UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-Q**




x
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13
                OR 15(d) OF**
              **THE
                SECURITIES EXCHANGE ACT OF 1934**
              For
                the quarterly period ended September 30, 2007Oro
            **TRANSITION
                REPORT PURSUANT TO SECTION 13
                OR 15(d) OF**
              **THE
                SECURITIES EXCHANGE ACT OF 1934**
              For
                the transition period from __________ to
                __________




**Commission
      File Number 000-09424**





**FIRST
      M&F CORPORATION**


(Exact
      name of registrant as specified in its charter)





MISSISSIPPI
            
            64-0636653(State
                or other jurisdiction of
            
            (I.R.S.
                Employer Identification Number)Incorporation
                or organization)134
                West Washington Street, Kosciusko, Mississippi
            
            39090(Address
                of principal executive offices)
            
            (Zip
                Code)





662-289-5121(Registrant’s
                  telephone number, including area
                  code




No
                Change(Former
                name, former address and former fiscal year,
              if
                changed since the last
                report)




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.                x Yes o
      No





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.




Large
                accelerated filer o
              Accelerated
                  filer x
              Non-accelerated
                  filer o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).





o
      Yes x
      No




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





Common
                stock, $5 par value
            
            9,180,846
                SharesTitle
                of Class
            
            Shares
                Outstanding at October 31, 2007










**FIRST
      M & F CORPORATION**




**FORM
      10-Q**




**INDEX**





**Page****PART
                1:**
            **FINANCIAL
                INFORMATION**Item
                1
            Financial
                Statements (unaudited):
            3Consolidated
                Statements of Condition
            3Consolidated
                Statements of Income
            4Consolidated
                Statements of Comprehensive Income
            5Consolidated
                Statements of Stockholders’ Equity
            6Consolidated
                Statements of Cash Flows
            7Notes
                to Consolidated Financial Statements
            9Report
                of Independent Registered Public Accounting Firm
            15Item
                2
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operation
            16Item
                3
            Quantitative
                and Qualitative Disclosures About Market Risk
            36Item
                4
            Controls
                and Procedures
            36**PART
                II:**
            **OTHER
                INFORMATION**Item
                1
            Legal
                Proceedings
            37Item
                1A
            Risk
                Factors
            37Item
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            37Item
                3
            Defaults
                upon Senior Securities
            37Item
                4
            Submission
                of Matters to a Vote of Security Holders
            37Item
                5
            Other
                Information
            37Item
                6
            Exhibits
            38**SIGNATURES**
            
            39**EXHIBIT
                INDEX****CERTIFICATIONS**




2




FIRST
      M
& F CORPORATION AND SUBSIDIARY





**PART
      I: FINANCIAL INFORMATION**


**Item
      1 - Financial Statements (Unaudited)**





Consolidated
      Statements of Condition


(Unaudited)




September
                30
            
            December
                31*(Dollars
                  in thousands)*
            
            2007
            
            2006
            
            2006AssetsCash
                and due from banks
            
            $
            46,352
            
            $
            51,462
            
            $
            59,793Interest
                bearing bank balances
            
            
            2,774
            
            
            15,214
            
            
            3,690Federal
                funds sold
            
            
            -
            
            
            15,700
            
            
            -Securities
                available for sale, amortized cost of $237,484, $235,566 and
                $263,238
            
            
            236,888
            
            
            234,070
            
            
            261,828Loans
                held for sale
            
            
            6,834
            
            
            6,091
            
            
            7,263Loans,
                net of unearned income
            
            
            1,198,460
            
            
            1,091,803
            
            
            1,087,283Allowance
                for loan losses
            
            
            (14,941
            )
            
            (16,094
            )
            
            (14,950
            )Net
                loans
            
            
            1,183,519
            
            
            1,075,709
            
            
            1,072,333Bank
                premises and equipment
            
            
            44,845
            
            
            39,263
            
            
            41,128Accrued
                interest receivable
            
            
            11,919
            
            
            10,874
            
            
            12,590Other
                real estate
            
            
            4,926
            
            
            4,090
            
            
            3,135Goodwill
            
            
            32,572
            
            
            32,572
            
            
            32,572Other
                intangible assets
            
            
            7,687
            
            
            7,189
            
            
            8,113Bank
                owned life insurance
            
            
            19,640
            
            
            18,858
            
            
            19,082Other
                  assets
            
            
            25,726
            
            
            24,189
            
            
            18,748$
            1,623,682
            
            $
            1,535,281
            
            $
            1,540,275Liabilities
                and Stockholders’ EquityLiabilities:Noninterest-bearing
                deposits
            
            $
            186,123
            
            $
            191,180
            
            $
            180,273Interest-bearing
                deposits
            
            
            1,028,983
            
            
            1,013,098
            
            
            1,005,709Total
                deposits
            
            
            1,215,106
            
            
            1,204,278
            
            
            1,185,982Federal
                funds purchased and repurchase agreements
            
            
            29,264
            
            
            10,062
            
            
            19,612Other
                borrowings
            
            
            201,217
            
            
            152,314
            
            
            166,400Junior
                subordinated debt
            
            
            30,928
            
            
            30,928
            
            
            30,928Accrued
                interest payable
            
            
            4,718
            
            
            4,645
            
            
            4,784Other
                liabilities
            
            
            5,933
            
            
            8,455
            
            
            4,503Total
                liabilities
            
            
            1,487,166
            
            
            1,410,682
            
            
            1,412,209Noncontrolling
                interest in subsidiaries
            
            
            18
            
            
            20
            
            
            19Stockholders’
                equity:Preferred
                stock:Class
                A; 1,000,000 shares authorized
            
            
            -
            
            
            -
            
            
            -Class
                B; 1,000,000 shares authorized
            
            
            -
            
            
            -
            
            
            -Common
                stock of $5.00 par value; 15,000,000 shares authorized: 9,066,080,
                9,024,226 and 9,046,226 shares issued
            
            
            45,330
            
            
            45,121
            
            
            45,231Additional
                paid-in capital
            
            
            30,448
            
            
            29,784
            
            
            30,315Nonvested
                restricted stock awards
            
            
            590
            
            
            303
            
            
            375Retained
                earnings
            
            
            62,027
            
            
            52,158
            
            
            54,707Accumulated
                other comprehensive loss
            
            
            (1,897
            )
            
            (2,787
            )
            
            (2,581
            )Total
                stockholders’ equity
            
            
            136,498
            
            
            124,579
            
            
            128,047$
            1,623,682
            
            $
            1,535,281
            
            $
            1,540,275





The
      accompanying notes are an integral part of these financial
      statements.





3




FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Income


(Unaudited)





Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30
            
            September
                30*(Dollars
                  in thousands, except per share data)*
            
            2007
            
            2006
            
            2007
            
            2006Interest
                income:Interest
                and fees on loans
            
            $
            23,091
            
            $
            20,808
            
            $
            66,375
            
            $
            58,391Interest
                on loans held for sale
            
            
            105
            
            
            129
            
            
            353
            
            
            330Taxable
                investments
            
            
            2,303
            
            
            2,203
            
            
            7,154
            
            
            6,213Tax-exempt
                investments
            
            
            431
            
            
            493
            
            
            1,340
            
            
            1,460Federal
                funds sold
            
            
            35
            
            
            66
            
            
            103
            
            
            496Interest
                bearing bank balances
            
            
            80
            
            
            56
            
            
            177
            
            
            181Total
                interest income
            
            
            26,045
            
            
            23,755
            
            
            75,502
            
            
            67,071Interest
                expense:Deposits
            
            
            9,440
            
            
            7,997
            
            
            26,959
            
            
            21,164Federal
                funds purchased and repurchase agreements
            
            
            127
            
            
            90
            
            
            464
            
            
            259Other
                borrowings
            
            
            2,193
            
            
            1,830
            
            
            6,277
            
            
            5,377Junior
                subordinated debt
            
            
            499
            
            
            499
            
            
            1,487
            
            
            1,244Total
                interest expense
            
            
            12,259
            
            
            10,416
            
            
            35,187
            
            
            28,044Net
                interest income
            
            
            13,786
            
            
            13,339
            
            
            40,315
            
            
            39,027Provision
                for loan losses
            
            
            630
            
            
            954
            
            
            1,890
            
            
            2,911Net
                      interest income after provision for loan
                      losses
            
            
            13,156
            
            
            12,385
            
            
            38,425
            
            
            36,116Noninterest
                income:Service
                charges on deposit accounts
            
            
            2,777
            
            
            2,753
            
            
            7,974
            
            
            7,740Mortgage
                banking income
            
            
            372
            
            
            522
            
            
            1,146
            
            
            947Agency
                commission income
            
            
            1,119
            
            
            1,098
            
            
            3,168
            
            
            3,022Trust
                and brokerage income
            
            
            157
            
            
            141
            
            
            444
            
            
            470Bank
                owned life insurance income
            
            
            170
            
            
            152
            
            
            524
            
            
            429Securities
                gains (losses), net
            
            
            -
            
            
            -
            
            
            -
            
            
            (4
            )Loss
                on extinguishment of debt
            
            
            -
            
            
            -
            
            
            (126
            )
            
            -Other
                income
            
            
            830
            
            
            745
            
            
            2,713
            
            
            2,011Total
                noninterest income
            
            
            5,425
            
            
            5,411
            
            
            15,843
            
            
            14,615Noninterest
                expenses:Salaries
                and employee benefits
            
            
            7,302
            
            
            7,086
            
            
            21,856
            
            
            20,477Net
                occupancy expenses
            
            
            998
            
            
            908
            
            
            2,767
            
            
            2,466Equipment
                expenses
            
            
            884
            
            
            802
            
            
            2,699
            
            
            2,323Software
                and processing expenses
            
            
            385
            
            
            293
            
            
            1,089
            
            
            966Telecommunication
                expenses
            
            
            291
            
            
            277
            
            
            822
            
            
            762Marketing
                and business development expenses
            
            
            436
            
            
            457
            
            
            1,201
            
            
            1,138Intangible
                asset amortization
            
            
            120
            
            
            95
            
            
            426
            
            
            229Other
                expenses
            
            
            2,473
            
            
            2,476
            
            
            7,220
            
            
            7,366Total
                noninterest expenses
            
            
            12,889
            
            
            12,394
            
            
            38,080
            
            
            35,727Income
                before income taxes and noncontrolling interests
            
            
            5,692
            
            
            5,402
            
            
            16,188
            
            
            15,004Income
                taxes
            
            
            1,879
            
            
            1,734
            
            
            5,272
            
            
            4,808Noncontrolling
                interest in earnings of subsidiaries, net of taxes of $3, $2, $12
                and
                $6
            
            
            5
            
            
            3
            
            
            19
            
            
            10Net
                income
            
            $
            3,808
            
            $
            3,665
            
            $
            10,897
            
            $
            10,186Earnings
                per share:Basic
            
            $
            .42
            
            $
            .40
            
            $
            1.20
            
            $
            1.13Diluted
            
            $
            .42
            
            $
            .40
            
            $
            1.20
            
            $
            1.12





The
      accompanying notes are an integral part of these financial
      statements.




4


FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Comprehensive Income


(Unaudited)




Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30
            
            September
                30*(Dollars
              in thousands)*
            
            2007
            
            2006
            
            2007
            
            2006Net
                income
            
            $
            3,808
            
            $
            3,665
            
            $
            10,897
            
            $
            10,186Other
                comprehensive income:Change
                in unrealized gains (losses) on securities available for sale, net
                of tax
                of $629 and $890 for the three months ended September 30 and $304
                and $122
                for the nine months ended September 30
            
            
            1,057
            
            
            1,495
            
            
            510
            
            
            (207
            )Reclassification
                adjustment for (gains) losses on securities available for sale included
                in
                net income, net of tax of $0 and $0 for the three months ended September
                30 and $0 and $1 for the nine months ended September 30
            
            
            -
            
            
            -
            
            
            -
            
            
            3Defined
                benefit pension plan:Transition
                obligation amortization, net of tax of $1 and and $0 for the three
                months
                ended September 30 and $3 and $0 for the nine months ended September
                30
            
            
            (1
            )
            
            -
            
            
            (4
            )
            
            -Prior
                service cost amortization, net of tax of $4 and $0 for the three
                months
                ended September 30 and $11 and $0 for the nine months ended September
                30
            
            
            (5
            )
            
            -
            
            
            (17
            )
            
            -Actuarial
                loss amortization, net of tax of $40 and $0 for the three months
                ended
                September 30 and $118 and $0 for the nine months ended September
                30
            
            
            64
            
            
            -
            
            
            195
            
            
            -Other
                comprehensive income (loss)
            
            
            1,115
            
            
            1,495
            
            
            684
            
            
            (204
            )Total
                comprehensive income
            
            $
            4,923
            
            $
            5,160
            
            $
            11,581
            
            $
            9,982





The
      accompanying notes are an integral part of these financial
      statements.




5





FIRST
      M &
F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Stockholders' Equity


Nine
      Months Ended September 30, 2007 and 2006


(Unaudited)




Nonvested
            
            
            
            AccumulatedAdditional
            
            Restricted
            
            
            
            OtherCommon
            
            Paid-in
            
            Stock
            
            Retained
            
            Comprehensive*(Dollars in thousands, except per share data)*
            
            Stock
            
            Capital
            
            Awards
            
            Earnings
            
            Income
            
            TotalJanuary
                1, 2006
            
            $
            22,476
            
            $
            29,340
            
            $
            86
            
            $
            68,058
            
            $
            (2,583
            )
            $
            117,377Effect
                of stock split issued in the form of a 100% stock dividend on May
                15,
                2006
            
            
            22,476
            
            
            51
            
            
            -
            
            
            (22,527
            )
            
            -
            
            
            -January
                1, 2006, as adjusted
            
            
            44,952
            
            
            29,391
            
            
            86
            
            
            45,531
            
            
            (2,583
            )
            
            117,377Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            10,186
            
            
            -
            
            
            10,186Cash
                dividends ($.39 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,561
            )
            
            -
            
            
            (3,561
            )33,908
                common shares issued in exercise of stock options
            
            
            169
            
            
            309
            
            
            -
            
            
            -
            
            
            -
            
            
            478Tax
                benefits on stock option transactions
            
            
            -
            
            
            69
            
            
            -
            
            
            -
            
            
            -
            
            
            69Share-based
                compensation expense recognized
            
            
            -
            
            
            15
            
            
            217
            
            
            2
            
            
            -
            
            
            234Net
                change
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (204
            )
            
            (204
            )September
                30, 2006
            
            $
            45,121
            
            $
            29,784
            
            $
            303
            
            $
            52,158
            
            $
            (2,787
            )
            $
            124,579January
                1, 2007
            
            $
            45,231
            
            $
            30,315
            
            $
            375
            
            $
            54,707
            
            $
            (2,581
            )
            $
            128,047Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            10,897
            
            
            -
            
            
            10,897Cash
                dividends ($.39 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,579
            )
            
            -
            
            
            (3,579
            )19,854
                common shares issued in exercise of stock options
            
            
            99
            
            
            206
            
            
            -
            
            
            -
            
            
            -
            
            
            305Tax
                benefits on stock option transactions
            
            
            -
            
            
            87
            
            
            -
            
            
            -
            
            
            -
            
            
            87Option
                cancellation payments
            
            
            -
            
            
            (175
            )
            
            -
            
            
            -
            
            
            -
            
            
            (175
            )Share-based
                compensation expense recognized
            
            
            -
            
            
            15
            
            
            215
            
            
            2
            
            
            -
            
            
            232Net
                change
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            684
            
            
            684September
                30, 2007
            
            $
            45,330
            
            $
            30,448
            
            $
            590
            
            $
            62,027
            
            $
            (1,897
            )
            $
            136,498





The
      accompanying notes are an integral part of these financial
      statements.





