UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-Q**





**x**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF****THE
                SECURITIES EXCHANGE ACT OF 1934**For
                the quarterly period ended March 31, 2008Or**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.
                Employer Identification Number)Incorporation
                or organization)134
                West Washington Street, Kosciusko, Mississippi
            
            39090(Address
                of principal executive offices)
            
            (Zip
                Code)





662-289-5121


(Registrant’s
      telephone number, including area code





No
      Change


(Former
      name, former address and former fiscal year,


if
      changed since the last report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. x Yes o
      No





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


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





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


o
      Yes x No





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





Common
                stock, $5 par value
            
            9,179,596
                SharesTitle
                of Class
            
            Shares
                Outstanding at Apri1 30, 2008








**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
            34Item
                4
            Controls
                and Procedures
            34**PART
                II:**
            **OTHER
                INFORMATION**Item
                1
            Legal
                Proceedings
            35Item
                1A
            Risk
                Factors
            35Item
                2
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            35Item
                3
            Defaults
                upon Senior Securities
            35Item
                4
            Submission
                of Matters to a Vote of Security Holders
            35Item
                5
            Other
                Information
            35Item
                6
            Exhibits
            36**SIGNATURES**
            
            37**EXHIBIT
                INDEX****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)*March 31
            
            December 312008
            
            2007
            
            2007AssetsCash
                and due from banks
            
            $
            52,735
            
            $
            51,458
            
            $
            54,240Interest
                bearing bank balances
            
            
            8,203
            
            
            10,282
            
            
            3,480Federal
                funds sold
            
            
            3,800
            
            
            15,000
            
            
            2,000Securities
                  available for sale, amortized cost of
                  $240,473, $249,530 and $236,575
            
            
            243,250
            
            
            248,624
            
            
            237,138Loans
                held for sale
            
            
            6,229
            
            
            8,755
            
            
            5,571Loans,
                net of unearned income
            
            
            1,206,168
            
            
            1,108,550
            
            
            1,219,435Allowance
                for loan losses
            
            
            (14,196
            )
            
            (15,276
            )
            
            (14,217
            )Net
                loans
            
            
            1,191,972
            
            
            1,093,274
            
            
            1,205,218Bank
                premises and equipment
            
            
            45,185
            
            
            42,030
            
            
            45,545Accrued
                interest receivable
            
            
            11,289
            
            
            12,148
            
            
            12,434Other
                real estate
            
            
            6,927
            
            
            2,270
            
            
            6,232Goodwill
            
            
            32,572
            
            
            32,572
            
            
            32,572Other
                intangible assets
            
            
            7,491
            
            
            7,928
            
            
            7,612Bank
                owned life insurance
            
            
            20,010
            
            
            19,254
            
            
            19,829Other
                assets
            
            
            17,805
            
            
            20,513
            
            
            21,880$
            1,647,468
            
            $
            1,564,108
            
            $
            1,653,751Liabilities
                and Stockholders’ EquityLiabilities:Noninterest-bearing
                deposits
            
            $
            187,080
            
            $
            188,116
            
            $
            191,206Interest-bearing
                deposits
            
            
            1,126,495
            
            
            1,020,748
            
            
            1,071,249Total
                deposits
            
            
            1,313,575
            
            
            1,208,864
            
            
            1,262,455Federal
                funds purchased and repurchase agreements
            
            
            5,714
            
            
            6,177
            
            
            9,676Other
                borrowings
            
            
            143,977
            
            
            176,859
            
            
            201,312Junior
                subordinated debt
            
            
            30,928
            
            
            30,928
            
            
            30,928Accrued
                interest payable
            
            
            4,979
            
            
            4,679
            
            
            5,151Other
                liabilities
            
            
            4,867
            
            
            5,676
            
            
            4,131Total
                liabilities
            
            
            1,504,040
            
            
            1,433,183
            
            
            1,513,653Noncontrolling
                interest in subsidiaries
            
            
            18
            
            
            19
            
            
            18Stockholders’
                equity:Preferred
                stock:Class
                A; 1,000,000 shares authorized
            
            
            -
            
            
            -
            
            
            -Class
                B; 1,000,000 shares authorized
            
            
            -
            
            
            -
            
            
            -Common
                  stock of $5.00 par value; 15,000,000 shares authorized: 9,060,080,
                  9,055,080 and 9,067,580 shares issued
            
            
            45,300
            
            
            45,275
            
            
            45,338Additional
                paid-in capital
            
            
            30,399
            
            
            30,309
            
            
            30,475Nonvested
                restricted stock awards
            
            
            709
            
            
            459
            
            
            643Retained
                earnings
            
            
            66,341
            
            
            57,070
            
            
            64,395Accumulated
                other comprehensive loss
            
            
            661
            
            
            (2,207
            )
            
            (771
            )Total
                stockholders’ equity
            
            
            143,410
            
            
            130,906
            
            
            140,080$
            1,647,468
            
            $
            1,564,108
            
            $
            1,653,751





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 EndedMarch
                312008
            
            2007Interest
                income:Interest
                and fees on loans
            
            $
            22,155
            
            $
            21,219Interest
                on loans held for sale
            
            
            97
            
            
            112Taxable
                investments
            
            
            2,357
            
            
            2,484Tax-exempt
                investments
            
            
            507
            
            
            462Federal
                funds sold
            
            
            88
            
            
            12Interest
                bearing bank balances
            
            
            77
            
            
            43Total
                interest income
            
            
            25,281
            
            
            24,332Interest
                expense:Deposits
            
            
            9,721
            
            
            8,671Federal
                funds purchased and repurchase agreements
            
            
            60
            
            
            188Other
                borrowings
            
            
            1,876
            
            
            1,970Junior
                subordinated debt
            
            
            497
            
            
            496Total
                interest expense
            
            
            12,154
            
            
            11,325Net
                interest income
            
            
            13,127
            
            
            13,007Provision
                for loan losses
            
            
            780
            
            
            630Net
                interest income afterprovision
                for loan losses
            
            
            12,347
            
            
            12,377Noninterest
                income:Service
                charges on deposit accounts
            
            
            2,793
            
            
            2,499Mortgage
                banking income
            
            
            393
            
            
            416Agency
                commission income
            
            
            1,001
            
            
            1,041Trust
                and brokerage income
            
            
            138
            
            
            137Bank
                owned life insurance income
            
            
            151
            
            
            190Securities
                gains (losses), net
            
            
            11
            
            
            -Other
                income
            
            
            1,028
            
            
            1,274Total
                noninterest income
            
            
            5,515
            
            
            5,557Noninterest
                expenses:Salaries
                and employee benefits
            
            
            7,656
            
            
            7,251Net
                occupancy expenses
            
            
            1,005
            
            
            867Equipment
                expenses
            
            
            891
            
            
            897Software
                and processing expenses
            
            
            431
            
            
            344Telecommunication
                expenses
            
            
            277
            
            
            259Marketing
                and business development expenses
            
            
            299
            
            
            345Intangible
                asset amortization
            
            
            121
            
            
            185Other
                expenses
            
            
            2,677
            
            
            2,534Total
                noninterest expenses
            
            
            13,357
            
            
            12,682Income
                before income taxes and noncontrolling interests
            
            
            4,505
            
            
            5,252Income
                taxes
            
            
            1,364
            
            
            1,691Noncontrolling
                  interest in earnings (losses) of subsidiaries, net
                  of taxes of $1 and $4
            
            
            2
            
            
            7Net
                income
            
            $
            3,139
            
            $
            3,554Earnings
                per share:Basic
            
            $
            .35
            
            $
            .39Diluted
            
            $
            .34
            
            $
            .39





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 EndedMarch
                312008
            
            2007Net
                income
            
            $
            3,139
            
            $
            3,554Other
                comprehensive income:Change
                  in unrealized gains on securities available for sale, net of tax of
                  $830 and $188 for the three months ended March
                  31
            
            
            1,395
            
            
            316Reclassification
                  adjustment for gains on securities available for sale included in net
                  income, net of tax of $4 and $0 for the three months ended March
                  31
            
            
            (7
            )
            
            -Defined
                benefit pension plan:Transition
                  obligation amortization, net of tax of $1 and $1 for the three months
                  ended March 31
            
            
            (1
            )
            
            (1
            )Prior
                  service cost amortization, net of tax of $3 and $3 for the three
                  months ended March 31
            
            
            (6
            )
            
            (6
            )Actuarial
                  loss amortization, net of tax of $30 and $39 for the three months
                  ended March 31
            
            
            51
            
            
            65Other
                comprehensive income
            
            
            1,432
            
            
            374Total
                comprehensive income
            
            $
            4,571
            
            $
            3,928





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 March 31, 2008 and 2007


(Unaudited)





*(Dollars
                in thousands, except per share data)*
            
            
            
            
            
            Nonvested
            
            
            
            AccumulatedAdditional
            
            Restricted
            
            
            
            OtherCommon
            
            Paid-in
            
            Stock
            
            Retained
            
            ComprehensiveStock
            
            Capital
            
            Awards
            
            Earnings
            
            Income
            
            TotalJanuary
                1, 2007
            
            $
            45,231
            
            $
            30,315
            
            $
            375
            
            $
            54,707
            
            $
            (2,581
            )
            $
            128,047Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            3,554
            
            
            -
            
            
            3,554Cash
                dividends ($.13 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,192
            )
            
            -
            
            
            (1,192
            )8,854
                  common shares issued in exercise
                  of stock options
            
            
            44
            
            
            86
            
            
            -
            
            
            -
            
            
            -
            
            
            130Tax
                  benefits on stock option transactions
            
            
            -
            
            
            78
            
            
            -
            
            
            -
            
            
            -
            
            
            78Option
                cancellation payments
            
            
            -
            
            
            (175
            )
            
            -
            
            
            -
            
            
            -
            
            
            (175
            )Share-based
                  compensation expense
                  recognized
            
            
            -
            
            
            5
            
            
            84
            
            
            1
            
            
            -
            
            
            90Net
                change
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            374
            
