2016 ANNUAL REPORT DEAN WITHERS PRESIDENT AND CEO DEAR FELLOW SHAREHOLDERS connector road, and is scheduled to open mid- year. It will ultimately replace our current Port Road branch. A new Timberville branch is also under construction on Rt. 211 across from the new Walmart. We will be relocating the cur- rent Timberville branch which is now housed in corporate headquarters The current building. Timberville location will be converted to corporate and operations offices only. I would like to thank the entire F & M Bank family for their hard work and dedication this past year. Without our team effort, we could not accomplish the record year that we had. I am proud of our ac- complishments, but also proud to support and be a part of the communi- ties in which we live and work. F & M has a proud history for more than a century and will continue to have a proud history for many years to come. F&M Bank Corp. continues to perform at a high level. For year ending 2016 we achieved our third of consecutive record earnings of $9.567 million. This was an increase of $1.15 million (13.66%) over 2015. year We have started several new deposit products based refer- around rals from our customer base. This program has been very successful and hopefully will continue to provide good deposit growth in the future. Factors leading to the increase in net income were a $47.6 million increase in Loans Held for Investment and a stable Net Interest Margin of 4.34%. Our Loans Held for Sale program operat- ed at a high level in 2016 due to the improving real estate market across the country. VBS Mortgage had an excellent year with over 500 loans closed and record earnings as well. I will note that these ex- cellent earnings were achieved while at the same time absorbing the costs of opening three new branches in the last two years. Even with the new branches our Effi- ciency Ratio dropped to 58.79%, which compares very favorably to our peers. Deposit growth accelerated in the second half of 2016 resulting in an increase of $42.4 million for the year. Non-performing assets declined $1.9 million (21.5%) from 2015, re- flecting our improving economy. Our Return on Average Assets was 1.34%, which compares favorably to our peers and is again reflective of our record earnings. Your stock price improved throughout the year and we increased dividends for the year from $.73 to $.80 (9.6%). In 2016, we opened our 12th branch in Grottoes, VA, and began con- struction on our 13th branch Staunton, in which will open in ear- ly April. These branches will supplement the two branches we opened in Staunton in 2015 to and Craigsville further strengten our southern market growth. We also have two other branch projects in pro- cess. The first is located just southeast of Har- risonburg on the new F&M BANK CORP. ANNUAL REPORT 2016 3 2016 FINANCIAL FIGURES 4 F&M BANK CORP. ANNUAL REPORT 2016 “GROW THROUGH YOUR EXPERIENCES, MEET LIFE HONESTLY AND COURAGEOUSLY, HAVE PATIENCE, TRUST GOD, AND YOUR CHARACTER WILL BE REFLECTED IN YOUR LIFE’S ACHIEVEMENTS.” BOARD APPOINTS FIRST FEMALE CHAIR On December 22, 2016, Thomas L. Cline retired as Chairman of the Board of Directors of F&M Bank Corp. after 25 year s of ser vice to the co m pan y. The Board of Directors appointed Ellen R. Fitzwater as its new Chair. Ms. Fitzwater has served as a director of the Company for the past 17 years. In addition to the philosophy Ellen lives by (quoted right), she states, “I appreciate the Board’s confidence in electing me as chair and will do my best to fulfill the responsibilities of the position.” Pictured above: “Passing of the gavel” from Tom Cline (right) to newly elected chair Ellen Fitzwater. F&M BANK CORP. ANNUAL REPORT 2016 5 CONTINUED GROWTH AND DEVELOPMENT BONUS REWARDS KEEPS MOMENTUM F&M’s referral account program continues to be a big success for acquiring deposits. program This brings in new accounts employee through both and customer referrals and incentive offers a points for merchan- redeemable dise, gift cards, travel, or the option to donate rewards points to charities in need. Since inception, custom- ers