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, 2013 Or

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 (State or other jurisdiction of Incorporation or organization)	64-0636653 (I.R.S. Employer Identification Number)
134 West Washington Street,  Kosciusko, Mississippi (Address of principal executive offices)	39090 (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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes   o No   

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

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

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	9,233,917 Shares
Title of Class	Shares Outstanding at April 30, 2013

FIRST M&F CORPORATION

FORM 10-Q

INDEX

		Page
PART I:	FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited):	3
	Consolidated Statements of Condition	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Stockholders’ Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operation	50
Item 3	Quantitative and Qualitative Disclosures About Market Risk	73
Item 4	Controls and Procedures	73
PART II:	OTHER INFORMATION
Item 1	Legal Proceedings	74
Item 1A	Risk Factors	75
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3	Defaults upon Senior Securities	76
Item 4	Mine Safety Disclosures	76
Item 5	Other Information	76
Item 6	Exhibits	77
SIGNATURES		78
EXHIBIT INDEX		79
CERTIFICATIONS

2

FIRST M & F CORPORATION AND SUBSIDIARY

PART I: FINANCIAL INFORMATION

Item 1 – Financial Statements (Unaudited)

Consolidated Statements of Condition

(Dollars in thousands)
	March 31, 2013			December 31, 2012
	(Unaudited)			(Note 1)
Assets
Cash and due from banks	$	32,543		$	54,811
Interest bearing bank balances	31,590			94,313
Federal funds sold	10,000			10,000
Securities available for sale, amortized cost of $370,679 and $341,273	377,051			348,562
Loans held for sale	17,573			21,014
Loans, net of unearned income	987,657			975,473
Allowance for loan losses	(18,269		)	(17,492		)
Net loans	969,388			957,981
Bank premises and equipment	36,871			37,264
Accrued interest receivable	5,863			5,683
Other real estate	24,820			25,970
Other intangible assets	4,053			4,159
Bank owned life insurance	23,395			23,222
Other assets	17,373			18,704
	$	1,550,520		$	1,601,683
Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing deposits	$	252,453		$	276,295
Interest-bearing deposits	1,100,322			1,126,380
Total deposits	1,352,775			1,402,675
Federal funds purchased and repurchase agreements	2,250			3,720
Other borrowings	34,877			36,007
Junior subordinated debt	30,928			30,928
Accrued interest payable	628			661
Other liabilities	8,291			9,249
Total liabilities	1,429,749			1,483,240
Commitments and contingencies
Stockholders’ equity:
Preferred stock; 2,000,000 shares authorized; 30,000 shares issued and outstanding	19,212			18,865
Common stock of $5.00 par value; 50,000,000 shares authorized: 9,233,917 and 9,230,799 shares issued and outstanding	46,170			46,154
Additional paid-in capital	32,497			32,469
Nonvested restricted stock awards	325			244
Retained earnings	21,185			19,180
Accumulated other comprehensive income	1,382			1,531
Total equity	120,771			118,443
	$	1,550,520		$	1,601,683

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

3

FIRST M & F CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations

(Unaudited)

(Dollars in thousands, except per share data)	Three Months Ended
	March 31
	2013		2012
Interest income:
Interest and fees on loans	$	12,698	$	14,158
Interest on loans held for sale	56		173
Taxable investments	1,231		1,490
Tax-exempt investments	352		318
Federal funds sold	6		15
Interest bearing bank balances	58		51
Total interest income	14,401		16,205
Interest expense:
Deposits	1,516		2,513
Federal funds purchased and repurchase agreements	4		6
Other borrowings	371		451
Junior subordinated debt	283		271
Total interest expense	2,174		3,241
Net interest income	12,227		12,964
Provision for loan losses	1,280		2,280
Net interest income after provision for loan losses	10,947		10,684
Noninterest income:
Deposit account income	2,371		2,457
Mortgage banking income	1,291		567
Agency commission income	820		829
Trust and brokerage income	160		140
Bank owned life insurance income	160		187
Other income	884		650
Securities gains, net	16		591
Total noninterest income	5,702		5,421
Noninterest expenses:
Salaries and employee benefits	6,362		6,863
Net occupancy expenses	865		908
Equipment expenses	432		463
Software and processing expenses	356		362
Telecommunication expenses	217		245
Marketing and business development expenses	241		237
Foreclosed property expenses	588		1,456
FDIC insurance assessments	348		514
Intangible asset amortization	106		107
Other expenses	3,424		2,831
Total noninterest expenses	12,939		13,986
Income before income taxes	3,710		2,119
Income tax expense	1,112		512
Net income	$	2,598	$	1,607
Dividends and accretion on preferred stock	497		463
Net income applicable to common stock	$	2,101	$	1,144
Net income allocated to common shareholders	$	2,020	$	1,139
Earnings per share:
Basic	$	0.22	$	0.12
Diluted	$	0.22	$	0.12