            
            374March
                31, 2007
            
            $
            45,275
            
            $
            30,309
            
            $
            459
            
            $
            57,070
            
            $
            (2,207
            )
            $
            130,906January
                1, 2008
            
            $
            45,338
            
            $
            30,475
            
            $
            643
            
            $
            64,395
            
            $
            (771
            )
            $
            140,080Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            3,139
            
            
            -
            
            
            3,139Cash
                dividends ($.13 per share)
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,194
            )
            
            -
            
            
            (1,194
            )7,500
                common shares repurchased
            
            
            (38
            )
            
            (80
            )
            
            -
            
            
            -
            
            
            -
            
            
            (118
            )Share-based
                  compensation expense
                  recognized
            
            
            -
            
            
            4
            
            
            66
            
            
            1
            
            
            -
            
            
            71Net
                change
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,432
            
            
            1,432March
                31, 2008
            
            $
            45,300
            
            $
            30,399
            
            $
            709
            
            $
            66,341
            
            $
            661
            
            $
            143,410





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)*
            
            Three Months Ended March 312008
            
            2007Cash
                flows from operating activities:Net
                income
            
            $
            3,139
            
            $
            3,554Adjustments
                  to reconcile net income to net cash provided by operating
                  activities:Share-based
                compensation
            
            
            71
            
            
            90Amortization
                of pension costs
            
            
            30
            
            
            70Depreciation
                and amortization
            
            
            851
            
            
            822Provision
                for loan losses
            
            
            780
            
            
            630Net
                investment accretion
            
            
            (50
            )
            
            (101
            )Net
                change in unearned fees/deferred costs on loans
            
            
            (210
            )
            
            38Capitalized
                dividends on FHLB stock
            
            
            (101
            )
            
            (88
            )Net
                accretion of discount on time deposits
            
            
            18
            
            
            23Net
                accretion of discount on debt
            
            
            -
            
            
            4Gain
                on securities available for sale
            
            
            (11
            )
            
            -Gain
                on loans held for sale
            
            
            (29
            )
            
            (44
            )Other
                asset sales (gains) losses
            
            
            (8
            )
            
            137Earnings
                of noncontrolling interest
            
            
            3
            
            
            11Deferred
                income taxes
            
            
            (71
            )
            
            (283
            )(Increase)
                decrease in:Accrued
                interest receivable
            
            
            1,145
            
            
            442Cash
                surrender value of bank owned life insurance
            
            
            (151
            )
            
            (190
            )Loans
                held for sale
            
            
            (626
            )
            
            (1,458
            )Other
                assets
            
            
            1,222
            
            
            (1,305
            )Increase
                (decrease) in:Accrued
                interest payable
            
            
            (172
            )
            
            (105
            )Other
                liabilities
            
            
            1,973
            
            
            1,215Net
                cash provided by operating activities
            
            
            7,803
            
            
            3,462Cash
                flows from investing activities:Purchases
                of securities available for sale
            
            
            (48,289
            )
            
            (1,101
            )Sales
                of securities available for sale
            
            
            2,228
            
            
            321Maturities
                of securities available for sale
            
            
            42,224
            
            
            14,589Net
                (increase) decrease in:Interest
                bearing bank balances
            
            
            (4,723
            )
            
            (6,593
            )Federal
                funds sold
            
            
            (1,800
            )
            
            (15,000
            )Loans
            
            
            11,356
            
            
            (21,870
            )Bank
                premises and equipment
            
            
            (356
            )
            
            (1,525
            )Purchases
                of bank owned life insurance
            
            
            (30
            )
            
            18Proceeds
                from sales of other real estate and other repossessed
                assets
            
            
            584
            
            
            945Net
                (purchases) redemptions, of FHLB and FRB stock
            
            
            1,008
            
            
            (288
            )Net
                cash provided by (used in) investing activities
            
            
            2,202
            
            
            (30,504
            )





(Continued)


7





FIRST
      M
& F CORPORATION AND SUBSIDIARY





Consolidated
      Statements of Cash Flows


(Unaudited)





*(Dollars
                in thousands)*
            
            Three Months Ended March 312008
            
            2007Cash
                flows from financing activities:Net
                increase in deposits
            
            $
            51,102
            
            $
            22,858Net
                increase in short-term borrowings
            
            
            (3,962
            )
            
            (13,435
            )Proceeds
                from other borrowings
            
            
            90,500
            
            
            93,100Repayments
                of other borrowings
            
            
            (147,835
            )
            
            (82,646
            )Proceeds
                from issuance of junior subordinated debt
            
            
            -
            
            
            -Earnings
                distributions to noncontrolling interests
            
            
            (3
            )
            
            (11
            )Cash
                dividends
            
            
            (1,194
            )
            
            (1,192
            )Common
                shares issued
            
            
            -
            
            
            130Common
                shares repurchased
            
            
            (118
            )
            
            -Payments
                to cancel stock options
            
            
            -
            
            
            (175
            )Tax
                benefits on stock option transactions
            
            
            -
            
            
            78Net
                cash provided by (used in) financing activities
            
            
            (11,510
            )
            
            18,707Net
                decrease in cash and due from banks
            
            
            (1,505
            )
            
            (8,335
            )Cash
                and due from banks at January 1
            
            
            54,240
            
            
            59,793Cash
                and due from banks at March 31
            
            $
            52,735
            
            $
            51,458Total
                interest paid
            
            $
            12,309
            
            $
            11,402Total
                income taxes paid
            
            
            95
            
            
            1,650Income
                tax refunds received
            
            
            -
            
            
            301Transfers
                of loans to foreclosed property
            
            
            1,206
            
            
            204





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. The condensed balance sheet as of December 31, 2007, has been
      derived from audited 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 2007 financial statements to
      be
      consistent with the 2008 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,
      2007.





Note
      2: Fair Value





Effective
      January 1, 2008, the Company adopted the provisions of Statement of Financial
      Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” for financial
      assets and liabilities. SFAS 157 defines fair value as the price that would
      be
      received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants. A fair value measurement assumes that
      the transaction to sell the asset or transfer the liability occurs in the
      principal market for the asset or liability or, in the absence of a principal
      market, the most advantageous market for the asset or liability. Valuation
      techniques use certain inputs to arrive at fair value. Inputs to valuation
      techniques are the assumptions that market participants would use in pricing
      the
      asset or liability. They may be observable or unobservable. SFAS 157 establishes
      a fair value hierarchy for valuation inputs that gives the highest priority
      to
      quoted prices in active markets for identical assets or liabilities and the
      lowest priority to unobservable inputs. The fair value hierarchy is as
      follows:





Level
      1
      Inputs – Unadjusted quoted market prices in active markets for identical assets
      or liabilities that the reporting entity has the ability to access at the
      measurement date.





Level
      2
      Inputs – Inputs other than quoted prices included in Level 1 that are observable
      for the asset or liability, either directly or indirectly. These might include
      quoted prices for similar assets or liabilities in active markets, quoted prices
      for identical or similar assets or liabilities in markets that are not active,
      inputs other than quoted prices that are observable for the asset or liability
      (such as interest rates, volatilities, prepayment speeds or credit risks) or
      inputs that are derived principally from or corroborated by market data by
      correlation or other means.





Level
      3
      Inputs – Unobservable inputs for determining the fair values of assets or
      liabilities that reflect an entity’s own assumptions about the assumptions that
      market participants would use in pricing the assets or liabilities





The
      following table summarizes financial assets and financial liabilities measured
      at fair value on a recurring basis as of March 31, 2008, segregated by the
      level
      of the valuation inputs within the fair value hierarchy utilized to measure
      fair
      value:





Fair Value Measurements atMarch 31, 2008, UsingQuotedPrices InActiveMarkets
            
            SignificantAssets/Liabilities
            
            For
            
            Other
            
            SignificantMeasured at Fair
            
            Identical
            
            Observable
            
            UnobservableValue
            
            Assets
            
            Inputs
            
            Inputs*(Dollars in thousands)*
            
            March 31, 2008
            
            (Level 1)
            
            (Level 2)
            
            (Level 3)Securities
                available for sale
            
            $
            243,250
            
            $
            -
            
            $
            243,250
            
            $
            -Mortgage
                derivative assets
            
            
            35
            
            
            -
            
            
            35
            
            
            -Mortgage
                derivative liabilities
            
            
            16
            
            
            -
            
            
            16
            
            
            -


9





FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      2: (Continued)





*Securities
      Available for Sale* .
      Securities classified as available for sale are reported at fair value utilizing
      Level 2 inputs. For these securities, the Corporation obtains fair value
      measurements from an independent pricing service. The fair value measurements
      consider observable data that may include dealer quotes, market spreads, cash
      flows, market yield curves, prepayment speeds, credit information and the
      instrument’s contractual terms and conditions, among other things.





*Mortgage
      Derivatives* .
      Mortgage derivative assets and liabilities are reported at fair value utilizing
      Level 2 inputs. These assets and liabilities represent the fair values of the
      commitments of the Company to originate mortgages at certain rates as well
      as
      the commitments of investors to purchase the mortgages at locked prices within
      a
      specified period of time. The Company uses an internal valuation model with
      observable market data inputs consisting primarily of dealer quotes, projected
      cash flows, yield curves and credit-related adjustments.





Certain
      financial assets such as impaired loans are measured at fair value on a
      nonrecurring basis; that is, the instruments are not measured at fair value
      on
      an ongoing basis but are subject to fair value adjustments in certain
      circumstances, such as when there is evidence of impairment. These financial
      assets were not significant at March 31, 2008.





Certain
      non-financial assets and non-financial liabilities measured at fair value on
      a
      non-recurring basis include non-financial assets and non-financial liabilities
      related to reporting units measured at fair value in the testing of goodwill
      impairment, as well as intangible assets and other non-financial long-lived
      assets measured at fair value for impairment assessment. SFAS 157 will be
      applicable to these fair value measurements beginning January 1,
      2009.