6




FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Cash Flows


(Unaudited)





Nine Months Ended September 30*(Dollars
                in thousands)*
            
            2007
            
            2006Cash
                flows from operating activities:Net
                income
            
            $
            10,897
            
            $
            10,186Adjustments
                to reconcile net income to net cash provided by operating
                activities:Share-based
                compensation
            
            
            232
            
            
            234Amortization
                of pension costs
            
            
            209
            
            
            -Depreciation
                and amortization
            
            
            2,393
            
            
            1,986Provision
                for loan losses
            
            
            1,890
            
            
            2,911Net
                investment accretion
            
            
            (277
            )
            
            (273
            )Net
                change in unearned fees/deferred costs on loans
            
            
            133
            
            
            180Capitalized
                dividends on FHLB stock
            
            
            (278
            )
            
            (271
            )Net
                accretion of discount on time deposits
            
            
            58
            
            
            110Net
                accretion of discount on debt
            
            
            3
            
            
            11Loss
                on extinguishment of debt
            
            
            126
            
            
            -Loss
                on securities available for sale
            
            
            -
            
            
            4Gain
                on loans held for sale
            
            
            (286
            )
            
            (292
            )Other
                asset sales losses
            
            
            202
            
            
            274Earnings
                of noncontrolling interest
            
            
            30
            
            
            17Deferred
                income taxes
            
            
            21
            
            
            (634
            )(Increase)
                decrease in:Accrued
                interest receivable
            
            
            671
            
            
            (876
            )Cash
                surrender value of bank owned life insurance
            
            
            (524
            )
            
            (429
            )Loans
                held for sale
            
            
            713
            
            
            (89
            )Other
                assets
            
            
            (6,124
            )
            
            (2,873
            )Increase
                (decrease) in:Accrued
                interest payable
            
            
            (66
            )
            
            1,195Other
                liabilities
            
            
            1,455
            
            
            461Net
                cash provided by operating activities
            
            
            11,478
            
            
            11,832Cash
                flows from investing activities:Purchases
                of securities available for sale
            
            
            (22,538
            )
            
            (37,515
            )Sales
                of securities available for sale
            
            
            477
            
            
            10,061Maturities
                of securities available for sale
            
            
            48,092
            
            
            31,295Net
                (increase) decrease in:Interest
                bearing bank balances
            
            
            916
            
            
            (2,958
            )Federal
                funds sold
            
            
            -
            
            
            (893
            )Loans
            
            
            (116,676
            )
            
            (52,947
            )Bank
                premises and equipment
            
            
            (5,656
            )
            
            (3,402
            )Purchases
                of bank owned life insurance
            
            
            (34
            )
            
            (64
            )Proceeds
                from sales of other real estate and other repossessed
                assets
            
            
            1,461
            
            
            2,594Net
                (purchases) redemptions, of FHLB and FRB stock
            
            
            (974
            )
            
            2,126Investment
                in First M&F Statutory Trust I
            
            
            -
            
            
            (928
            )Net
                cash paid in acquisition
            
            
            -
            
            
            (29,826
            )Net
                cash used in investing activities
            
            
            (94,932
            )
            
            (82,457
            )


(Continued)


7










FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Cash Flows


(Unaudited)




Nine**Months**Ended**September**30*(Dollars
              in thousands)*
            
            2007
            
            2006Cash
                flows from financing activities:Net
                increase in deposits
            
            $
            29,066
            
            $
            65,089Net
                increase (decrease) in short-term borrowings
            
            
            9,652
            
            
            (8,000
            )Proceeds
                from other borrowings
            
            
            385,600
            
            
            30,100Repayments
                of other borrowings
            
            
            (350,912
            )
            
            (49,396
            )Proceeds
                from issuance of junior subordinated debt
            
            
            -
            
            
            30,928Earnings
                distributions to noncontrolling interests
            
            
            (31
            )
            
            (18
            )Cash
                dividends
            
            
            (3,579
            )
            
            (3,561
            )Common
                shares issued
            
            
            305
            
            
            478Payments
                to cancel stock options
            
            
            (175
            )
            
            -Tax
                benefits on stock option transactions
            
            
            87
            
            
            69Net
                cash provided by financing activities
            
            
            70,013
            
            
            65,689Net
                decrease in cash and due from banks
            
            
            (13,441
            )
            
            (4,936
            )Cash
                and due from banks at January 1
            
            
            59,793
            
            
            56,398Cash
                and due from banks at September 30
            
            $
            46,352
            
            $
            51,462Total
                interest paid
            
            $
            35,189
            
            $
            26,729Total
                income taxes paid
            
            
            5,956
            
            
            5,946Income
                tax refunds received
            
            
            302
            
            
            10Transfers
                of loans to foreclosed property
            
            
            3,361
            
            
            2,474





The
      accompanying notes are an integral part of these financial
      statements.




8




FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      1: Basis of Presentation





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and with the
      instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
      do
      not include all the information and footnotes required by accounting principles
      generally accepted in the United States of America for complete financial
      statements. In the opinion of management, all adjustments (consisting of normal
      recurring accruals) considered necessary for a fair presentation have been
      included. The condensed consolidated financial statements of First M & F
      Corporation include the financial statements of Merchants and Farmers Bank,
      a
      wholly owned subsidiary, and the Bank’s wholly owned subsidiaries, First M &
F Insurance Company, Inc., M & F Financial Services, Inc., M & F Bank
      Securities Corporation, M & F Insurance Agency, Inc., M & F Insurance
      Group, Inc., and M & F Business Credit, Inc. The consolidated financial
      statements also include the Bank’s 51% ownership in Merchants Financial
      Services, LLC, an accounts receivable financing business, and the Bank’s 55%
      ownership in MS Statewide Title, LLC, a title insurance agency. Certain
      reclassifications have been made to the 2006 financial statements to be
      consistent with the 2007 presentation. For further information, refer to the
      consolidated financial statements and footnotes thereto included in the
      Company’s annual report on form 10-K for the year ended December 31,
      2006.





Note
      2: Acquisitions





*Alabama
      Bank Acquisition*





On
      February 17, 2006, the Company acquired Columbiana Bancshares, Inc. of
      Columbiana, Alabama and its wholly owned subsidiary First National Bank of
      Shelby County. The acquisition executes part of a strategy of the Company to
      expand into Alabama and Tennessee. The attractiveness of the Birmingham and
      surrounding markets compels entrants to pay a premium to gain access to those
      markets, resulting in goodwill related to acquisitions of financial institutions
      with operations based there. The Company paid $31.294 million for all of the
      shares of Columbiana Bancshares. Included in the cash paid was a payment of
      $2.5
      million to an escrow fund to settle contingent claims related to the legacy
      Columbiana Bancshares and First National Bank of Shelby County operations.
      Any
      remaining funds after settlements were to be paid to the former Columbiana
      Bancshares stockholders. All claims have been settled and the remaining escrow
      funds were distributed to former shareholders on October 5, 2007. Results of
      operation include the revenues and expenses of the acquired operation from
      the
      acquisition date forward. The goodwill recognized is not deductible for income
      tax purposes. The core deposit intangible asset is being amortized over 16
      years.





*Tennessee
      Bank Acquisition*





On
      May
      12, 2006, the Company acquired Crockett County Bancshares, Inc. of Bells,
      Tennessee and its wholly owned subsidiary Bells Banking Company. The Crockett
      County acquisition allows the Company to branch within Tennessee, a process
      which has resulted in four branch locations in the Memphis metropolitan area.
      The Company paid $7.4 million in cash for all of the shares of Crockett County
      Bancshares and incurred $72 thousand in additional costs that were allocated
      to
      the purchase price paid. The fair value of assets acquired was $31.672 million,
      the fair value of liabilities assumed was $26.511 million and goodwill was
      assigned a value of $2.311 million. A core deposit intangible of $1.171 million
      was recognized and is being amortized over 20 years.





*Florida
      Charter Acquisition*





On
      July
      17, 2006, the Company announced that it had reached a definitive agreement
      to
      acquire a Florida banking charter and certain other assets and liabilities
      from
      Ameris Bancorp of Moultrie, Georgia. The transaction closed in November 2006.
      The Company has used the charter acquisition to locate a new banking facility
      in
      Crestview, Florida. The Company paid $1.025 million in cash to acquire the
      banking charter.




9





FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      3: Earnings Per Share




Three**Months**Ended**September**30
            
            Nine**Months**Ended**September**30*(Dollars in thousands, except per share data)*
            
            2007
            
            2006
            
            2007
            
            2006Net
                income
            
            $
            3,808
            
            $
            3,665
            
            $
            10,897
            
            $
            10,186Weighted
                average shares outstanding
            
            
            9,063,689
            
            
            9,022,240
            
            
            9,058,128
            
            
            9,009,017Add
                dilutive effect of outstanding options
            
            
            53,483
            
            
            53,362
            
            
            52,467
            
            
            47,715Adjusted
                dilutive shares outstanding
            
            
            9,117,172
            
            
            9,075,602
            
            
            9,110,595
            
            
            9,056,732Earnings
                per share:Basic
            
            $
            .42
            
            $
            .40
            
            $
            1.20
            
            $
            1.13Diluted
            
            $
            .42
            
            $
            .40
            
            $
            1.20
            
            $
            1.12Stock
                  options not included in adjusted shares due to anti-dilutive
                  effect
            
            
            1,474
            
            
            1,296
            
            
            1,394
            
            
            1,744





Note
      4: Loans





The
      composition of the loan portfolio is shown in the table below:




September
                30
            
            December
                31*(Dollars
              in thousands)*
            
            2007
            
            2006
            
            2006Commercial,
                financial and agricultural
            
            $
            164,866
            
            $
            166,963
            
            $
            150,905Non-residential
                real estate
            
            
            713,619
            
            
            606,293
            
            
            621,840Residential
                real estate
            
            
            221,915
            
            
            225,321
            
            
            221,911Home
                equity loans
            
            
            44,964
            
            
            40,509
            
            
            40,136Consumer
                loans
            
            
            40,374
            
            
            46,665
            
            
            45,872Other
                loans
            
            
            12,722
            
            
            6,052
            
            
            6,619Total
                loans
            
            $
            1,198,460
            
            $
            1,091,803
            
            $
            1,087,283





The
      following table is a summary of the activity in the Allowance for Loan Losses
      for the first nine months of 2007 and 2006.





Nine Months Ended September 30*(Dollars
                in thousands)*
            
            2007
            
            2006Balance
                at January 1
            
            $
            14,950
            
            $
            12,449Allowance
                from acquisitions
            
            
            -
            
            
            2,234Loans
                charged off
            
            
            (2,839
            )
            
            (2,150
            )Recoveries
            
            
            940
            
            
            650Net
                charge-offs
            
            
            (1,899
            )
            
            (1,500
            )Provision
                for loan losses
            
            
            1,890
            
            
            2,911Balance
                at September 30
            
            $
            14,941
            
            $
            16,094




10





FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      5: Goodwill and Other Intangible Assets





Following
      is a summary of intangible assets, net of accumulated amortization, included
      in
      the Consolidated Statements of Condition:





CustomerCore
            
            Renewal
            
            Noncompete
            
            Banking*(Dollars
                in thousands)*
            
            Goodwill
            
            Deposits
            
            Lists
            
            Agreements
            
            CharterBalance
                at December 31, 2005
            
            $
            16,348
            
            $
            -
            
            $
            234
            
            $
            124
            
            $
            -Additions
                due to acquisitions
            
            
            16,224
            
            
            7,060
            
            
            -
            
            
            -
            
            
            -Amortization
                expense
            
            
            -
            
            
            (188
            )
            
            (20
            )
            
            (21
            )
            
            -Balance
                at September 30, 2006
            
            $
            32,572
            
            $
            6,872
            
            $
            214
            
            $
            103
            
            $
            -Balance
                at December 31, 2006
            
            $
            32,572
            
            $
            6,784
            
            $
            209
            
            $
            95
            
            $
            1,025Amortization
                expense
            
            
            -
            
            
            (385
            )
            
            (20
            )
            
            (21
            )
            
            -Balance
                at September 30, 2007
            
            $
            32,572
            
            $
            6,399
            
            $
            189
            
            $
            74
            
            $
            1,025Estimated
                amortization expenseRemainder
                of 2007
            
            
            
            
            $
            107
            
            $
            7
            
            $
            72008
            
            
            
            
            
            427
            
            
            27
            
            
            272009
            
            
            
            
            
            427
            
            
            27
            
            
            272010
            
            
            
            
            
            427
            
            
            27
            
            
            132011
            
            
            
            
            
            427
            
            
            27
            
            
            -2012
            
            
            
            
            
            427
            
            
            20
            
            
            -





The
      Company acquired a Florida banking charter in a transaction with Ameris Bancorp
      of Moultrie, Georgia in November 2006 for $1.025 million. The charter is being
      accounted for as an indefinite-lived intangible asset and is therefore not
      being
      amortized. The banking charter will be tested for impairment annually or when
      circumstances arise or events occur that indicate that the asset may be
      impaired.





Note
      6: Variable Interest Entity And Borrowing Arrangements





The
      following is a summary of other borrowings at September 30, 2007 and 2006 and
      December 31, 2006:





September
                30
            
            December
                31*(Dollars
                in thousands)*
            
            2007
            
            2006
            
            2006Company’s
                line of credit in the amount of $15,000,000, maturing in May 2009;
                secured
                by approximately 29% of the Bank’s common stock; interest payable
                quarterly at .75% below the lender’s base rate
            
            $
            1,667
            
            $
            12,742
            
            $
            10,416Bank’s
                advances from Federal Home Loan Banks, net of unamortized purchase
                accounting discounts of $2, $136 and $131
            
            
            199,550
            
            
            139,572
            
            
            155,984$
            201,217
            
            $
            152,314
            
            $
            166,400Company’s
                junior subordinated debentures, interest payable quarterly at 6.44%
                through March 2011, payable quarterly at 90-day LIBOR plus 1.33%
                through
                March 2036; redeemable after March 2011
            
            $
            30,928
            
            $
            30,928
            
            $
            30,928





The
      Bank
      has advances from the Federal Home Loan Bank of Dallas (FHLB) under Blanket
      Agreements for Advances and Security Agreements. These agreements allow the
      Bank
      to borrow funds from the FHLB to fund mortgage loan programs and to satisfy
      certain other funding needs. The value of mortgage-backed securities and
      mortgage loans pledged under these agreements must be maintained at not less
      than 115% and 150%, respectively, of the advances outstanding.




11





FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      6: (Continued)





In
      May
      2007 the FHLB called a $7.000 million borrowing that was originally due to
      mature in May 2012. The debt was originally assumed in the Columbiana Bancshares
      acquisition in February 2006. Approximately $126 thousand, representing
      unamortized purchase discount, was recorded as a loss on the extinguishment
      of
      the debt.





In
      February 2006 the Company issued $30.928 million in fixed/floating rate junior
      subordinated deferrable interest debentures to First M&F Statutory Trust I.
      The Company received $30.000 million in cash and $928 thousand of common
      securities from the Trust. The debentures mature in March 2036 and interest
      is
      payable quarterly.





First
      M&F Statutory Trust I is a variable interest entity. A determination has
      been made that the Company, since its equity interest is not at risk, is not
      the
      primary beneficiary and therefore, the Trust is not consolidated with the
      Company’s financial statements.





Note
      7: Pension and Other Employee Benefit Plans





As
      discussed in Note 18 to the December 31, 2006 financial statements, the Bank
      has
      a defined benefit pension plan covering substantially all full time employees
      of
      the Bank and its subsidiaries. The Company adopted Statement of Financial
      Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension
      and Other Postretirement Plans” as of December 31, 2006. The following table
      provides a summary of the components of the Unamortized Pension Costs recognized
      in stockholders’ equity as of September 30, 2007 and December 31,
      2006.





