UNITED
                STATESSECURITIES
                AND EXCHANGE COMMISSIONWashington,
                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 June 30, 2007Or


**o**
            **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.
                EmployerIncorporation
                or organization)
            Identification
                Number)134
                West Washington Street, Kosciusko, Mississippi
            39090(Address
                of principal executive offices)
            (Zip
                Code)




662-289-5121(Registrant’s
                telephone number, including area codeNo
                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 oAccelerated
        filer xNon-accelerated
        filer o




Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). oYes    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
            9,175,846
                SharesTitle
                of Class
            Shares
                Outstanding at July 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
            
            35Item
                4
            Controls
                and Procedures
            
            35**PART
                II:**
            **OTHER
                INFORMATION**Item
                1
            Legal
                Proceedings
            
            36Item
                1A
            Risk
                Factors
            
            36Item
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            36Item
                3
            Defaults
                upon Senior Securities
            
            36Item
                4
            Submission
                of Matters to a Vote of Security Holders
            
            36Item
                5
            Other
                Information
            
            36Item
                6
            Exhibits
            
            37**SIGNATURES**
            
            38**EXHIBIT
                INDEX**
            
            39**CERTIFICATIONS**





2




FIRST
      M
& F CORPORATION AND SUBSIDIARY





**PART
      I: FINANCIAL INFORMATION**




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





Consolidated
      Statements of Condition


(Unaudited)




*(Dollars
                in thousands)*June
                30
            
            December
                312007
            
            2006
            
            2006AssetsCash
                and due from banks
            
            $
            47,966
            
            $
            60,516
            
            $
            59,793Interest
                bearing bank balances
            
            
            19,390
            
            
            7,689
            
            
            3,690Federal
                funds sold
            
            
            -
            
            
            11,100
            
            
            -Securities
                available for sale, amortized costof
                $237,571, $244,788 and $263,238
            
            
            235,290
            
            
            240,907
            
            
            261,828Loans
                held for sale
            
            
            6,659
            
            
            10,356
            
            
            7,263Loans,
                net of unearned income
            
            
            1,146,879
            
            
            1,080,146
            
            
            1,087,283Allowance
                for loan losses
            
            
            (15,059
            )
            
            (16,047
            )
            
            (14,950
            )Net
                loans
            
            
            1,131,820
            
            
            1,064,099
            
            
            1,072,333Bank
                premises and equipment
            
            
            42,920
            
            
            38,973
            
            
            41,128Accrued
                interest receivable
            
            
            12,499
            
            
            10,940
            
            
            12,590Other
                real estate
            
            
            3,652
            
            
            4,870
            
            
            3,135Goodwill
            
            
            32,572
            
            
            32,572
            
            
            32,572Other
                intangible assets
            
            
            7,807
            
            
            7,284
            
            
            8,113Bank
                owned life insurance
            
            
            19,446
            
            
            18,736
            
            
            19,082Other
                assets
            
            
            24,686
            
            
            25,277
            
            
            18,748$
            1,584,707
            
            $
            1,533,319
            
            $
            1,540,275Liabilities
                and Stockholders’ EquityLiabilities:Noninterest-bearing
                deposits
            
            $
            187,604
            
            $
            197,328
            
            $
            180,273Interest-bearing
                deposits
            
            
            1,024,556
            
            
            1,007,390
            
            
            1,005,709Total
                deposits
            
            
            1,212,160
            
            
            1,204,718
            
            
            1,185,982Federal
                funds purchased and repurchase agreements
            
            
            12,877
            
            
            4,037
            
            
            19,612Other
                borrowings
            
            
            186,762
            
            
            160,877
            
            
            166,400Junior
                subordinated debt
            
            
            30,928
            
            
            30,928
            
            
            30,928Accrued
                interest payable
            
            
            4,219
            
            
            4,184
            
            
            4,784Other
                liabilities
            
            
            5,141
            
            
            8,075
            
            
            4,503Total
                liabilities
            
            
            1,452,087
            
            
            1,412,819
            
            
            1,412,209Noncontrolling
                interest in subsidiaries
            
            
            19
            
            
            21
            
            
            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 sharesauthorized:
                9,061,080, 9,020,926 and9,046,226
                shares issued
            
            
            45,305
            
            
            45,105
            
            
            45,231Additional
                paid-in capital
            
            
            30,389
            
            
            29,745
            
            
            30,315Nonvested
                restricted stock awards
            
            
            507
            
            
            230
            
            
            375Retained
                earnings
            
            
            59,412
            
            
            49,681
            
            
            54,707Accumulated
                other comprehensive income (loss)
            
            
            (3,012
            )
            
            (4,282
            )
            
            (2,581
            )Total
                stockholders’ equity
            
            
            132,601
            
            
            120,479
            
            
            128,047$
            1,584,707
            
            $
            1,533,319
            
            $
            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)





*(Dollars
                in thousands, except per share data)*
            
            Three
                Months Ended
            
            Six
                Months EndedJune
                30
            
            June
                302007
            
            2006
            
            2007
            
            2006Interest
                income:Interest
                and fees on loans
            
            $
            22,065
            
            $
            19,823
            
            $
            43,284
            
            $
            37,583Interest
                on loans held for sale
            
            
            136
            
            
            131
            
            
            248
            
            
            201Taxable
                investments
            
            
            2,367
            
            
            2,216
            
            
            4,851
            
            
            4,010Tax-exempt
                investments
            
            
            447
            
            
            482
            
            
            909
            
            
            967Federal
                funds sold
            
            
            56
            
            
            192
            
            
            68
            
            
            430Interest
                bearing bank balances
            
            
            54
            
            
            67
            
            
            97
            
            
            125Total
                interest income
            
            
            25,125
            
            
            22,911
            
            
            49,457
            
            
            43,316Interest
                expense:Deposits
            
            
            8,848
            
            
            7,320
            
            
            17,519
            
            
            13,167Federal
                funds purchased and repurchase agreements
            
            
            149
            
            
            53
            
            
            337
            
            
            169Other
                borrowings
            
            
            2,114
            
            
            1,795
            
            
            4,084
            
            
            3,547Junior
                subordinated debt
            
            
            492
            
            
            504
            
            
            988
            
            
            745Total
                interest expense
            
            
            11,603
            
            
            9,672
            
            
            22,928
            
            
            17,628Net
                interest income
            
            
            13,522
            
            
            13,239
            
            
            26,529
            
            
            25,688Provision
                for loan losses
            
            
            630
            
            
            1,004
            
            
            1,260
            
            
            1,957Net
                interest income afterprovision
                for loan losses
            
            
            12,892
            
            
            12,235
            
            
            25,269
            
            
            23,731Noninterest
                income:Service
                charges on deposit accounts
            
            
            2,698
            
            
            2,724
            
            
            5,197
            
            
            4,987Mortgage
                banking income
            
            
            358
            
            
            194
            
            
            774
            
            
            425Agency
                commission income
            
            
            1,008
            
            
            974
            
            
            2,049
            
            
            1,924Trust
                and brokerage income
            
            
            150
            
            
            171
            
            
            287
            
            
            329Bank
                owned life insurance income
            
            
            164
            
            
            149
            
            
            354
            
            
            277Securities
                gains (losses), net
            
            
            -
            
            
            (3
            )
            
            -
            
            
            (4
            )Loss
                on extinguishment of debt
            
            
            (126
            )
            
            -
            
            
            (126
            )
            
            -Other
                income
            
            
            609
            
            
            650
            
            
            1,883
            
            
            1,266Total
                noninterest income
            
            
            4,861
            
            
            4,859
            
            
            10,418
            
            
            9,204Noninterest
                expenses:Salaries
                and employee benefits
            
            
            7,303
            
            
            7,110
            
            
            14,554
            
            
            13,391Net
                occupancy expenses
            
            
            902
            
            
            847
            
            
            1,769
            
            
            1,558Equipment
                expenses
            
            
            918
            
            
            783
            
            
            1,815
            
            
            1,521Software
                and processing expenses
            
            
            360
            
            
            364
            
            
            704
            
            
            673Telecommunication
                expenses
            
            
            272
            
            
            277
            
            
            531
            
            
            485Marketing
                and business development expenses
            
            
            420
            
            
            417
            
            
            765
            
            
            681Intangible
                asset amortization
            
            
            121
            
            
            89
            
            
            306
            
            
            134Other
                expenses
            
            
            2,213
            
            
            2,453
            
            
            4,747
            
            
            4,890Total
                noninterest expenses
            
            
            12,509
            
            
            12,340
            
            
            25,191
            
            
            23,333Income
                before income taxes and noncontrolling interests
            
            
            5,244
            
            
            4,754
            
            
            10,496
            
            
            9,602Income
                taxes
            
            
            1,702
            
            
            1,502
            
            
            3,393
            
            
            3,074Noncontrolling
                    interest in earnings (losses) of subsidiaries, net of taxes of
                    $5, $1, $9
                    and $4
            
