Securities	$	4,047	$	-	$	4,047
Government sponsored enterprises		8,119		-		8,119		-
Mortgage-backed securities		872		-		872		-
Marketable equities		135		-		135		-
Investment securities available for sale	$	13,173	$	-	$	13,173	$	-
Total assets at fair value	$	13,173	$	-	$	13,173	$	-
Total liabilities at fair value	$	-	$	-	$	-	$	-
Derivative financial instruments at fair value	$	34	$	-	$	34	$	-

December 31, 2014	Total		Level 1		Level 2		Level 3
U. S. Treasuries
Government sponsored enterprises	$	4,020	$	-	$	4,020	$	-
Mortgage-backed securities		8,038		-		8,038		-
Marketable equities		1,022		-		1,022		-
Investment securities available for sale		135		-		135		-
		13,215		-		13,215		-
Total assets at fair value
Total liabilities at fair value	$	-	$	-	$	-	$	-
Derivative financial instruments at fair value	$	33	$	-	$	33	$	-

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis

September 30, 2015	Total		Level 1		Level 2		Level 3
Other Real Estate Owned	$	2,462		-		-	$	2,462
				-		-
Construction/Land Development		10,195		-		-		10,195
Farmland		-		-		-		-
Real Estate		702		-		-		702
Multi-Family		-		-		-		-
Commercial Real Estate		871		-		-		871
Home Equity – closed end		-		-		-		-
Home Equity – open end		1,601		-		-		1,601
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		29		-		-		29
Total Impaired loans		13,398		-		-		13,398
Total assets at fair value	$	15,860	$	-	$	-	$	15,860
Total liabilities at fair value	$	-	$	-	$	-	$	-

The table below presents the recorded amount of assets and liabilities measured at fair value on a non-recurring basis (in thousands).  The Company has determined that Other Real Estate Owned and Impaired Loans are Level 3.

December 31, 2014	Total		Level 1		Level 2		Level 3
Other Real Estate Owned	$	3,507		-		-	$	3,507
				-		-
Construction/Land Development		11,507		-		-		11,507
Farmland		-		-		-		-
Real Estate		825		-		-		825
Multi-Family		-		-		-		-
Commercial Real Estate		891		-		-		891
Home Equity – closed end		-		-		-		-
Home Equity – open end		-		-		-		-
Commercial & Industrial – Non-Real Estate		-		-		-		-
Consumer		-		-		-		-
Credit cards		-		-		-		-
Dealer Finance		-		-		-		-
Total Impaired loans		13,223		-		-		13,223
Total assets at fair value	$	16,730		-	$	-	$	16,730
Total liabilities at fair value	$	-	$	-	$	-	$	-

XML

8. Troubled Debt Restructuring

9 Months Ended

Sep. 30, 2015

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Asset Types

8. Troubled Debt Restructuring

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

In the nine months ended September 30, 2015, there were fifteen loan modifications that were considered to be troubled debt restructurings.  Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.

	Nine months ended September 30, 2015
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
Troubled Debt Restructurings	Number of Contracts		Recorded Investment		Recorded Investment
Commercial		1	$	978	$	978
Real Estate		5		3,342		3,342
Home Equity		5		1,648		1,648
Consumer		4		40		40
Total		15	$	6,008	$	6,008

During the quarter ended September 30, 2015, there were seven loan modifications that were considered to be troubled debt restructurings.

	Three Months ended September 30, 2015
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Commercial		1	$	978	$	978
Real Estate		1		612	$	612
Home Equity		5		1,648		1,648
Total		7	$	3,238	$	3,238

There were no troubled debt restructurings from the previous twelve months that went into default in 2015.  A restructured loan is considered in default when it becomes 90 days past due.

In the nine months ended September 30, 2014, there were three (one loan during quarter ended September 30, 2014) loan modifications that were considered to be troubled debt restructurings.  Modifications may have included rate adjustments, revisions to amortization schedules, suspension of principal payments for a temporary period, re-advancing funds to be applied as payments to bring the loan(s) current, or any combination thereof.