Balance
            
            2007
            
            Balance*(Dollars
                in thousands)*
            
            12/31/06
            
            Amortization
            
            09/30/07Unamortized
                transition asset
            
            $
            (27
            )
            $
            7
            
            $
            (20
            )Unamortized
                prior service cost
            
            
            (182
            )
            
            28
            
            
            (154
            )Unamortized
                actuarial loss
            
            
            2,916
            
            
            (313
            )
            
            2,6032,707
            
            
            (278
            )
            
            2,429Deferred
                taxes
            
            
            (1,010
            )
            
            104
            
            
            (906
            )Net
                unamortized pension costs
            
            $
            1,697
            
            $
            (174
            )
            $
            1,523





The
      following is a summary of the components of net periodic benefit costs for
      the
      three and nine month periods ended September 30, 2007 and 2006:





Three Months Ended September 30
            
            Nine Months Ended September 30*(Dollars
                in thousands)*
            
            2007
            
            2006
            
            2007
            
            2006Service
                cost
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Interest
                cost
            
            
            118
            
            
            114
            
            
            355
            
            
            342Expected
                return on plan assets
            
            
            (141
            )
            
            (127
            )
            
            (423
            )
            
            (381
            )Amortization
                of transition asset
            
            
            (2
            )
            
            (2
            )
            
            (7
            )
            
            (7
            )Amortization
                of prior service costs
            
            
            (9
            )
            
            (10
            )
            
            (28
            )
            
            (28
            )Recognized
                actuarial (gain) loss
            
            
            104
            
            
            66
            
            
            313
            
            
            199Net
                pension cost
            
            $
            70
            
            $
            41
            
            $
            210
            
            $
            125





The
      Company made a $400 thousand contribution to the pension plan during the third
      quarter of 2007 and a $750 thousand contribution to the plan during the third
      quarter of 2006.





The
      Company made an annual $75 thousand contribution to the ESOP and $528 thousand
      in matching contributions to the 401k plan during the first nine months of
      2007.
      The Company made an annual $75 thousand contribution to the ESOP and $381
      thousand in matching contributions to the 401k plan during the first nine months
      of 2006.





The
      Company has a nonqualified deferred compensation plan for certain senior
      officers. Participants deferred $71 thousand of compensation during the first
      nine months of 2007 and $75 thousand during the first nine months of 2006.
      Employee benefit expenses include earnings credits attributed to the
      participants’ accounts of $48 thousand for the first nine months of 2007 and $8
      thousand for the first nine months of 2006. The plan incurred expenses of $4
      thousand during the first nine months of 2007 and $3 thousand during the first
      nine months of 2006. Liabilities of the plan were $396 thousand at September
      30,
      2007, and $248 thousand at September 30, 2006, substantially all of which were
      vested.




12




FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      8: Share-based Compensation





The
      Company adopted Statement of Financial Accounting Standards (SFAS) 123 (revised
      2004), “Share-Based Payment”, as of July 1, 2005. SFAS No. 123R requires the use
      of the fair value method of accounting for stock-based compensation. The Company
      adopted the modified prospective method of transition whereby stock-based
      compensation expense is recognized prospectively for all stock-based awards
      that
      were not fully vested as of the date of adoption of the Statement, and for
      all
      awards issued thereafter.





Through
      June 30, 2005 the Company accounted for its stock-based employee compensation
      plans based on the “intrinsic value method” provided in Accounting Principles
      Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees”, and
      related interpretations. Because the exercise price of the Company’s employee
      stock options equals the market price of the underlying stock on the date of
      grant, no compensation expense was recognized on option plans.





The
      fair
      value of stock options is estimated at the date of grant using the Black-Scholes
      option pricing model.





The
      following table is a summary of outstanding options and weighted average
      exercise prices.





Nine
                Months Ended September 302007
            
            2006Number
            
            Price
            
            Number
            
            PriceJanuary
                1
            
            
            186,462
            
            $
            15.59
            
            
            239,370
            
            $
            15.20Exercised
            
            
            (19,854
            )
            
            15.37
            
            
            (33,908
            )
            
            14.11Cancelled
            
            
            (38,108
            )
            
            13.96
            
            
            -
            
            
            -Granted
            
            
            2,000
            
            
            19.00
            
            
            3,000
            
            
            19.06September
                30
            
            
            130,500
            
            $
            16.16
            
            
            208,462
            
            $
            15.43Exercisable
                at September 30, 2007
            
            
            117,300
            
            $
            15.95Available
                for additional grant at September 30, 2007
            
            
            395,000





The
      Company estimates a forfeiture rate of 9.45% (1.89% annual rate) for stock
      options issued to employees and a forfeiture rate of 5.45% (1.09% annual rate)
      for stock options issued to directors in determining net compensation costs
      that
      are recognized beginning with the third quarter of 2005 and
      prospectively.





Management,
      with authorization from the Board of Directors, negotiated a payment with three
      option holders to cancel 38,108 in-the-money options that were set to expire
      in
      March 2007. The values of the options at the times of the transactions were
      more
      than the amounts paid, thereby requiring no compensation expense to be
      recognized. The total amount paid to cancel the options was $175
      thousand.





In
      August
      2005 the Company issued 76,766 restricted stock awards at a grant date fair
      value of $17.08 to certain senior officers of the Company. Substantially all
      of
      the shares vest in seven (7) years and are potentially forfeitable until the
      vesting date. Additionally the shares include a performance condition that
      may
      accelerate vesting at the achievement of a diluted earnings per share and net
      income target. Non-achievement of the performance condition during the seven
      (7)
      year vesting period would not prevent vesting of the shares. In December 2005
      the Company issued 37,000 restricted stock awards at a grant date fair value
      of
      $16.86 to certain senior and executive officers of the Bank. The shares vest
      on
      the following schedule: 25,000 of the shares in seven (7) years, 6,000 shares
      in
      five (5) years and 6,000 shares in three (3) years. In December 2006 the Company
      issued 4,000 restricted stock awards at a grant date fair value of $19.59 to
      a
      senior officer of the Bank. The shares vest as follows: 1,500 shares in one
      year, 1,500 shares in two years and 1,000 shares in three years. The share
      awards issued in December of 2005 and 2006 have the same potential acceleration
      criteria as the awards issued in August 2005. At September 30, 2007 there was
      $1.324 million in unrecognized compensation cost. The Company estimates that
      4.00% (.57% annual rate) of the nonvested shares will be forfeited in
      determining net compensation expenses recognized. In March 2007, 3,000 shares
      were forfeited. The following table provides a summary of the restricted share
      activity.





Grant
                DateShares
            
            Fair
                ValueJanuary
                1, 2006
            
            
            113,766
            
            $
            17.00Granted
                in 2006
            
            
            4,000
            
            
            19.59December
                31, 2006
            
            
            117,766
            
            
            17.09Forfeited
                in 2007
            
            
            (3,000
            )
            
            17.08September
                30, 2007
            
            
            114,766
            
            
            17.09




13





FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      9: Stock Split





On
      May
      15, 2006, the Company completed a 2-for-1 stock split in the form of a 100%
      stock dividend. The record date of the stock split was May 1, 2006. All share
      amounts and prices of prior periods have been adjusted to reflect the effect
      of
      the stock split.




14




Report
      of Independent Registered Public Accounting Firm





The
      Board
      of Directors


First
      M
& F Corporation


Kosciusko,
      Mississippi





We
      have
      reviewed the accompanying consolidated statements of condition of First M &
F Corporation and subsidiary as of September 30, 2007 and 2006, and the related
      consolidated statements of income and comprehensive income for the three-month
      and nine-month periods ended September 30, 2007 and 2006, and the related
      consolidated statements stockholders’ equity and cash flows for the nine-month
      periods ended September 30, 2007 and 2006. These financial statements are the
      responsibility of the Company’s management.





We
      conducted our review in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures to financial
      data and making inquiries of persons responsible for financial and accounting
      matters. It is substantially less in scope than an audit conducted in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States), the objective of which is expressing an opinion regarding the financial
      statements taken as a whole. Accordingly, we do not express such an
      opinion.





Based
      on
      our review, we are not aware of any material modifications that should be made
      to the accompanying interim consolidated financial statements for them to be
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated statement of
      condition of First M & F Corporation and subsidiary as of December 31, 2006,
      and the related consolidated statements of income, comprehensive income,
      stockholders’ equity and cash flows for the year then ended (not presented
      herein) and in our report dated February 23, 2007, we expressed an unqualified
      opinion on those consolidated financial statements. In our opinion, the
      information set forth in the accompanying consolidated statement of condition
      as
      of December 31, 2006 is fairly stated, in all material respects, in relation
      to
      the consolidated statement of condition from which it has been
      derived.





/s/
      Shearer, Taylor & Co., P.A.





Ridgeland,
      Mississippi


November
      8, 2007


15





FIRST
      M
& F CORPORATION





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





The
      following provides a narrative discussion and analysis of significant changes
      in
      the Company’s results of operations and financial condition. This discussion
      should be read in conjunction with the interim consolidated financial statements
      and supplemental financial data presented elsewhere in this report.





**Forward
      Looking Statements**





Certain
      of the information included in this discussion contains forward looking
      financial data and information that is based upon management’s belief as well as
      certain assumptions made by, and information currently available to management.
      Specifically, this discussion includes statements with respect to the adequacy
      of the allowance for loan losses, the effect of legal proceedings on the
      Company’s financial condition, results of operations and liquidity, and market
      risk disclosures. Should one or more of these risks materialize or the
      assumptions prove to be significantly different, actual results may vary from
      those estimated, anticipated, projected or expected. Factors that may cause
      actual results to differ materially from those contemplated by such
      forward-looking statements include, among others, the following:





·
            An
                economic slowdown could reduce loan originations and fee income volumes
                below expectations, could slow the pace of loan payments or could
                cause
                deposits to decrease.





·
            If
                the economy deteriorated and real estate values became depressed,
                the
                approximately 82% of the Company’s loan portfolio that is secured by real
                estate could come under stress, thus possibly requiring additional
                loan
                loss accruals.





·
            Adverse
                changes in local real estate markets may affect the Company’s ability to
                dispose of its foreclosed real estate at prices above the properties’
                carrying values, thus causing additional
                losses.





·
            A
                steep increase in interest rates could cause the Company’s net interest
                margins to decrease, thereby decreasing net interest revenues. A
                spike in
                interest rates could reduce the values of interest-sensitive assets
                such
                as investment securities and loans.





·
            Mortgage
                originations, and therefore mortgage revenues, would be hurt by steeply
                rising interest rates.





·
            An
                unanticipated increase in inflation could cause the Company’s operating
                costs related to salaries, technology, supplies and property taxes
                to
                increase.





·
            A
                poor stock market could reduce brokerage transactions, therefore
                reducing
                investment brokerage revenues.





·
            Adverse
                price changes or liquidity problems in the bond markets could reduce
                the
                values of the Company’s assets as well as impede its ability to raise cash
                through security sales or additional
                borrowings.





·
            Investments
                in the portfolio of the Company’s pension plan may not provide adequate
                returns to fund the accumulated and projected plan obligations, thus
                causing higher annual plan expenses and requiring additional contributions
                by the Company.





·
            Unfavorable
                judgments in ongoing litigation may result in additional expenses.





·
            Unanticipated
                catastrophic events could result in unusual loss claims that would
                reduce
                or eliminate the profit sharing revenues of the insurance agencies.
                Such
                claims may also affect the availability of insurance products for
                certain
                classes of customers, thereby reducing commission revenues available
                to
                the agencies.





·
            Unforeseen
                new competition from outside the traditional financial services industry
                could constrain the Company’s ability to price its products profitably.





·
            Unanticipated
                changes in laws and regulations related to businesses that the Company
                is
                in or anticipates entering into or related to transactions that the
                Company engages in or anticipates engaging in could result in revenue
                reductions, expense increases or loss of business
                opportunities.





These
      examples are not intended to be exhaustive, and describe events, circumstances
      and contingencies that may never materialize. Nevertheless, the reader is
      cautioned that such types of occurrences, usually outside of the control of
      the
      Company, may cause financial results to be different than the reader or the
      Company’s management had originally estimated.


16





FIRST
      M
& F CORPORATION





**Financial
      Summary**





Net
      income for the third quarter of 2007 was $3.808 million, or $.42 basic and
      diluted earnings per share as compared to $3.665 million, or $.40 basic and
      diluted earnings per share for the same period in 2006 and $3.535 million or
      $.39 basic and diluted earnings per share for the second quarter of 2007. Net
      income for the first nine months of 2007 was $10.897 million, or $1.20 basic
      and
      diluted earnings per share as compared to $10.186 million, or $1.13 basic and
      $1.12 diluted earnings per share for the same period in 2006. Major factors
      contributing to the increased year-over-year earnings were (1) a 9.23% increase
      in noninterest income excluding securities and debt extinguishment losses,
      (2)
      steady loan growth from September 2006 through 2007 and (3) a decrease in the
      provision for loan losses. Major factors contributing to the increased third
      quarter earnings compared to 2006 were (1) a 3.35% improvement in net interest
      income resulting from steady loan production, (2) a decrease in the provision
      for loan losses and (3) a modest 3.99% increase in noninterest
      expenses.





Highlights
      for the first nine months of 2007 and 2006 are as follows:





·
            Return
                on assets for the first nine months of 2007 was .94% while the return
                on
                equity was 11.01%. Return on assets for the first nine months of
                2006 was
                .93% and return on equity was
                11.27%.


·
            The
                largest contributors to year-over-year loan growth were the Rankin
                County
                Mississippi market, Memphis, Tennessee and Birmingham, Alabama
                metropolitan markets and the Crestview, Florida
                operation.


·
            Nonperforming
                loans were .69% of total loans at September 30, 2007 with annualized
                net
                charge-offs as a percentage of average loans at .22% for the first
                nine
                months of 2007.


·
            Completed
                construction on a banking location in Madison, Mississippi, which
                opened
                in April 2006


·
            Converted
                the loan production office in Germantown, Tennessee into a full-service
                branch; opened a full-service branch in Peabody Place in Memphis,
                Tennessee; and opened a full-service branch in Collierville, Tennessee
                in
                May 2006


·
            Opened
                a full-service branch in Crestview, Florida in November
                2006


·
            Opened
                a full-service branch in Cordova, Tennessee in June
                2007


·
            Opened
                an additional full-service branch in Brandon, Mississippi in July
                2007


·
            Opened
                an additional full-service branch in Ridgeland, Mississippi in July
                2007


·
            Continued
                with expansion plans in the Okaloosa County, Florida region with
                an
                expected new branch opening date during the fourth quarter of
                2007


·
            Acquired
                Columbiana Bancshares, Inc. and its subsidiary, First National Bank
                of
                Shelby County in Columbiana, Alabama and merged them into the Company
                and
                M&F Bank, respectively during February
                2006


·
            Acquired
                Crockett County Bancshares and its subsidiary Bells Banking Company
                in
                Bells, Tennessee and merged them into the Company and M&F Bank,
                respectively during May 2006


·
            Issued
                $30 million in Trust Preferred securities in February
                2006


17





FIRST
      M
& F CORPORATION





The
      following table shows the quarterly net loan, non-interest bearing deposit,
      and
      interest bearing deposit growth for the last five quarters.