            
            7
            
            
            1
            
            
            14
            
            
            7Net
                income
            
            $
            3,535
            
            $
            3,251
            
            $
            7,089
            
            $
            6,521Earnings
                per share:Basic
            
            $
            .39
            
            $
            .36
            
            $
            .78
            
            $
            .73Diluted
            
            $
            .39
            
            $
            .36
            
            $
            .78
            
            $
            .72





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





4




FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Comprehensive Income


(Unaudited)





*(Dollars
                in thousands)*
            
            Three
                Months Ended
            
            Six
                Months EndedJune
                30
            
            June
                302007
            
            2006
            
            2007
            
            2006Net
                income
            
            $
            3,535
            
            $
            3,251
            
            $
            7,089
            
            $
            6,521Other
                comprehensive income:Change
                        in unrealized gains (losses) on securities available for
                        sale, net of tax
                        of $513 and $547 for the three months ended June 30 and $325
                        and $1,013
                        for the six months ended June 30
            
            
            (863
            )
            
            (919
            )
            
            (547
            )
            
            (1,702
            )Reclassification
                        adjustment for (gains) losses on securities available for
                        sale included in
                        net income, net of tax of $0 and $1 for the three months
                        ended June 30 and
                        $0 and $2 for the six months ended June
                        30
            
            
            -
            
            
            2
            
            
            -
            
            
            3Defined
                benefit pension plan:Transition
                      obligation amortization, net of tax of $1 and and $0 for the
                      three months
                      ended June 30 and $2 and $0 for the six months ended June
                      30
            
            
            (2
            )
            
            -
            
            
            (3
            )
            
            -Prior
                      service cost amortization, net of tax of $4 and $0 for the
                      three months
                      ended June 30 and $7 and $0 for the six months ended June
                      30
            
            
            (6
            )
            
            -
            
            
            (12
            )
            
            -Actuarial
                      loss amortization, net of tax of $39 and $0 for the three months
                      ended
                      June 30 and $78 and $0 for the six months ended June
                      30
            
            
            66
            
            
            -
            
            
            131
            
            
            -Other
                comprehensive income
            
            
            (805
            )
            
            (917
            )
            
            (431
            )
            
            (1,699
            )Total
                comprehensive income
            
            $
            2,730
            
            $
            2,334
            
            $
            6,658
            
            $
            4,822




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





5





FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Stockholders' Equity


Three
      Months Ended June 30, 2007 and 2006


(Unaudited)





*(Dollars
                in thousands, except per share data)*
            
            
            
            Nonvested
            
            
            
            AccumulatedAdditional
            
            Restricted
            
            
            
            OtherCommon
            
            Paid-in
            
            Stock
            
            Retained
            
            ComprehensiveStock
            
            Capital
            
            Awards
            
            Earnings
            
            Income
            
            TotalJanuary
                1, 2006
            
            $
            22,476
            
            $
            29,340
            
            $
            86
            
            $
            68,058
            
            $
            (2,583
            )
            $
            117,377Effect
                of stock split issued in theform
                of a 100% stock dividendon
                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
            
            
            -
            
            
            -
            
            
            -
            
            
            6,521
            
            
            -
            
            
            6,521Cash
                dividends ($.26 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,372
            )
            
            -
            
            
            (2,372
            )30,608
                common shares issuedin
                exercise of stock options
            
            
            153
            
            
            280
            
            
            -
            
            
            -
            
            
            -
            
            
            433Tax
                benefits on stock optiontransactions
            
            
            -
            
            
            63
            
            
            -
            
            
            -
            
            
            -
            
            
            63Share-based
                compensationexpense
                recognized
            
            
            -
            
            
            11
            
            
            144
            
            
            1
            
            
            -
            
            
            156Net
                change
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,699
            )
            
            (1,699
            )June
                30, 2006
            
            $
            45,105
            
            $
            29,745
            
            $
            230
            
            $
            49,681
            
            $
            (4,282
            )
            $
            120,479January
                1, 2007
            
            $
            45,231
            
            $
            30,315
            
            $
            375
            
            $
            54,707
            
            $
            (2,581
            )
            $
            128,047Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            7,089
            
            
            -
            
            
            7,089Cash
                dividends ($.26 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,385
            )
            
            -
            
            
            (2,385
            )14,854
                common shares issuedin
                exercise of stock options
            
            
            74
            
            
            155
            
            
            -
            
            
            -
            
            
            -
            
            
            229Tax
                benefits on stock optiontransactions
            
            
            -
            
            
            84
            
            
            -
            
            
            -
            
            
            -
            
            
            84Option
                cancellation payments
            
            
            -
            
            
            (175
            )
            
            -
            
            
            -
            
            
            -
            
            
            (175
            )Share-based
                compensationexpense
                recognized
            
            
            -
            
            
            10
            
            
            132
            
            
            1
            
            
            -
            
            
            143Net
                change
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (431
            )
            
            (431
            )June
                30, 2007
            
            $
            45,305
            
            $
            30,389
            
            $
            507
            
            $
            59,412
            
            $
            (3,012
            )
            $
            132,601




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





6




FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Cash Flows


(Unaudited)





*(Dollars
                in thousands)*
            
            Six
                Months Ended June 302007
            
            2006Cash
                flows from operating activities:Net
                income
            
            $
            7,089
            
            $
            6,521Adjustments
                to reconcile net incometo
                net cash provided by operating activities:Share-based
                compensation
            
            
            143
            
            
            156Amortization
                of pension costs
            
            
            140
            
            
            -Depreciation
                and amortization
            
            
            1,596
            
            
            1,286Provision
                for loan losses
            
            
            1,260
            
            
            1,957Net
                investment amortization (accretion)
            
            
            (187
            )
            
            (154
            )Net
                change in unearned fees/deferred costs on loans
            
            
            155
            
            
            67Capitalized
                dividends on FHLB stock
            
            
            (180
            )
            
            (179
            )Net
                accretion of discount on time deposits
            
            
            43
            
            
            77Net
                accretion of discount on debt
            
            
            6
            
            
            7Loss
                on extinguishment of debt
            
            
            126
            
            
            -Loss
                on securities available for sale
            
            
            -
            
            
            4Gain
                on loans held for sale
            
            
            (105
            )
            
            (44
            )Other
                asset sales (gains)/losses
            
            
            196
            
            
            207Earnings
                (loss) of noncontrolling interest
            
            
            23
            
            
            12Deferred
                income taxes
            
            
            (403
            )
            
            (459
            )(Increase)
                decrease in:Accrued
                interest receivable
            
            
            91
            
            
            (943
            )Cash
                surrender value of bank owned life insurance
            
            
            (354
            )
            
            (277
            )Loans
                held for sale
            
            
            665
            
            
            (4,715
            )Other
                assets
            
            
            (3,596
            )
            
            (2,403
            )Increase
                (decrease) in:Accrued
                interest payable
            
            
            (565
            )
            
            734Other
                liabilities
            
            
            431
            
            
            (5
            )Net
                cash provided by operating activities
            
            
            6,574
            
            
            1,849Cash
                flows from investing activities:Purchases
                of securities available for sale
            
            
            (2,736
            )
            
            (34,852
            )Sales
                of securities available for sale
            
            
            815
            
            
            9,876Maturities
                of securities available for sale
            
            
            27,775
            
            
            19,475Net
                (increase) decrease in:Interest
                bearing bank balances
            
            
            (15,700
            )
            
            4,556Federal
                funds sold
            
            
            -
            
            
            3,707Loans
            
            
            (62,697
            )
            
            (39,765
            )Bank
                premises and equipment
            
            
            (3,067
            )
            
            (2,506
            )Purchases
                of bank owned life insurance
            
            
            (10
            )
            