	Nine months ended September 30, 2014
			Pre-Modification		Post-Modification
			Outstanding		Outstanding
	Number of Contracts		Recorded Investment		Recorded Investment
Troubled Debt Restructurings
Commercial			$	-	$	-
Real Estate		2		181		181
Home Equity				-		-
Credit Cards				-		-
Consumer		1		23		23
Total			$	204	$	204

 There were no troubled debt restructurings from the previous twelve months that went into default in 2014.  A restructured loan is considered in default when it becomes 90 days past due.

XML

4. Allowance for Loan Losses (Details 1) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Loan Receivable	$ 540,415	$ 518,202
Individually Evaluated for Impairment	22,036	22,962
Collectively Evaluated for Impairment	518,379	495,240
Construction/Land Development [Member]
Loan Receivable	68,597	67,181
Individually Evaluated for Impairment	15,565	17,958
Collectively Evaluated for Impairment	53,032	49,223
Farmland [Member]
Loan Receivable	$ 12,739	$ 12,507
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 12,739	$ 12,507
Real Estate [Member]
Loan Receivable	165,324	162,249
Individually Evaluated for Impairment	1,804	1,067
Collectively Evaluated for Impairment	163,520	161,182
Multi-Family [Member]
Loan Receivable	$ 11,949	$ 11,775
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 11,949	$ 11,775
Commercial [Member]
Loan Receivable	127,197	122,305
Individually Evaluated for Impairment	1,217	2,097
Collectively Evaluated for Impairment	125,980	120,208
Home Equity - Closed End [Member]
Loan Receivable	$ 9,270	$ 9,394
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 9,270	$ 9,394
Home Equity [Member]
Loan Receivable	55,202	52,182
Individually Evaluated for Impairment	3,208	1,649
Collectively Evaluated for Impairment	51,994	50,533
Commercial & Industrial - Non-Real Estate [Member]
Loan Receivable	27,545	28,161
Individually Evaluated for Impairment	183	191
Collectively Evaluated for Impairment	27,362	27,970
Consumer [Member]
Loan Receivable	7,979	$ 9,110
Individually Evaluated for Impairment	19
Collectively Evaluated for Impairment	7,960	$ 9,110
Dealer Finance [Member]
Loan Receivable	52,032	40,633
Individually Evaluated for Impairment	40
Collectively Evaluated for Impairment	51,992	40,633
Credit Cards [Member]
Loan Receivable	$ 2,581	$ 2,705
Individually Evaluated for Impairment
Collectively Evaluated for Impairment	$ 2,581	$ 2,705

XML

4. Allowance for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2015

Allowance For Loan Losses Tables

Summary Loan Loss Allowance Transactions

A summary of the allowance for loan losses follows (in thousands):

For the nine months ended September 30, 2015	Beginning Balance		Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,738	$	138	$	83	$	471		$	5,154	$	2,063	$	3,091
Farmland		102		-		-		(15	)		87		-		87
Real Estate		623		25		-		(112	)		486		51		435
Multi-Family		95		-		-		(13	)		82		-		82
Commercial Real Estate		126		-		47		(78	)		95		24		71
Home Equity – closed end		188		26		6		(8	)		160		-		160
Home Equity – open end		154		51		-		82			185		48		137
Commercial & Industrial – Non-Real Estate		1,014		-		60		(246	)		828		-		828
Consumer		214		23		23		(9	)		205		-		205
Dealer Finance		1,336		111		20		232			1,477		11		1,466
Credit Cards		135		56		36		(4	)		111		-		111
Total	$	8,725	$	430	$	275	$	300		$	8,870	$	2,197	$	6,673