( *Net
      change, in thousands* )




Non-Interest
            
            InterestQuarter
            
            Loans
            
            Bearing**Deposits
            
            Bearing**Deposits3rd
                Qtr 2006
            
            $
            11,657
            
            $
            (6,148
            )
            $
            5,7084th
                Qtr 2006
            
            
            (4,520
            )
            
            (10,907
            )
            
            (7,389
            )1st
                Qtr 2007
            
            
            21,267
            
            
            7,843
            
            
            15,0392nd
                Qtr 2007
            
            
            38,329
            
            
            (512
            )
            
            3,8083rd
                Qtr 2007
            
            
            51,581
            
            
            (1,481
            )
            
            4,427





The
      following table shows the quarterly net interest income, loan loss accruals,
      non-interest income and non-interest expense amounts for the last five
      quarters.





( *Net
      amount, in thousands* )





Net
                Interest
            
            Loan
                Loss
            
            Non-Interest
            
            Non-InterestQuarter
            
            Income
            
            Accruals
            
            Income
            
            Expense3rd
                Qtr 2006
            
            $
            13,339
            
            $
            954
            
            $
            5,411
            
            $
            12,3944th
                Qtr 2006
            
            
            13,322
            
            
            121
            
            
            5,238
            
            
            12,9041st
                Qtr 2007
            
            
            13,007
            
            
            630
            
            
            5,557
            
            
            12,6822nd
                Qtr 2007
            
            
            13,522
            
            
            630
            
            
            4,861
            
            
            12,5093rd
                Qtr 2007
            
            
            13,786
            
            
            630
            
            
            5,425
            
            
            12,889





The
      following table shows the components of diluted earnings per share for the
      last
      five quarters:





3rd Qtr 2007
            
            2nd Qtr 2007
            
            1st Qtr 2007
            
            4th Qtr 2006
            
            3rd Qtr 2006Net
                interest income
            
            $
            1.51
            
            $
            1.48
            
            $
            1.43
            
            $
            1.46
            
            $
            1.48Loan
                loss expense
            
            
            .07
            
            
            .07
            
            
            .07
            
            
            .01
            
            
            .11Noninterest
                income
            
            
            .59
            
            
            .53
            
            
            .61
            
            
            .58
            
            
            .59Noninterest
                expense
            
            
            1.41
            
            
            1.36
            
            
            1.39
            
            
            1.42
            
            
            1.36Net
                income before taxes
            
            
            .62
            
            
            .58
            
            
            .58
            
            
            .61
            
            
            .60Income
                taxes
            
            
            .20
            
            
            .19
            
            
            .19
            
            
            .20
            
            
            .20Net
                income
            
            $
            .42
            
            $
            .39
            
            $
            .39
            
            $
            .41
            
            $
            .40


18





FIRST
      M
& F CORPORATION





The
      following table shows performance ratios for the last five
      quarters:





3rd**Qtr**2007
            
            2nd**Qtr**2007
            
            1st**Qtr**2007
            
            4th**Qtr**2006
            
            3rd**Qtr**2006Net
                interest margin
            
            
            3.94
            %
            
            4.00
            %
            
            3.94
            %
            
            3.99
            %
            
            4.04
            %Efficiency
                ratio
            
            
            66.07
            
            
            66.92
            
            
            67.17
            
            
            68.25
            
            
            65.09Return
                on assets
            
            
            .96
            
            
            .92
            
            
            .94
            
            
            .97
            
            
            .96Return
                on equity
            
            
            11.18
            
            
            10.69
            
            
            11.18
            
            
            11.71
            
            
            11.82Noninterest
                income to avg. assets
            
            
            1.36
            
            
            1.26
            
            
            1.44
            
            
            1.37
            
            
            1.42Noninterest
                income to revenues (1)
            
            
            27.80
            
            
            26.01
            
            
            29.43
            
            
            27.86
            
            
            28.26Noninterest
                expense to avg assets
            
            
            3.23
            
            
            3.25
            
            
            3.29
            
            
            3.36
            
            
            3.26Salaries
                and benefits to total noninterest expense
            
            
            56.65
            
            
            58.39
            
            
            57.18
            
            
            55.11
            
            
            57.17Contribution
                margin (2)
            
            
            62.57
            
            
            60.93
            
            
            61.60
            
            
            62.39
            
            
            62.79Nonperforming
                loans to loans
            
            
            .69
            
            
            .55
            
            
            .38
            
            
            .36
            
            
            .33Annualized
                net charge offs as a percent of average loans
            
            
            .25
            
            
            .30
            
            
            .11
            
            
            .46
            
            
            .33





(1)
            Revenues
                equal tax-equivalent net interest income before loan loss expense,
                plus
                noninterest income.


(2)
            Contribution
                margin equals revenues minus salaries & benefits, divided by
                revenues.





The
      following table shows revenue related performance statistics for the last five
      quarters:





(*Dollars
                in thousands*)
            
            3rd Qtr 2007
            
            2nd Qtr 2007
            
            1st Qtr 2007
            
            4th Qtr 2006
            
            3rd Qtr 2006Mortgage
                originations
            
            $
            19,924
            
            $
            20,700
            
            $
            18,360
            
            $
            19,164
            
            $
            19,610Commissions
                from annuity sales
            
            
            33
            
            
            37
            
            
            29
            
            
            25
            
            
            45Trust
                revenues
            
            
            85
            
            
            75
            
            
            67
            
            
            73
            
            
            75Retail
                investment revenues
            
            
            72
            
            
            75
            
            
            70
            
            
            74
            
            
            66Revenues
                per FTE employee
            
            
            35
            
            
            33
            
            
            33
            
            
            33
            
            
            34Agency
                commissions per agency FTE employee (1)
            
            
            30
            
            
            25
            
            
            25
            
            
            21
            
            
            24




(1)
            Agency
                commissions are property, casualty, life and health commissions produced
                by the insurance agency personnel.





The
      following table shows additional statistics for the Company at the end of the
      last five quarters:





3rd Qtr 2007
            
            2nd Qtr 2007
            
            1st Qtr 2007
            
            4th Qtr 2006
            
            3rd Qtr 2006Full-time
                equivalent employees
            
            
            555
            
            
            562
            
            
            561
            
            
            570
            
            
            560Number
                of noninterest-bearing deposit accounts
            
            
            39,058
            
            
            38,529
            
            
            38,100
            
            
            37,522
            
            
            36,371


19





FIRST
      M
& F CORPORATION





**Net
      Interest Income**





Net
      interest income before loan loss expenses for the first nine months of 2007
      was
      $40.315 million as compared to $39.027 million for the first nine months of
      2006. For the first nine months of 2007 compared to 2006: earning asset yields
      increased by 40 basis points, liability costs increased by 55 basis points,
      the
      net interest spread decreased by 16 basis points and the net interest margin
      decreased by 12 basis points.





Net
      interest income before loan loss expenses for the third quarter of 2007 was
      $13.786 million as compared to $13.339 million for the third quarter of 2006
      and
      $13.522 million for the second quarter of 2007. For the third quarter of 2007
      compared to the same quarter of 2006: earning asset yields increased by 25
      basis
      points, liability costs increased by 39 basis points, the net interest spread
      decreased by 14 basis points and the net interest margin decreased by 10 basis
      points. For the third quarter of 2007 compared to the second quarter of 2007:
      earning asset yields increased by 1 basis point, liability costs increased
      by 7
      basis points, the net interest spread decreased by 6 basis points and the net
      interest margin decreased by 6 basis points.





Balance
      sheet dynamics affecting the comparative net interest margins for the first
      nine
      months of 2007 compared to 2006 include (1) growth of 7.89% in average loans
      held for investment, (2) an increase in average loans as a percentage of earning
      assets from 80.01% in the first nine months of 2006 to 81.21% in the first
      nine
      months of 2007, (3) an increase in average certificates of deposits of 14.08%,
      (4) an increase in average other borrowings of 10.17% and (5) a decrease in
      average noninterest-bearing deposits as a percentage of total assets from 12.64%
      in 2006 to 11.61% in 2007.





Balance
      sheet dynamics affecting the comparative net interest margins for the third
      quarter of 2007 compared to 2006 include (1) growth of 7.69% in average loans
      held for investment, (2) an increase in average loans as a percentage of earning
      assets from 80.76% in the third quarter of 2006 to 82.33% in the third quarter
      of 2007, (3) an increase in average certificates of deposits of 8.91%, (4)
      an
      increase in average other borrowings of 12.56% and (5) a decrease in average
      noninterest-bearing deposits as a percentage of total assets from 12.49% in
      2006
      to 11.51% in 2007.





Balance
      sheet dynamics affecting the comparative net interest margins for the third
      quarter of 2007 compared to the second quarter of 2007 include (1) growth of
      3.98% in average loans held for investment, (2) an increase in average loans
      as
      a percentage of earning assets from 80.93% in the second quarter of 2007 to
      82.33% in the third quarter of 2007, (3) an increase in average interest-bearing
      deposits of 2.84%, (4) an increase in average borrowings of 2.27% and (5) a
      decrease in average noninterest-bearing deposits as a percentage of total assets
      from 11.76% in the second quarter to 11.51% in the third quarter.





Yield
      and
      cost dynamics affecting the comparative net interest margins for the first
      nine
      months of 2007 compared to 2006 include (1) an increase of 41 basis points
      in
      yields on loans held for investment and for sale, (2) an increase of 19 basis
      points in investment and short-term funds yields, (3) an increase of 59 basis
      points in costs of deposits and (4) an increase of 31 basis points in costs
      of
      borrowings.





Yield
      and
      cost dynamics affecting the comparative net interest margins for the third
      quarter of 2007 compared to 2006 include (1) an increase of 23 basis points
      in
      yields on loans held for investment and for sale, (2) an increase of 13 basis
      points in investment and short-term funds yields, (3) an increase of 42 basis
      points in costs of deposits and (4) an increase of 14 basis points in costs
      of
      borrowings.





Yield
      and
      cost dynamics affecting the comparative net interest margins for the third
      quarter of 2007 compared to the second quarter of 2007 include (1) a decrease
      of
      3 basis points in yields on loans held for investment and for sale, (2) an
      increase of 5 basis points in investment and short-term funds yields, (3) an
      increase of 9 basis points in costs of deposits and (4) no change in costs
      of
      borrowings.


20





FIRST
      M
& F CORPORATION





The
      improvement in asset yields for the first nine months of 2007 and the third
      quarter of 2007 as compared to the same periods in 2006 can be attributed to
      (1)
      an increase in the prime lending rate of 25 basis points at the end of June
      2006, (2) a steady increase in short-term interest rates throughout 2006 and
      the
      first quarter of 2007 and (3) an increase in the percentage of loans in the
      mix
      of earning assets from 80.01% in 2006 to 81.21% in 2007. Deposit costs for
      2007
      were primarily influenced by the higher short-term interest rate environment
      that existed for the third quarter of 2006 through the first quarter of 2007
      as
      compared to the first half of 2006 as well as by an increase in the percentage
      of deposits represented by certificates of deposit from 45.28% during the first
      nine months of 2006 to 49.35% during the same period in 2007. As short-term
      interest rates decreased during the second and third quarters of 2007 earning
      asset yields continued to increase, but at a much slower pace than during the
      quarters preceding the first quarter of 2007. The quarter-to-quarter increase
      in
      funding costs also slowed but continued to increase at a pace slightly higher
      than the increase in asset yields.





Net
      interest margins should be affected during the fourth quarter and 2008 by a
      shifting of the yield curve to a positive shape during June 2007. The yield
      curve between the 3-month and 5-year Treasuries was inverted for July 2006
      through May 2007. However, for the month of June 2007 the 3-month to 5-year
      Treasury spread was 29 basis points - its highest difference since December
      2005. The positive shape of the yield curve has persisted through the third
      quarter of 2007. The AAA corporate bond to 3-month Treasury spread was 105
      basis
      points during June 2007 - its highest point since May 2006, and significantly
      above the 22 basis point spread for March 2007. This measure of credit spreads
      was 175 basis points during September 2007, its widest difference since July
      2005. The economy shows signs of weakness with a considerable slowing in the
      consumer real estate sector. The Federal Reserve Board moved to provide
      liquidity to the financial markets by decreasing the discount rate by 50 basis
      points on August 17. The Federal Open Market Committee decreased its Fed funds
      target rate by 50 basis points, accompanied by an additional 50 basis point
      decrease in the discount rate, on September 18. Corporate bond yields, which
      moved higher during the second quarter of 2007, have been affected by (1)
      sub-prime mortgage problems, (2) fear of a spillover effect of the sub-prime
      credit deterioration to prime borrowers and (3) inflationary fears fueled by
      energy and agricultural commodity price increases. These influences were
      somewhat mitigated by the strong first and second quarter corporate profits
      that
      were reported, indicating corporate liquidity and financial strength. Although
      the recent declines in short-term interest rates may have a downward influence
      on longer-term corporate rates, an increase in the credit spreads factored
      into
      corporate rates, due to the current weakness in the credit markets, may offset
      any corporate rate reductions.





The
      recent decrease in short-term Treasury rates coupled with a positively sloped
      yield curve would indicate that banks will have stronger pricing power over
      the
      next twelve months. However, the Company’s loan yield may decrease over the next
      four quarters due to (1) the current competitive environment for loans given
      a
      slowing in demand and (2) a tightening of credit underwriting which would
      increase the percentage of prime-based loan originations. Management believes
      that another challenge in the changing rate environment will be on the liability
      pricing as financial institution competitors may be reluctant to reduce deposit
      pricing due to funding concerns. The Company has seen strong competition for
      deposits in its metropolitan markets and expects that the remainder of 2007
      and
      2008 will be highly competitive.





The
      Company addressed costs of deposits during 2007 by (1) initiating an
      incentive-based deposit campaign running from February through April of 2007
      which resulted in approximately 2,200 new demand and savings deposit accounts,
      (2) using specially designed money market accounts targeted to single-service
      commercial loan customers and (3) moving the marketing of CD specials from
      external media to in-branch promotions. The money market account promotion
      was
      completed shortly after the end of the second quarter resulting in an increase
      in average balances of $13.072 million from the fourth quarter of 2006 to the
      second quarter of 2007. Costs of money market accounts increased from 2.19%
      for
      the fourth quarter of 2006 to 2.52% for the second quarter of 2007 and 2.66%
      for
      the third quarter of 2007, relieving the Company’s dependence on certificates of
      deposit which cost 4.62% during the second quarter of 2007 and 4.64% during
      the
      third quarter of 2007. Management has decided to continue to use money market
      deposit products as an alternative to certificates of deposit to attract
      funding. Management has decided to continue using certificate of deposit special
      promotions, with only in-branch marketing, for the foreseeable future.
      Management has also used short-term Federal Home Loan Bank (FHLB) financing
      and
      brokered certificates of deposit to meet short-term funding needs and reduce
      the
      overall costs of borrowing. Management expects to continue using FHLB financing
      and brokered certificates of deposit when either short-term liquidity is needed
      or the opportunity to reduce borrowing costs arises.