            (95
            )Proceeds
                from sales of other real estate and other repossessed
                assets
            
            
            1,061
            
            
            1,457Net
                (purchases) redemptions, of FHLB and FRB stock
            
            
            (1,202
            )
            
            1,311Investment
                in First M&F Statutory Trust I
            
            
            -
            
            
            (928
            )Net
                cash paid in acquisition
            
            
            -
            
            
            (29,815
            )Net
                cash used in investing activities
            
            
            (55,761
            )
            
            (67,579
            )




(Continued)





7




FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Cash Flows


(Unaudited)





*(Dollars
                in thousands)*
            
            Six
                Months Ended June 302007
            
            2006Cash
                flows from financing activities:Net
                increase in deposits
            
            $
            26,135
            
            $
            65,561Net
                decrease in short-term borrowings
            
            
            (6,735
            )
            
            (14,025
            )Proceeds
                from other borrowings
            
            
            205,600
            
            
            30,100Repayments
                of other borrowings
            
            
            (185,370
            )
            
            (40,828
            )Proceeds
                from issuance of junior subordinated debt
            
            
            -
            
            
            30,928Earnings
                distributions to noncontrolling interests
            
            
            (23
            )
            
            (12
            )Cash
                dividends
            
            
            (2,385
            )
            
            (2,372
            )Common
                shares issued
            
            
            229
            
            
            433Payments
                to cancel stock options
            
            
            (175
            )
            
            -Tax
                benefits on stock option transactions
            
            
            84
            
            
            63Net
                cash provided by financing activities
            
            
            37,360
            
            
            69,848Net
                increase (decrease) in cash and due from banks
            
            
            (11,827
            )
            
            4,118Cash
                and due from banks at January 1
            
            
            59,793
            
            
            56,398Cash
                and due from banks at June 30
            
            $
            47,966
            
            $
            60,516Total
                interest paid
            
            $
            23,443
            
            $
            16,810Total
                income taxes paid
            
            
            5,104
            
            
            4,234Income
                tax refunds received
            
            
            302
            
            
            -Transfers
                of loans to foreclosed property
            
            
            1,733
            
            
            2,124




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 will be paid to the former Columbiana
      Bancshares stockholders. 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





*(Dollars
                in thousands, except per share data)*
            
            Three
                Months Ended June 30
            
            Six
                Months Ended June 302007
            
            2006
            
            2007
            
            2006Net
                income
            
            $
            3,535
            
            $
            3,251
            
            $
            7,089
            
            $
            6,521Weighted
                average shares outstanding
            
            
            9,057,948
            
            
            9,010,951
            
            
            9,055,302
            
            
            9,002,295Add
                dilutive effect of outstanding options
            
            
            58,743
            
            
            51,156
            
            
            54,811
            
            
            41,927Adjusted
                dilutive shares outstanding
            
            
            9,116,691
            
            
            9,062,107
            
            
            9,110,113
            
            
            9,044,222Earnings
                per share:Basic
            
            $
            .39
            
            $
            .36
            
            $
            .78
            
            $
            .73Diluted
            
            $
            .39
            
            $
            .36
            
            
            .78
            
            
            .72Stock
                options not included in adjustedshares
                due to anti-dilutive effect
            
            
            1,520
            
            
            1,538
            
            
            1,353
            
            
            1,972




Note
      4: Loans





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





*(Dollars
                in thousands)*
            
            June
                30
            
            December
                312007
            
            2006
            
            2006Commercial,
                financial and agricultural
            
            $
            167,184
            
            $
            175,332
            
            $
            150,905Non-residential
                real estate
            
            
            672,764
            
            
            592,265
            
            
            621,840Residential
                real estate
            
            
            220,876
            
            
            217,602
            
            
            221,911Home
                equity loans
            
            
            37,374
            
            
            40,812
            
            
            40,136Consumer
                loans
            
            
            41,385
            
            
            48,510
            
            
            45,872Other
                loans
            
            
            7,296
            
            
            5,625
            
            
            6,619Total
                loans
            
            $
            1,146,879
            
            $
            1,080,146
            
            $
            1,087,283




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





*(Dollars
                in thousands)*
            
            Six
                Months Ended June 302007
            
            2006Balance
                at January 1
            
            $
            14,950
            
            $
            12,449Allowance
                from acquisitions
            
            
            -
            
            
            2,234Loans
                charged off
            
            
            (1,919
            )
            
            (1,047
            )Recoveries
            
            
            768
            
            
            454Net
                charge-offs
            
            
            (1,151
            )
            
            (593
            )Provision
                for loan losses
            
            
            1,260
            
            
            1,957Balance
                at June 30
            
            $
            15,059
            
            $
            16,047




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:





*(Dollars
                in thousands)*
            
            
            
            
            
            CustomerCore
            
            Renewal
            
            Noncompete
            
            BankingGoodwill
            
            Deposits
            
            Lists
            
            Agreements
            
            CharterBalance
                at December 31, 2005
            
            $
            16,348
            
            $
            -
            
            $
            234
            
            $
            124
            
            $
            -Addition
                due to acquisition
            
            
            16,224
            
            
            7,060
            
            
            -
            
            
            -
            
            
            -Amortization
                expense
            
            
            -
            
            
            (107
            )
            
            (13
            )
            
            (14
            )
            
            -Balance
                at June 30, 2006
            
            $
            32,572
            
            $
            6,953
            
            $
            221
            
            $
            110
            
            $
            -Balance
                at December 31, 2006
            
            $
            32,572
            
            $
            6,784
            
            $
            209
            
            $
            95
            
            $
            1,025Amortization
                expense
            
            
            -
            
            
            (278
            )
            
            (14
            )
            
            (14
            )
            
            -Balance
                at June 30, 2007
            
            $
            32,572
            
            $
            6,506
            
            $
            195
            
            $
            81
            
            $
            1,025Estimated
                amortization expenseRemainder
                of 2007
            
            
            
            
            $
            214
            
            $
            14
            
            $
            142008
            
            
            
            
            
            427
            
            
            27
            
            
            272009
            
            
            
            
            
            427
            
            
            27
            
            
            262010
            
            
            
            
            
            427
            
            
            27
            
            
            142011
            
            
            
            
            
            427
            
            
            27
            
            
            -2012
            
            
            
            
            
            427
            
            
            23
            
            
            -





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 June 30, 2007 and 2006 and
      December 31, 2006:





*(Dollars
                in thousands)*
            
            June
                30
            
            December
                312007
            
            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
            
            $
            1,566
            
            $
            12,741
            
            $
            10,416Bank’s
                      advances from Federal Home Loan Banks, net of unamortized purchase
                      accounting premium of $1, and discounts of $140 and
                      $131
            
            
            185,196
            
            
            148,136
            
            
            155,984$
            186,762
            
            $
            160,877
            
            $
            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 June 30, 2007 and December 31, 2006.





*(Dollars
                in thousands)*
            
            Balance
            
            2007
            
            Balance12/31/06
            
            Amortization
            
            06/30/07Unamortized
                transition asset
            
            $
            (27
            )
            $
            5
            
            $
            (22
            )Unamortized
                prior service cost
            
            
            (182
            )
            
            19
            
            
            (163
            )Unamortized
                actuarial loss
            
            
            2,916
            
            
            (209
            )
            
            2,7072,707
            
            
            (185
            )
            
            2,522Deferred
                taxes
            
            
            (1,010
            )
            
            69
            
            
            (941
            )Net
                unamortized pension costs
            
            $
            1,697
            
            $
            (116
            )
            $
            1,581




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





*(Dollars
                in thousands)*
            
            Three
                Months Ended June 30
            
            Six
                Months Ended June 302007
            
            2006
            
            2007
            
            2006Service
                cost
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Interest
                cost
            
            
            119
            
            
            114
            
            
            237
            
            
            228Expected
                return on plan assets
            
            
            (141
            )
            
            (127
            )
            
            (282
            )
            
            (254
            )Amortization
                of transition asset
            
            
            (3
            )
            
            (2
            )
            
            (5
            )
            
            (5
            )Amortization
                of prior service costs
            
            
            (10
            )
            
            (9
            )
            
            (19
            )
            
            (18
            )Recognized
                actuarial (gain) loss
            
            
            105
            
            
            66
            
            
            209
            
            
            133Net
                pension cost
            
            $
            70
            
            $
            42
            
            $
            140
            
            $
            84





The
      Company did not make any contributions to the pension plan during the first
      half
      of 2006 and 2007. The Company expects to make contributions of approximately
      $300 thousand during 2007.