For the year ended December 31, 2014	Beginning Balance			Charge-offs		Recoveries		Provision			Ending Balance		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Allowance for loan losses:
Construction/Land Development	$	4,007		$	1,611	$	223	$	2,119		$	4,738	$	1,469	$	3,269
Farmland		(2	)		-		-		104			102		-		102
Real Estate		400			208		-		431			623		101		522
Multi-Family		-			-		-		95			95		-		95
Commercial Real Estate		777			-		108		(759	)		126		47		79
Home Equity – closed end		157			-		-		31			188		-		188
Home Equity – open end		476			80		-		(242	)		154		-		154
Commercial & Industrial – Non-Real Estate		1,464			385		356		(421	)		1,014		-		1,014
Consumer		156			33		33		58			214		-		214
Dealer Finance		628			107		6		809			1,336		-		1,336
Credit Cards		121			46		35		25			135		-		135
Total	$	8,184		$	2,470	$	761	$	2,250		$	8,725	$	1,617	$	7,108

September 30, 2015	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	68,597	$	15,565	$	53,032
Farmland		12,739		-		12,739
Real Estate		165,324		1,804		163,520
Multi-Family		11,949		-		11,949
Commercial Real Estate		127,197		1,217		125,980
Home Equity – closed end		9,270		-		9,270
Home Equity –open end		55,202		3,208		51,994
Commercial & Industrial – Non-Real Estate		27,545		183		27,362
Consumer		7,979		19		7,960
Dealer Finance		52,032		40		51,992
Credit Cards		2,581		-		2,581
	$	540,415	$	22,036	$	518,379
Total

Recorded Investment in Loan Receivables

Recorded Investment in Loan Receivables (in thousands)

December 31, 2014	Loan Receivable		Individually Evaluated for Impairment		Collectively Evaluated for Impairment
Construction/Land Development	$	67,181	$	17,958	$	49,223
Farmland		12,507		-		12,507
Real Estate		162,249		1,067		161,182
Multi-Family		11,775		-		11,775
Commercial Real Estate		122,305		2,097		120,208
Home Equity – closed end		9,394		-		9,394
Home Equity –open end		52,182		1,649		50,533
Commercial & Industrial – Non-Real Estate		28,161		191		27,970
Consumer		9,110		-		9,110
Dealer Finance		40,633				40,633
Credit Cards		2,705		-		2,705
	$	518,202	$	22,962	$	495,240
Total

Schedule of Aging of Past Due Receivables

Aging of Past Due Loans Receivable (in thousands) as of September 30, 2015

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Non-Accrual Loans		Total Past Due		Current		Total Loan Receivable
September 30, 2015
Construction/Land Development	$	254	$	2,030	$	-	$	4,761	$	7,045	$	61,552	$	68,597
Farmland		-		-		-		-		-		12,739		12,739
Real Estate		2,954		1,118		62		1,066		5,200		160,124		165,324
Multi-Family		-		-		-		-		-		11,949		11,949
Commercial Real Estate		315		-		-		-		315		126,882		127,197
Home Equity – closed end		42		4		-		-		46		9,224		9,270
Home Equity – open end		520		224		30		41		815		54,387		55,202
Commercial & Industrial – Non- Real Estate		33		59		-		75		167		27,378		27,545
Consumer		44		15		-		-		59		7,920		7,979
Dealer Finance		706		286		-		349		1,341		50,691		52,032
Credit Cards		36		8		2		-		46		2,535		2,581
Total	$	4,904	$	3,744	$	94	$	6,292	$	15,034	$	525,381	$	540,415

Aging of Past Due Loans Receivable (in thousands) as of December 31, 2014

	30-59 Days Past due		60-89 Days Past Due		Greater than 90 Days (excluding non-accrual)		Non-Accrual Loans		Total Past Due		Current		Total Loan Receivable
December 31, 2014
Construction/Land Development	$	205	$	166	$	-	$	4,508	$	4,879	$	62,302	$	67,181
Farmland		-		-		-		-		-		12,507		12,507
Real Estate		5,085		635		-		973		6,693		155,556		162,249
Multi-Family		-		-		-		-		-		11,775		11,775
Commercial Real Estate		747		-		-		1,165		1,912		120,393		122,305
Home Equity – closed end		162		15		-		10		187		9,207		9,394
Home Equity – open end		730		25		-		143		898		51,284		52,182
Commercial & Industrial – Non- Real Estate		-		-		-		14		14		28,147		28,161
Consumer		290		9		-		-		299		8,811		9,110
Dealer Finance		696		189		-		161		1,046		39,587		40,633
Credit Cards		36		-		1		-		37		2,668		2,705
Total	$	7,951	$	1,039	$	1	$	6,974	$	15,965	$	502,237	$	518,202