21





FIRST
      M
& F CORPORATION





The
      following table shows the components of the net interest margin for the second
      and third quarters of 2007 and 2006:





Yields/Costs
            
            Yields/Costs3rd Quarter, 2007
            
            2nd Quarter, 2007
            
            3rd Quarter, 2006
            
            2nd Quarter, 2006Interest
                bearing bank balances
            
            
            5.55
            %
            
            4.61
            %
            
            3.60
            %
            
            3.55
            %Federal
                funds sold
            
            
            5.14
            
            
            3.59
            
            
            5.67
            
            
            4.80Taxable
                investments
            
            
            4.81
            
            
            4.80
            
            
            4.63
            
            
            4.59Tax-exempt
                investments
            
            
            6.22
            
            
            6.26
            
            
            6.26
            
            
            6.15Loans
                held for sale
            
            
            5.16
            
            
            5.59
            
            
            5.81
            
            
            6.06Loans
                held for investment
            
            
            7.87
            
            
            7.90
            
            
            7.63
            
            
            7.48Earning
                asset yield
            
            
            7.37
            
            
            7.36
            
            
            7.12
            
            
            6.95Interest
                checking
            
            
            1.44
            
            
            1.35
            
            
            1.62
            
            
            1.66Money
                market deposits
            
            
            2.66
            
            
            2.52
            
            
            1.94
            
            
            1.77Savings
            
            
            2.83
            
            
            2.75
            
            
            2.32
            
            
            2.09Certificates
                of deposit
            
            
            4.64
            
            
            4.62
            
            
            4.23
            
            
            3.96Short-term
                borrowings
            
            
            4.92
            
            
            4.98
            
            
            4.75
            
            
            4.06Other
                borrowings
            
            
            5.12
            
            
            5.12
            
            
            4.98
            
            
            4.88Cost
                of interest-bearing liabilities
            
            
            3.88
            
            
            3.81
            
            
            3.49
            
            
            3.27Net
                interest spread
            
            
            3.49
            
            
            3.55
            
            
            3.63
            
            
            3.68Effect
                of non-interest bearing deposits
            
            
            .49
            
            
            .49
            
            
            .48
            
            
            .45Effect
                of leverage
            
            
            (.04
            )
            
            (.04
            )
            
            (.07
            )
            
            (.08
            )Net
                interest margin, tax-equivalent
            
            
            3.94
            
            
            4.00
            
            
            4.04
            
            
            4.05Less:
                Tax equivalent adjustments:Investments
            
            
            .07
            
            
            .08
            
            
            .09
            
            
            .08Loans
            
            
            .01
            
            
            .01
            
            
            .01
            
            
            .01Reported
                book net interest margin
            
            
            3.86
            %
            
            3.91
            %
            
            3.94
            %
            
            3.96
            %





The
      following table shows the components of the net interest margin for the first
      nine months of 2007 and 2006:





Yields/CostsSeptember 2007
            
            September 2006Interest bearing
                bank balances
            
            
            5.01
            %
            
            3.40
            %Federal
                funds sold
            
            
            4.20
            
            
            4.42Taxable
                investments
            
            
            4.81
            
            
            4.58Tax-exempt
                investments
            
            
            6.25
            
            
            6.25Loans
                held for sale
            
            
            5.33
            
            
            5.11Loans
                held for investment
            
            
            7.86
            
            
            7.46Earning
                asset yield
            
            
            7.34
            
            
            6.94Interest
                checking
            
            
            1.39
            
            
            1.59Money
                market deposits
            
            
            2.50
            
            
            1.76Savings
            
            
            2.74
            
            
            2.15Certificates
                of deposit
            
            
            4.61
            
            
            3.96Short-term
                borrowings
            
            
            5.06
            
            
            4.73Other
                borrowings
            
            
            5.13
            
            
            4.82Cost
                of interest-bearing liabilities
            
            
            3.81
            
            
            3.26Net
                interest spread
            
            
            3.53
            
            
            3.68Effect
                of non-interest bearing deposits
            
            
            .49
            
            
            .45Effect
                of leverage
            
            
            (.06
            )
            
            (.05
            )Net
                interest margin, tax-equivalent
            
            
            3.96
            
            
            4.08Less:
                Tax equivalent adjustments:Investments
            
            
            .08
            
            
            .09Loans
            
            
            .01
            
            
            .01Reported
                book net interest margin
            
            
            3.87
            %
            
            3.98
            %


22





FIRST
      M
& F CORPORATION





The
      following table shows average balance sheets for the second and third quarters
      of 2007 and 2006:





*(Dollars
                in thousands)*3rd**Quarter,**2007
            
            2nd**Quarter,**2007
            
            3rd**Quarter,**2006
            
            2nd**Quarter,**2006Interest
                bearing bank balances
            
            $
            5,713
            
            $
            4,726
            
            $
            6,152
            
            $
            7,577Federal
                funds sold
            
            
            2,752
            
            
            6,247
            
            
            4,562
            
            
            16,007Taxable
                investments
            
            
            190,105
            
            
            197,922
            
            
            188,753
            
            
            193,769Tax-exempt
                investments
            
            
            43,836
            
            
            45,654
            
            
            49,841
            
            
            50,140Loans
                held for sale
            
            
            8,084
            
            
            9,786
            
            
            8,810
            
            
            8,646Loans
                held for investment
            
            
            1,166,820
            
            
            1,122,129
            
            
            1,083,451
            
            
            1,064,858Earning
                assets
            
            
            1,417,310
            
            
            1,386,464
            
            
            1,341,569
            
            
            1,340,997Other
                assets
            
            
            163,470
            
            
            159,594
            
            
            165,386
            
            
            169,852Total
                assets
            
            $
            1,580,780
            
            $
            1,546,058
            
            $
            1,506,955
            
            $
            1,510,849Interest
                checking
            
            
            187,350
            
            
            190,049
            
            
            209,144
            
            
            231,908Money
                market deposits
            
            
            133,246
            
            
            136,525
            
            
            125,230
            
            
            129,239Savings
                deposits
            
            
            103,089
            
            
            99,997
            
            
            96,087
            
            
            97,403Certificates
                of deposit
            
            
            610,032
            
            
            578,631
            
            
            560,150
            
            
            534,911Short-term
                borrowings
            
            
            10,227
            
            
            12,069
            
            
            7,500
            
            
            5,323Other
                borrowings
            
            
            208,839
            
            
            204,199
            
            
            185,541
            
            
            188,941Interest-bearing
                liabilities
            
            
            1,252,783
            
            
            1,221,470
            
            
            1,183,652
            
            
            1,187,725Noninterest-bearing
                deposits
            
            
            182,008
            
            
            181,819
            
            
            188,182
            
            
            191,212Other
                liabilities
            
            
            10,832
            
            
            10,133
            
            
            12,104
            
            
            10,989Stockholders’
                equity
            
            
            135,157
            
            
            132,636
            
            
            123,017
            
            
            120,923Liabilities
                and stockholders’ equity
            
            $
            1,580,780
            
            $
            1,546,058
            
            $
            1,506,955
            
            $
            1,510,849Loans
                to earning assets
            
            
            82.33
            %
            
            80.93
            %
            
            80.76
            %
            
            79.41
            %Loans
                to assets
            
            
            73.81
            %
            
            72.58
            %
            
            71.90
            %
            
            70.48
            %Earning
                assets to assets
            
            
            89.66
            %
            
            89.68
            %
            
            89.03
            %
            
            88.76
            %Noninterest-bearing
                deposits to assets
            
            
            11.51
            %
            
            11.76
            %
            
            12.49
            %
            
            12.66
            %Equity
                to assets
            
            
            8.55
            %
            
            8.58
            %
            
            8.16
            %
            
            8.00
            %





The
      following table shows average balance sheets for the first nine months of 2007
      and 2006:





*(Dollars
                in thousands)*September 2007
            
            September 2006Interest
                bearing bank balances
            
            $
            4,719
            
            $
            7,124Federal
                funds sold
            
            
            3,298
            
            
            14,992Taxable
                investments
            
            
            199,032
            
            
            181,182Tax-exempt
                investments
            
            
            45,668
            
            
            49,808Loans
                held for sale
            
            
            8,860
            
            
            8,624Loans
                held for investment
            
            
            1,130,514
            
            
            1,047,884Earning
                assets
            
            
            1,392,091
            
            
            1,309,614Other
                assets
            
            
            163,973
            
            
            158,855Total
                assets
            
            $
            1,556,064
            
            $
            1,468,469Interest
                checking
            
            
            194,265
            
            
            220,344Money
                market deposits
            
            
            132,379
            
            
            126,383Savings
                deposits
            
            
            100,031
            
            
            94,584Certificates
                of deposit
            
            
            591,809
            
            
            518,760Short-term
                borrowings
            
            
            12,266
            
            
            7,334Other
                borrowings
            
            
            202,437
            
            
            183,746Interest-bearing
                liabilities
            
            
            1,233,187
            
            
            1,151,151Noninterest-bearing
                deposits
            
            
            180,610
            
            
            185,646Other
                liabilities
            
            
            9,988
            
            
            10,869Stockholders’
                equity
            
            
            132,279
            
            
            120,803Liabilities
                and stockholders’ equity
            
            $
            1,556,064
            
            $
            1,468,469Loans
                to earning assets
            
            
            81.21
            %
            
            80.01
            %Loans
                to assets
            
            
            72.65
            %
            
            71.36
            %Earning
                assets to assets
            
            
            89.46
            %
            
            89.18
            %Noninterest-bearing
                deposits to assets
            
            
            11.61
            %
            
            12.64
            %Equity
                to assets
            
            
            8.50
            %
            
            8.23
            %


23





FIRST
      M
& F CORPORATION





**Provision
      for Loan Losses**





The
      accrual for the provision for loan losses for the first nine months of 2007
      was
      $1.890 million as compared to $2.911 million for the first nine months of 2006.
      Net charge-offs were $1.899 million for the first nine months of 2007 as
      compared to $1.500 million for the first nine months of 2006.





The
      accrual for the provision for loan losses for the third quarter of 2007 was
      $630
      thousand as compared to $954 thousand for the third quarter of 2006. The
      allowance for loan losses as a percentage of loans was 1.25% at September 30,
      2007, 1.37% at December 31, 2006, and 1.47% at September 30, 2006. Net
      charge-offs were $748 thousand in the third quarter of 2007 as compared to
      $907
      thousand for the third quarter of 2006.





Nonperforming
      loans as a percentage of loans increased to .69% at September 30, 2007 as
      compared to .55% at June 30, 2007, .36% at December 31, 2006, and .33% at
      September 30, 2006. The Company has not been negatively affected to date by
      the
      deterioration of credit quality in the sub-prime mortgage sector, has virtually
      no sub-prime exposure and has not detected any spillover effects of the
      sub-prime crisis into other credit sectors. Business activity and cash flows
      in
      the commercial real estate segment of the Company’s loan portfolio have remained
      steady in 2007, with outstanding loans growing by 10.23% during the first nine
      months of 2007. The Company continues to monitor real estate and commercial
      exposures on a monthly basis in order to address any problems in the earliest
      stages.





**Non
      Interest Income**





Noninterest
      income, excluding securities transactions and losses on debt extinguishment,
      for
      the first nine months of 2007 was $15.969 million as compared to $14.619 million
      for the same period in 2006. For the first nine months of 2007 as compared
      to
      2006: (1) deposit revenues increased by $234 thousand, (2) mortgage banking
      revenues increased by $199 thousand and (3) agency commissions increased by
      $146
      thousand.





Noninterest
      income, excluding securities transactions and losses on debt extinguishment,
      for
      the third quarter of 2007 was $5.425 million as compared to $5.411 million
      for
      the same period in 2006 and $4.987 million in the second quarter of 2007. For
      the third quarter of 2007 as compared to the third quarter of 2006: (1) deposit
      revenues increased by $24 thousand, (2) mortgage banking revenues decreased
      by
      $150 thousand and (3) agency commissions increased by $21 thousand. For the
      third quarter of 2007 as compared to the second quarter of 2007: (1) deposit
      revenues increased by $79 thousand, (2) mortgage banking revenues increased
      by
      $14 thousand and (3) agency commissions increased by $111 thousand.





Deposit
      revenues improved by 3.02% for the first nine months of 2007 as compared to
      2006
      and increased by .87% from the third quarter of 2006 to the same quarter in
      2007. The third quarter of 2007 showed an increase of 2.93% over the second
      quarter of 2007. Overdraft fee revenues, which comprise approximately 70% of
      deposit revenues, increased by .84% from the first nine months of 2006 to the
      first nine months of 2007 and decreased by .57% from the third quarter of 2006
      to the third quarter of 2007. The low annual increase and decrease between
      the
      third quarters of 2006 and 2007 were mainly attributable to sequential decreases
      in activity from the third quarter of 2006 to the fourth quarter of 2006 and
      the
      first quarter of 2007. Although volumes increased in the second quarter of
      2007
      and again in the third quarter of 2007, overdraft item activity for the third
      quarter of 2007 was still 7.20% lower than the third quarter of 2006 volumes.
      A
      per item charge increase of 7.14% in the fourth quarter of 2006 provided an
      offsetting effect to the volume decreases. Overdraft fees are per item charges
      applied to each check paid on an overdrawn account or returned. The per item
      fee
      is determined by the Company’s pricing committee and is based primarily on the
      competitive market prices as well as on costs associated with processing the
      items. The majority of the volumes of overdraft items processed comes from
      customers in the Company’s overdraft program which grants overdraft limits to
      customers, generally allows account activity up to the overdraft limit balance,
      and requires that accounts have positive balances at some point within a thirty
      day period. Overdrafts are considered loans and therefore are subject to the
      Company’s credit policies concerning the charging off of accounts to the
      allowance for loan losses. Interest charged on overdrawn balances, based on
      the
      Federal discount rate, is recorded as interest on loans. The overdraft program
      is designed to help customers with their cash flow needs and is not extended
      to
      individuals who are poor credit risks. Debit card revenues improved by 24.37%
      from the first nine months of 2006 to the first nine months of 2007, increased
      by 20.58% from the third quarter of 2006 to the third quarter of 2007 and
      increased by .71% from the second quarter of 2007 to the third quarter of 2007.


24





FIRST
      M
& F CORPORATION





Management
      expects overdraft fee revenues to continue to be a significant component of
      deposit revenues and expects to see debit card revenues and transaction activity
      continue to grow through the remainder of 2007. The following table shows the
      components of service charges on deposit accounts.





Three
                Months Ended
            
            Nine
                Months EndedSeptember
                30
            
            September
                302007
            
            2006
            
            2007
            
            2006Service
                charge revenues
            
            $
            352
            
            $
            392
            
            $
            1,061
            
            $
            1,120Debit/ATM
                card revenues
            
            
            478
            
            
            403
            
            
            1,381
            
            
            1,134Overdraft
                fee revenues
            
            
            1,947
            
            
            1,958
            
            
            5,532
            
            
            5,486Service
                charges on deposit accounts
            
            $
            2,777
            
            $
            2,753
            
            $
            7,974
            
            $
            7,740





Mortgage
      banking income increased by 21.01% from the first nine months of 2006 to the
      first nine months of 2007, decreased by 28.74% from the third quarter of 2006
      to
      the third quarter of 2007 and increased by 3.91% from the second quarter of
      2007
      to the third quarter of 2007. Although mortgage originations were approximately
      the same for the third quarters of 2006 and 2007, mortgage revenues were lower
      in the third quarter of 2007 due to the pricing and interest rate environment.
      Mortgage rates for 2006 hit their peak of 6.80% in July 2006 and subsequently
      decreased throughout the remainder of the year to close 2006 at 6.18%. The
      Company recorded gains on its mortgage sales during this period. During 2007
      mortgage rates increased from May through July when they hit their peak of
      6.73%
      in mid-July. Mortgage rates began to decrease in late August although the
      investors who purchase mortgages had begun to tighten their pricing as a result
      of the turmoil in the mortgage markets. The temporary higher rates combined
      with
      the more restricted pricing resulted in lower profits per mortgage sale in
      2007.
      Management expects mortgage rates to stabilize for the remainder of 2007.
      Management expects to continue to expand its mortgage presence in its
      economically stronger markets although the future mortgage environment may
      reduce the demand for mortgage products.





Agency
      commission income increased by 4.83% from the first nine months of 2006 to
      the
      first nine months of 2007, increased by 1.91% from the third quarter of 2006
      to
      the third quarter of 2007 and increased by 11.01% from the second quarter of
      2007 to the third quarter of 2007. The increase from the second quarter of
      2007
      to the third quarter of 2007 was due to a 13.26% increase in property and
      casualty commissions and was consistent with the quarterly growth in 2006 in
      which the third quarter improved by 13.88% over the second quarter. The third
      quarter typically includes the best revenue growth for property and casualty
      commissions as a majority of the commercial insurance new and renewal business
      is incurred during July and August. Overall, Management expects to see growth
      in
      commission revenues for the year as compared to 2006.