and staff have referred 1,564 new deposits total- ing $5,339,855.72 (as of July 2016). The Lifetime Value of F&M Bank’s Referred Check- ing Accounts is $1,628, a 6.5 to 1 return on investment, with our average balance being the best in the nation with this program, according to Velocity Solutions. PREMIUM DEBIT CARDS In May of 2016, F&M Bank, in partnership with Velocity Solutions, launched a new Rewards-Based Program – My Rewards Premium Cards. The premium debit cards offer customers card-level perks and benefits normally associated with a credit card. Benefits include: up to 5x the points towards rewards, cash back, emergency roadside assistance, short-term loans, 6 F&M BANK CORP. ANNUAL REPORT 2016 prescription savings, and more. Since its launch in May, 357 MRPC accounts have been opened. NEW LOCATIONS Coming off a record year, 2016 proved to be one of growth for F&M Bank. On July 25, 2016, F&M Bank opened its 12th branch at 200 Augusta Avenue, Grottoes. The branch was strategical- ly placed to bridge the gap between the exist- in Rock- ing branches ingham and Augusta Counties. Branch employ- ees are part of a new “uni- versal banker” staffing approach. Cross-trained in nearly all F&M products and services, the branch staff can provide in- creased flexibility and ef- ficiency to accommodate our customers’ busy lives. All branch employees have an extensive back- ground in banking and finance and are familiar with the Grottoes area. On August 23, 2016, the Harrisonburg-Rock- and Greater ingham Augusta Regional Cham- Commerce bers of hosted a joint grand opening celebration. To spark a little friendly competition in an effort to fundraise, the cham- bers competed to see which members (Rock- ingham or Augusta) could raise the most money for their respective United Way. Overall, $900 was raised during our event, which was well attend- ed by both the Rocking- ham and Augusta County communities. MAKING SOME MOVES F&M Bank will be open- ing its 13th branch loca- tion in early April 2017 at 30 Gosnell Crossing, Staunton. The branch located at the will be intersection of Myers Corner and Route 250. is Myers a Corner 139-acre mixed-use real estate development in the Staunton/Fishersville area of Augusta County. The new location brings a blend of modern and traditional banking. It will be technology focused with the same small town feel. community bank The branch will be unveiling a new “Teller Island” that puts a mod- ern spin on the tradi- tional teller line and will allow our staff to assist customers in a more per- sonal manner. All em- ployees will be universal employees, assisting cus- tomers with all banking needs, from a simple tell- er transaction, all the way through the new account process. F&M Bank will also be moving the Port Road and Timberville branches to new locations. The bank purchased a lot at 2030 Legacy Lane in Harrisonburg, VA, in the Coffman’s Corner devel- opment. Coffman’s Cor- ner is an 11 acre mixed- use development that will be comprised of des- tination retail, medical and professional offices. Coffman’s Corner is one of the last remaining prime parcels near the new $300 million Rockingham Memorial Campus (RMH). The development, by Cottonwood Commer- cial, has road frontage on both Port Republic Road and the Southeast Connector Road, which connects every commercial corridor in Harrisonburg. This highly visible parcel is located directly across from RMH, which serves over 190,000 outpatients and 16,300 inpatients each year and has more than 2,400 employees. It is directly connect- ed to 8,000+ Student Beds, JMU’ s main cam- pus (8,200 employees), and Interstate 81 within 2 miles via Port Repub- lic Road. The location is currently under construc- tion and is slated to open summer of 2017. F&M Bank purchased the former Carilion Family Medicine building at 165 New Market Road and will be moving its in town retail banking operations to that location. The move will open up space at 205 S. Main St. which current- ly doubles as the Timber- ville branch and adminis- trative offices. In addition to freeing up office space, location