Corporate Credit Exposure

CREDIT QUALITY INDICATORS (in thousands)

AS OF SEPTEMBER 30, 2015

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	342	$	8,053	$	31,514	$	8,538	$	5,757	$	14,393	$	-	$	68,597
Farmland		66		-		1,936		3,688		4,968		2,081		-		-		12,739
Real Estate		-		1,028		56,568		72,890		23,131		8,297		3,410		-		165,324
Multi-Family		-		410		3,974		3,078		4,487		-		-		-		11,949
Commercial Real Estate		-		1,721		27,312		69,002		20,126		7,733		1,303		-		127,197
Home Equity – closed end		-		-		3,675		3,772		1,682		123		18		-		9,270
Home Equity – open end		-		1,713		14,955		29,700		4,400		399		4,035		-		55,202
Commercial & Industrial (Non-Real Estate)		523		75		6,941		17,304		2,130		461		111		-		27,545
Total	$	589	$	5,289	$	123,414	$	230,948	$	69,462	$	24,851	$	23,270	$	-	$	477,823

CREDIT QUALITY INDICATORS (in thousands)

AS OF DECEMBER 31, 2014

Corporate Credit Exposure

Credit Risk Profile by Creditworthiness Category

	Grade 1 Minimal Risk		Grade 2 Modest Risk		Grade 3 Average Risk		Grade 4 Acceptable Risk		Grade 5 Marginally Acceptable		Grade 6 Watch		Grade 7 Substandard		Grade 8 Doubtful		Total
Construction/Land Development	$	-	$	165	$	8,460	$	24,227	$	9,605	$	3,815	$	20,909	$	-	$	67,181
Farmland		68		-		1,640		3,451		5,228		-		2,120		-		12,507
Real Estate		-		629		60,290		66,464		23,934		7,083		3,849		-		162,249
Multi-Family		-		468		4,145		2,183		4,979		-		-		-		11,775
Commercial Real Estate		-		1,687		22,800		65,653		19,058		10,571		2,536		-		122,305
Home Equity – closed end		-		-		4,327		3,090		1,812		154		11		-		9,394
Home Equity – open end		-		1,555		13,433		28,425		4,309		1,936		2,524		-		52,182
Commercial & Industrial (Non-Real Estate)		643		74		4,692		18,039		3,948		735		30		-		28,161
Total	$	711	$	4,578	$	119,787	$	211,532	$	72,873	$	24,294	$	31,979	$	-	$	465,754

Consumer Credit Exposure

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,579	$	59,662
Non performing		2		349
Total	$	2,581	$	60,011

Consumer Credit Exposure

Credit Risk Profile Based on Payment Activity

	Credit Cards		Consumer
Performing	$	2,704	$	49,582
Non performing		1		161
Total	$	2,705	$	49,743

XML

1. Summary of significant accounting policies (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Earnings Available to Common Stockholders:
Net Income	$ 2,229	$ 1,561	$ 6,352	$ 4,210
Minority interest	39	$ 8	115	$ 26
Preferred Stock Dividends	128		383
Net Income Available to Common Stockholders	$ 2,062	$ 1,569	$ 5,854	$ 4,236