The
      Company made an annual $75 thousand contribution to the ESOP and $361 thousand
      in matching contributions to the 401k plan during the first six months of 2007.
      The Company made an annual $75 thousand contribution to the ESOP and $238
      thousand in matching contributions to the 401k plan during the first six months
      of 2006.





The
      Company has a nonqualified deferred compensation plan for certain senior
      officers. Participants deferred $52 thousand of compensation during the first
      six months of 2007 and $52 thousand during the first six months of 2006.
      Employee benefit expenses include earnings credits attributed to the
      participants’ accounts of $34 thousand for the first six months of 2007 and $7
      thousand for the first six months of 2006. The plan incurred expenses of $2
      thousand during the first six months of 2007 and none during the first six
      months of 2006. Liabilities of the plan were $362 thousand at June 30, 2007,
      and
      $224 thousand at June 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.





Six
                Months Ended June 302007
            
            2006Number
            
            Price
            
            Number
            
            PriceJanuary
                1
            
            
            186,462
            
            $
            15.59
            
            
            239,370
            
            $
            15.20Exercised
            
            
            (14,854
            )
            
            15.35
            
            
            (30,608
            )
            
            14.16Expired
            
            
            -
            
            
            -
            
            
            -
            
            
            -Cancelled
            
            
            (38,108
            )
            
            13.96Granted
            
            
            2,000
            
            
            19.00
            
            
            3,000
            
            
            19.06June
                30
            
            
            135,500
            
            $
            16.13
            
            
            211,762
            
            $
            15.41Exercisable
                at June 30, 2007
            
            
            122,300
            
            $
            15.93Available
                for additional grant at June 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 June 30, 2007 there was $1.447
      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
            )
            
            17.08June
                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 June 30, 2007 and 2006, and the related
      consolidated statements of income and comprehensive income for the three-month
      and six-month periods ended June 30, 2007 and 2006, and the related consolidated
      statements stockholders’ equity and cash flows for the six-month periods ended
      June 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


August
      7,
      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. For instance, if the
      economy deteriorated and real estate values became depressed, the approximately
      79% of the Company’s loan portfolio that is secured by real estate could come
      under stress, thus possibly requiring additional loan loss accruals. The Company
      may not be able to dispose of its foreclosed real estate at prices above the
      properties’ carrying values, thus causing additional losses. Unfavorable
      judgments in excess of accrued liabilities related to ongoing litigation may
      result in additional expenses. Unanticipated catastrophic loss claims could
      occur 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. A severe slowing of the economy may affect the
      ability of the Company’s customers to make timely loan payments, or may cause
      customers to use up deposit balances, thereby causing a potential strain on
      the
      Company’s liquidity. A much steeper than anticipated increase in interest rates
      could cause the Company’s net interest margins to decrease, thereby decreasing
      net interest revenues. Mortgage originations, and therefore mortgage revenues,
      would be hurt by steeply rising interest rates. A poor stock market could reduce
      brokerage transactions, therefore reducing investment brokerage revenues. An
      unanticipated increase in inflation could cause the Company’s operating costs
      related to salaries, technology, supplies and property taxes to increase.
      Unforeseen new competition from outside the traditional financial services
      industry could constrain the Company’s ability to price its products profitably.
      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. The Company could experience unforeseen difficulties in integrating
      and operating acquired banks, or could experience unanticipated customer
      attrition which might negatively affect financial performance. 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.




**Financial
      Summary**





Net
      income for the second quarter of 2007 was $3.535 million, or $.39 basic and
      diluted earnings per share as compared to $3.251 million, or $.36 basic and
      diluted earnings per share for the same period in 2006 and $3.554 million or
      $.39 basic and diluted earnings per share for the first quarter of 2007. Net
      income for the first half of 2007 was $7.089 million, or $.78 basic and diluted
      earnings per share as compared to $6.521 million, or $.73 basic and $.72 diluted
      earnings per share for the same period in 2006. Major factors contributing
      to
      the increased year-over-year earnings were (1) moderate growth in all
      noninterest income categories, (2) steady loan growth from June 2006 through
      2007 and (3) a decrease in the provision for loan losses. Major factors
      contributing to the increased second quarter earnings compared to 2006 were
      (1)
      steady loan production, (2) a decrease in the provision for loan losses and
      (3)
      a modest 1.37% increase in noninterest expenses.





16




FIRST
      M
& F CORPORATION




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





·
            Return
                on assets for the first half of 2007 was .93% while the return on
                equity
                was 10.93%. Return on assets for the first half of 2006 was .91%
                and
                return on equity was 10.99%.


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


·
            Nonperforming
                loans were .55% of total loans at June 30, 2007 with annualized net
                charge-offs as a percentage of average loans at .21% for the first
                half 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


·
            Continued
                with construction plans in the Memphis, Tennessee and the Madison
                and
                Rankin County markets in Mississippi with expected completion dates
                during
                the second half 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
                Deposits2nd
                Qtr 2006
            
            
            24,448
            
            
            4,811
            
            
            32,9123rd
                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
            )
            
            3,808Increases
                due to acquisitions2nd
                Qtr 2006
            
            
            9,782
            
            
            2,963
            
            
            23,367




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
            
            Expense2nd
                Qtr 2006
            
            
            13,239
            
            
            1,004
            
            
            4,859
            
            
            12,3403rd
                Qtr 2006
            
            
            13,338
            
            
            954
            
            
            5,412
            
            
            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
            
            
            12,509




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





2nd
                Qtr 2007
            
            1st
                Qtr 2007
            
            4th
                Qtr 2006
            
            3rd
                Qtr 2006
            
            2nd
                Qtr 2006Net
                interest income
            
            $
            1.48
            
            $
            1.43
            
            $
            1.46
            
            $
            1.48
            
            $
            1.46Loan
                loss expense
            
            
            .07
            
            
            .07
            
            
            .01
            
            
            .11
            
            
            .11Noninterest
                income
            
            
            .53
            
            
            .61
            
            
            .58
            
            
            .59
            
            
            .53Noninterest
                expense
            
            
            1.36
            
            
            1.39
            
            
            1.42
            
            
            1.36
            
            
            1.36Net
                income before taxes
            
            
            .58
            
            
            .58
            
            
            .61
            
            
            .60
            
            
            .52Income
                taxes
            
            
            .19
            
            
            .19
            
            
            .20
            
            
            .20
            
            
            .16Net
                income
            
            $
            .39
            
            $
            .39
            
            $
            .41
            
            $
            .40
            
            $
            .36





18





FIRST
      M
& F CORPORATION





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





2nd
                Qtr 2007
            
            1st
                Qtr 2007
            
            4th
                Qtr 2006
            
            3rd
                Qtr 2006
            
            2nd
                Qtr 2006Net
                interest margin
            
            
            4.00
            %
            
            3.94
            %
            
            3.99
            %
            
            4.04
            %
            
            4.05
            %Efficiency
                ratio
            
            
            67.06
            
            
            67.17
            
            
            68.25
            
            
            65.09
            
            
            67.02Return
                on assets
            
            
            .92
            
            
            .94
            
            
            .97
            
            
            .96
            
            
            .86Return
                on equity
            
            
            10.69
            
            
            11.18
            
            
            11.71
            
            
            11.82
            
            
            10.78Noninterest
                income to avg. assets
            
            
            1.25
            
            
            1.44
            
            
            1.37
            
            
            1.42
            
            
            1.29Noninterest
                incometo
                revenues (1)
            
            
            25.85
            
            
            29.43
            
            
            27.86
            
            
            28.26
            
            
            26.39Noninterest
                expense to avg assets
            
            
            3.25
            
            
            3.29
            
            
            3.36
            
            
            3.26
            
            
            3.28Salaries
                and benefits to totalnoninterest
                expense
            
            
            58.39
            
            
            57.18
            
            
            55.11
            
            
            57.17
            
            
            57.61Contribution
                margin (2)
            
            
            60.85
            
            
            61.60
            
            
            62.39
            
            
            62.79
            
            
            61.39Nonperforming
                loans to loans
            
            
            .55
            
            
            .38
            
            
            .36
            
            
            .33
            
            
            .30Annualized
                net charge offs as apercent
                of average loans
            