The
      Company incurred a $126 thousand loss on the extinguishment of a called FHLB
      borrowing during the second quarter of 2007. The debt, which was assumed in
      an
      acquisition, was carried at less than its face amount due to its being recorded
      at fair market value at the acquisition date. Therefore, the remaining
      unamortized discount precipitated the loss recognition on the liquidation of
      the
      borrowing.





Significant
      components of other income for the second and third quarters of 2007 and 2006
      are contained in the following table.





3Q2007
            
            2Q2007
            
            3Q2006
            
            2Q2006Agency
                profit-sharing revenues
            
            $
            -
            
            $
            24
            
            $
            -
            
            $
            -Loan
                fees
            
            
            136
            
            
            110
            
            
            36
            
            
            188Gains
                (losses) on foreclosed property sales
            
            
            (7
            )
            
            (58
            )
            
            (83
            )
            
            1Gains
                on student loan sales
            
            
            181
            
            
            61
            
            
            248
            
            
            24All
                other income
            
            
            520
            
            
            472
            
            
            544
            
            
            437Total
                other income
            
            $
            830
            
            $
            609
            
            $
            745
            
            $
            650





The
      decrease in loan fees from the second quarter of 2006 to the third quarter
      of
      2006 was due to the reclassification of $71 thousand from loan fees to interest
      on commercial loans during the third quarter. The third quarter increases in
      gains from student loan sales is due to the fact that the majority of loans
      are
      sold during the third quarter, coincident with the beginning of their repayment
      periods.


25





FIRST
      M
& F CORPORATION





The
      Company has a strategy to increase noninterest revenues as a proportion of
      total
      revenues over time. Noninterest revenues as a percentage of total revenues
      increased from 26.73% in the first nine months of 2006 to 27.75% in the first
      nine months of 2007, decreased from 28.26% in the third quarter of 2006 to
      27.80% in the third quarter of 2007 and increased from 26.01% in the second
      quarter of 2007 to 27.80% in the third quarter of 2007. Another metric that
      the
      Company monitors is revenues per full-time employee, which was approximately
      $136 thousand per employee on an annualized basis during the first nine months
      of 2007 as compared to $134 thousand for the first nine months of 2006.
      Additionally insurance product revenues per producer improved from $24 thousand
      per producer in the third quarter of 2006 to $30 thousand per producer in the
      third quarter of 2007. Management’s strategic focus is to improve revenues
      generated per employee while maintaining stability in revenue growth by
      increasing the mix of noninterest revenues to total revenues.





**Non
      Interest Expense**





Noninterest
      expenses increased by 6.59% from the first nine months of 2006 to the first
      nine
      months of 2007, increased by 3.99% from the third quarter of 2006 to the third
      quarter of 2007 and increased by 3.04% from the second quarter of 2007 to the
      third quarter of 2007.





Salary
      and benefit expenses, which comprise approximately 60% of noninterest expenses,
      increased by 6.73% from the first nine months of 2006 to the first nine months
      of 2007, increased by 3.05% from the third quarter of 2006 to the third quarter
      of 2007 and remained flat from the second quarter of 2007 to the third quarter
      of 2007. The number of full-time equivalent employees was 555 at September
      30,
      2007, 562 at June 30, 2007, 560 at September 30, 2006 and 563 at June 30, 2006.
      During the second quarter of 2007 Management effectively instituted a hiring
      freeze intended to contain costs in the aftermath of the expansion efforts
      of
      2006. Noninterest expenses as a percent of average assets increased from 3.25%
      in the first nine months of 2006 to 3.27% in the first nine months of 2007,
      decreased from 3.26% in the third quarter of 2006 to 3.23% in the third quarter
      of 2007 and decreased from 3.25% in the second quarter of 2007 to 3.23% in
      the
      third quarter of 2007.





The
      business expansion and acquisition efforts during 2006 also produced an increase
      in related occupancy expenses. This resulted in a 12.21% increase in occupancy
      expense and a 16.19% increase in equipment expenses in the first nine months
      of
      2007 over the first nine months of 2006.





Significant
      components of other expense for the second and third quarters of 2007 and 2006
      are contained in the following table.





3Q2007
            
            2Q2007
            
            3Q2006
            
            2Q2006Postage
                and shipping
            
            $
            198
            
            $
            175
            
            $
            172
            
            $
            182Supplies
            
            
            275
            
            
            220
            
            
            258
            
            
            291Legal
                expenses
            
            
            116
            
            
            140
            
            
            120
            
            
            184Other
                professional expenses
            
            
            196
            
            
            143
            
            
            143
            
            
            140Insurance
                expenses
            
            
            239
            
            
            117
            
            
            242
            
            
            92Debit
                card processing expenses
            
            
            158
            
            
            155
            
            
            132
            
            
            134All
                other expenses
            
            
            1,291
            
            
            1,263
            
            
            1,409
            
            
            1,430Total
                other expense
            
            $
            2,473
            
            $
            2,213
            
            $
            2,476
            
            $
            2,453





**Income
      Taxes**





Income
      tax expenses for the first nine months of 2007 increased by 9.65% over the
      first
      nine months of 2006. Pre-tax earnings for the first nine months of 2007 were
      up
      by 7.89% over the same period in 2006. The effective tax rates for the first
      nine months of 2007 and 2006 were 32.56% and 32.04% respectively.





The
      Company implemented FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - An Interpretation of FASB Statement No 109” as of January 31,
      2007 with no adjustment for uncertain tax positions. The Company had no
      recognized uncertain tax positions as of September 30, 2007 and therefore has
      not had any tax accruals in 2007 related to uncertain
      positions.


26





FIRST
      M
& F CORPORATION





**Assets
      and Liabilities**





Assets
      increased by 5.76% from September 30, 2006 to September 30, 2007, increased
      by
      5.42% from December 31, 2006 to September 30, 2007, increased by 21.16% from
      December 31, 2005 to September 30, 2006 and by 2.46% from June 30, 2007 to
      September 30, 2007. Investments increased by 1.20% from September 30, 2006
      to
      September 30, 2007, decreased by 9.53% from December 31, 2006 to September
      30,
      2007, increased by 26.48% from December 31, 2005 to September 30, 2006 and
      increased by .68% from June 30, 2007 to September 30, 2007. Liquidity provided
      by investment maturities was used to fund loan growth during the first half
      of
      2007. Loan growth during the third quarter of 2007 was funded primarily through
      Federal Home Loan Bank borrowings and also through the liquidation of
      interest-bearing correspondent bank balances. Loans grew by 9.77% from September
      30, 2006 to September 30, 2007, increased by 10.23% from December 31, 2006
      to
      September 30, 2007, increased by 17.01% from December 31, 2005 to September
      30,
      2006 and increased by 4.50% from June 30, 2007 to September 30, 2007. Loan
      growth in 2007 has occurred primarily in real estate-secured commercial credits.
      Loan growth for 2007 occurred primarily in the Rankin County, Mississippi,
      Birmingham, Alabama and Memphis, Tennessee metropolitan markets, as well as
      in
      the Crestview, Florida market. The Birmingham, Alabama, Memphis, Tennessee
      and
      Crestview, Florida markets provided approximately 81% of the loan growth from
      September 2006 to September 2007. Management expects that commercial real estate
      loans as well as other commercial operating loans will provide most of the
      loan
      growth for the remainder of 2007. Loans as a percent of total assets were 73.81%
      at September 30, 2007, 72.37% at June 30, 2007, 70.59% at December 31, 2006
      and
      71.11% at September 30, 2006. The high loan growth rate for the first nine
      months of 2006 was due primarily to the Columbiana Bancshares and Crockett
      County Bancshares acquisitions during February and May of 2006. Excluding the
      effect of acquisitions loans grew by 5.20% during the first nine months of
      2006.
      Management believes that one of the keys to the Company’s future success will be
      to continue to expand into markets that are vital economically and can provide
      high loan demand.





The
      following table shows loans held for investment by type as of September 30,
      2007, December 31, 2006, and September 30, 2006.





*(Dollars
                in thousands)*
            
            September 30, 2007
            
            December 31, 2006
            
            September 30, 2006Commercial
                real estate
            
            $
            713,619
            
            $
            621,840
            
            $
            606,293Residential
                real estate
            
            
            221,915
            
            
            221,911
            
            
            225,321Home
                equity lines
            
            
            44,964
            
            
            40,136
            
            
            40,509Commercial,
                financial and agricultural
            
            
            164,866
            
            
            150,905
            
            
            166,963Consumer
            
            
            40,374
            
            
            45,872
            
            
            46,665Other
                loans
            
            
            12,722
            
            
            6,619
            
            
            6,052Total
            
            $
            1,198,460
            
            $
            1,087,283
            
            $
            1,091,803Mortgages
                held for sale
            
            $
            4,103
            
            $
            3,165
            
            $
            3,323Student
                loans held for sale
            
            
            2,731
            
            
            4,098
            
            
            2,768





The
      following table shows the balances of loans at Columbiana Bancshares on the
      date
      of acquisition.





*(Dollars
                in thousands)*
            
            February 17, 2006Commercial
                real estate
            
            $
            48,623Residential
                real estate
            
            
            17,203Home
                equity lines
            
            
            16,198Commercial,
                financial and agricultural
            
            
            6,227Consumer
            
            
            10,131Other
                loans
            
            
            2,061Total
            
            $
            100,443


27





FIRST
      M
& F CORPORATION





The
      following table shows the balances of loans at Crockett County Bancshares on
      the
      date of acquisition.





*(Dollars
                in thousands)*
            
            May 12, 2006Commercial
                real estate
            
            $
            2,478Residential
                real estate
            
            
            3,174Home
                equity lines
            
            
            -Commercial,
                financial and agricultural
            
            
            1,529Consumer
            
            
            2,104Other
                loans
            
            
            497Total
            
            $
            9,782





Deposits
      increased by .90% from September 30, 2006 to September 30, 2007, increased
      by
      2.46% from December 31, 2006 to September 30, 2007, increased by 23.68% from
      December 31, 2005 to September 30, 2006 and increased by .24% from June 30,
      2007
      to September 30, 2007. Deposits increased by $29.124 million during 2007. The
      following table shows the breakdown by deposit category of core deposits and
      public funds deposits.





Core
                Customers
            
            Public
                Funds
            
            Total
                Deposits*(Dollars
                in thousands)*
            
            Increase
                (Decrease)
            
            Increase
                (Decrease)
            
            Increase
                (Decrease)Amt.
            
            Pct.
            
            Amt.
            
            Pct.
            
            Amt.
            
            Pct.Noninterest-bearing
            
            $
            2,801
            
            
            1.60
            %
            $
            3,049
            
            
            64.42
            %
            $
            5,850
            
            
            3.25
            %NOW
            
            
            (8,419
            )
            
            (6.69
            )
            
            (4,303
            )
            
            (5.82
            )
            
            (12,722
            )
            
            (6.37
            )MMDA
            
            
            4,045
            
            
            3.65
            
            
            (3,234
            )
            
            (18.01
            )
            
            811
            
            
            .63Savings
            
            
            11,105
            
            
            11.76
            
            
            (101
            )
            
            (25.70
            )
            
            11,004
            
            
            11.61Customer
                CDs
            
            
            (10,945
            )
            
            (2.27
            )
            
            43,808
            
            
            66.44
            
            
            32,863
            
            
            6.00Brokered
                CDs
            
            
            (8,277
            )
            
            (24.90
            )
            
            (405
            )
            
            (22.77
            )
            
            (8,682
            )
            
            (24.79
            )Total
            
            $
            (9,690
            )
            
            (.95
            )%
            $
            38,814
            
            
            23.57
            %
            $
            29,124
            
            
            2.46
            %





The
      savings deposit increases were primarily in Flex Fund and Liberty Fund accounts,
      which are renewable deposit accounts with two year maturities and that pay
      interest, indexed to historical Treasury rates, on a quarterly basis. Money
      market core customer deposits were also up during 2007 while NOW deposits
      decreased. Depositors tended to find more attractive yields in the Flex and
      Liberty Fund accounts as well as in the higher tiers of the money market
      accounts, resulting in a redistribution of funds from NOW accounts to the higher
      yielding accounts. Certificates of deposit would have decreased during 2007
      except for the acquisition of public funds by offering the most attractive
      rates
      among bidders for the monies. The Company maintained a moderate pricing strategy
      with regard to certificates of deposit and moved the marketing of certificate
      of
      deposit specials to in-branch promotions. Excluding public funds and deposits
      related to bank acquisitions, deposits grew by $59.299 million or 7.34% in
      the
      first nine months of 2006. The Company’s long-term strategy is to build the core
      customer deposit base and rely less on borrowed funds as a primary source of
      liquidity. The Company instituted an incentive-based deposit and loan campaign
      during September 2007 which continues through November and is designed to raise
      core deposits. The definition of core deposits for the campaign is total
      deposits excluding public funds deposits and excluding certificates of deposit
      with balances of $100 thousand or more. The Company also expects to introduce
      a
      new relationship-based checking account product before the end of the year.
      Another source of deposits available to the Company is the brokered CD market
      which is used when funding is needed within a short period of time. However,
      when borrowed funds are less costly than time deposits or brokered deposits,
      the
      Company will still look to those sources to help maintain the spread between
      the
      yield on earning assets and the cost of funds.





The
      following table shows the deposit mix as of September 30, 2007, December 31,
      2006, and September 30, 2006.





*(Dollars
                in thousands)*
            
            September 30, 2007
            
            December 31, 2006
            
            September 30, 2006Noninterest-bearing
                demand
            
            $
            186,123
            
            $
            180,273
            
            $
            191,180NOW
                deposits
            
            
            186,944
            
            
            199,666
            
            
            239,395Money
                market deposits
            
            
            129,505
            
            
            128,694
            
            
            126,119Savings
                deposits
            
            
            105,819
            
            
            94,815
            
            
            96,001Certificates
                of deposit
            
            
            580,376
            
            
            547,513
            
            
            521,413Brokered
                certificates of deposit
            
            
            26,339
            
            
            35,021
            
            
            30,170Total
            
            $
            1,215,106
            
            $
            1,185,982
            
            $
            1,204,278


28




FIRST
      M
& F CORPORATION





The
      following table shows the mix of deposits at Columbiana Bancshares on the date
      of acquisition.





*(Dollars
                in thousands)*
            
            February
                17, 2006Noninterest-bearing
                demand
            
            $
            30,528NOW
                deposits
            
            
            35,331Money
                market deposits
            
            
            5,428Savings
                deposits
            
            
            15,784Certificates
                of deposit
            
            
            43,244Brokered
                certificates of deposit
            
            
            8,765Total
            
            $
            139,080Public
                funds deposits included in above totals
            
            $
            21,993





The
      following table shows the mix of deposits at Crockett County Bancshares on
      the
      date of acquisition.





*(Dollars
                in thousands)*
            
            May
                12, 2006Noninterest-bearing
                demand
            
            $
            2,963NOW
                deposits
            
            
            6,468Money
                market deposits
            
            
            36Savings
                deposits
            
            
            1,782Certificates
                of deposit
            
            
            15,081Brokered
                certificates of deposit
            
            
            -Total
            
            $
            26,330Public
                funds deposits included in above totals
            
            $
            1,736





The
      following table shows the mix of public funds deposits as of September 30,
      2007,
      December 31, 2006, and September 30, 2006.