Note
      3: Earnings Per Share





*(Dollars
                in thousands, except per share data)*
            
            Three Months Ended March 312008
            
            2007Net income
            
            $
            3,139
            
            $
            3,554Weighted
                average shares outstanding
            
            
            9,064,311
            
            
            9,052,627Add
                dilutive effect of share-based compensation instruments
            
            
            36,187
            
            
            50,835Adjusted
                dilutive shares outstanding
            
            
            9,100,498
            
            
            9,103,462Earnings
                per share:Basic
            
            $
            .35
            
            $
            .39Diluted
            
            $
            .34
            
            $
            .39Stock
                options and stock awards not included in adjusted shares due to
                anti-dilutive effect
            
            
            14,546
            
            
            1,184


10





FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      4: Loans





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





*(Dollars
                in thousands)*
            
            March 31
            
            December 312008
            
            2007
            
            2007Commercial,
                financial and agricultural
            
            $
            165,605
            
            $
            153,798
            
            $
            169,447Non-residential
                real estate
            
            
            737,964
            
            
            644,816
            
            
            731,595Residential
                real estate
            
            
            211,205
            
            
            221,747
            
            
            223,614Home
                equity loans
            
            
            45,796
            
            
            37,496
            
            
            45,987Consumer
                loans
            
            
            39,478
            
            
            43,616
            
            
            40,860Other
                loans
            
            
            6,120
            
            
            7,077
            
            
            7,932Total
                loans
            
            $
            1,206,168
            
            $
            1,108,550
            
            $
            1,219,435





The
      following table is a summary of the activity in the Allowance for Loan Losses
      for the first three months of 2008 and 2007:





*(Dollars
                in thousands)*
            
            Three Months Ended March 312008
            
            2007Balance
                at January 1
            
            $
            14,217
            
            $
            14,950Loans
                charged off
            
            
            (1,040
            )
            
            (935
            )Recoveries
            
            
            239
            
            
            631Net
                charge-offs
            
            
            (801
            )
            
            (304
            )Provision
                for loan losses
            
            
            780
            
            
            630Balance
                at March 31
            
            $
            14,196
            
            $
            15,276


11





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, 2006
            
            $
            32,572
            
            $
            6,784
            
            $
            209
            
            $
            95
            
            $
            1,025Amortization
                expense
            
            
            -
            
            
            (172
            )
            
            (6
            )
            
            (7
            )
            
            -Balance
                at March 31, 2007
            
            $
            32,572
            
            $
            6,612
            
            $
            203
            
            $
            88
            
            $
            1,025Balance
                at December 31, 2007
            
            $
            32,572
            
            $
            6,292
            
            $
            228
            
            $
            67
            
            $
            1,025Amortization
                expense
            
            
            -
            
            
            (107
            )
            
            (7
            )
            
            (7
            )
            
            -Balance
                at March 31, 2008
            
            $
            32,572
            
            $
            6,185
            
            $
            221
            
            $
            60
            
            $
            1,025Estimated
                amortization expenseRemainder
                of 2008
            
            
            
            
            $
            320
            
            $
            23
            
            $
            212009
            
            
            
            
            
            427
            
            
            30
            
            
            262010
            
            
            
            
            
            427
            
            
            30
            
            
            142011
            
            
            
            
            
            427
            
            
            30
            
            
            -2012
            
            
            
            
            
            427
            
            
            24
            
            
            -2013
            
            
            
            
            
            427
            
            
            21
            
            
            -





The
      Company acquired the book of business of an insurance agency in Kosciusko,
      Mississippi in October 2007, for $46 thousand. The $46 thousand was attributed
      to renewal list intangible assets with an estimated life of 15
      years.





The
      banking charter is being accounted for as an indefinite-lived intangible asset
      and is therefore not being amortized. The banking charter is tested for
      impairment annually and 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 March 31, 2008 and 2007 and
      December 31, 2007:





*(Dollars
                in thousands)*
            
            March 31
            
            December 312008
            
            2007
            
            2007Company’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
            
            $
            2,416
            
            $
            1,417
            
            $
            1,917Bank’s
                    advances from Federal Home Loan Banks, net of unamortized purchase
                    accounting discounts of $5, $127 and $5
            
            
            141,478
            
            
            175,442
            
            
            199,084Other
                mortgages to third parties on other real estate
            
            
            83
            
            
            -
            
            
            311$
            143,977
            
            $
            176,859
            
            $
            201,312Company’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.


12




FIRST
      M
& F CORPORATION AND SUBSIDIARY





Notes
      to
      Consolidated Financial Statements





Note
      6: (Continued)





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, 2007 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 March 31, 2008 and December 31, 2007:





*(Dollars
                in thousands)*
            
            Balance
            
            2008
            
            Balance12/31/07
            
            Amortization
            
            03/31/08Unamortized
                transition asset
            
            $
            (18
            )
            $
            2
            
            $
            (16
            )Unamortized
                prior service cost
            
            
            (145
            )
            
            9
            
            
            (136
            )Unamortized
                actuarial loss
            
            
            1,955
            
            
            (81
            )
            
            1,8741,792
            
            
            (70
            )
            
            1,722Deferred
                taxes
            
            
            (668
            )
            
            26
            
            
            (642
            )Net
                unamortized pension costs
            
            $
            1,124
            
            $
            (44
            )
            $
            1,080








The
      following is a summary of the components of net periodic benefit costs for
      the
      three month period ended March 31, 2008 and 2007:





*(Dollars
                in thousands)*
            
            Three Months Ended
              March 312008
            
            2007Service
                cost
            
            $
            -
            
            $
            -Interest
                cost
            
            
            115
            
            
            118Expected
                return on plan assets
            
            
            (155
            )
            
            (141
            )Amortization
                of transition asset
            
            
            (2
            )
            
            (2
            )Amortization
                of prior service costs
            
            
            (9
            )
            
            (9
            )Recognized
                actuarial (gain) loss
            
            
            81
            
            
            104Net
                pension cost
            
            $
            30
            
            $
            70





The
      Company did not make any contributions to the pension plan during the first
      quarters of 2007 and 2008. The Company does not expect to make any contributions
      to the pension plan during 2008.





The
      Company made $75 thousand in contributions to the ESOP and $169 thousand in
      matching contributions to the 401k plan during the first quarter of 2008. The
      Company made $75 thousand in contributions to the ESOP and $163 thousand in
      matching contributions to the 401k plan during the first quarter of
      2007.





The
      Company has a nonqualified deferred compensation plan for certain senior
      officers. Participants deferred $26 thousand of compensation during the first
      three months of 2008 and $25 thousand during the first three months of 2007.
      Employee benefit expenses include credits for earnings declines attributed
      to
      the participants’ accounts of $7 thousand for the first three months of 2008 and
      charges for earnings increases of $28 thousand for the first three months of
      2007. The plan incurred no expenses during the first three months of 2008 and
      $2
      thousand during the first three months of 2007. Liabilities of the plan were
      $439 thousand at March 31, 2008, and $329 thousand at March 31, 2007,
      substantially all of which were vested.


13





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:





Three Months Ended March 312008
            
            2007Number
            
            Price
            
            Number
            
            PriceJanuary
                1
            
            
            128,500
            
            $
            16.16
            
            
            186,462
            
            $
            15.59Exercised
            
            
            -
            
            
            -
            
            
            (8,854
            )
            
            14.74Cancelled
            
            
            -
            
            
            -
            
            
            (38,108
            )
            
            13.96Granted
            
            
            -
            
            
            -
            
            
            -
            
            
            -March
                31
            
            
            128,500
            
            $
            16.16
            
            
            139,500
            
            $
            16.09Exercisable
                at March 31, 2008
            
            
            115,300
            
            $
            15.94Available
                for additional grant at March 31, 2008
            
            
            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
      an
      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. In December 2007 the
      Company issued 13,250 restricted stock awards at a grant date fair value of
      $15.48 to certain officers of the Bank and its subsidiary. The shares vest
      in
      seven (7) years. The share awards issued in December of 2005, 2006 and 2007
      have
      the same potential acceleration criteria as the awards issued in August 2005.
      At
      March 31, 2008 there was $1.339 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 and in December 2007, an additional 3,000 shares
      were forfeited. In December 2007, 1,500 shares of restricted stock with a fair
      value of $24 thousand became fully vested and outstanding. The following table
      provides a summary of the restricted share activity:





Grant DateShares
            
            Fair ValueJanuary
                1, 2007
            
            
            117,766
            
            $
            17.09Granted
                in 2007
            
            
            13,250
            
            
            15.48Forfeited
                in 2007
            
            
            (6,000
            )
            
            17.08Vested
                in 2007
            
            
            (1,500
            )
            
            19.59December
                31, 2007
            
            
            123,516
            
            
            16.892008
                Activity
            
            
            -
            
            
            -March
                31, 2008
            
            
            123,516
            
            
            16.89


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 March 31, 2008 and 2007, and the related
      consolidated statements of income, comprehensive income, stockholders’ equity
      and cash flows for the three-month periods ended March 31, 2008 and 2007. 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, 2007,
      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 22, 2008, 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, 2007 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


May
      5,
      2008


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.
      Should the assumptions prove to be significantly different, actual results
      may
      vary from those estimated, anticipated, projected or expected. Factors that
      may
      cause actual results to differ materially from those contemplated by such
      forward-looking statements include, among others, the following:





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





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





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





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





·
            Mortgage
                originations, and therefore mortgage revenues, could be hurt by interest
                rate changes as well as changes in the underwriting standards of
                investors
                who purchase originated mortgages.





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





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





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





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





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





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





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





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





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


16





FIRST
      M
& F CORPORATION





**Financial
      Summary**





Net
      income for the first quarter of 2008 was $3.139 million, or $.35 basic and
      $.34
      diluted earnings per share as compared to $3.554 million, or $.39 basic and
      diluted earnings per share for the same period in 2007 and $3.561 million or
      $.40 basic and $.39 diluted earnings per share for the fourth quarter of 2007.
      Major factors contributing to the decrease in year-over-year earnings were
      (1) a
      decrease of $13.267 million in loans during the first quarter of 2008, (2)
      a
      decrease in the net interest margin from 3.94% for the first quarter of 2007
      to
      3.66% for the first quarter of 2008 and (3) a decrease in noninterest income
      coupled with an increase in noninterest expenses for the first quarter of 2008
      as compared to 2007.