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

4

FIRST M & F CORPORATION AND SUBSIDIARY

Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)	Three Months Ended
	March 31
	2013			2012
Net income	$	2,598		$	1,607
Other comprehensive income (loss):
Unrealized gains (losses) on securities:
Unrealized gains (losses) on securities available for sale arising during the period, net of tax of $339 and $156 for the three months ended March 31	(572		)	269
Unrealized gains on other-than-temporarily impaired securities available for sale arising during the period, net of tax of $3 and $20 for the three months ended March 31	7			33
Reclassification adjustment for gains on securities available for sale included in net income, net of tax of $6 and $220 for the three months ended March 31	(10		)	(371		)
Unrealized losses net of settlements on cash flow hedge arising during the period, net of tax of $33 and $40 for the three months ended March 31	55			66
Defined benefit pension plans:
Amortization of actuarial loss, net of tax of $220 and $199 for the three months ended March 31	371			335
Other comprehensive income (loss)	(149		)	332
Total comprehensive income	$	2,449		$	1,939

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, 2013 and 2012

(Unaudited)

(Dollars in thousands, except per share data)
	Preferred Stock		Common Stock		Additional Paid-In Capital			Nonvested Restricted Stock Awards		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
January 1, 2012	$	17,564	$	45,775	$	31,895		$	674	$	14,456		$	(768	)	$	109,596
Net income	—		—		—			—		1,607			—			1,607
Cash dividends ($.01 per share)	—		—		—			—		(92		)	—			(92		)
7,785 shares granted to directors	—		39		(6		)	—		—						33
Dividends and accretion on preferred stock	313		—		—			—		(463		)	—			(150		)
Share-based compensation expense recognized	—		—		3			26		—			—			29
Net change	—		—		—			—		—			332			332
March 31, 2012	$	17,877	$	45,814	$	31,892		$	700	$	15,508		$	(436	)	$	111,355
January 1, 2013	$	18,865	$	46,154	$	32,469		$	244	$	19,180		$	1,531		$	118,443
Net income	—		—		—			—		2,598			—			2,598
Cash dividends ($.01 per share)	—		—		—			—		(96		)	—			(96		)
3,118 shares granted to directors	—		16		27			—		—			—			43
Dividends and accretion on preferred stock	347		—		—			—		(497		)	—			(150		)
Share-based compensation expense recognized	—		—		1			81		—			—			82
Net change	—		—		—			—		—			(149		)	(149		)
March 31, 2013	$	19,212	$	46,170	$	32,497		$	325	$	21,185		$	1,382		$	120,771

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 31
	2013			2012
Cash flows from operating activities:
Net income	$	2,598		$	1,607
Adjustments to reconcile net income to net cash provided by operating activities:
Share-based compensation	125			62
Amortization of pension costs	541			505
Depreciation and amortization	574			583
Provision for loan losses	1,280			2,280
Net investment amortization	1,143			1,014
Net change in unearned fees/deferred costs on loans	(88		)	(238		)
Capitalized dividends on FHLB stock	(2		)	(7		)
Gain on securities available for sale	(16		)	(591		)
Gain on loans held for sale	(1,164		)	(525		)
Other real estate losses	418			1,223
Other asset sales losses	69			66
Deferred income taxes	1,112			510
Originations of loans held for sale, net of repayments	(45,423		)	(30,473		)
Sales proceeds of loans held for sale	48,116			26,226
(Increase) decrease in:
Accrued interest receivable	(180		)	24
Cash surrender value of bank owned life insurance	(160		)	(187		)
Other assets	105			(343		)
Increase (decrease) in:
Accrued interest payable	(33		)	(155		)
Other liabilities	(903		)	(196		)
Net cash provided by operating activities	8,112			1,385
Cash flows from investing activities:
Purchases of securities available for sale	(56,442		)	(97,327		)
Sales of securities available for sale	6,141			33,982
Maturities of securities available for sale	19,767			17,612
Purchases of loans held for investment	(561		)	—
Net (increase) decrease in other loans held for investment	(10,475		)	16,423
Net (increase) decrease in:
Interest bearing bank balances	62,724			(12,509		)
Bank premises and equipment	(70		)	(314		)
Net purchases of bank owned life insurance	(14		)	(9		)
Proceeds from sales of other real estate and other repossessed assets, net of improvements	1,119			2,658
Net redemptions of FHLB stock	181			—
Net cash provided by (used in) investing activities	22,370			(39,484		)