will the new F&M BANK CORP. ANNUAL REPORT 2016 7 Squirrel PFM offers cus- single-sign tomers a on snapshot of their finances within F&M’s online banking portal. Working as an account aggregation the platform provides a 360 degree view of spend- ing and savings, with budgeting and expense tracking resources. Squirrel is scheduled to launch April of 2017. tool, In order to promote both the mobile app and PFM, the bank announced its new mascot, Sammy the Squirrel. The mascot (pic- tured right) will make appearances at branch and community events and parades. ACCESSIBILITY in technology is Financial necessary today’s environment to best meet the needs of our online and mobile customers. Throughout 2016, F&M Bank worked to launch two new “fintech” prod- ucts: a Treehouse Mobile App for our school-aged Treehouse Savings Club account holders, and friendly, a “Squirrel”, branded personal finan- cial management tool (PFM). The Treehouse Mobile is a screen-based App addition to our Treehouse Savings Club, a youth sav- ings account which helps children learn to save and handle their money at an early age. The app accomplishes the goals of the Treehouse Savings Account by offering an interactive environment for children learn about financial manage- ment through games and activities. Children are also able to view their account savings. to offer greater visibility and higher traffic counts, with Wal-Mart recently open- ing across the street. The is Timberville projected to open fall of 2017. location F&M ACQUIRES VS TITLE In early 2017, Valley Southern Title (DBA VS Title) was acquired by F&M Bank Corp. as the newest member of our corporate family. VST is a successful 30+ year old real estate settle- ment and title insurance company headquartered in Harrisonburg, with offices in Fishersville and Charlottesville. The acquisition allows F&M Bank to leverage the infrastructure that VS Title already has in place while growing referrals. AT ITS CORE, BANKING IS NOT SIMPLY ABOUT PROFIT, BUT ABOUT PERSONAL RELATIONSHIPS 8 F&M BANK CORP. ANNUAL REPORT 2016 IN OUR COMMUNITIES PERKS AT WORK F&M Bank is dedicated to giving back to the com- munities it serves. During the year, the bank hosts a variety of free events as a way to show customer ap- preciation. Each branch hosts a family friendly event as well as a docu- ment shredding event. Events are well attended, enjoyed by the commu- nity and provide interac- tion with non-customers. Community involvement extends beyond busi- ness hours at F&M Bank. Most, if not all, employ- ees are involved in some sort of civic duty. This in- cludes sitting on boards, committee leadership, event volunteering, and contributions. financial Bank employees also have the opportunity to give back through our “Casual Friday for Charity” program, where employ- ees can donate $5 each Friday to wear denim. The money is collected and donated back to a different nonprofit each month, voted on by staff. In 2016, over $8,500 was raised by employees through the program. to has F&M partnered with local businesses in an effort to bring cus- tomers the doors of local merchants, support Virginia’s econo- my, and keeps a few extra dollars in our customers’ pockets. F&M Bank promotes a dif- ferent business monthly via its digital newsletter, blog posts, and its social media channels, resulting in new traffic frequent- small businesses. ing As an added benefit of the partnership, an F&M banker conducts an infor- mal presentation about the community banking difference, and the bene- fits of “going local” to the businesses’ employees. F&M BANK CORP. ANNUAL REPORT 2016 9 CALENDAR PHOTOGRAPHY CONTEST CONTINUES TO GROW A N N UA L C A L E N DA R P H OTO CO N T E S T The imagery of the flora and fauna of the Shenandoah Valley contained within this annual report is courtesy of the talented amateur pho- tographers living in our com- munities. Each year F&M bank holds a calendar photo contest for dabbling photographers to showcase the beauty of the Shenandoah Valley. In recent years, F&M bank asked its Facebook fans for help in the selection pro- the voting cess. During period, F&M receives an influx of social media shares and an increase in website visits. Other than printing, the cost of this campaign is minimal, resulting in posi- tive ROI for this communi- initiative. ty engagement The top 13 entries, as voted by the public, are award- ed each November with a reception hosted after hours at one of our branch locations. receive an The winners advance edition of the following year’s calendar, a gift card, certificate and public mention. 