            
            .30
            
            
            .11
            
            
            .46
            
            
            .33
            
            
            .13


(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*)
            
            2nd
                Qtr 2007
            
            1st
                Qtr 2007
            
            4th
                Qtr 2006
            
            3rd
                Qtr 2006
            
            2nd
                Qtr 2006Mortgage
                originations
            
            $
            20,700
            
            $
            18,360
            
            $
            19,164
            
            $
            19,610
            
            $
            16,519Commissions
                from annuity sales
            
            
            66
            
            
            29
            
            
            25
            
            
            45
            
            
            42Trust
                revenues
            
            
            75
            
            
            67
            
            
            73
            
            
            75
            
            
            99Retail
                investment revenues
            
            
            75
            
            
            70
            
            
            74
            
            
            66
            
            
            72Revenues
                per FTE employee
            
            
            33
            
            
            33
            
            
            33
            
            
            34
            
            
            33Agency
                commissions per agencyFTE
                employee (1)
            
            
            25
            
            
            25
            
            
            21
            
            
            24
            
            
            21




(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:





2nd
                Qtr 2007
            
            1st
                Qtr 2007
            
            4th
                Qtr 2006
            
            3rd
                Qtr 2006
            
            2nd
                Qtr 2006Full-time
                equivalent employees
            
            
            562
            
            
            561
            
            
            570
            
            
            560
            
            
            563Number
                of noninterest-bearingdeposit
                accounts
            
            
            38,529
            
            
            38,100
            
            
            37,522
            
            
            36,371
            
            
            37,415Noninterest-bearing
                depositaccounts
                added throughacquisitions
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            732





19





FIRST
      M
& F CORPORATION




**Net
      Interest Income**





Net
      interest income before loan loss expenses for the first half of 2007 was $26.529
      million as compared to $25.688 million for the first half of 2006. For the
      first
      half of 2007 compared to 2006: earning asset yields increased by 47 basis
      points, liability costs increased by 65 basis points, the net interest spread
      decreased by 18 basis points and the net interest margin decreased by 13 basis
      points.





Net
      interest income before loan loss expenses for the second quarter of 2007 was
      $13.522 million as compared to $13.239 million for the second quarter of 2006
      and $13.007 million for the first quarter of 2007. For the second quarter of
      2007 compared to the same quarter of 2006: earning asset yields increased by
      41
      basis points, liability costs increased by 54 basis points, the net interest
      spread decreased by 13 basis points and the net interest margin decreased by
      5
      basis points. For the second quarter of 2007 compared to the first quarter
      of
      2007: earning asset yields increased by 7 basis points, liability costs
      increased by 6 basis points, the net interest spread increased by 1 basis point
      and the net interest margin increased by 6 basis points.





Balance
      sheet dynamics affecting the comparative net interest margins for the first
      half
      of 2007 compared to 2006 include (1) growth of 7.99% in average loans held
      for
      investment, (2) an increase in average loans as a percentage of earning assets
      from 79.62% in the first half of 2006 to 80.63% in the first half of 2007,
      (3)
      an increase in average certificates of deposits of 17.04%, (4) an increase
      in
      average other borrowings of 8.94% and (5) a decrease in average
      noninterest-bearing deposits as a percentage of total assets from 12.72% in
      2006
      to 11.66% in 2007.





Balance
      sheet dynamics affecting the comparative net interest margins for the second
      quarter of 2007 compared to 2006 include (1) growth of 5.38% in average loans
      held for investment, (2) an increase in average loans as a percentage of earning
      assets from 79.41% in the second quarter of 2006 to 80.93% in the second quarter
      of 2007, (3) an increase in average certificates of deposits of 8.17%, (4)
      an
      increase in average other borrowings of 8.08% and (5) a decrease in average
      noninterest-bearing deposits as a percentage of total assets from 12.66% in
      2006
      to 11.76% in 2007.





Balance
      sheet dynamics affecting the comparative net interest margins for the second
      quarter of 2007 compared to the first quarter of 2007 include (1) growth of
      1.84% in average loans held for investment, (2) an increase in average loans
      as
      a percentage of earning assets from 80.31% in the first quarter of 2007 to
      80.93% in the second quarter of 2007, (3) a decrease in average interest-bearing
      deposits of 1.10%, (4) an increase in average borrowings of 5.20% and (5) an
      increase in average noninterest-bearing deposits as a percentage of total assets
      from 11.55% in the first quarter to 11.76% in the second quarter.





Yield
      and
      cost dynamics affecting the comparative net interest margins for the first
      half
      of 2007 compared to 2006 include (1) an increase of 49 basis points in yields
      on
      loans held for investment and for sale, (2) an increase of 22 basis points
      in
      investment and short-term funds yields, (3) an increase of 69 basis points
      in
      costs of deposits and (4) an increase of 40 basis points in costs of
      borrowings.





Yield
      and
      cost dynamics affecting the comparative net interest margins for the second
      quarter 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 17 basis
      points in investment and short-term funds yields, (3) an increase of 57 basis
      points in costs of deposits and (4) an increase of 25 basis points in costs
      of
      borrowings.





Yield
      and
      cost dynamics affecting the comparative net interest margins for the second
      quarter of 2007 compared to the first quarter of 2007 include (1) an increase
      of
      8 basis points in yields on loans held for investment and for sale, (2) a
      decrease of 5 basis points in investment and short-term funds yields, (3) an
      increase of 7 basis points in costs of deposits and (4) a decrease of 5 basis
      points in costs of borrowings.





20





FIRST
      M
& F CORPORATION





The
      improvement in asset yields for the first half of 2007 and the second 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) higher Treasury yields in the 3-month to one year terms at the end of the
      first quarter of 2007 as compared to the end of the first quarter of 2006 and
      (3) an increase in the percentage of loans in the mix of earning assets for
      2007. Deposit costs for 2007 were primarily influenced by a two-month increase
      in short-term interest rates during January and February 2007 as well as by
      an
      increase in the percentage of deposits represented by certificates of deposit
      from 44.09% during the first half of 2006 to 48.93% during the first half of
      2007.





Net
      interest margins should be affected during the third quarter and second half
      of
      2007 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 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. The economy still shows signs of steady
      growth, possibly indicating future higher rates. Corporate bond yields, which
      have moved higher, 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
      quarter corporate profits that were reported, indicating corporate liquidity
      and
      financial strength. Corporate bond yields could also be upwardly influenced
      by a
      slowing down of private equity deals, driven primarily by credit concerns,
      as
      private equity debt has reached significant levels.





The
      recent decrease in short-term Treasury rates coupled with an increase in
      longer-term Treasury rates tends to indicate that banks will have stronger
      pricing power during the second half of 2007 than has been the case for the
      last
      twelve months. Management believes that the greatest 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 second half of 2007 will continue to be highly
      competitive.





The
      Company addressed costs of deposits during the first half of 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, relieving the Company’s dependence on certificates of deposit which cost
      4.62% during the second quarter of 2007. Management has decided to evaluate
      the
      competitive market as well as the mix of certificates of deposit within the
      total deposit portfolio over the third quarter to determine if another campaign
      similar to the money market promotion is necessary and feasible. 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 to meet short-term funding
      needs and reduce the overall costs of borrowing. Management expects to continue
      using FHLB financing 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 first
      two quarters of 2007 and 2006:





Yields/Costs
            
            Yields/Costs2nd
                Quarter,
              2007
            
            1st
                Quarter,
              2007
            
            2nd
                Quarter,
              2006
            
            1st
                Quarter,
              2006Interest
                bearing bank balances
            