XML

6. Fair Value (Details 1) - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Total assets at fair value	$ 13,173	$ 13,215
Total liabilities at fair value
Derivative financial instruments at fair value	$ 34	$ 33
Corporate equities [Member]
Total assets at fair value	$ 135	$ 135
Fair Value Inputs Level 1 [Member]
Total assets at fair value
Total liabilities at fair value
Derivative financial instruments at fair value
Fair Value Inputs Level 2 [Member]
Total assets at fair value	$ 13,173	$ 13,215
Total liabilities at fair value
Derivative financial instruments at fair value	$ 34	$ 33
Fair Value Inputs Level 3 [Member]
Total assets at fair value
Total liabilities at fair value
Derivative financial instruments at fair value
U.S. Treasury Securities [Member]
Total assets at fair value	$ 4,047	$ 4,020
U.S. Treasury Securities [Member] | Fair Value Inputs Level 1 [Member]
Total assets at fair value
U.S. Treasury Securities [Member] | Fair Value Inputs Level 2 [Member]
Total assets at fair value	$ 4,047	$ 4,020
U.S. Treasury Securities [Member] | Fair Value Inputs Level 3 [Member]
Total assets at fair value
Government Sponsored Enterprises [Member]
Total assets at fair value	$ 8,119	$ 8,038
Government Sponsored Enterprises [Member] | Fair Value Inputs Level 1 [Member]
Total assets at fair value
Government Sponsored Enterprises [Member] | Fair Value Inputs Level 2 [Member]
Total assets at fair value	$ 8,119	$ 8,038
Government Sponsored Enterprises [Member] | Fair Value Inputs Level 3 [Member]
Total assets at fair value
Mortgage Backed Obligations of Federal Agencies [Member]
Total assets at fair value	$ 872	$ 1,022
Mortgage Backed Obligations of Federal Agencies [Member] | Fair Value Inputs Level 1 [Member]
Total assets at fair value
Mortgage Backed Obligations of Federal Agencies [Member] | Fair Value Inputs Level 2 [Member]
Total assets at fair value	$ 872	$ 1,022
Mortgage Backed Obligations of Federal Agencies [Member] | Fair Value Inputs Level 3 [Member]
Total assets at fair value
Corporate equities [Member] | Fair Value Inputs Level 1 [Member]
Total assets at fair value
Corporate equities [Member] | Fair Value Inputs Level 2 [Member]
Total assets at fair value	$ 135	$ 135
Corporate equities [Member] | Fair Value Inputs Level 3 [Member]
Total assets at fair value
Investment securities available for sale [Member]
Total assets at fair value	$ 13,173	$ 13,215
Investment securities available for sale [Member] | Fair Value Inputs Level 1 [Member]
Total assets at fair value
Investment securities available for sale [Member] | Fair Value Inputs Level 2 [Member]
Total assets at fair value	$ 13,173	$ 13,215
Investment securities available for sale [Member] | Fair Value Inputs Level 3 [Member]
Total assets at fair value

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2015	Dec. 31, 2014
Assets
Cash and due from banks	$ 6,420	$ 6,241
Money market funds	$ 490	911
Federal funds sold		16,051
Cash and cash equivalents	$ 6,910	23,203
Securities:
Held to maturity - fair value of $125 in 2015 and $125 in 2014	125	125
Available for sale	13,173	13,215
Other investments	10,845	8,964
Loans held for sale	55,482	13,382
Loans held for investment	540,415	518,202
Less: allowance for loan losses	(8,870)	(8,725)
Net loans held for investment	531,545	509,477
Other real estate owned	2,462	3,507
Bank premises and equipment, net	7,369	6,458
Interest receivable	1,655	1,675
Goodwill	2,670	2,670
Bank owned life insurance	12,928	12,581
Other assets	10,937	10,051
Total assets	656,101	605,308
Deposits:
Noninterest bearing	126,299	112,198
Interest bearing:
Demand	75,316	93,694
Money market accounts	26,581	25,900
Savings	86,093	64,249
Time deposits over $100,000	61,089	79,813
All other time deposits	108,439	115,651
Total deposits	483,817	491,505
Short-term debt	38,239	14,358
Accrued liabilities	13,314	11,772
Long-term debt	38,893	9,875
Total liabilities	574,263	527,510
Stockholders' Equity
Preferred Stock $5 par value, 400,000 shares authorized, issued and outstanding	9,425	9,425
Common stock, $5 par value, 6,000,000 shares authorized, 3,284,513 and 3,287,470 shares issued and outstanding	16,423	16,459
Additional paid in capital - common stock	11,135	11,260
Retained earnings	46,629	42,554
Noncontrolling interest	524	426
Accumulated other comprehensive loss	(2,298)	(2,326)
Total stockholders' equity	81,838	77,798
Total liabilities and stockholders' equity	$ 656,101	$ 605,308