*(Dollars
                in thousands)*
            
            September**30,**2007
            
            December**31,**2006
            
            September**30,**2006Noninterest-bearing
                demand
            
            $
            7,782
            
            $
            4,733
            
            $
            6,110NOW
                deposits
            
            
            69,596
            
            
            73,899
            
            
            115,361Money
                market deposits
            
            
            14,719
            
            
            17,953
            
            
            26,091Savings
                deposits
            
            
            292
            
            
            393
            
            
            483Certificates
                of deposit
            
            
            109,744
            
            
            65,936
            
            
            45,074Brokered
                certificates of deposit
            
            
            1,374
            
            
            1,779
            
            
            1,956Total
            
            $
            203,507
            
            $
            164,693
            
            $
            195,075





Other
      borrowings increased by $34.817 million during the first nine months of 2007
      and
      increased by $48.903 million from September 2006 to September 2007. The
      increases were utilized to fund loan growth and to retire the parent company
      debt of Columbiana Bancshares upon its merger with the Company and to repay
      a
      correspondent line of credit used for the Crockett County acquisition. Most
      of
      the growth in other borrowings has occurred in short-term obligations. Amounts
      of borrowings maturing within one year have increased from 16.53% of other
      borrowings at December 31, 2006 to 57.77% at September 30, 2007. In February
      2006 the Company formed First M&F Statutory Trust I for the purpose of
      issuing corporation-obligated mandatory redeemable capital securities to
      third-party investors and investing the proceeds from the sale of the capital
      securities in floating rate junior debentures of the Company. The $30 million
      in
      proceeds were used to fund the acquisition on February 17, 2006 of Columbiana
      Bancshares, Inc. The 30-year junior subordinated debentures pay interest
      quarterly at a rate of 6.44% fixed for five years, converting then to floating
      at a rate equal to three month LIBOR plus 133 basis points. These junior
      subordinated debentures, net of the Company’s investment in the variable
      interest entity, qualify with certain limitations as Tier 1 capital for
      regulatory purposes. In May 2006 the Company borrowed $7.400 million for the
      acquisition of Crockett County Bancshares.


29





FIRST
      M
& F CORPORATION





**Equity**





The
      Company’s and Bank’s regulatory capital ratios at September 30, 2007, as shown
      below are in excess of the minimum requirements and qualify the institution
      as
“well capitalized” under the risk-based capital regulations.





*(Dollars
                in thousands)*
            
            First
                M & F Corporation
            
            M
                & F BankAmount
            
            Ratio
            
            Amount
            
            RatioActual:Total
                risk-based capital
            
            $
            145,480
            
            
            10.83
            %
            $
            144,865
            
            
            10.79
            %Tier
                1 capital
            
            
            130,539
            
            
            9.72
            %
            
            129,923
            
            
            9.68
            %Leverage
            
            
            130,539
            
            
            8.45
            %
            
            129,923
            
            
            8.41
            %For
                Capital Adequacy Purposes:Total
                risk-based capital
            
            
            107,493
            ≥
            
            8.00
            %
            
            107,413
            ≥
            
            8.00
            %Tier
                1 capital
            
            
            53,747
            ≥
            
            4.00
            %
            
            53,707
            ≥
            
            4.00
            %Leverage
            
            
            61,820
            ≥
            
            4.00
            %
            
            61,780
            ≥
            
            4.00
            %To
                Be Well Capitalized Under PromptCorrective
                Action Provisions:Total
                capital
            
            
            
            
            
            
            
            
            134,266
            ≥
            
            10.00
            %Tier
                1 capital
            
            
            
            
            
            
            
            
            80,560
            ≥
            
            6.00
            %Leverage
            
            
            
            
            
            
            
            
            67,133
            ≥
            
            5.00
            %





The
      Company issued 19,854 shares upon the exercise of stock options during the
      first
      nine months of 2007 at an average exercise price of $15.37 per share and 33,908
      shares during the first nine months of 2006 at an average exercise price of
      $14.11 per share.





The
      Company effected a 2-for-1 stock split distributed in the form of a dividend
      on
      May 15, 2006. All share and stock price related amounts for periods prior to
      the
      split have been revised to reflect the effect of the stock split. The purpose
      of
      the split was to provide more liquidity to the market for the Company’s stock.
      The Company’s shares, listed as FMFC on the NASDAQ Global Select Market, trade
      at the rate of approximately 2,500 shares per day. The Company’s
      price-to-earnings ratio, based upon the prior four quarters’ earnings, was 10.45
      as of September 30, 2007.





**Interest
      Rate Risk and Liquidity Management**





Responsibility
      for managing the Company’s program for controlling and monitoring interest rate
      risk and liquidity risk and for maintaining income stability, given the
      Company’s exposure to changes in interest rates, is vested in the
      asset/liability committee. Appropriate policy and guidelines, approved by the
      board of directors, govern these actions. Monitoring is primarily accomplished
      through monthly reviews and analysis of asset and liability repricing
      opportunities, market conditions and expectations for the economy. Cash flow
      analyses are also used to project short-term interest rate risks and liquidity
      risks. Management believes, at September 30, 2007, there is adequate flexibility
      to alter the current rate and maturity structures as necessary to minimize
      the
      exposure to changes in interest rates, should they occur. The Company is
      currently in a negative gap position for assets and liabilities repricing within
      the next year. This generally means that for assets and liabilities maturing
      and
      repricing within the next 12 months, the Company is positioned for more
      liabilities to reprice than the amount of assets repricing.





The
      asset/liability committee further establishes guidelines, approved by
      appropriate board action, by which the current liquidity position of the Company
      is monitored to ensure adequate funding capacity. Accessibility to local,
      regional and other funding sources is also maintained in order to actively
      manage the funding structure that supports the earning assets of the Company.
      These sources are primarily correspondent banks, the Federal Home Loan Bank
      and
      the Federal Reserve.


30


FIRST
      M
& F CORPORATION





**Credit
      Risk Management**





The
      Company measures and monitors credit quality on an ongoing basis through credit
      committees and the loan review process. Credit standards are approved by the
      Board with their adherence monitored during the lending process as well as
      through subsequent loan reviews. The Company strives to minimize risk through
      the diversification of the portfolio geographically as well as by loan purpose
      and collateral. The Company’s credit standards are enforced within the Bank as
      well as within all of its wholly-owned and majority-owned
      subsidiaries.





Loans
      that are not fully collateralized are generally placed into nonaccrual status
      when they become past due in excess of ninety days. Loans that are fully
      collateralized may remain in accrual status as long as management believes
      that
      the loan will eventually be collected in full. When collateral values are not
      sufficient to repay a loan and there are not sufficient other resources for
      repayment, management will write the carrying amount of the loan down to the
      expected collateral net proceeds through a charge to the allowance for loan
      losses. When management determines that a loan is not recoverable the balance
      is
      charged off to the allowance for loan losses. Any subsequent recoveries are
      added back to the allowance for loan losses. Overdrawn deposit accounts are
      treated as loans and therefore are subject to the Company’s loan policies.
      Deposit accounts that are not in the Company’s overdraft program and are
      overdrawn in excess of thirty days are generally charged-off. Deposits in the
      overdraft program that have been overdrawn continuously for sixty days are
      funded through the offering of a “fresh start” loan with overdraft privileges
      being removed. Any fresh start loan that becomes thirty days past due is charged
      off to the allowance for loan losses.





The
      adequacy of the allowance for loan losses is evaluated quarterly with provision
      accruals approved by the Board. Allowance adequacy is dependent on loan
      classifications by external examiners as well as by internal and external loan
      review personnel, past due loans, collateral reviews, loan growth and loss
      history. Also, as part of this evaluation, individual loans are reviewed for
      impairment. An impairment exists if management estimates that it is probable
      that the Company will be unable to collect all contractual payments due. For
      collateral-dependent loans impairment is based on the value of the related
      collateral. Otherwise, impairment is based on the estimated present value of
      expected cash flows discounted at the effective interest rate of the loan.
      The
      material estimates necessary in this process make it inherently subjective
      and
      make the estimates subject to significant changes and may add volatility to
      earnings as provisions are adjusted. Loans not individually tested for
      impairment are grouped into risk-rated pools and evaluated based on historical
      loss experience. Additionally management considers specific external credit
      risk
      factors (“environmental factors”) that may not be reflected in historical loss
      rates such as: (1) a potential for a slow-down in the real estate market and
      its
      effect on real estate concentrations; (2) competitive trends in loan to value
      exception rates; (3) general economic conditions; (4) higher fuel costs; and
      (5)
      reviews of underwriting standards in our various markets. These and other
      environmental factors will be reviewed on a quarterly basis.





The
      Company has not been negatively affected to date by the deterioration of credit
      quality in the sub-prime mortgage sector. Substantially all of originated
      mortgages are sold to mortgage investors and must meet potential investors’
underwriting guidelines. Mortgages retained by the Company must meet the
      Company’s underwriting guidelines. Accordingly, the Company has virtually no
      sub-prime exposure. Loans with features that increase credit risk, such as
      high
      loan to value ratios, must meet minimum credit score, income and employment
      guidelines in order to mitigate the increased risk.




The
      following table shows non-performing loans and other assets of the
      Company:





(*Dollars
                in thousands*)
            
            September
                30
            
            December
                31
            
            September
                302007
            
            2006
            
            2006Nonaccrual
                loans
            
            $
            6,334
            
            $
            3,557
            
            $
            2,949Past
                due 90 days or more and still accruing interest
            
            
            1,955
            
            
            376
            
            
            621Total
                non-performing loans
            
            
            8,289
            
            
            3,933
            
            
            3,570Other
                real estate
            
            
            4,926
            
            
            3,135
            
            
            4,090Total
                non-performing assets
            
            $
            13,215
            
            $
            7,068
            
            $
            7,660Ratios:Non-performing
                loans to loans
            
            
            .69
            %
            
            .36
            %
            
            .33
            %Non-performing
                assets to assets
            
            
            .81
            %
            
            .46
            %
            
            .50
            %


31





FIRST
      M
& F CORPORATION





**Off-Balance
      Sheet Arrangements**





The
      Company’s primary off-balance sheet arrangements are in the form of loan
      commitments and operating lease commitments. At September 30, 2007 the Company
      had $219.475 million in unused loan commitments outstanding. Of these
      commitments, $105.924 million mature in one year or less. Lines of credit are
      established using the credit policy of the Company concerning the lending of
      money.





Letters
      of credit are used to facilitate the borrowers’ business and are usually related
      to the acquisition of inventory or of assets to be used in the customers’
business. Letters of credit are generally secured and are underwritten using
      the
      same standards as traditional commercial loans. Most standby letters of credit
      expire without being presented for payment. However, the presentment of a
      standby letter of credit would create a loan receivable from the Bank’s loan
      customer. The Bank’s asset-based lending subsidiary uses commercial letters of
      credit to facilitate the purchase of inventory items by its customers. There
      were no commercial letters of credit outstanding at the end of the third
      quarter. At September 30, 2007 the Company had $18.294 million in financial
      standby letters of credit issued and outstanding.





At
      September 30, 2007 there were $22.999 million in standby letters of credit
      issued on the Company’s behalf by a Federal Home Loan Bank. At December 31, 2006
      there were $4.999 million of standby letters of credit issued on the Company’s
      behalf by a Federal Home Loan Bank. The Company uses these letters of credit
      as
      additional collateral on loan participations sold and is obligated to the
      Federal Home Loan Bank if the letters of credit must be drawn upon.





Liabilities
      of $124 thousand at September 30, 2007 and $120 thousand at September 30, 2006
      are recognized in Other Liabilities related to the obligation to stand ready
      to
      perform related to standby letters of credit.





The
      Company makes commitments to originate mortgage loans that will be held for
      sale. The total commitments to originate mortgages to be held for sale were
      $9.975 million at September 30, 2007. These commitments are accounted for as
      derivatives and are marked to fair value with changes in fair value recorded
      in
      mortgage banking income. At September 30, 2007 mortgage origination-related
      derivatives with positive fair values of $3 thousand were included in other
      assets and derivatives with negative fair values of $26 thousand were included
      in other liabilities.





The
      Company also engages in forward sales contracts with mortgage investors to
      purchase mortgages held for sale. Those forward sale agreements that have a
      determined price and expiration date are accounted for as derivatives and marked
      to fair value through mortgage banking income. At September 30, 2007 the Company
      had $5.281 million in locked forward sales agreements in place. Forward
      sale-related derivatives with positive fair values of $23 thousand were included
      in other assets and derivatives with negative fair values of $13 thousand were
      included in other liabilities.





Mortgages
      that are sold generally have recourse until the first payment is made. The
      Company may also be required to repurchase mortgages that do not conform to
      FNMA
      or FHA underwriting standards or that contain critical documentation errors
      or
      fraud. The Company has not sustained any recourse-related losses in its mortgage
      program and the repurchase of mortgages has been an extremely rare
      event.





In
      the
      ordinary course of business the Company enters into rental and lease agreements
      to secure office space and equipment. The Company has a variety of lease
      agreements in place, all of which are operating leases. The largest lease
      obligations are for office equipment and mainframe computer systems. The Company
      guarantees the lease payments for its wholly-owned banking subsidiary in one
      data processing lease which expires in September 2008. The remaining payments
      on
      the lease at September 30, 2007 were $315 thousand.


32





FIRST
      M
& F CORPORATION





**Critical
      Accounting Policies**





The
      preparation of the Company’s financial statements requires management to make
      certain judgments and assumptions in determining critical accounting estimates
      that affect the reported amounts of assets, liabilities, revenues and expenses,
      and related disclosures of contingent assets and obligations. Management
      evaluates these judgments and estimates on an ongoing basis to determine if
      changes are needed. Management believes that the following critical accounting
      policies affect the more significant judgments and estimates used in the
      preparation of the Company’s consolidated financial statements.





*Allowance
      for loan losses*





The
      Company’s policy is to maintain the allowance for loan losses at a level that is
      sufficient to absorb estimated probable losses in the loan portfolio. Accounting
      standards require that loan losses be recorded when management determines it
      is
      probable that a loss has been incurred and the amount of the loss can be
      reasonably estimated. Management’s estimate is reflected in the balance of the
      allowance for loan losses. Changes in this estimate can materially affect the
      provision for loan losses, and thus net income.





Management
      of the Company evaluates many factors in determining the estimate for the
      allowance for loan losses. Management reviews loan quality on an ongoing basis
      to determine the collectibility of individual loans and reflects that
      collectibility by assigning loan grades to individual credits. The grades will
      generally determine how closely a loan will be monitored on an ongoing basis.
      A
      customer’s payment history, financial statements, cash flow patterns and
      collateral, among other factors, are reviewed to determine if the loan has
      potential losses. Such information is used to determine if loans are impaired
      and to group unimpaired loans into risk pools. A loan is impaired if management
      estimates that it is probable that the Company will be unable to collect all
      contractual payments due. Impairment estimates may be based on discounted cash
      flows or collateral. Historical loan losses by loan type and loan grade are
      also
      a significant factor in estimating future losses when applied to the risk pools
      of unimpaired loans. Various external environmental factors are also considered
      in estimating the allowance. Concentrations of credit by loan type and
      collateral type are also reviewed to estimate exposures and risks of loss.
      General economic factors as well as economic factors for individual industries
      or factors that would affect certain types of loan collateral are reviewed
      to
      determine the exposure of loans to economic fluctuations. The Company has a
      loan
      review department that audits types of loans as well as geographic segments
      to
      determine credit problems and loan policy violations that require the attention
      of management. All of these factors are used to determine the adequacy of the
      allowance for loan losses and adjust its balance accordingly.





The
      allowance for loan losses is increased by the amount of the provision for loan
      losses and by recoveries of previously charged-off loans. It is decreased by
      loan charge-offs as they occur when principal is deemed to be
      uncollectible.