            
            4.61
            %
            
            4.67
            %
            
            3.55
            %
            
            3.09
            %Federal
                funds sold
            
            
            3.59
            
            
            5.57
            
            
            4.80
            
            
            3.93Taxable
                investments
            
            
            4.80
            
            
            4.82
            
            
            4.59
            
            
            4.53Tax-exempt
                investments
            
            
            6.26
            
            
            6.28
            
            
            6.15
            
            
            6.34Loans
                held for sale
            
            
            5.59
            
            
            5.21
            
            
            6.06
            
            
            3.37Loans
                held for investment
            
            
            7.90
            
            
            7.83
            
            
            7.48
            
            
            7.25Earning
                asset yield
            
            
            7.36
            
            
            7.29
            
            
            6.95
            
            
            6.75Interest
                checking
            
            
            1.35
            
            
            1.38
            
            
            1.66
            
            
            1.50Money
                market deposits
            
            
            2.52
            
            
            2.31
            
            
            1.77
            
            
            1.56Savings
            
            
            2.75
            
            
            2.63
            
            
            2.09
            
            
            2.04Certificates
                of deposit
            
            
            4.62
            
            
            4.58
            
            
            3.96
            
            
            3.61Short-term
                borrowings
            
            
            4.98
            
            
            5.23
            
            
            4.06
            
            
            5.10Other
                borrowings
            
            
            5.12
            
            
            5.15
            
            
            4.88
            
            
            4.58Cost
                of interest-bearing liabilities
            
            
            3.81
            
            
            3.75
            
            
            3.27
            
            
            2.99Net
                interest spread
            
            
            3.55
            
            
            3.54
            
            
            3.68
            
            
            3.76Effect
                of non-interest bearing deposits
            
            
            .49
            
            
            .48
            
            
            .45
            
            
            .42Effect
                of leverage
            
            
            (.04
            )
            
            (.08
            )
            
            (.08
            )
            
            (.02
            )Net
                interest margin, tax-equivalent
            
            
            4.00
            
            
            3.94
            
            
            4.05
            
            
            4.16Less:
                Tax equivalent adjustments:Investments
            
            
            .08
            
            
            .09
            
            
            .08
            
            
            .10Loans
            
            
            .01
            
            
            .01
            
            
            .01
            
            
            .01Reported
                book net interest margin
            
            
            3.91
            %
            
            3.84
            %
            
            3.96
            %
            
            4.05
            %




The
      following table shows average balance sheets for the first two quarters of
      2007
      and 2006:





*(Dollars
                in thousands)*2nd
                Quarter,
              2007
            
            1st
                Quarter,
              2007
            
            2nd
                Quarter,
              2006
            
            1st
                Quarter,
              2006Interest
                bearing bank balances
            
            $
            4,726
            
            $
            3,694
            
            $
            7,577
            
            $
            7,661Federal
                funds sold
            
            
            6,247
            
            
            876
            
            
            16,007
            
            
            24,628Taxable
                investments
            
            
            197,922
            
            
            209,282
            
            
            193,769
            
            
            160,714Tax-exempt
                investments
            
            
            45,654
            
            
            47,555
            
            
            50,140
            
            
            49,440Loans
                held for sale
            
            
            9,786
            
            
            8,716
            
            
            8,646
            
            
            8,411Loans
                held for investment
            
            
            1,122,129
            
            
            1,101,879
            
            
            1,064,858
            
            
            994,364Earning
                assets
            
            
            1,386,464
            
            
            1,372,002
            
            
            1,340,997
            
            
            1,245,218Other
                assets
            
            
            159,594
            
            
            168,914
            
            
            169,852
            
            
            141,060Total
                assets
            
            $
            1,546,058
            
            $
            1,540,916
            
            $
            1,510,849
            
            $
            1,386,278Interest
                checking
            
            
            190,049
            
            
            205,598
            
            
            231,908
            
            
            220,101Money
                market deposits
            
            
            136,525
            
            
            127,300
            
            
            129,239
            
            
            124,673Savings
                deposits
            
            
            99,997
            
            
            96,941
            
            
            97,403
            
            
            90,198Certificates
                of deposit
            
            
            578,631
            
            
            586,504
            
            
            534,911
            
            
            460,119Short-term
                borrowings
            
            
            12,069
            
            
            14,550
            
            
            5,323
            
            
            9,198Other
                borrowings
            
            
            204,199
            
            
            194,111
            
            
            188,941
            
            
            176,658Interest-bearing
                liabilities
            
            
            1,221,470
            
            
            1,225,004
            
            
            1,187,725
            
            
            1,080,947Noninterest-bearing
                deposits
            
            
            181,819
            
            
            177,959
            
            
            191,212
            
            
            177,427Other
                liabilities
            
            
            10,133
            
            
            8,978
            
            
            10,989
            
            
            9,485Stockholders’
                equity
            
            
            132,636
            
            
            128,975
            
            
            120,923
            
            
            118,419Liabilities
                and stockholders’ equity
            
            $
            1,546,058
            
            $
            1,540,916
            
            $
            1,510,849
            
            $
            1,386,278Loans
                to earning assets
            
            
            80.93
            %
            
            80.31
            %
            
            79.41
            %
            
            79.85
            %Loans
                to assets
            
            
            72.58
            %
            
            71.51
            %
            
            70.48
            %
            
            71.73
            %Earning
                assets to assets
            
            
            89.68
            %
            
            89.04
            %
            
            88.76
            %
            
            89.82
            %Noninterest-bearing
                deposits to assets
            
            
            11.76
            %
            
            11.55
            %
            
            12.66
            %
            
            12.80
            %Equity
                to assets
            
            
            8.58
            %
            
            8.37
            %
            
            8.00
            %
            
            8.54
            %





22





FIRST
      M
& F CORPORATION




**Provision
      for Loan Losses**





The
      accrual for the provision for loan losses for the first half of 2007 was $1.260
      million as compared to $1.957 million for the first half of 2006. Net
      charge-offs were $1.151 million for the first half of 2007 as compared to $593
      thousand for the first half of 2006.





The
      accrual for the provision for loan losses for the second quarter of 2007 was
      $630 thousand as compared to $1.004 million for the second quarter of 2006.
      The
      allowance for loan losses as a percentage of loans was 1.31% at June 30, 2007,
      1.37% at December 31, 2006, and 1.49% at June 30, 2006. Net charge-offs were
      $847 thousand in the second quarter of 2007 as compared to $343 thousand for
      the
      second quarter of 2006.





Nonperforming
      loans as a percentage of loans increased to .55% at June 30, 2007 as compared
      to
      .38% at March 31, 2007, .36% at December 31, 2006, and .30% at June 30, 2006.
      Excluding the effect of one large nonperforming loan the June 30 percent of
      nonperforming loans to loans would have been .32%. Management anticipates that
      the Company will not incur any losses in the eventual resolution of this credit
      facility. The Company has not been negatively affected to date by the
      deterioration of credit quality in the sub-prime mortgage sector. 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
      8.19% during the first half 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 half of 2007 was $10.544 million as compared to $9.208 million for
      the
      same period in 2006. For the first half of 2007 as compared to 2006: (1) deposit
      revenues increased by $210 thousand, (2) mortgage banking revenues increased
      by
      $349 thousand and (3) agency commissions increased by $125
      thousand.





Noninterest
      income, excluding securities transactions and losses on debt extinguishment,
      for
      the second quarter of 2007 was $4.987 million as compared to $4.862 million
      for
      the same period in 2006 and $5.557 million in the first quarter of 2007. For
      the
      second quarter of 2007 as compared to the second quarter of 2006: (1) deposit
      revenues decreased by $26 thousand, (2) mortgage banking revenues increased
      by
      $164 thousand and (3) agency commissions increased by $34 thousand. For the
      second quarter of 2007 as compared to the first quarter of 2007: (1) deposit
      revenues increased by $199 thousand, (2) mortgage banking revenues decreased
      by
      $58 thousand and (3) agency commissions decreased by $33 thousand.





Deposit
      revenues improved by 4.21% for the first half of 2007 as compared to 2006 and
      decreased by .95% from the second quarter of 2006 to the same quarter in 2007.
      The second quarter of 2007 showed an increase of 7.96% over the first quarter
      of
      2007. Overdraft fee revenues, which comprise approximately 70% of deposit
      revenues, increased by 1.62% from the first half of 2006 to the first half
      of
      2007 and decreased by 3.35% from the second quarter of 2006 to the second
      quarter of 2007. The low annual increase and decrease between the second
      quarters of 2006 and 2007 were mainly attributable to an unusually high volume
      of overdraft fee revenues in the second quarter of 2006. A positive trend
      remained intact for 2007 as the second quarter fees represented a 9.47% increase
      over the first quarter of 2007. Debit card revenues improved by 26.49% from
      the
      first half of 2006 to the first half of 2007, increased by 23.56% from the
      second quarter of 2006 to the second quarter of 2007 and increased by 12.17%
      from the first quarter of 2007 to the second quarter of 2007. 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.