Highlights
      for the first three months of 2008 and 2007 are as follows:





·
            Return
                on assets for the first three months of 2008 was .76% while the return
                on
                equity was 8.87%


·
            Return
                on assets for the first three months of 2007 was .94% and return
                on equity
                was 11.18%


·
            Declines
                in loan balances in the Tupelo and Madison County Mississippi markets
                during the first quarter of 2008 overshadowed increases in loan volumes
                in
                the Alabama and Florida markets


·
            The
                Memphis, Tennessee, Birmingham, Alabama and Crestview, Florida markets
                contributed most of the loan growth for the first quarter of
                2007


·
            Nonaccrual
                loans were .78% of total loans at March 31, 2008 with annualized
                net
                charge-offs as a percentage of average loans at .27% for the first
                three
                months of 2008


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 Deposits1st
                Qtr 2007
            
            
            21,267
            
            
            7,843
            
            
            15,0392nd
                Qtr 2007
            
            
            38,329
            
            
            (512
            )
            
            3,8083rd
                Qtr 2007
            
            
            51,581
            
            
            (1,481
            )
            
            4,4274th
                Qtr 2007
            
            
            20,975
            
            
            5,083
            
            
            42,2661st
                Qtr 2008
            
            
            (13,267
            )
            
            (4,126
            )
            
            55,246





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
            
            Expense1st
                Qtr 2007
            
            
            13,007
            
            
            630
            
            
            5,557
            
            
            12,6822nd
                Qtr 2007
            
            
            13,522
            
            
            630
            
            
            4,861
            
            
            12,5093rd
                Qtr 2007
            
            
            13,786
            
            
            630
            
            
            5,425
            
            
            12,8894th
                Qtr 2007
            
            
            13,725
            
            
            630
            
            
            5,209
            
            
            13,0251st
                Qtr 2008
            
            
            13,127
            
            
            780
            
            
            5,515
            
            
            13,357





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





1st Qtr 2008
            
            4th Qtr 2007
            
            3rd Qtr 2007
            
            2nd Qtr 2007
            
            1st Qtr 2007Net interest
                income
            
            $
            1.44
            
            $
            1.51
            
            $
            1.51
            
            $
            1.48
            
            $
            1.43Loan
                loss expense
            
            
            .09
            
            
            .07
            
            
            .07
            
            
            .07
            
            
            .07Noninterest
                income
            
            
            .61
            
            
            .58
            
            
            .59
            
            
            .53
            
            
            .61Noninterest
                expense
            
            
            1.47
            
            
            1.44
            
            
            1.41
            
            
            1.36
            
            
            1.39Net
                income before taxes
            
            
            .49
            
            
            .58
            
            
            .62
            
            
            .58
            
            
            .58Income
                taxes
            
            
            .15
            
            
            .19
            
            
            .20
            
            
            .19
            
            
            .19Net
                income
            
            $
            .34
            
            $
            .39
            
            $
            .42
            
            $
            .39
            
            $
            .39


18





FIRST
      M
& F CORPORATION





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





1st Qtr 2008
            
            4th Qtr 2007
            
            3rd Qtr 2007
            
            2nd Qtr 2007
            
            1st Qtr 2007Net
                interest margin
            
            
            3.66
            %
            
            3.83
            %
            
            3.94
            %
            
            4.00
            %
            
            3.94
            %Efficiency
                ratio
            
            
            70.34
            
            
            67.67
            
            
            66.07
            
            
            66.92
            
            
            67.17Return
                on assets
            
            
            .76
            
            
            .87
            
            
            .96
            
            
            .92
            
            
            .94Return
                on equity
            
            
            8.87
            
            
            10.13
            
            
            11.18
            
            
            10.69
            
            
            11.18Noninterest
                income to avg. assets
            
            
            1.34
            
            
            1.27
            
            
            1.36
            
            
            1.26
            
            
            1.46Noninterest
                incometo
                revenues (1)
            
            
            29.04
            
            
            27.06
            
            
            27.80
            
            
            26.01
            
            
            29.43Noninterest
                expense to avg assets
            
            
            3.25
            
            
            3.18
            
            
            3.23
            
            
            3.25
            
            
            3.34Salaries
                and benefits to totalnoninterest
                expense
            
            
            57.32
            
            
            57.51
            
            
            56.65
            
            
            58.39
            
            
            57.18Contribution
                margin (2)
            
            
            59.68
            
            
            61.08
            
            
            62.57
            
            
            60.93
            
            
            61.60Nonaccrual
                loans to loans
            
            
            .78
            
            
            .53
            
            
            .53
            
            
            .51
            
            
            .36Annualized
                net charge offs as apercent
                of average loans
            
            
            .27
            
            
            .45
            
            
            .25
            
            
            .30
            
            
            .11


(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*)
            
            1st Qtr 2008
            
            4th Qtr 2007
            
            3rd Qtr 2007
            
            2nd Qtr 2007
            
            1st Qtr 2007Mortgage
                originations
            
            $
            17,826
            
            $
            14,218
            
            $
            19,924
            
            $
            20,700
            
            $
            18,360Commissions
                from annuity sales
            
            
            26
            
            
            26
            
            
            33
            
            
            37
            
            
            29Trust
                revenues
            
            
            72
            
            
            77
            
            
            85
            
            
            75
            
            
            67Retail
                investment revenues
            
            
            66
            
            
            77
            
            
            72
            
            
            75
            
            
            70Revenues
                per FTE employee
            
            
            34
            
            
            35
            
            
            35
            
            
            33
            
            
            33Agency
                commissions per agencyFTE
                employee (1)
            
            
            25
            
            
            17
            
            
            30
            
            
            25
            
            
            25


(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:





1st Qtr 2008
            
            4th Qtr 2007
            
            3rd Qtr 2007
            
            2nd Qtr 2007
            
            1st Qtr 2007Full-time
                equivalent employees
            
            
            565
            
            
            564
            
            
            555
            
            
            562
            
            
            561Number
                      of noninterest-bearing deposit accounts
            
            
            37,329
            
            
            38,941
            
            
            39,058
            
            
            38,529
            
            
            38,100





19





FIRST
      M
& F CORPORATION





**Net
      Interest Income**





Net
      interest income before loan loss expenses for the first quarter of 2008 was
      $13.127 million as compared to $13.007 million for the first quarter of 2007
      and
      $13.725 million for the fourth quarter of 2007. For the first quarter of 2008
      compared to the same quarter of 2007: earning asset yields decreased by 33
      basis
      points, liability costs decreased by 6 basis points, the net interest spread
      decreased by 27 basis points and the net interest margin decreased by 28 basis
      points. For the first quarter of 2008 compared to the fourth quarter of 2007:
      earning asset yields decreased by 34 basis points, liability costs decreased
      by
      22 basis points, the net interest spread decreased by 12 basis points and the
      net interest margin decreased by 17 basis points.





Balance
      sheet dynamics affecting the comparative net interest margins for the first
      quarter of 2008 compared to 2007 include (1) growth of 10.10% 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 81.90% in the first quarter
      of 2008, (3) an increase in average interest-bearing deposits of 9.73%, (4)
      an
      increase in average other borrowings of 3.47% and (5) a decrease in average
      noninterest-bearing deposits as a percentage of total assets from 11.55% in
      2007
      to 10.89% in 2008.





Balance
      sheet dynamics affecting the comparative net interest margins for the first
      quarter of 2008 compared to the fourth quarter of 2007 include (1) growth of
      1.01% in average loans held for investment, (2) a decrease in average loans
      as a
      percentage of earning assets from 82.63% in the fourth quarter of 2007 to 81.90%
      in the first quarter of 2008, (3) an increase in average interest-bearing
      deposits of 6.63%, (4) a decrease in average borrowings of 11.69% and (5) a
      decrease in average noninterest-bearing deposits as a percentage of total assets
      from 11.59% in the fourth quarter of 2007 to 10.89% in the first quarter of
      2008.





Yield
      and
      cost dynamics affecting the comparative net interest margins for the first
      quarter of 2008 compared to 2007 include (1) a decrease of 45 basis points
      in
      yields on loans held for investment and for sale, (2) an increase of 6 basis
      points in investment and short-term funds yields, (3) an increase of 5 basis
      points in costs of deposits and (4) a decrease of 46 basis points in costs
      of
      borrowings.





Yield
      and
      cost dynamics affecting the comparative net interest margins for the first
      quarter of 2008 compared to the fourth quarter of 2007 include (1) a decrease
      of
      39 basis points in yields on loans held for investment and for sale, (2) an
      increase of 2 basis points in investment and short-term funds yields, (3) a
      decrease of 16 basis points in costs of deposits and (4) a decrease of 27 basis
      points in costs of borrowings.





The
      decrease in asset yields for the first quarter of 2008 as compared to the same
      period in 2007 can be attributed to (1) a decrease in the prime lending rate
      of
      100 basis points during 2007 followed by a decrease of 125 basis points during
      January 2008, (2) a steady increase in short-term interest rates throughout
      2006
      and the first quarter of 2007 and (3) a moderate level of variable-rate loans
      as
      a percent of loans of approximately 28% at March 31, 2008. Deposit costs for
      2008 were primarily influenced by short-term interest rate decreases throughout
      most of 2007 combined with a strategy during 2008 to replace certificates of
      deposits with premium-rate money-market and NOW accounts. An additional factor
      contributing to the decrease in net interest margins was the decrease in loans
      held for investment of $13.267 million during the first quarter of
      2008.