8 F&M BANK CORP. ANNUAL REPORT 2016 IN A COMPLEX WORLD, IT IS CRUCIAL TO EMPOWER YOUTH WITH MONEY SKILLS FINANCIAL EDUCATION F&M Bank cares deeply about the communities it serves. We are proud to re- port that one of our orga- nization’s signature invest- ments in the community is having a real and meaning- ful impact on the financial wellbeing of young people. Through a partnership with leading education technol- ogy company EverFi, we brought Everfi Financial Edu- cation to over 4,600 students in 12 local schools during the 2015-2016 school year. We are equipping students with critical money skills needed for a sound financial future. F&M Bank also participates in several financial educa- tion programs offered by the Virginia Bankers Association. Through the “Teach Children to Save” program, employ- local elementary ees visit schools and present age appropriate lessons to K-5th grade. The purpose of each presentation is enhance a child’s understanding of spending making smart also decisions. learn the value of saving money and are encouraged to set up a saving strategy. In 2016, nine elementary school were visited, and over 900 students were reached with a saving lesson. Students F&M BANK CORP. ANNUAL REPORT 2016 9 HENRY HAWKINS Henry retired from F&M Financial Services in April 2016 after 14 years of service to the bank. MARY ELLEN HARRISON Mary Ellen retired in May 2016 after 18 years with F&M Financial Services. THANK YOU FOR YOUR SERVICE 50 YEARS Sylvia Bowman 30 YEARS Deborah Andes Jean Coffman 25 YEARS Tom Cline (BOD) Ronnie Wampler (BOD) 20 YEARS Neil Hayslett 15 YEARS John Crist (BOD) Dan Harshman (BOD) Carrie Comer Berlin Smith Christy Trail Alice Yates 10 YEARS Barbara Bartley Thomas Campbell Yvette McCoy Lawrence( LJ) Purcell Cynthia Ramey Edgar (Eddie) Reid Ashley Riggleman Natalie Strickler Victoria Young 5 YEARS Tonya Branner Melody Emswiler Ashley Griffith Ashley McClure Emily Rhodes Patricia Schimmel 10 F&M BANK CORP. ANNUAL REPORT 2016 MATT ROBINSON Matt joined Farmers & Merchants Financial Services in 2016, most recently working for Modern Woodmen of America. CALAN JANSEN Calan also joined us in 2016, bringing with over 16 years of experience in financial services. FARMERS & MERCHANTS FINANCIAL SERVICES F&M Bank’s partnership with Infinex Investments, Inc. allows customers to plan their financial future with the local bank they know and trust. Matt Robinson and Calan Jansen closely work with our branch staff to assist customers in preparing a strate- gic financial plan that is tailored to meet their needs and expec- tations, taking into consider- ation the client’s comfort level in regard to risk. The partnership continues to be successful as F&M Bank is ranked number 34 of 180 Infinex Banks nationwide. Matt Robinson has been an In- finex Investment Representative with Farmers & Merchants since 2014, bringing with him over eight years of experience from Modern Woodmen of America. Originally from Bridgewater, Matt graduated from Turner Ashby High School and Rad- ford University; now calling Harrisonburg home with his wife of five years, Lindsay, and the couple’s daughter, Ada. When he is not working, Matt enjoys watching sports, being active with his church and sup- porting local organizations in the Shenandoah Valley. Matt worked alongside Henry as he retirement. into transitioned Matt continues to serve the City of Harrisonburg, Rockingham and Augusta County. Calan Jansen joined the team in March of 2016 to step into Mary Ellen Harrison’s role as Mary Ellen planned for her retirement. Calan joined Farmers & Mer- chants Financial Services with over 16 years’ experience in industry. Calan provides the investments services to custom- ers in Broadway, Timberville, Shenandoah and Page County. Raised in Shenandoah County, Calan resides in the area with her husband Burton of 17 years and her two daughters. Calan enjoys spending time with her family and is active with vari- ous organizations in Shenandoah and Northern Rockingham counties. 