*Goodwill,
      intangible assets and related impairments*





The
      policy of First M&F Corporation is to assess goodwill for impairment at the
      reporting unit level on an annual basis. Impairment is the condition that exists
      when the carrying amount of goodwill exceeds its implied fair value. Accounting
      standards require management to estimate the fair value of each reporting unit
      in making an annual assessment of impairment. Management performs this
      assessment as of January 1 of each year.





Impairment
      of goodwill is recognized by a charge against earnings and is to be shown as
      a
      separate line item in the noninterest expense section of the consolidated
      statement of income.





The
      estimate of fair value is dependent on such assumptions as: (1) future cash
      flows determined from the budget, strategic plan, and forecasts of growth,
      and
      (2) discount rates and earnings multiples used to determine the present value
      of
      those cash flows. Management uses a model similar to those used to evaluate
      potential mergers and acquisitions. No impairments have been recognized since
      beginning testing in 2002.





Identifiable
      intangible assets are amortized over their estimated lives. Identifiable
      intangible assets that have indefinite lives are not amortized until such time
      that their estimated lives are determinable. Intangible assets with indefinite
      lives must be assessed for impairment annually.


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      M
& F CORPORATION





*Contingent
      liabilities*





Accounting
      standards require that a liability be recorded if management determines that
      it
      is probable that a loss has occurred and the loss can be reasonably estimated.
      Management must estimate the probability of occurrence and estimate the
      potential exposure of a variety of contingencies such as health claims, legal
      claims, tax liabilities and other potential claims against the Company’s assets
      or requirements to perform services in the future.





Management’s
      estimates are based upon their judgment concerning future events and their
      potential exposures. However, there can be no assurance that future events,
      such
      as changes in a regulator’s position or court cases will not differ from
      management’s assessments. When management, based upon current facts and expert
      advice, believes that an event is probable and reasonably estimable, it accrues
      a liability in the consolidated financial statements. That liability is adjusted
      as facts and circumstances change and subsequent assessments produce a different
      estimate.





**Accounting
      Pronouncements**





In
      November 2005, the FASB issued FASB Staff Position No. FAS 115-1, “The Meaning
      of Other-Than-Temporary Impairment and Its Application to Certain Investments.”
This pronouncement relates to determining when an investment is considered
      impaired, whether that impairment is other-than-temporary, and the measurement
      of an impairment loss. This pronouncement (1) nullifies the guidance in EITF
      Issue No. 03-1 related to determining when an impairment is
      other-than-temporary, (2) carries forward the requirements with respect to
      cost-method investments, (3) carries forward the disclosure requirements of
      Issue 03-1 which are presented in Note 3 to the Company’s annual financial
      statements on Form 10-K and related examples and (4) references existing
      other-than-temporary impairment guidance as a replacement to the specific
      guidance originally given in EITF Issue No.


03-1.
      The
      provisions of this FSP are to be applied to reporting periods beginning after
      December 15, 2005. The Company adopted this standard on


January
      1, 2006 with no material effect on its financial condition or results of
      operations.





In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections -
      A Replacement of APB Opinion No. 20 and FASB Statement No. 3.” This statement
      generally requires retrospective application to prior periods’ financial
      statements of changes in accounting principle, whereas under APB Opinion No.
      20
      the cumulative effect of a change in accounting principle was included in net
      income of the period in which the change was made. This Statement also requires
      that a change in depreciation, amortization or depletion method for long-lived,
      nonfinancial assets be accounted for as a change in accounting estimate effected
      by a change in accounting principle, and therefore, accounted for prospectively.
      This Statement carries forward the guidance in APB Opinion No. 20 related to
      corrections of errors. SFAS No. 154 is effective for accounting changes and
      corrections of errors made in fiscal years beginning after December 15, 2005.
      The Company adopted SFAS No. 154 on January 1, 2006.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements.” This Bulletin
      gives interpretive guidance regarding the quantification of financial statement
      misstatements. The Bulletin requires that registrants consider the effects
      of
      prior year errors on current financial statements, effectively preventing
      improper assets and liabilities arising from prior errors from remaining
      unadjusted. The Bulletin is effective for financial statements for fiscal years
      ending after November 15, 2006. The Company adopted the provisions of the
      Bulletin on November 15, 2006.


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      M
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In
      June
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - An Interpretation of FASB Statement No. 109.” This interpretation
      clarifies the accounting for uncertainty in income taxes recognized in
      accordance with FASB Statement No. 109, “Accounting for Income Taxes.” This
      interpretation prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. Generally, the entity may only recognize
      the benefit of tax positions that are more likely than not to be sustained
      upon
      examination. The amount of benefit recognized is the largest amount that is
      greater than 50% likely of being realized upon potential ultimate settlement
      (based upon the hypothetical tax examination and appeal process). The
      interpretation also provides derecognition criteria as well as guidance on
      how
      to account for potential interest and penalties. A reconciliation of the
      beginning to ending balance of uncertain tax positions is also required in
      the
      financial statement footnotes. The interpretation is effective for fiscal years
      beginning after December 15, 2006, which makes it effective as of January 1,
      2007 for the Company. The Company implemented its accounting for uncertain
      taxes
      as of January 1, 2007 with no adjustment to income tax liabilities for uncertain
      positions.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This
      standard defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles (GAAP), and expands disclosures about
      fair value measurements. This Statement generally applies to fair value
      measurements required under other accounting pronouncements, resulting in a
      consistent definition of fair value across GAAP. This Statement establishes
      a
      fair value hierarchy that distinguishes between (1) market participant
      assumptions developed based on market data obtained from sources independent
      of
      the reporting entity (observable inputs) and (2) the reporting entity’s own
      assumptions about market participant assumptions developed based on the best
      information available in the circumstances (unobservable inputs). This Statement
      expands disclosures about the use of fair value to measure assets and
      liabilities in interim and annual reports. The disclosures focus on the inputs
      used to measure fair value and, for recurring fair value measurements using
      significant unobservable inputs (within Level 3 of the fair value hierarchy),
      the effect of the measurements on earnings for the period. This Statement is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Therefore,
      the
      Statement would be effective for the Company beginning in 2008. The Company
      does
      not expect the adoption of this Statement to have a material impact on its
      financial condition or results of operations.





In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
      No. 87, 88, 106 and 132(R).” This Statement requires employers to recognize the
      overfunded or underfunded status of a defined benefit postretirement plan
      (measured as the difference between plan assets at fair value and the benefit
      obligation) as an asset or liability in its statement of financial position
      and
      to recognize changes in that funded status in the year in which the changes
      occur through comprehensive income. This Statement also requires that defined
      benefit plan assets and obligations be measured as of a company’s year-end
      statement of financial position. This Statement also requires disclosures about
      certain effects on net periodic benefit cost for the next fiscal year that
      arise
      from delayed recognition of the gains and losses, prior service costs or
      credits, and transition asset or obligation. The recognition and disclosure
      requirements of this Statement are initially effective for the fiscal year
      ending after December 15, 2006. The requirement to measure plan assets and
      obligations as of the date of the year-end statement of financial position
      is
      effective for fiscal years ending after December 15, 2008. The Company adopted
      the recognition provisions of this Statement on December 31, 2006. The Company
      expects to adopt the measurement date provision of this Statement in 2008.
      The
      Company does not expect the adoption of the measurement date provision of this
      Statement to have a material impact on its financial condition or results of
      operations.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No. 115.” This Statement permits companies to measure a variety of
      financial instruments and other financial statement items with characteristics
      similar to financial instruments at fair value. The fair value option permits
      a
      company to choose to measure eligible items at fair value at specified election
      dates. Unrealized gains and losses on items for which the fair value option
      has
      been elected are to be recognized in earnings at each subsequent reporting
      date.
      The fair value option (1) may be applied instrument by instrument, with a few
      exceptions, such as investments otherwise accounted for by the equity method,
      (2) is irrevocable (unless a new election date occurs) and (3) is applied only
      to entire instruments and not to portions of instruments. The Statement is
      effective as of the beginning of an entity’s first fiscal year that begins after
      November 15, 2007. Therefore, it would become effective as of January 1, 2008
      for the Company. Early adoption is permitted as of the beginning of a fiscal
      year on or before November 15, 2007, provided the entity also elects to apply
      the provisions of FASB Statement No. 157, “Fair Value Measurements.” The Company
      decided not to adopt SFAS No. 159 early, and does not expect the adoption of
      the
      Statement to have a material impact on its financial condition or results of
      operations.


35





FIRST
      M
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**Item
      3 - Quantitative and Qualitative Disclosures About Market
      Risk**





Market
      risk comes in the form of risk to the net interest income of the Company as
      well
      as to the market values of the financial assets and liabilities on the balance
      sheet and the values of off-balance sheet activities such as commitments. The
      Company monitors interest rate risk on a monthly basis with quarterly
      sensitivity analyses.





Interest
      rate shock analysis shows that the Company will experience a 4.14% decrease
      over
      12 months in its net interest income with a gradual (12 month ramp) and
      sustained 200 basis point decrease in interest rates. A gradual and sustained
      increase in interest rates of 200 basis points will result in a 2.37% increase
      in net interest income **.** While
      the
      repricing gap suggests a potential earnings benefit should rates fall, the
      net
      interest income simulation depicts slight exposure. This is due to inherent
      pricing lags of deposit products in relation to changes in market rate movement
      and the acceleration of loan and investment cash flows that would likely occur
      if market rates fall. Conversely, the lagging nature of the deposit base proves
      beneficial if interest rates rise.





An
      analysis of the change in market value of equity shows how an interest rate
      shock will affect the difference between the market value of assets and the
      market value of liabilities. With all financial instruments being stated at
      market value, the market value of equity will increase by 1% with an immediate
      and sustained increase in interest rates of 200 basis points. The market value
      of equity will decrease by 11% with an immediate and sustained decrease in
      interest rates of 200 basis points. These simulated changes in market value
      of
      equity are strongly influenced by the shorter duration of loans due to the
      percentage of the portfolio represented by floating-rate loans. In a rising
      rate
      environment, fixed-rate loan durations tend to extend and deposit durations
      tend
      to decrease, typically causing a decrease in market value of equity. The
      floating-rate loans have an offsetting effect on the typical duration changes.
      The directional change of the market values of assets and liabilities under
      rising and falling rate shocks compliment the exposure profile illustrated
      by
      the net interest income simulation, outlined above.





The
      Company had no hedging instruments in place at September 30, 2007.





**Item
      4 - Controls and Procedures**





As
      defined by the Securities and Exchange Commission in Exchange Act Rule
      13a-15(e), a company's "disclosure controls and procedures" means controls
      and
      other procedures of an issuer that are designed to ensure that information
      required to be disclosed by the issuer in the reports that it files or submits
      under the Exchange Act is recorded, processed, summarized and reported, within
      the time periods specified in the Commission's rules and forms.





As
      of
      September 30, 2007 (the "Evaluation Date"), the Company's Chief Executive
      Officer and Chief Financial Officer have evaluated the effectiveness of the
      Company's disclosure controls and procedures as defined in the Exchange Act
      Rules. Based on their evaluation, the Company's Chief Executive Officer and
      Chief Financial Officer have concluded that the Company's disclosure controls
      and procedures are sufficiently effective to ensure that material information
      relating to the Company and required to be disclosed by the Company in the
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the Commission's
      rules and forms. During the last quarter ended September 30, 2007 there has
      been
      no change in the Company’s internal control over financial reporting that has
      materially affected, or is reasonably likely to materially affect, the Company’s
      internal control over financial reporting.





Subsequent
      to the Evaluation Date, there have been no significant changes in the Company's
      internal controls or in other factors that could significantly affect these
      controls.


36





FIRST
      M
& F CORPORATION





**PART
      II: OTHER INFORMATION**





**Item
      1 – Legal Proceedings**





The
      Company and its subsidiaries were defendants in cases involving over 200
      plaintiffs which were filed over a three year period. These suits, alleging
      wrongful assessment of amounts related to credit insurance, were filed in Holmes
      County. In December 2006 substantially all of the cases were settled. The
      settlement was paid out of accrued funds in 2006. The Company’s insurance
      provider reimbursed the settlement and legal costs related to these cases in
      2007. The settlement did not have a material adverse effect on the Company’s
      financial condition or results of operations.





Additionally,
      the Company and its subsidiaries are defendants in various other lawsuits
      arising out of the normal course of business. In the opinion of management,
      the
      ultimate resolution of this category of claims should not have a material
      adverse effect on the Company’s consolidated financial position or results of
      operations.





**Item
      1A – Risk Factors**





There
      have been no material changes in the risk factors previously disclosed under
      Part I - Item 1A of the Company’s 2006 Form 10-K.





**Item
      2 – Unregistered Sales of Equity Securities and Use of
      Proceeds**





None.





**Item
      3 – Defaults Upon Senior Securities**





None.





**Item
      4 – Submission of Matters to a Vote of Security Holders**





None.





**Item
      5 – Other Information**





None.


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FIRST
      M
& F CORPORATION





**Item
      6 – Exhibits**





Exhibit
      3(A) **–** Articles of Incorporation, as amended. Filed as Exhibit
      3 to the Company’s Form S-1 (File No. 33-08751) September
      15, 1986, incorporated herein by reference.





Exhibit
      3(B) **–** By-Laws, as amended. Filed as Exhibit 3-b to the
      Company’s Form S-1 (File No. 33-08751) September 15, 1986,
      incorporated herein by reference.





Exhibit
      10(A) **–** First M&F Corporation 2005 Equity Incentive Plan.
      Filed as Appendix A to the Company’s Proxy Statement, March 15, 2005,
      incorporated herein by reference





Exhibit
      10(B) **–** Merchants and Farmers Bank Profit and Savings Plan, as
      amended. Filed as Exhibit 10(B) to the Company’s Form 10-Q on August 9, 2005,
      incorporated herein by reference





Exhibit
      11 **–** Computation of Earnings Per Share - See note 3 to the
      consolidated financial statements included in this report.





Exhibit
      31 **–** Rule 13a-14(a)/15d-14(a) Certifications.





Exhibit
      32 **–** Section 1350 Certifications.


38





FIRST
      M
& F CORPORATION





**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) 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.





FIRST
      M
& F CORPORATION





Date
      :
      November 8, 2007





BY:
            /s/
                Hugh S. Potts, Jr.
            
            BY:
            /s/
                John G. CopelandHugh
                S. Potts, Jr.
            
            
            John
                G. CopelandChairman
                of the Board and
            
            
            Executive
                Vice President andChief
                Executive Officer
            
            
            Chief
                Financial Officer


39





FIRST
      M
& F CORPORATION





EXHIBIT
      INDEX





3
                (A)
            Articles
                of Incorporation, as amended. Filed as Exhibit 3 to the Company’s Form S-1
                (File No. 33-08751) September 15, 1986, incorporated herein by
                reference.3
                (B)
            Bylaws,
                as amended. Filed as Exhibit 3-b to the Company’s Form S-1 (File No.
                33-08751) September 15, 1986, incorporated herein by
                reference.10(A)
                First M&F Corporation 2005 Equity Incentive Plan. Filed as Appendix A
                to the Company’s Proxy Statement, March 15, 2005, incorporated herein by
                reference10(B)
            Merchants
                and Farmers Bank Profit and Savings Plan, as amended. Filed as Exhibit
                10(B) to the Company’s Form 10-Q on August 9, 2005, incorporated herein by
                reference11
            Computation
                of Earnings Per Share - Filed herewith as note 3 to the consolidated
                financial statements.31
            Rule
                13a-14(a) Certification of Hugh S. Potts, Jr., Chief Executive Officer
                and
                Rule 13a-14(a) Certification of John G. Copeland, Chief Financial
                Officer32
            Section
                1350 Certification of Hugh S. Potts, Jr., Chief Executive Officer
                and
                Section 1350 Certification of John G. Copeland, Chief Financial
                Officer


40