XML

2. Investment Securities

9 Months Ended

Sep. 30, 2015

Investment Securities

2. Investment Securities

Investment securities available for sale are carried in the consolidated balance sheets at their approximate market value, amortized cost and unrealized gains and losses at September 30, 2015 and December 31, 2014 are reflected in the table below.  The amortized costs of investment securities held to maturity are carried in the consolidated balance sheets and their approximate market values at September 30, 2015 and December 31, 2014 are as follows (in thousands):

	2015				2014
			Market				Market
	Cost		Value		Cost		Value
Securities held to maturity
U. S. Treasury and agency obligations	$	125	$	125	$	125	$	125
Total	$	125	$	125	$	125	$	125

			September 30, 2015 Unrealized				Market
	Cost		Gains		Losses		Value
Securities available for sale
U. S. Treasury	$	4,018	$	29	$	-	$	4,047
Government sponsored enterprises		8,115		10		6		8,119
Mortgage-backed securities		858		14		-		872
Corporate equities		135		-		-		135
Total	$	13,126	$	53	$	6	$	13,173

			December 31, 2014 Unrealized				Market
	Cost		Gains		Losses		Value
Securities available for sale
U. S. Treasury	$	4,026	$	-	$	6	$	4,020
Government sponsored enterprises		8,039		9		10		8,038
Mortgage-backed securities		1,011		11		-		1,022
Corporate equities		135		-		-		135
Total	$	13,211	$	20	$	16	$	13,215

The amortized cost and fair value of securities at September 30, 2015, by contractual maturity are shown below (in thousands).  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Held to Maturity				Securities Available for Sale
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	125	$	125	$	-	$	-
Due after one year through five years		-		-		12,133		12,166
Due after five years		-		-		993		1,007
Total	$	125	$	125	$	13,126	$	13,173

There were no gains and losses on sales of securities in the third quarter or nine month period ended September 30 of 2015 or 2014.  There were also no securities with an other than temporary impairment.

The fair value and gross unrealized losses for securities, segregated by the length of time that individual securities have been in a continuous gross unrealized loss position, at September 30, 2015 and December 31, 2014 were as follows (dollars in thousands):

	Less than 12 Months					More than 12 Months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2015
U. S. Treasury	$	-	$	-		$	-	$	-		$	-	$	-
Government sponsored Enterprises		4,013		(6	)		-		-			4,013		(6	)
Total	$	4,013	$	(6	)	$	-	$	-		$	4,013	$	(6	)
December 31, 2014
U. S. Treasury	$	4,020	$	(6	)	$	-	$	-		$	4,020	$	(6	)
Government sponsored Enterprises		2,004		(2	)		1,991		(8	)		3,995		(10	)
Total	$	6,024	$	(8	)	$	1,991	$	(8	)	$	8,015	$	(16	)

Other investments, which consist of stock of correspondent banks and investments in low income housing projects, increased since December 31, 2014.  This increase is due to FHLB stock repurchases which were partially offset with an increase in the Federal Reserve Bank Stock holding requirement.

XML

1. Summary of significant accounting policies (Details 1) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Summary Of Significant Accounting Policies
Basic common EPS, Income	$ 2,062	$ 1,569	$ 5,854	$ 4,236
Effect of Dilutive Securities Convertible Preferred Stock, Income	128		383
Diluted common EPS, Income	$ 2,190	$ 1,569	$ 6,237	$ 4,236
Diluted common EPS, Shares	3,291,133	3,289,743	3,292,709	3,061,432
Effect of Dilutive Securities Convertible Preferred Stock, Shares	444,400		444,400
Diluted common EPS, Shares	3,735,533	3,289,743	3,737,109	3,061,432
Basic common EPS, Per Shares	$ 0.63	$ 0.48	$ 1.78	$ 1.38
Effect of Dilutive Securities Convertible Preferred Stock, Per Shares	(0.04)		(0.08)
Diluted common EPS, Per Shares	$ 0.59	$ 0.48	$ 1.67	$ 1.38