Net
      interest margins should be affected during the remainder of 2008 by a continued
      steepening of the yield curve. The yield curve between the 3-month and 5-year
      Treasuries was inverted by 44 basis points during December 2006 and by 60 basis
      points during March 2007. However, by December 2007 the 3-month to 5-year
      Treasury spread was a positive 42 basis points and was 120 basis points during
      March 2008. The AAA corporate bond to 3-month Treasury spread was 35 basis
      points during December 2006 and had narrowed to 22 basis points during March
      2007. This measure of credit spreads was 242 basis points during December 2007
      and was 423 basis points during March 2008, a direct result of the tightened
      liquidity in the corporate debt markets. The economy has weakened since the
      second quarter of 2007 with a considerable slowing in the consumer real estate
      sector. The Federal Reserve Board has responded by providing liquidity
      facilities to the commercial and investment banking sectors as well as through
      discount rate reductions. The Federal Open Market Committee decreased its Fed
      funds target rate by 100 basis points during the second half of 2007 and by
      200
      basis points during the first quarter of 2008. Additionally, the Federal Reserve
      lowered the discount rate by 150 basis points during the second half of 2007
      and
      by 225 basis points during the first quarter of 2008. Corporate bond yields,
      which have moved higher since the second quarter of 2007, reflect a lack of
      liquidity, concerns about inflation and concerns related to the ongoing effects
      of the sub-prime mortgage crisis.





Yields
      on
      loans held for investment declined from 7.75% during the fourth quarter of
      2007
      to 7.36% for the first quarter of 2008. Management expects loan yields to
      continue to decrease over the course of 2008. Deposit costs fell by 16 basis
      points during the first quarter of 2008 after steadily rising throughout 2007.
      Management expects deposit costs to continue to decrease as certificates of
      deposit, brokered deposits and borrowings mature and reprice in the current
      lower rate environment or are displaced by other competitive interest-bearing
      checking and money-market accounts.


20





FIRST
      M
& F CORPORATION





The
      following table shows the components of the net interest margin for the first
      quarters of 2008 and 2007 and the fourth quarters of 2007 and 2006:





Yields/Costs
            
            Yields/Costs1st Quarter, 2008
            
            4th Quarter, 2007
            
            1st Quarter, 2007
            
            4th Quarter, 2006Interest
                bearing bank balances
            
            
            3.15
            %
            
            4.18
            %
            
            4.67
            %
            
            5.42
            %Federal
                funds sold
            
            
            3.40
            
            
            4.34
            
            
            5.57
            
            
            4.59Taxable
                investments
            
            
            5.03
            
            
            4.89
            
            
            4.82
            
            
            4.72Tax-exempt
                investments
            
            
            6.24
            
            
            6.24
            
            
            6.28
            
            
            6.27Loans
                held for sale
            
            
            5.52
            
            
            5.56
            
            
            5.21
            
            
            4.87Loans
                held for investment
            
            
            7.36
            
            
            7.75
            
            
            7.83
            
            
            7.80Earning
                asset yield
            
            
            6.96
            
            
            7.30
            
            
            7.29
            
            
            7.23Interest
                checking
            
            
            1.46
            
            
            1.43
            
            
            1.38
            
            
            1.63Money
                market deposits
            
            
            2.74
            
            
            2.82
            
            
            2.31
            
            
            2.19Savings
            
            
            2.76
            
            
            2.88
            
            
            2.63
            
            
            2.51Certificates
                of deposit
            
            
            4.49
            
            
            4.65
            
            
            4.58
            
            
            4.41Short-term
                borrowings
            
            
            3.30
            
            
            4.41
            
            
            5.23
            
            
            4.77Other
                borrowings
            
            
            4.75
            
            
            5.01
            
            
            5.15
            
            
            5.06Cost
                of interest-bearing liabilities
            
            
            3.69
            
            
            3.91
            
            
            3.75
            
            
            3.67Net
                interest spread
            
            
            3.27
            
            
            3.36
            
            
            3.54
            
            
            3.56Effect
                of non-interest bearing deposits
            
            
            .44
            
            
            .50
            
            
            .48
            
            
            .48Effect
                of leverage
            
            
            (.05
            )
            
            (.06
            )
            
            (.08
            )
            
            (.05
            )Net
                interest margin, tax-equivalent
            
            
            3.66
            
            
            3.83
            
            
            3.94
            
            
            3.99Less:
                Tax equivalent adjustments:Investments
            
            
            .09
            
            
            .07
            
            
            .09
            
            
            .09Loans
            
            
            .01
            
            
            .01
            
            
            .01
            
            
            .01Reported
                book net interest margin
            
            
            3.56
            %
            
            3.75
            %
            
            3.84
            %
            
            3.89
            %




The
      following table shows average balance sheets for the first quarters of 2008
      and
      2007 and the fourth quarters of 2007 and 2006:





*(Dollars
      in thousands)*


1st Quarter, 2008
            
            4th Quarter, 2007
            
            1st Quarter, 2007
            
            4th Quarter, 2006Interest
                bearing bank balances
            
            $
            9,893
            
            $
            4,616
            
            $
            3,694
            
            $
            4,800Federal
                funds sold
            
            
            10,463
            
            
            3,656
            
            
            876
            
            
            4,105Taxable
                investments
            
            
            188,424
            
            
            191,632
            
            
            209,282
            
            
            208,822Tax-exempt
                investments
            
            
            52,139
            
            
            46,488
            
            
            47,555
            
            
            48,309Loans
                held for sale
            
            
            7,104
            
            
            6,089
            
            
            8,716
            
            
            8,003Loans
                held for investment
            
            
            1,213,121
            
            
            1,200,977
            
            
            1,101,879
            
            
            1,083,648Earning
                assets
            
            
            1,481,144
            
            
            1,453,458
            
            
            1,372,002
            
            
            1,357,687Other
                assets
            
            
            173,807
            
            
            172,298
            
            
            168,914
            
            
            164,517Total
                assets
            
            $
            1,654,951
            
            $
            1,625,756
            
            $
            1,540,916
            
            $
            1,522,204Interest
                checking
            
            
            202,638
            
            
            181,676
            
            
            205,598
            
            
            204,714Money
                market deposits
            
            
            165,706
            
            
            137,052
            
            
            127,300
            
            
            123,453Savings
                deposits
            
            
            111,973
            
            
            105,331
            
            
            96,941
            
            
            94,857Certificates
                of deposit
            
            
            634,966
            
            
            621,897
            
            
            586,504
            
            
            571,450Short-term
                borrowings
            
            
            7,319
            
            
            12,977
            
            
            14,550
            
            
            13,098Other
                borrowings
            
            
            200,849
            
            
            227,435
            
            
            194,111
            
            
            193,921Interest-bearing
                liabilities
            
            
            1,323,451
            
            
            1,286,368
            
            
            1,225,004
            
            
            1,201,493Noninterest-bearing
                deposits
            
            
            180,161
            
            
            188,496
            
            
            177,959
            
            
            181,647Other
                liabilities
            
            
            8,968
            
            
            11,454
            
            
            8,978
            
            
            12,370Stockholders’
                equity
            
            
            142,371
            
            
            139,438
            
            
            128,975
            
            
            126,694Liabilities
                and stockholders’ equity
            
            $
            1,654,951
            
            $
            1,625,756
            
            $
            1,540,916
            
            $
            1,522,204Loans
                to earning assets
            
            
            81.90
            %
            
            82.63
            %
            
            80.31
            %
            
            79.82
            %Loans
                to assets
            
            
            73.30
            %
            
            73.87
            %
            
            71.51
            %
            
            71.19
            %Earning
                assets to assets
            
            
            89.50
            %
            
            89.40
            %
            
            89.04
            %
            
            89.19
            %Noninterest-bearing
                deposits to assets
            
            
            10.89
            %
            
            11.59
            %
            
            11.55
            %
            
            11.93
            %Equity
                to assets
            
            
            8.60
            %
            
            8.58
            %
            
            8.37
            %
            
            8.32
            %


21





FIRST
      M
& F CORPORATION





**Provision
      for Loan Losses**





The
      accrual for the provision for loan losses for the first quarter of 2008 was
      $780
      thousand as compared to $630 thousand for the first quarter of 2007. The
      allowance for loan losses as a percentage of loans was 1.18% at March 31, 2008,
      1.17% at December 31, 2007, and 1.38% at March 31, 2007. Net charge-offs were
      $801 thousand in the first quarter of 2008 as compared to $304 thousand for
      the
      first quarter of 2007.





Nonaccrual
      loans as a percentage of loans increased to .78% at March 31, 2008 as compared
      to .53% at December 31, 2007, and .36% at March 31, 2007. The Company has not
      been materially affected to date by the deterioration of credit quality in
      the
      sub-prime mortgage sector, has virtually no sub-prime exposure and has detected
      modest spillover effects of the sub-prime crisis into other credit sectors.
      Business activity and cash flows in the commercial real estate segment of the
      Company’s loan portfolio have been affected by the slowing economy and by the
      indirect effects of the sub-prime mortgage fallout in 2008. 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 quarter of 2008 was $5.504 million as compared to $5.557 million
      for
      the same period in 2007 and $5.246 million in the fourth quarter of 2007. For
      the first quarter of 2008 as compared to the first quarter of 2007: (1) deposit
      revenues increased by $294 thousand, (2) mortgage banking revenues decreased
      by
      $23 thousand and (3) agency commissions decreased by $40 thousand. For the
      first
      quarter of 2008 as compared to the fourth quarter of 2007: (1) deposit revenues
      decreased by $195 thousand, (2) mortgage banking revenues increased by $48
      thousand and (3) agency commissions increased by $21 thousand.





Deposit
      revenues improved by 11.76% for the first quarter of 2008 as compared to 2007.
      The first quarter of 2008 showed a decrease of 6.53% from the fourth quarter
      of
      2007. Overdraft fee revenues, which comprise approximately 70% of deposit
      revenues, increased by 12.21% from the first quarter of 2007 to the first
      quarter of 2008 and decreased by 11.15% from the fourth quarter of 2007 to
      the
      first quarter of 2008. The first quarter decrease in overdraft fee revenues
      follows a seasonal trend as volumes tend to increase over the course of the
      year
      with the fourth quarter typically being the highest volume quarter. Overdraft
      fees are per item charges applied to each check paid on an overdrawn account
      or
      returned. The per item fee is determined by the Company’s pricing committee and
      is based primarily on the competitive market prices as well as on costs
      associated with processing the items. The majority of the volumes of overdraft
      items processed comes from customers in the Company’s overdraft program which
      grants overdraft limits to customers, generally allows account activity up
      to
      the overdraft limit balance, and requires that accounts have positive balances
      at some point within a thirty day period. Overdrafts are considered loans and
      therefore are subject to the Company’s credit policies concerning the charging
      off of accounts to the allowance for loan losses. Interest charged on overdrawn
      balances, based on the Federal discount rate, is recorded as interest on loans.
      The overdraft program is designed to help customers with their cash flow needs
      and is not extended to individuals who are poor credit risks. Debit card
      revenues improved by 21.08% from the first quarter of 2007 to the first quarter
      of 2008 and increased by 9.07% from the fourth quarter of 2007 to the first
      quarter of 2008.