11 VICE PRESIDENTS ASSISTANT VICE PRESIDENTS OFFICERS Dean W. Withers President & CEO Larry A. Caplinger EVP/Chief Lending Officer Neil W. Hayslett EVP/Chief Administrative Officer Stephanie E. Shillingburg EVP/Chief Banking Officer Carrie A. Comer SVP/Chief Financial Officer Ralph C. Foltz, Jr. SVP/Operations Jeffrey L. Lam SVP/Retail Loan Administrator Edward A. Strunk SVP/Commercial Loan Administrator Joshua P. Hale SVP/Business Development Anita C. Beckman SVP/Branch Administrator Cynthia A. Sherman SVP/Loan Operations Manager Deborah A. Andes Gregory T. Berkshire J.T. Bishop Sylvia T. Bowman Gary L. Davenport Carolyn J. Dove Melody Emswiler Sally H. Erickson Aaron S. Green Charles P. Harder Teresa D. Helmick John E. Meyer Kate S. Pascarella Jonah J. Pence Kitty H. Purcell Robert R. Reedy, Jr. Karen B. Rose Kevin A. Russell Gregory B. Spitler Krista L. Suter DIRECTORS Ellen Fitzwater Board Chair, F&M Bank Corp., Accounting Consultant and Partner, F & R Leasing, LLC John N. Crist Partner, Hoover Penrod, PLC-Attorneys Daniel J. Harshman Manager, Town of Edinburg Dean W. Withers President, Farmers & Merchants Bank and F&M Bank Corp. Richard S. Myers President, Dick Myers Chrysler- Dodge-Jeep, Inc. Larry A. Caplinger EVP/Chief Lending Officer, Farmers & Merchants Bank Michael W. Pugh President, Old Dominion Realty, Inc.; VP, Colonial Appraisal Service, Inc Matthew Beahm Jacqueline D. Burner Thomas L. Campbell Kay T. Dean Keith M. Deeds Kathy L. Grubbs Chris A. Gunter Mary Ellen Harrison Anthony W. Keyser Calan Jansen Glenna M. Lawhorn Cathy M. Lindamood Ryan A. May W. Brent Meadows Matthew Robinson Sean D. Ryman Natalie M. Strickler Brenda Swartz Holly Thorne Barbara Bartley, Branch Officer Sara Berry, Branch Officer Jonathan D. Lindsay, Branch Officer Christopher S. Runion President, Eddie Edwards Signs, Inc. Ronald E. Wampler Partner, Dove Ohio Farms, LLC and WWTD Ohio Farms, LLC Ray Burkholder Owner, Balzer & Associates, Inc. F&M BANK CORP. ANNUAL REPORT 2015 11 ON BRANCHING INTO GROTTOES talked about “We’ve it off and on for years,” said Neil Hayslett, “When BB&T and what was once StellarOne were there, we didn’t feel like there was room for three banks.” That situation changed in August 2013 when BB&T left the town. BRANCHES Bridgewater 100 Plaza Drive 540-828-6300 Broadway 126 North Timber Way 540-896-7071 Craigsville 125 West Craig Street 540-997-4162 Edinburg 120 South Main Street 540-984-4129 Elkton 127 West Rockingham Street 540-298-1251 Grottoes 200 Augusta Avenue 540-249-7237 Harrisonburg 80 Cross Keys Road 540-433-7575 1085 Port Republic Road 540-433-0112 Luray 700 East Main Street 540-743-1130 Staunton 2813 N. Augusta Street 540-213-8686 30 Gosnell Crossing (opening April 2017) Timberville 205 South Main Street 540-896-8941 Woodstock 161 South Main Street 540-459-3707 OFFICES VBS Mortgage 2040 Deyerle Avenue Suite 102 Harrisonburg, VA 540-442-8583 NMLS# 275173 Dealer Finance Division 4759 Spotswood Trail Penn Laird, VA 540-437-3480 Loan Production Office 1842 Jefferson Highway Fishersville, VA 540-946-8160 VS Title Agency 410 Neff Avenue Harrisonburg, VA 540-434-8571 FIND US ONLINE www.fmbankva.com /farmersandmerchantsbank /farmers-&-merchants-bank-of-virginia /fmbankva /fmva /fmbankva INVESTOR INFORMATION WANT MORE F&M NEWS? Join our shareholder distribution list to receive timely emails about the latest news and events at F&M Bank and F&M Bank Corp. Simply send an email to marketing@fmbankva.com with your preferred email address. Transfer Agent for F&M Bank Corp. Stock (FMBM): Broadridge Corporate Issuer Solutions P.O. Box 1342 Brentwood, NY 11717 P: 844-318-0135 F: 215-553-5402 E: shareholder@broadridge.com W: http://shareholder.broadridge.com/ FMBM