Mortgage
      banking income increased by 82.12% from the first half of 2006 to the first
      half
      of 2007, increased by 84.54% from the second quarter of 2006 to the second
      quarter of 2007 and decreased by 13.94% from the first quarter of 2007 to the
      second quarter of 2007. Although mortgage originations increased from 2006
      through 2007 and also from the first quarter of 2007 to the second quarter,
      a
      higher interest rate environment reduced the amount of profits per mortgage
      originated and sold. Mortgage rates decreased from 6.78% in June 2006 through
      the middle of May 2007 when they reached 6.15%, but then reversed the trend
      and
      increased by 52 basis points to end June 2007 at 6.67%. Management expects
      mortgage rates to continue to increase during the third quarter resulting in
      lower sale pricing for originated mortgages. The increase in mortgage volumes
      during 2007 was mainly attributable to expansion into new markets and the
      addition of originators. However, the higher rate environment should slow down
      mortgage demand, and Management expects to see a slowdown in production volumes
      for the remainder of 2007.





23




FIRST
      M
& F CORPORATION





Agency
      commission income increased by 6.50% from the first half of 2006 to the first
      half of 2007, increased by 3.49% from the second quarter of 2006 to the second
      quarter of 2007 and decreased by 3.17% from the first quarter of 2007 to the
      second quarter of 2007. The decrease from the first quarter of 2007 to the
      second quarter of 2007 was due to a decrease of 4.55% in property and casualty
      commissions resulting from fewer commercial account renewals during the second
      quarter. 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 first two quarters of 2007 and 2006 are
      contained in the following table.





2Q2007
            
            1Q2007
            
            2Q2006
            
            1Q2006Agency
                profit-sharing revenues
            
            $
            24
            
            $
            246
            
            $
            -
            
            $
            114Loan
                fees
            
            
            110
            
            
            171
            
            
            188
            
            
            123Gains
                (losses) on foreclosed property sales
            
            
            (58
            )
            
            (148
            )
            
            1
            
            
            (190
            )Insurance
                claim for legal settlements
            
            
            -
            
            
            370
            
            
            -
            
            
            -All
                other income
            
            
            533
            
            
            635
            
            
            461
            
            
            569Total
                other income
            
            $
            609
            
            $
            1,274
            
            $
            650
            
            $
            616





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 25.91% in the first half of 2006 to 27.73% in the first half
      of
      2007, decreased from 26.39% in the second quarter of 2006 to 26.01% in the
      second quarter of 2007 and decreased from 29.43% in the first quarter
      of 2007 to 26.01% in the second quarter of 2007. Contributing factors in the
      decrease during the second quarter of 2007 were (1) the $126 thousand loss
      on
      the extinguishment of a called FHLB borrowing during the second quarter of
      2007
      and (2) the receipt of an insurance claim for $370 thousand during the first
      quarter of 2007 covering legal settlements. Another metric that the Company
      monitors is revenues per full-time employee, which was approximately $135
      thousand per employee on an annualized basis during the first half of 2007
      as
      compared to $134 thousand for the first half of 2006. Additionally insurance
      product revenues per producer improved from $21 thousand per producer in the
      second quarter of 2006 to $25 thousand per producer in the second 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 7.96% from the first half of 2006 to the first half of
      2007, increased by 1.37% from the second quarter of 2006 to the second quarter
      of 2007 and decreased by 1.36% from the first quarter of 2007 to the second
      quarter of 2007.





Salary
      and benefit expenses, which comprise approximately 60% of noninterest expenses,
      increased by 8.68% from the first half of 2006 to the first half of 2007,
      increased by 2.71% from the second quarter of 2006 to the second quarter of
      2007
      and increased by .72% from the first quarter of 2007 to the second quarter
      of
      2007. The number of full-time equivalent employees was 562 at June 30, 2007,
      561
      at March 31, 2007, 563 at June 30, 2006 and 541 at March 31, 2006. The increases
      during the second quarter of 2006 were mainly due to the Crockett County,
      Tennessee acquisition and the de novo expansion in the Memphis, Tennessee
      metropolitan area. The increases from June 30, 2006 to June 30, 2007 were due
      primarily to increased staffing in the Birmingham, Alabama market, expansion
      into Crestview, Florida and continued expansion in the Memphis, Tennessee
      market. 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 half of 2006 to 3.29% in the first half of 2007,
      decreased from 3.28% in the second quarter of 2006 to 3.25% in the second
      quarter of 2007 and decreased from 3.29% in the first quarter of 2007 to 3.25%
      in the second quarter of 2007.





The
      business expansion and acquisition efforts during 2006 also produced an increase
      in related occupancy expenses. This resulted in a 13.54% increase in occupancy
      expense and a 19.33% increase in equipment expenses in the first half of 2007
      over the first half of 2006.





24




FIRST
      M
& F CORPORATION





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





2Q2007
            
            1Q2007
            
            2Q2006
            
            1Q2006Postage
                and shipping
            
            $
            175
            
            $
            215
            
            $
            182
            
            $
            164Supplies
            
            
            220
            
            
            233
            
            
            291
            
            
            242Legal
                expenses
            
            
            140
            
            
            179
            
            
            184
            
            
            184Other
                professional expenses
            
            
            143
            
            
            152
            
            
            140
            
            
            145Insurance
                expenses
            
            
            117
            
            
            202
            
            
            92
            
            
            149Debit
                card processing exenses
            
            
            155
            
            
            136
            
            
            134
            
            
            121All
                other expenses
            
            
            1,263
            
            
            1,417
            
            
            1,430
            
            
            1,432Total
                other expense
            
            $
            2,213
            
            $
            2,534
            
            $
            2,453
            
            $
            2,437




**Income
      Taxes**





Income
      tax expenses for the first half of 2007 increased by 10.38% over the first
      half
      of 2006. Pre-tax earnings for the first half of 2007 were up by 9.31% over
      the
      same period in 2006. The effective tax rates for the first six months of 2007
      and 2006 were 32.33% and 32.01% respectively.





25




FIRST
      M
& F CORPORATION




**Assets
      and Liabilities**





Assets
      increased by 3.35% from June 30, 2006 to June 30, 2007, increased by 2.88%
      from
      December 31, 2006 to June 30, 2007, increased by 21.01% from December 31, 2005
      to June 30, 2006 and by 1.32% from March 31, 2007 to June 30, 2007. Investments
      decreased by 2.17% from June 30, 2006 to June 30, 2007, decreased by 10.14%
      from
      December 31, 2006 to June 30, 2007, increased by 30.17% from December 31, 2005
      to June 30, 2006 and decreased by 5.36% from March 31, 2007 to June 30, 2007.
      Liquidity provided by investment maturities was used to fund loan growth during
      the first half of 2007. Loans grew by 6.18% from June 30, 2006 to June 30,
      2007,
      increased by 5.48% from December 31, 2006 to June 30, 2007, increased by 15.76%
      from December 31, 2005 to June 30, 2006 and increased by 3.46% from March 31,
      2007 to June 30, 2007. Loan growth in 2007 has occurred primarily in real
      estate-secured commercial credits. First half loan growth occurred primarily
      in
      the Rankin County, Mississippi, Birmingham, Alabama and Memphis, Tennessee
      metropolitan markets, as well as in the Crestview, Florida market. The Memphis,
      Tennessee and Crestview, Florida markets provided approximately one half of
      the
      loan growth for the second quarter of 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 72.37% at June 30, 2007, 70.87% at March 31, 2007, 70.59% at December
      31,
      2006 and 70.44% at June 30, 2006. The high growth rate for the first half of
      2006 was due primarily to the Columbiana Bancshares and Crockett County
      Bancshares acquisitions during February and May 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 June 30, 2007,
      December 31, 2006, and June 30, 2006.