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 2008. The following table shows the
      components of service charges on deposit accounts:





Three
                Months EndedMarch
                312008
            
            2007Service
                charge revenues
            
            $
            355
            
            $
            360Debit/ATM
                card revenues
            
            
            517
            
            
            427Overdraft
                fee revenues
            
            
            1,921
            
            
            1,712Service
                charges on deposit accounts
            
            $
            2,793
            
            $
            2,499


22


FIRST
      M
& F CORPORATION





Mortgage
      banking income decreased by 5.53% from the first quarter of 2007 to the first
      quarter of 2008 and increased by 13.91% from the fourth quarter of 2007 to
      the
      first quarter of 2008. Mortgage originations decreased by 2.91% from the first
      quarter of 2007 to the first quarter of 2008 and increased by 25.38% from the
      fourth quarter of 2007 to the first quarter of 2008. Mortgage rates decreased
      steadily from their highs in June 2007 to end 2007 at 6.17%. Mortgage rates
      fell
      further in 2008 to end the first quarter at 5.85%.The conventional mortgage
      market experienced a slowdown during the second half of 2007 but began to return
      to normal conditions in the bank’s metropolitan markets during the first quarter
      of 2008. Although application volumes have remained steady over the last four
      quarters, the bank has experienced a decline in approval rates. These approval,
      or “pull-through,” rates have been influenced by the tightened credit standards
      of institutional mortgage purchasers. Management expects to continue to expand
      its mortgage presence in its economically stronger markets.





Agency
      commission income decreased by 3.84% from the first quarter of 2007 to the
      first
      quarter of 2008 and increased by 2.14% from the fourth quarter of 2007 to the
      first quarter of 2008. The increase from the fourth quarter of 2007 to the
      first
      quarter of 2008 was due primarily to a 1.77% increase in property and casualty
      commissions while the decrease in commissions from the first quarter of 2007
      to
      2008 was due primarily to a 1.67% decrease in property and casualty commissions.
      Management expects to see growth in commission revenues for the year as compared
      to 2007.





Significant
      components of other income for the first quarters of 2008 and 2007 and the
      fourth quarters of 2007 and 2006 are contained in the following
      table:





1Q2008
            
            4Q2007
            
            1Q2007
            
            4Q2006Agency
                profit-sharing revenues
            
            $
            368
            
            $
            32
            
            $
            246
            
            $
            -Loan
                fees
            
            
            129
            
            
            102
            
            
            171
            
            
            98Gains
                (losses) on foreclosed property sales
            
            
            -
            
            
            (65
            )
            
            (148
            )
            
            (241
            )Insurance
                claim for legal settlements
            
            
            -
            
            
            -
            
            
            370
            
            
            -Gains
                on student loan sales
            
            
            29
            
            
            14
            
            
            44
            
            
            16Gain
                on sale of nonmarketable equity securities
            
            
            -
            
            
            -
            
            
            -
            
            
            342All
                other income
            
            
            502
            
            
            531
            
            
            591
            
            
            814Total
                other income
            
            $
            1,028
            
            $
            614
            
            $
            1,274
            
            $
            1,029





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
      decreased from 29.43% in the first quarter of 2007 to 29.04% in the first
      quarter of 2008, and increased from 27.06% in the fourth quarter of 2007 to
      29.04% in the first quarter of 2008. Another metric that the Company monitors
      is
      revenues per full-time employee, which was approximately $34 thousand per
      employee for the first quarter of 2008 as compared to $33 thousand for the
      first
      quarter of 2007. Additionally insurance product revenues per producer improved
      from $23 thousand per producer in the first quarter of 2007 to $25 thousand
      per
      producer in the first quarter of 2008. 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.


23





FIRST
      M
& F CORPORATION





**Non
      Interest Expense**





Noninterest
      expenses increased by 5.32% from the first quarter of 2007 to the first quarter
      of 2008 and increased by 2.55% from the fourth quarter of 2007 to the first
      quarter of 2008.





Salary
      and benefit expenses, which comprise approximately 60% of noninterest expenses,
      increased by 5.59% from the first quarter of 2007 to the first quarter of 2008
      and increased by 2.19% from the fourth quarter of 2007 to the first quarter
      of
      2008. The number of full-time equivalent employees was 565 at March 31, 2008,
      564 at December 31, 2007, and 561 at March 31, 2007. Approximately one-half
      of
      the increase in salaries and benefits for the first quarter of 2008 as compared
      to 2007 resulted from an increase in health care costs. Noninterest expenses
      as
      a percent of average assets decreased from 3.34% in the first quarter of 2007
      to
      3.25% in the first quarter of 2008.





The
      business expansion efforts during 2007 also produced an increase in related
      occupancy expenses as four new locations were added during 2007. This resulted
      in a 15.92% increase in occupancy expense from the first quarter of 2007 to
      the
      first quarter of 2008. Occupancy expenses decreased by $69 thousand from the
      fourth quarter of 2007 to the first quarter of 2008.





Significant
      components of other expense for the first quarters of 2008 and 2007 and the
      fourth quarters of 2007 and 2006 are contained in the following
      table:





1Q2008
            
            4Q2007
            
            1Q2007
            
            4Q2006Postage
                and shipping
            
            $
            234
            
            $
            243
            
            $
            215
            
            $
            158Supplies
            
            
            259
            
            
            274
            
            
            233
            
            
            211Legal
                expenses
            
            
            163
            
            
            (122
            )
            
            179
            
            
            272Other
                professional expenses
            
            
            194
            
            
            125
            
            
            152
            
            
            239Insurance
                expenses
            
            
            237
            
            
            218
            
            
            202
            
            
            226Debit
                card processing expenses
            
            
            160
            
            
            149
            
            
            136
            
            
            126All
                other expenses
            
            
            1,430
            
            
            1,374
            
            
            1,417
            
            
            1,542Total
                other expense
            
            $
            2,677
            
            $
            2,261
            
            $
            2,534
            
            $
            2,774





**Income
      Taxes**





Income
      tax expenses for the first quarter of 2008 decreased by 19.34% from the first
      quarter of 2007. Pre-tax earnings for the first quarter of 2008 were down by
      14.22% from the same period in 2007. The effective tax rates for the first
      quarters of 2008 and 2007 were 30.28% and 32.20% respectively. The difference
      in
      effective rates was due to tax credits available to the Company reflected in the
      2008 provision.





The
      Company implemented FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes - An Interpretation of FASB Statement


No.
      109”
as of January 31, 2007 with no adjustment for uncertain tax positions, and
      therefore no effect on the Company’s financial position or results of
      operations. The Company had no recognized uncertain tax positions as of March
      31, 2008 and therefore has not had any tax accruals in 2008 related to uncertain
      positions.


24




FIRST
      M
& F CORPORATION





**Assets
      and Liabilities**





Assets
      increased by 5.33% from March 31, 2007 to March 31, 2008, and decreased by
      .38%
      from December 31, 2007. Investments decreased by 2.16% from March 31, 2007
      to
      March 31, 2008 and increased by 2.58% from December 31, 2007. Liquidity provided
      by first quarter 2008 deposit growth and net decreases in loans was used to
      pay
      down borrowings that were used to fund loan growth during 2007. The Company
      pre-funded the reinvestment of first quarter 2008 government-sponsored agency
      securities during the third and fourth quarters of 2007 by borrowing the
      approximate maturity amounts and investing the funds in an effort to take
      advantage of the higher yield environment at the time. The maturities of
      approximately $32.6 million during the first quarter of 2008 were used to pay
      off the short-term borrowings that were obtained in 2007. The 2007 purchases
      were primarily mortgage-backed securities and municipal bonds. Liquidity
      provided by deposit growth during the first quarter of 2008 was also used to
      purchase mortgage-backed securities and municipal bonds, as the loan portfolio
      did not require any additional funding. Loans grew by 8.81% from March 31,
      2007
      to March 31, 2008 and decreased by 1.09% from December 31, 2007. Loan growth
      in
      2008 occurred primarily in real estate-secured commercial credits while
      residential real estate and commercial loans both decreased. Loan growth for
      2008 occurred primarily in the Rankin County, Mississippi, Birmingham, Alabama
      and the Crestview, Florida markets. Loans decreased primarily in the Madison
      County and Tupelo, Mississippi markets. Management expects that loan growth
      will
      be low to moderate for the remainder of the year as the economy is expected
      to
      remain weak. Loans as a percent of total assets were 73.21% at March 31, 2008,
      73.74% at December 31, 2007, and 70.87% at March 31, 2007.





The
      following table shows loans held for investment by type as of March 31, 2008,
      December 31, 2007, and March 31, 2007:





*(Dollars in thousands)*
            
            March 31, 2008
            
            December 31, 2007
            
            March 31, 2007Commercial
                real estate
            
            $
            737,964
            
            $
            731,595
            
            $
            644,816Residential
                real estate
            
            
            211,205
            
            
            223,614
            
            
            221,747Home
                equity lines
            
            
            45,796
            
            
            45,987
            
            
            37,496Commercial,
                financial and agricultural
            
            
            165,605
            
            
            169,447
            
            
            153,798Consumer
            
            
            39,478
            
            
            40,860
            
            
            43,616Other
                loans
            
            
            6,120
            
            
            7,932
            
            
            7,077Total
            
            $
            1,206,168
            
            $
            1,219,435
            
            $
            1,108,550Mortgages
                held for sale
            
            $
            2,011
            
            $
            2,063
            
            $
            3,857Student
                loans held for sale
            
            
            4,218
            
            
            3,508
            
            
            4,898




Deposits
      increased by 8.66% from March 31, 2007 to March 31, 2008 and increased by 4.05%
      from December 31, 2007. The following table shows the breakdown by deposit
      category of core deposits and public funds deposits growth from December 31,
      2007 to March 31, 2008:





Core Customers
            
            Public Funds
            
            Total Deposits*(Dollars in thousands)*
            
            Increase (Decrease)
            
            Increase (Decrease)
            
            Increase (Decrease)Amt.
            