7

FIRST M & F CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)	Three Months Ended
	March 31
	2013			2012
Cash flows from financing activities:
Net increase (decrease) in deposits	$	(49,904	)	$	39,040
Net decrease in short-term borrowings	(1,470		)	(660		)
Repayments of other borrowings	(1,130		)	(1,327		)
Common dividends paid	(96		)	(92		)
Preferred dividends paid	(150		)	(150		)
Net cash provided by (used in) financing activities	(52,750		)	36,811
Net decrease in cash and due from banks	(22,268		)	(1,288		)
Cash and due from banks at January 1	54,811			39,976
Cash and due from banks at March 31	$	32,543		$	38,688
Supplemental disclosures:
Total interest paid	$	2,208		$	3,400
Total income taxes paid	—			186
Transfers of loans from held for sale to held for investment	1,833			1,997
Transfers of loans to foreclosed property	388			1,565
U. S. Treasury preferred dividend accrued but unpaid	75			75
Accretion on U. S. Treasury preferred stock	347			313

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

8

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 1:  Summary of Significant Accounting Policies

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, 2012, 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 include all entities in which the Company has a controlling financial interest. Therefore, 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 55% ownership in MS Statewide Title, LLC, a title insurance agency. 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, 2012. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

The Company is substantially in the business of community banking and therefore is considered a banking operation with no separately reportable segments.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future economic and market conditions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although our estimates and assumptions contemplate current economic conditions and how we expect them to change in the future, it is reasonably possible that in future months actual conditions could be worse than those anticipated, which could materially affect our financial condition and results of operations. The allowance for loan losses, the fair value of financial instruments, the fair value of other real estate, the valuation of deferred tax assets and other-than-temporary investment impairments represent significant estimates.

Reclassifications

Certain reclassifications have been made to the 2012 financial statements to be consistent with the 2013 presentation.

Loans Held for Sale

Loans held for sale, consisting primarily of mortgages, are accounted for at the lower of cost or fair value applied on an individual loan basis. Valuation changes are recorded in mortgage banking income.

Loans Held for Investment

Loans that management has the ability and intent to hold for the foreseeable future or until maturity or payoff are considered held for investment. Loans held for investment are stated at the principal amount outstanding, net of unearned income and an allowance for loan losses. Interest on loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loan origination fees and direct loan origination costs, as well as purchase premiums and discounts, are deferred and recognized over the life of the related loans as adjustments to interest income using the level yield method.

The Bank discontinues the accrual of interest on loans and recognizes income only as received (places the loans in nonaccrual status) when, in the judgment of management, the collection of interest, but not necessarily principal, is doubtful. Unpaid accrued interest is charged against interest income on loans when they are placed in nonaccrual status. Payments received on loans in nonaccrual status are generally applied as a reduction to principal until such time that the Company expects to collect the remaining contractual principal. When a borrower of a loan that is in nonaccrual status can demonstrate the ability to repay the loan in accordance with its contractual terms, then the loan may be returned to accruing status. The Company determines past due status on all loans based on their contractual repayment terms. Loans are considered past due if either an interest or principal payment is past due in accordance with the loan’s contractual repayment terms.

A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Bank measures impaired and restructured loans at the present value of expected future cash flows, discounted at the loan's effective interest rate, or the fair value of collateral if the loan is collateral dependent. Interest on impaired loans is recorded on a cash basis if the loans are in nonaccrual status.