*(Dollars
                in thousands)*
            
            June
                30,
              2007
            
            December
                31,
              2006
            
            June
                30,
              2006Commercial
                real estate
            
            $
            672,764
            
            $
            621,840
            
            $
            592,265Residential
                real estate
            
            
            220,876
            
            
            221,911
            
            
            217,602Home
                equity lines
            
            
            37,374
            
            
            40,136
            
            
            40,812Commercial,
                financial and agricultural
            
            
            167,184
            
            
            150,905
            
            
            175,332Consumer
            
            
            41,385
            
            
            45,872
            
            
            48,510Other
                loans
            
            
            7,296
            
            
            6,619
            
            
            5,625Total
            
            $
            1,146,879
            
            $
            1,087,283
            
            $
            1,080,146Mortgages
                held for sale
            
            $
            3,322
            
            $
            3,165
            
            $
            4,991Student
                loans held for sale
            
            
            3,337
            
            
            4,098
            
            
            5,365





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





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





26




FIRST
      M
& F CORPORATION





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





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 .62% from June 30, 2006 to June 30, 2007, increased by 2.21% from
      December 31, 2006 to June 30, 2007, increased by 23.73% from December 31, 2005
      to June 30, 2006 and increased by .27% from March 31, 2007 to June 30, 2007.
      Deposit growth, excluding public funds, occurred primarily in the
      noninterest-bearing, money market and savings account categories during the
      first half of 2007. For the second quarter of 2007, excluding public funds,
      money market accounts provided the majority of deposit growth. This money market
      growth was due primarily to a campaign offering higher yielding money market
      accounts to single-service loan customers, and also targeting the replacement
      of
      time deposits with more stable core deposits. Certificates of deposit, excluding
      public funds, decreased during the first and second quarters of 2007 as the
      Company maintained a moderate pricing strategy 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 $62.861 million
      or
      7.78% in the first half 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. Management expects to institute significant deposit
      campaigns during the second half of 2007 and 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 June 30, 2007, December 31, 2006,
      and June 30, 2006.





*(Dollars
                in thousands)*
            
            June
                30,
              2007
            
            December
                31,
              2006
            
            June
                30,
              2006Noninterest-bearing
                demand
            
            $
            187,604
            
            $
            180,273
            
            $
            197,328NOW
                deposits
            
            
            205,347
            
            
            199,666
            
            
            228,238Money
                market deposits
            
            
            137,245
            
            
            128,694
            
            
            127,221Savings
                deposits
            
            
            102,376
            
            
            94,815
            
            
            96,702Certificates
                of deposit
            
            
            551,487
            
            
            547,513
            
            
            520,200Brokered
                certificates of deposit
            
            
            28,101
            
            
            35,021
            
            
            35,029Total
            
            $
            1,212,160
            
            $
            1,185,982
            
            $
            1,204,718




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





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




27




FIRST
      M
& F CORPORATION





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





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 June 30, 2007,
      December 31, 2006, and June 30, 2006.





*(Dollars
                in thousands)*
            
            June
                30,
              2007
            
            December
                31,
              2006
            
            June
                30,
              2006Noninterest-bearing
                demand
            
            $
            6,503
            
            $
            4,733
            
            $
            7,327NOW
                deposits
            
            
            80,963
            
            
            73,899
            
            
            100,179Money
                market deposits
            
            
            24,124
            
            
            17,953
            
            
            29,833Savings
                deposits
            
            
            272
            
            
            393
            
            
            479Certificates
                of deposit
            
            
            97,424
            
            
            65,936
            
            
            51,904Brokered
                certificates of deposit
            
            
            1,488
            
            
            1,779
            
            
            2,231Total
            
            $
            210,774
            
            $
            164,693
            
            $
            191,953




Other
      borrowings increased by $20.362 million during the first half of 2007 after
      increasing by $25.885 million since the first half of 2006. 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 38.67% at June 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.





28





FIRST
      M
& F CORPORATION




**Equity**





The
      Company’s and Bank’s regulatory capital ratios at June 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.





First
                M & F Corporation
            
            M
                & F BankAmount
            
            Ratio
            
            Amount
            
            RatioActual:Total
                risk-based capital
            
            $
            142,738
            
            
            11.22
            %
            $
            142,168
            
            
            11.19
            %Tier
                1 capital
            
            
            127,678
            
            
            10.04
            %
            
            127,108
            
            
            10.00
            %Leverage
            
            
            127,678
            
            
            8.45
            %
            
            127,108
            
            
            8.42
            %For
                Capital Adequacy Purposes:Total
                risk-based capital
            
            
            101,771≥
            
            
            8.00
            %
            
            101,670≥
            
            
            8.00
            %Tier
                1 capital
            
            
            50,886≥
            
            
            4.00
            %
            
            50,835≥
            
            
            4.00
            %Leverage
            
            
            60,419≥
            
            
            4.00
            %
            
            60,379≥
            
            
            4.00
            %To
                Be Well Capitalized Under PromptCorrective
                Action Provisions:Total
                capital
            
            
            
            
            
            
            
            
            127,088≥
            
            
            10.00
            %Tier
                1 capital
            
            
            
            
            
            
            
            
            76,253≥
            
            
            6.00
            %Leverage
            
            
            
            
            
            
            
            
            75,473≥
            
            
            5.00
            %




The
      Company issued 14,854 shares upon the exercise of stock options during the
      first
      six months of 2007 at an average exercise price of $15.35 per share and 30,608
      shares during the first six months of 2006 at an average exercise price of
      $14.16 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 11.72
      as of June 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 June 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.





29





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.





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





(*Dollars
                in thousands*)
            
            June
                30
            
            December
                31
            
            June
                302007
            
            2006
            
            2006Nonaccrual
                loans
            
            $
            5,886
            
            $
            3,557
            
            $
            2,388Past
                due 90 days or more and stillaccruing
                interest
            
            
            455
            
            
            376
            
            
            921Total
                non-performing loans
            
            
            6,341
            
            
            3,933
            
            
            3,309Other
                real estate
            
            
            3,652
            
            
            3,135
            
            
            4,870Total
                non-performing assets
            
            $
            9,993
            
            $
            7,068
            
            $
            8,179Ratios:Non-performing
                loans to loans
            
            
            .55
            %
            
            .36
            %
            
            .30
            %Non-performing
                assets to assets
            
            
            .63
            %
            
            .46
            %
            
            .53
            %




**Off-Balance
      Sheet Arrangements**





The
      Company’s primary off-balance sheet arrangements are in the form of loan
      commitments and operating lease commitments. At June 30, 2007 the Company had
      $205.030 million in unused loan commitments outstanding. Of these commitments,
      $98.018 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 second
      quarter. At June 30, 2007 the Company had $19.967 million in financial standby
      letters of credit issued and outstanding.





A
      liability of $107 thousand is recognized in Other Liabilities at June 30, 2007
      related to the obligation to stand ready to perform related to standby letters
      of credit.




30





FIRST
      M
& F CORPORATION





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
      $13.557 million at June 30, 2007. These commitments are accounted for as
      derivatives and are marked to fair value with changes in fair value recorded
      in
      other income. At June 30, 2007 mortgage origination-related derivatives with
      positive fair values of $12 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 other income. At June 30, 2007 the Company had $4.851
      million in locked forward sales agreements in place. Forward sale-related
      derivatives with positive fair values of $38 thousand were included in other
      assets and derivatives with negative fair values of $5 thousand were included
      in
      other liabilities.





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.





31





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.





32





FIRST
      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 Nos. 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.





33




FIRST
      M
& F CORPORATION





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.





34




FIRST
      M
& F CORPORATION





**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 4.34% 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 2.74% 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 6% with an immediate
      and sustained increase in interest rates of 200 basis points. The market value
      of equity will decrease by 15% 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 June 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
      June 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 June 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.




35





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**





The
      annual stockholders’ meeting was held on April 11, 2007. The stockholders
      elected five directors to serve a three year term to expire in April, 2010
      as
      summarized below:





Directors
                Elected
            
            Votes
                For
            
            Votes
                WithheldMichael
                L. Nelson
            
            
            7,237,176
            
            
            10,322Hugh
                S. Potts, Jr.
            
            
            7,231,876
            
            
            15,622Samuel
                B. Potts
            
            
            7,230,264
            
            
            17,234Michael
                W. Sanders
            
            
            7,237,176
            
            
            10,322Scott
                M. Wiggers
            
            
            7,233,176
            
            
            14,322





There
      were 9,172,846 shares entitled to vote on the proposals, with 7,411,746 shares,
      or 80.80% actually being voted.





**Item
      5 - Other Information**





None





36




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.








37




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
      :
      August 7, 2007





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


38





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 reference





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





11
            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 Officer





32
            Section
                1350 Certification of Hugh S. Potts, Jr., Chief Executive Officer
                and
                Section 1350 Certification of John G.Copeland,
                Chief Financial Officer





39