            Pct.
            
            Amt.
            
            Pct.
            
            Amt.
            
            Pct.Noninterest-bearing
            
            $
            (2,994
            )
            
            (1.63
            )%
            $
            (1,132
            )
            
            (15.57
            )%
            $
            (4,126
            )
            
            2.16
            %NOW
            
            
            23,140
            
            
            18.67
            
            
            (2,912
            )
            
            (4.40
            )
            
            20,228
            
            
            10.64MMDA
            
            
            13,975
            
            
            9.92
            
            
            12,485
            
            
            80.67
            
            
            26,460
            
            
            16.92Savings
            
            
            11,553
            
            
            10.94
            
            
            55
            
            
            18.97
            
            
            11,608
            
            
            10.96Customer
                CDs
            
            
            (20,068
            )
            
            (4.01
            )
            
            18,162
            
            
            19.98
            
            
            (1,906
            )
            
            (.32
            )Brokered
                CDs
            
            
            (933
            )
            
            (3.52
            )
            
            (211
            )
            
            (13.35
            )
            
            (1,144
            )
            
            (4.08
            )Total
            
            $
            24,673
            
            
            2.28
            %
            $
            26,447
            
            
            14.56
            %
            $
            51,120
            
            
            4.05
            %




25


FIRST
      M
& F CORPORATION




The
      savings deposit increases were primarily in Flex Fund and Liberty Fund accounts,
      which are renewable deposit accounts with two year maturities and that pay
      interest, indexed to historical Treasury rates, on a quarterly basis.
      Interest-bearing checking and money market core customer deposits were up during
      2008 due to targeted campaigns in both product areas. A new interest-bearing
      checking account, the Summit Checking account, was introduced during the fourth
      quarter of 2007. This account is designed to pay a premium deposit rate if
      the
      customer meets certain criteria related to electronic banking and debit card
      transaction activity. Money market accounts with premium rates for high balances
      have also been used to attract core customers. Certificates of deposit decreased
      in 2008 as the interest-bearing checking and money market accounts were used
      instead of time deposits to attract funding. The Company maintained a moderate
      pricing strategy with regard to certificates of deposit, preferring to market
      accounts that could be used as a base upon which to further build customer
      relationships. 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.
      During the first quarter of 2008 the Company introduced new relationship-based
      checking account products with a variety of add-ons designed to enhance the
      customer’s banking experience. 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 March 31, 2008, December 31, 2007,
      and March 31, 2007:





*(Dollars in thousands)*
            
            March 31, 2008
            
            December 31, 2007
            
            March 31, 2007Noninterest-bearing
                demand
            
            $
            187,080
            
            $
            191,206
            
            $
            188,116NOW
                deposits
            
            
            210,295
            
            
            190,067
            
            
            196,035Money
                market deposits
            
            
            182,824
            
            
            156,364
            
            
            132,068Savings
                deposits
            
            
            117,532
            
            
            105,924
            
            
            99,549Certificates
                of deposit
            
            
            588,925
            
            
            590,831
            
            
            559,252Brokered
                certificates of deposit
            
            
            26,919
            
            
            28,063
            
            
            33,844Total
            
            $
            1,313,575
            
            $
            1,262,455
            
            $
            1,208,864





The
      following table shows the mix of public funds deposits as of March 31, 2008,
      December 31, 2007, and March 31, 2007:





*(Dollars in thousands)*
            
            March 31, 2008
            
            December 31, 2007
            
            March 31, 2007Noninterest-bearing
                demand
            
            $
            6,138
            
            $
            7,270
            
            $
            5,844NOW
                deposits
            
            
            63,245
            
            
            66,157
            
            
            66,487Money
                market deposits
            
            
            27,962
            
            
            15,477
            
            
            29,622Savings
                deposits
            
            
            345
            
            
            290
            
            
            342Certificates
                of deposit
            
            
            109,044
            
            
            90,882
            
            
            86,741Brokered
                certificates of deposit
            
            
            1,369
            
            
            1,580
            
            
            1,755Total
            
            $
            208,103
            
            $
            181,656
            
            $
            190,791





Other
      borrowings decreased by $32.882 million from March 31, 2007 to March 31, 2008
      and by $57.335 million from December 31, 2007. The decreases in borrowings
      were
      primarily the result of payoffs of the borrowings used to pre-fund the
      investment purchases in 2007 and payoffs using excess liquidity provided by
      first quarter 2008 deposit growth and net loan reductions. Amounts of borrowings
      maturing within one year decreased from 58.27% of other borrowings at December
      31, 2007 to 28.11% at March 31, 2008. 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.




26





FIRST
      M
& F CORPORATION




**Equity**





The
      Company’s and Bank’s regulatory capital ratios at March 31, 2008, as shown below
      are in excess of the minimum requirements and qualify the institution as “well
      capitalized” under the risk-based capital regulations.





*(Dollars in thousands)*
            
            First M & F Corporation
            
            M & F BankAmount
            
            Ratio
            
            Amount
            
            RatioActual:Total
                risk-based capital
            
            $
            149,208
            
            
            11.10
            %
            $
            148,319
            
            
            11.04
            %Tier
                1 capital
            
            
            135,012
            
            
            10.05
            %
            
            134,123
            
            
            9.99
            %Leverage
            
            
            135,012
            
            
            8.35
            %
            
            134,123
            
            
            8.30
            %For
                Capital Adequacy Purposes:Total
                risk-based capital
            
            
            107,521≥
            
            
            8.00
            %
            
            107,439≥
            
            
            8.00
            %Tier
                1 capital
            
            
            53,761≥
            
            
            4.00
            %
            
            53,719≥
            
            
            4.00
            %Leverage
            
            
            64,692≥
            
            
            4.00
            %
            
            64,652≥
            
            
            4.00
            %To
                Be Well Capitalized Under PromptCorrective
                Action Provisions:Total
                capital
            
            
            
            
            
            
            
            
            134,299≥
            
            
            10.00
            %Tier
                1 capital
            
            
            
            
            
            
            
            
            80,579≥
            
            
            6.00
            %Leverage
            
            
            
            
            
            
            
            
            80,815≥
            
            
            5.00
            %




The
      Company repurchased 7,500 shares during the first quarter of 2008 at an average
      price of $15.55 per share. The Company issued 8,854 shares upon the exercise
      of
      stock options during the first quarter of 2007 at an average exercise price
      of
      $14.74 per share. The Company did not issue any shares upon the exercise of
      stock options during the first quarter of 2008.





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 9.42 as of March 31,
      2008.




**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 March 31, 2008, 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.




27





FIRST
      M
& F CORPORATION




**Credit
      Risk Management**





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





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





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





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





Nonaccrual
      loans and non-performing assets increased during the first quarter of 2008
      as
      the economy, especially the real estate sector, slowed. No significant losses
      have been incurred in 2008 as is reflected by the annualized rate of net
      charge-offs to loans of .27%. The Company is working out problem loans as
      customer cash flows and the market will allow. The future trend in problem
      loans
      will depend on how fast the market can absorb properties in an orderly fashion.
      Management is also monitoring the state of our markets for indirect effects
      of
      the sub-prime mortgage fallout on the commercial and consumer sectors of the
      portfolio.




28





FIRST
      M
& F CORPORATION




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





(*Dollars in thousands*)
            
            March 31
            
            December 31
            
            March 312008
            
            2007
            
            2007Nonaccrual
                loans
            
            $
            9,472
            
            $
            6,524
            
            $
            4,019Other
                real estate
            
            
            6,927
            
            
            6,232
            
            
            2,270Total
                non-performing assets
            
            $
            16,399
            
            $
            12,756
            
            $
            6,289Past
                due 90 days or more and still accruing interest
            
            
            5,451
            
            
            1,093
            
            
            254Ratios:Nonaccrual
                loans to loans
            
            
            .78
            %
            
            .53
            %
            
            .36
            %Non-performing
                assets to loans and other real estate
            
            
            1.34
            %
            
            1.04
            %
            
            .56
            %Non-performing
                assets to assets
            
            
            1.00
            %
            
            .77
            %
            
            .40
            %




**Off-Balance
      Sheet Arrangements**





The
      Company’s primary off-balance sheet arrangements are in the form of loan
      commitments and operating lease commitments. At March 31, 2008 the Company
      had
      $203.767 million in unused loan commitments outstanding. Of these commitments,
      $117.243 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 first
      quarter. At March 31, 2008 the Company had $24.162 million in financial standby
      letters of credit issued and outstanding.





At
      March
      31, 2008 there were $14.999 million in standby letters of credit issued on
      the
      Company’s behalf by a Federal Home Loan Bank. At December 31, 2007 there were
      $22.999 million of standby letters of credit issued on the Company’s behalf by a
      Federal Home Loan Bank. The Company uses these letters of credit as additional
      collateral on loan participations sold and is obligated to the Federal Home
      Loan
      Bank if the letters of credit must be drawn upon.





Liabilities
      of $155 thousand at March 31, 2008 and $104 thousand at March 31, 2007 are
      recognized in Other Liabilities related to the obligation to stand ready to
      perform related to standby letters of credit.





The
      Company makes commitments to originate mortgage loans that will be held for
      sale. The total commitments to originate mortgages to be held for sale were
      $9.646 million at March 31, 2008. These commitments are accounted for as
      derivatives and are marked to fair value with changes in fair value recorded
      in
      mortgage banking income. At March 31, 2008 mortgage origination-related
      derivatives with positive fair values of $29 thousand were included in other
      assets and derivatives with negative fair values of $6 thousand were included
      in
      other liabilities.