9

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 1:  (Continued)

Allowance and Provision for Loan Losses

The allowance for loan losses is established through provisions for loan losses charged against earnings. Loans are considered uncollectible when available information confirms that the loan can’t be collected in full. Loans deemed to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is maintained at a level believed to be adequate by management to absorb estimated probable loan losses. Management’s periodic evaluation of the adequacy of the allowance for loan losses is based on estimated credit losses for specifically identified impaired loans as well as estimated probable credit losses inherent in the remainder of the loan portfolio based primarily on historical loss rates. Several asset quality metrics, both quantitative and qualitative, are considered in estimating both specific impairments and in the application of historical loss rates. The fundamental tool used by management to select loans for individual impairment allowance testing and estimate contingency allowances is the individual loan risk rate. For the purpose of determining allowances, management segregates the loan portfolio primarily by risk rating and secondarily by whether the loan is collateral dependent. Management considers a number of factors in assigning risk rates to individual loans and in determining impairment allowances and in the application of historical loss rates, including: past due trends, current trends, current economic conditions, industry exposure, internal and external loan reviews, loan performance, the estimated value of underlying collateral, evaluation of a borrower’s financial condition and other factors considered relevant. The Company measures individually impaired loans at the fair value of collateral, less costs to sell, if the loan is collateral dependent. Real estate collateral is primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Updated appraisals or internally prepared evaluations are obtained for individually tested loans as management deems appropriate based on the date of the latest appraisal, the current status of the loan, known market conditions, current negotiations with borrowers and the outlook for action against the borrower. Other extenuating circumstances that may affect this frequency are judicial foreclosure delays, sales contracts, settlement agreements and lawsuits. Subsequent adjustments may be made to appraised values for current conditions that were not in existence at the time of the appraisal. The Company uses a database of information by market and real estate type that is updated quarterly in preparing evaluations and updating appraisal values. Management also uses this database of information along with other relevant information such as collateral sales negotiations or foreclosed property sales to adjust collateral values. Loans not reviewed for specific impairment allowances are grouped into risk pools with similar traits and subjected to historical loss rates to estimate losses in each pool. Troubled debt restructurings are considered to be impaired loans and are included with the loans that are individually reviewed for impairment allowances. Troubled debt restructurings are loans in which the Company has granted a concession to the borrower which would not otherwise be considered due to the borrower’s financial difficulties.

Certain risk characteristics are common to all real estate lending, whether it be construction and land development, commercial real estate or residential real estate. Real property values can fall, creating loan to value problems that can be exacerbated by over supply and falling demand. General economic conditions including increasing or stagnant unemployment rates can have a negative effect on normally credit-worthy borrowers in each real estate segment. Debt service ratios can weaken if real estate sales fall off or have not fully recovered. Commercial and asset-based lending credits are directly affected by swings in the economy and the inherent risks from lower retail sales, due to lower consumer and commercial demand, falling rental prices and rental vacancies. Unemployment also can weigh heavily on business credits and put additional strain on commercial cash flows. Consumer lending is most directly affected by unemployment issues and consumer confidence in the economy and jobs market. Retail lending volumes and credit-worthiness can come under strain as prices rise and income opportunities decline. The Company considers all of these qualitative risks in its determination of not only individual loan risk grading but also decisions about individual loan impairments and the need for any overall environmental factor or any adjustment of historical loss rates.

The Company monitors available credit on large lines to identify any off-balance sheet credit risks that may arise. Available credit lines are also taken into consideration for loans that are individually tested for impairment amounts. Any lines for which there is insufficient collateral or other sources of repayment will have impairment amounts accrued for deficiencies above the amount of the outstanding loan balance. The Company generally has the contractual right to suspend available credit on a commitment when a contractual default occurs. Available lines are generally suspended, except for the completion of construction projects, when loans are restructured. The Company did not have a liability accrued for any off-balance sheet credit risks at March 31, 2013 or December 31, 2012.

Management’s evaluation of the allowance for loan losses is inherently subjective as it requires material estimates. The actual amounts of loan losses realized in the near term could differ from the amounts estimated in arriving at the allowance for loan losses reported in the financial statements.

Concentrations of Credit

Substantially all of the Company's loans, commitments and standby and commercial letters of credit have been granted to borrowers who are customers in the Company's market area. As a result, the Company is subject to this concentration of credit risk. A substantial portion of the loan portfolio, as presented in Note 4, is represented by loans collateralized by real estate. The ability of the borrowers to honor their contracts is dependent upon the real estate market and general economic conditions in the Company's market area.

10

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 1:  (Continued)

Restricted Cash Balances

The Company has entered into an interest rate swap agreement designed to convert floating rate interest payments on subordinated debentures into fixed rate payments. The Company had pledged interest bearing bank balances as collateral to the interest rate swap counterparty in the amounts of $1.974 million at March 31, 2013 and $1.973 million at December 31, 2012.