XML

5. Employee Benefit Plan (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Employee Benefit Plan Details
Service cost	$ 162,084	$ 125,257	$ 486,251	$ 375,771
Interest cost	102,736	94,427	308,208	283,281
Expected return on plan assets	$ (209,705)	$ (174,563)	$ (629,114)	$ (523,689)
Amortization of net obligation at transition
Amortization of prior service cost	$ (3,809)	$ (3,809)	$ (11,427)	$ (11,427)
Amortization of net (gain) or loss	45,161	9,028	135,482	27,084
Net periodic pension cost	$ 96,467	$ 50,340	$ 289,400	$ 151,020

XML

3. Loans Held for Investment (Tables)

9 Months Ended

Sep. 30, 2015

Loans Held For Investment Tables

Schedule of Loans Outstanding

Loans outstanding at September 30, 2015 and December 31, 2014 are summarized as follows

	2015		2014
Construction/Land Development	$	68,597	$	67,181
Farmland		12,739		12,507
Real Estate		165,324		162,249
Multi-Family		11,949		11,775
Commercial Real Estate		127,197		122,305
Home Equity – closed end		9,270		9,394
Home Equity – open end		55,202		52,182
Commercial & Industrial – Non-Real Estate		27,545		28,161
Consumer		7,979		9,110
Dealer Finance		52,032		40,633
Credit Cards		2,581		2,705
Total	$	540,415	$	518,202

Schedule Impaired Loans

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

			Unpaid				Average		Interest
September 30, 2015	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$	3,307	$	3,445	$	-	$	4,349	$	110
Farmland		-		-		-		-		-
Real Estate		1,051		1,051		-		543		43
Multi-Family		-		-		-		-		-
Commercial Real Estate		322		322		-		1,162		13
Home Equity – closed end		-		-		-		-		-
Home Equity – open end		1,559		1,559		-		1,281		82
Commercial & Industrial – Non-Real Estate		183		183		-		189		9
Consumer		19		19		-		4		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		2
		6,441		6,579				7,528		259
Impaired loans with a valuation allowance
Construction/Land Development		12,258		12,258		2,063		13,074		220
Farmland		-		-		-		-		-
Real Estate		753		753		52		817		43
Multi-Family		-		-		-		-		-
Commercial Real Estate		895		895		24		925		3
Home Equity – closed end		-		-		-		-		-
Home Equity – open end		1,649		1,649		47		330		58
Commercial & Industrial – Non-Real Estate		-		-		-		-		-
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		40		40		11		32		3
		15,595		15,595		2,197		15,178		327
Total impaired loans	$	22,036	$	22,174	$	2,197	$	22,706	$	586

Recorded Investment

The Recorded Investment is defined as the principal balance less principal payments and charge-offs.

			Unpaid				Average		Interest
December 31, 2014	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
Impaired loans without a valuation allowance:
Construction/Land Development	$	4,982	$	5,402	$	-	$	5,412	$	251
Farmland		-		-		-		1,163		-
Real Estate		141		141		-		85		5
Multi-Family		-		-		-		-		-
Commercial Real Estate		1,159		1,459		-		1,450		66
Home Equity – closed end		-		-		-		123		-
Home Equity – open end		1,649		1,649		-		330		57
Commercial & Industrial – Non-Real Estate		191		191		-		237		11
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		-
		8,122		8,842				8,800		390
Impaired loans with a valuation allowance
Construction/Land Development		12,976		14,749		1,469		12,056		326
Farmland		-		-		-		-		-
Real Estate		926		926		101		988		105
Multi-Family		-		-		-		-		-
Commercial Real Estate		938		938		47		1,030		4
Home Equity – closed end		-		-		-		72		-
Home Equity – open end		-		-		-		40		-
Commercial & Industrial – Non-Real Estate		-		-		-		-		-
Consumer		-		-		-		-		-
Credit cards		-		-		-		-		-
Dealer Finance		-		-		-		-		-
		14,840		16,613		1,617		14,186		435
Total impaired loans	$	22,962	$	25,455	$	1,617	$	22,986	$	825