The
      Company also engages in forward sales contracts with mortgage investors to
      purchase mortgages held for sale. Those forward sale agreements that have a
      determined price and expiration date are accounted for as derivatives and marked
      to fair value through mortgage banking income. At March 31, 2008 the Company
      had
      $3.003 million in locked forward sales agreements in place. Forward sale-related
      derivatives with positive fair values of $5 thousand were included in other
      assets and derivatives with negative fair values of $11 thousand were included
      in other liabilities.





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




29





FIRST
      M
& F CORPORATION





In
      the
      ordinary course of business the Company enters into rental and lease agreements
      to secure office space and equipment. The Company has a variety of lease
      agreements in place, all of which are operating leases. The largest lease
      obligations are for office equipment and mainframe computer systems. The Company
      guarantees the lease payments for its wholly-owned banking subsidiary in one
      data processing lease which expires in September 2008. The remaining payments
      on
      the lease at March 31, 2008 were $157 thousand.




**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.




30


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
      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
      adopted the Statement on January 1, 2008 with no 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.




31





FIRST
      M
& F CORPORATION




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
      adopted SFAS No. 159 on January 1, 2008, and did not elect the fair value option
      for any financial assets or liabilities on that date. Therefore, the adoption
      of
      the Statement did not have a material impact on the Company’s financial
      condition or results of operations.





In
      May
      2007, the FASB issued FASB Staff Position (FSP) No. FIN 48-1, “Definition of *Settlement* in FASB
      Interpretation No. 48.” This pronouncement clarifies that a tax position can be
      effectively settled upon examination by a taxing authority. Assessing whether
      a
      tax position is effectively settled is a matter of judgment because examinations
      occur in a variety of ways. In determining whether a tax position is effectively
      settled, a company should make the assessment on a position-by-position basis,
      but can conclude that all positions in a particular tax year are effectively
      settled. The provisions of this FSP are to be applied upon the adoption of
      Interpretation No. 48. The Company adopted the Interpretation and this FSP
      on
      June 1, 2007 with no material effect on its financial condition or results
      of
      operations.





In
      June
      2007, the FASB issued Emerging Issues Task Force (EITF) Issue No. 06-11,
“Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.”
EITF Issue No. 06-11 applies to share-based payment arrangements with dividend
      protection features that entitle employees to receive (a) dividends on
      equity-classified nonvested shares, (b) dividend equivalents on
      equity-classified nonvested share units, or (c) payments equal to the dividends
      paid on the underlying shares while an equity-classified share option is
      outstanding, when those dividends or dividend equivalents are charged to
      retained earnings under SFAS No. 123(R) and result in an income tax deduction
      for the employer. Consensus was reached on accounting for the tax benefits
      of
      the dividend deductions as increases to additional paid-in capital and included
      in the pool of excess benefits available to absorb tax deficiencies on
      share-based payment awards. The consensus is effective prospectively for
      dividends declared in fiscal years beginning after December 15, 2007, making
      it
      effective for the Company on January 1, 2008. The adoption of this Issue did
      not
      have a material impact on its financial condition or results of
      operations.





In
      November 2007, the Securities and Exchange Commission (SEC) issued Staff
      Accounting Bulletin (SAB) No. 109, “Written Loan Commitments Recorded at Fair
      Value Through Earnings.” This Bulletin supersedes SAB No. 105, “Application of
      Accounting Principles to Loan Commitments” by allowing the future cash flows
      associated with servicing of a loan to be included in the measurement of the
      written loan commitment, which makes the accounting consistent with SFAS No
      156,
“Accounting for Servicing of Financial Assets” and SFAS No. 159, “The Fair Value
      Option for Financial Assets and Financial Liabilities.” This pronouncement is to
      be applied prospectively to derivative loan commitments issued or modified
      in
      fiscal quarters beginning after December 15, 2007. The Company adopted this
      Bulletin on January 1, 2008 with no material impact on its financial condition
      or results of operations.





In
      December 2007, the SEC issued SAB No. 110, “Certain Assumptions Used In
      Valuation Methods.” This Bulletin extends the use of the “simplified method” of
      determining the expected lives of stock options granted when determining the
      fair value of the options. The “simplified method” was allowed by SAB No. 107
      until December 31, 2007, at which time companies would be required to use the
      historical option exercise experience of stock-based compensation plans in
      determining the expected lives of stock option grants. This Bulletin allows
      the
      use of the simplified method beyond December 31, 2007 and is effective as of
      January 1, 2008. The Company adopted this Bulletin on January 1, 2008 with
      no
      material impact on its financial condition or results of
      operations.




32





FIRST
      M
& F CORPORATION




In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      (SFAS) No. 141 (revised 2007), “Business Combinations.” This Statement
      establishes principles and requirements for how an acquirer (a) recognizes
      and
      measures in its financial statements the identifiable assets acquired, the
      liabilities assumed, and any noncontrolling interest in the acquiree, (b)
      recognizes and measures the goodwill acquired in the business combination or
      a
      gain from a bargain purchase and (c) determines what information to disclose
      to
      enable users of the financial statements to evaluate the nature and financial
      effects of the business combination. This Statement defines the acquirer as
      the
      entity that obtains control of one or more businesses in the combination. This
      Statement also requires that an acquirer recognize the assets acquired, the
      liabilities assumed, and any noncontrolling interest in the acquiree at the
      acquisition date, measured at their fair values as of that date. This Statement
      also requires an acquirer to recognize assets acquired and liabilities assumed
      arising from contractual contingencies as of the acquisition date, measured
      at
      their acquisition-date fair values. This Statement also requires the acquirer
      to
      recognize contingent consideration at the acquisition date, measured at its
      fair
      value at that date. This Statement applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15, 2008. Early
      adoption is not allowed. The Company does not expect the adoption of this
      Statement to have a material impact on its financial condition or results of
      operations.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51.” This Statement
      establishes accounting and reporting standards that require (a) the ownership
      interests in subsidiaries held by parties other than the parent be clearly
      identified, labeled, and presented in the consolidated statement of financial
      position within equity, but separate from the parent’s equity, (b) the amount of
      consolidated net income attributable to the parent and to the noncontrolling
      interest be clearly identified and presented on the face of the consolidated
      statement of income, (c) changes in a parent’s ownership interest while the
      parent retains its controlling financial interest in its subsidiary be accounted
      for consistently, (d) when a subsidiary is deconsolidated, any retained
      noncontrolling equity investment in the former subsidiary be initially measured
      at fair value and (e) entities provide sufficient disclosures that clearly
      identify and distinguish between the interests of the parent and the interests
      of the noncontrolling owners. This Statement is effective for fiscal years,
      and
      interim periods within those fiscal years, beginning on or after December 15,
      2008. Early adoption is not allowed. The Company does not expect the adoption
      of
      this Statement to have a material impact on its financial condition or results
      of operations.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities, an amendment of FASB Statement No. 133.” This Statement
      requires entities to provide enhanced disclosures about (a) how and why an
      entity uses derivative instruments, (b) how derivative instruments and related
      hedged items are accounted for under Statement 133 and its related
      interpretations, and (c) how derivative instruments and related hedged items
      affect an entity’s financial position, financial performance, and cash flows.
      This Statement requires (a) that objectives for using derivative instruments
      be
      disclosed in terms of underlying risk and accounting designation, (b) that
      fair
      values of derivative instruments and their gains and losses be provided in
      a
      tabular format showing the location in an entity’s financial statements of both
      derivative positions existing at period end and the effect of using derivatives
      during the reporting period, (c) that information be disclosed about
      credit-risk-related contingent features and their effect on liquidity, and
      (d)
      that cross-referencing be used within the footnotes to help users of financial
      statements locate important information about derivative instruments. This
      Statement is effective for fiscal years, and interim periods within those fiscal
      years, beginning on or after November 15, 2008. This Statement encourages,
      but
      does not require, comparative disclosures for earlier periods at initial
      adoption. The Company does not expect the adoption of this Statement to have
      a
      material impact on its financial condition or results of
      operations.




33





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 3.47% 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 1.46% 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 decrease by 1.89% with an
      immediate and sustained increase in interest rates of 200 basis points. The
      market value of equity will decrease by 8.70% 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 tend to compliment the exposure
      profile illustrated by the net interest income simulation, outlined
      above.





The
      Company had no hedging instruments in place at March 31, 2008.




**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
      March 31, 2008 (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 March 31, 2008 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.




34





FIRST
      M
& F CORPORATION




**PART
      II: OTHER INFORMATION**




**Item
      1 - Legal Proceedings**





The
      Company and its subsidiaries are defendants in various lawsuits arising out
      of
      the normal course of business. In the opinion of management, the ultimate
      resolution of these 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 2007 Form 10-K.





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





The
      following table summarizes repurchases of common stock for the program in place
      during the first quarter of 2008:





Maximum NumberTotal Number
            
            (or Approximateof Shares
            
            Dollar Value)(or Units) Purchased
            
            of Shares (or Units)Total Number
            
            
            
            As Part of
            
            That May Yet Beof Shares (or
            
            Average Price Paid
            
            Publicly Announced
            
            Purchased Under thePeriod
            
            units) Purchased
            
            Per Share (or Unit)
            
            Plans or Programs
            
            Plans or Programs01/01/08
                – 01/31/08 (1)
            
            
            -
            
            $
            -
            
            
            -
            
            
            -02/01/08
                – 02/29/08
            
            
            7,500
            
            
            15.55
            
            
            7,500
            
            
            492,50003/01/08 –
                03/31/08
            
            
            -
            
            
            -
            
            
            -
            
            
            -





(1)
            On
                December 12, 2007 the Board authorized a program to repurchase up
                to
                500,000 shares of common stock in the open market over a twelve month
                period beginning in January, 2008.





**Item
      3 – Defaults Upon Senior Securities**





None.





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





None.





**Item
      5 – Other Information**





None.




35


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.




36





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
      :
      May 9, 2008




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




37





FIRST
      M
& F CORPORATION





EXHIBIT
      INDEX





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




38