The Company held $100 thousand in certificates of deposit and $401 thousand in other interest bearing bank balances at March 31, 2013 and $100 thousand in certificates of deposit and $401 thousand in other interest bearing bank balances at December 31, 2012 in commercial banks as compensating balances for a third party credit card originator and a third party debit card processor. The amounts are included in interest-bearing bank balances.

Note 2:  Fair Value

Fair value is defined 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. Applicable accounting principles establish 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. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. 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.

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.

11

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

The following table summarizes assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

			Fair Value Measurements at March 31, 2013, Using
	Assets/Liabilities Measured at  Fair Value		Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(Dollars in thousands)	March 31, 2013		(Level 1)		(Level 2)		(Level 3)
U.S. Government sponsored entities	$	89,775	$	—	$	89,775	$	—
Mortgage-backed investments	198,647		—		198,647		—
Obligations of states and political subdivisions	73,474		—		73,474		—
Collateralized debt obligations	956		—		—		956
Other debt securities	14,199		—		14,199		—
Total securities available for sale	$	377,051	$	—	$	376,095	$	956
Mortgage derivative assets	278		—		—		278
	$	377,329	$	—	$	376,095	$	1,234
Interest rate swap liability	$	2,396	$	—	$	—	$	2,396
Mortgage derivative liabilities	125		—		—		125
	$	2,521	$	—	$	—	$	2,521

			Fair Value Measurements at December 31, 2012, Using
	Assets/Liabilities Measured at  Fair Value		Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(Dollars in thousands)	December 31, 2012		(Level 1)		(Level 2)		(Level 3)
U.S. Government sponsored entities	$	72,615	$	—	$	72,615	$	—
Mortgage-backed investments	190,563		—		190,563		—
Obligations of states and political subdivisions	71,461		—		71,461		—
Collateralized debt obligations	946		—		—		946
Other debt securities	12,977		—		12,977		—
Total available for sale securities	$	348,562	$	—	$	347,616	$	946
Mortgage derivative assets	317		—		—		317
	$	348,879	$	—	$	347,616	$	1,263
Interest rate swap liability	$	2,484	$	—	$	—	$	2,484
Mortgage derivative liabilities	126		—		—		126
	$	2,610	$	—	$	—	$	2,610

12

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

U.S. Treasury, Government sponsored entity and mortgage-backed securities. Securities issued by the U.S. Treasury and Government sponsored entities and mortgage-backed securities are traded in a dealer market and are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service that primarily uses trading activity in the dealer market to determine market prices.

Obligations of states and political subdivisions. Municipal securities include investments that are traded in a dealer market and investments that trade infrequently and are reported using Level 2 inputs. The fair value measurements are obtained from bothan independent pricing service and from a pricing matrix that considers observable inputs such as dealer quotes, market yield curves, credit information (including observable default rates) and the instrument’s contractual terms and conditions, obtained from a municipal security data provider.

Other debt securities. Other debt securities trade in a dealer market and are reported using Level 2 inputs. The fair value measurements are provided by an independent pricing service and are derived from trading activity in the dealer market.

Collateralized debt obligations. The Company owns certain beneficial interests in collateralized debt obligations secured by community bank trust preferred securities. These interests do not trade in a liquid market, and therefore, market quotes are not a reliable indicator of their ultimate realizability. The Company utilizes a discounted cash flow model using inputs of (1) market yields of trust-preferred securities as the discount rate and (2) expected cash flows which are estimated using assumptions related to defaults, deferrals and prepayments to determine the fair values of these beneficial interests. Many of the factors that adjust the timing and extent of cash flows are based on judgment and not directly observable in the markets. Therefore, these fair values are classified as Level 3 valuations for accounting and disclosure purposes.

Mortgage Derivatives. Mortgage derivative assets and liabilities represent the fair values of the interest rate lock commitments (IRLCs) of the Company to originate mortgages at certain rates as well as the commitments, or forward sale agreements (FSAs), to sell the mortgages to investors 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, market yield curves and estimated servicing values, and non-observable inputs such as credit-related adjustments and estimated pull-through rates. These instruments are classified as Level 3 fair values. Mortgage derivative assets are included in other assets and mortgage derivative liabilities are included in other liabilities in the Company’s statement of condition.

Interest rate swap. The interest rate swap is valued using a discounted cash flow model. Future net cash flows are estimated based on the forward LIBOR rate curve, the payment terms of the swap and potential credit events. These cash flows are discounted using a rate derived from the forward swap curve, with the resulting fair value being classified as a Level 3 valuation.

13

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

The following table reports the activity for the first three months of 2013 and 2012 in assets measured at fair value on a recurring basis using significant unobservable (Level 3) inputs.

(Dollars in thousands)	Three Months Ended
	March 31, 2013
	Collateralized Debt Obligations		Mortgage Derivatives			Interest Rate Swap
Beginning Balance	$	946	$	191		$	(2,484	)
Total gains or losses (realized/unrealized):
Other-than-temporary impairment included in earnings	—		—			—
Other-than-temporary impairment (included in) transferred from other comprehensive income	—		—			—
Other gains/losses included in other comprehensive income	10		—			(69		)
Net swap settlement recorded	—		—			157
IRLC and FSA issuances	—		618			—
IRLC and FSA expirations and fair value changes included in earnings	—		(155		)	—
IRLC transfers into closed loans/FSA transferred on sales	—		(501		)	—
Ending Balance	$	956	$	153		$	(2,396	)
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	—	$	—		$	(157	)

	Three Months Ended
(Dollars in thousands)	March 31, 2012
	Collateralized Debt Obligations		Mortgage Derivatives			Interest Rate Swap
Beginning Balance	$	819	$	(22	)	$	(1,834	)
Total gains or losses (realized/unrealized):
Other-than-temporary impairment included in earnings	—		—			—
Other-than-temporary impairment (included in) transferred from other comprehensive income	—		—			—
Other gains/losses included in other comprehensive income	53		—			(40		)
Net swap settlement recorded	—		—			146
IRLC and FSA issuances	—		(353		)	—
IRLC and FSA expirations and fair value changes included in earnings	—		230			—
IRLC transfers into closed loans/FSA transferred on sales	—		226			—
Ending Balance	$	872	$	81		$	(1,728	)
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at the reporting date	$	—	$	—		$	(146	)

14

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

The following table summarizes certain quantitative information about valuation techniques and significant unobservable inputs used in determining Level 3 fair value measurements at March 31, 2013:

	Fair Value at			Valuation	Unobservable			Weighted
(Dollars in thousands)	March 31, 2013			Techniques	Inputs	Range		Average
Collateralized debt obligations	$	956		Discounted cash flow	Discount margin Default rates	15.00% - 20.00% 0.25% - 0.53%		17.27% .31%
Mortgage interest rate lock agreements	47			Discounted cash flow	Pull-through rates	85.00	%	85.00	%
Mortgage forward sale agreements	106			Consensus pricing	Pull-through rates	85.00	%	85.00	%
Interest rate swap	(2,396		)	Discounted cash flow	Discount rate	.33% - .96%		0.55	%

The following table summarizes certain quantitative information about valuation techniques and significant unobservable inputs used in determining Level 3 fair value measurements at December 31, 2012:

	Fair Value at			Valuation	Unobservable			Weighted
(Dollars in thousands)	December 31, 2012			Techniques	Inputs	Range		Average
Collateralized debt obligations	$	946		Discounted cash flow	Discount margin Default rates	15.00% - 20.00% 0.25% - 0.98%		17.30% 0.45%
Mortgage interest rate lock agreements	86			Discounted cash flow	Pull-through rates	85.00	%	85.00	%
Mortgage forward sale agreements	105			Consensus pricing	Pull-through rates	85.00	%	85.00	%
Interest rate swap	(2,484		)	Discounted cash flow	Discount rate	0.31% - 0.83%		0.52	%

Collateralized debt obligations: The discount margins for the collateralized debt obligations are the margins added to the LIBOR yield curve. The margins are based on averages of observed market transactions for similar preferred securities and adjusted to reflect the lack of liquidity in the trust preferred CDO market. The default rates are annual rates based on a credit scoring analysis of the underlying collateral issuers. The default rates are used in estimating the timing and amounts of expected cash flows.

Mortgage interest rate lock agreements: The pull-through rate is estimated based on closing activity from a sample time period. The pull-though rate is applied as a probability estimate that is multiplied by the estimated price in arriving at an expected price.

Mortgage forward sale agreements: The pull-through rate is estimated based on data provided by mortgage investors. The pull-through rate is applied as a probability estimate that is multiplied by the estimated price in arriving at an expected price.

Interest rate swap: A LIBOR swap yield curve is used to discount the expected cash flows. The yield curve is constructed from swap quotes derived by a third party.

15

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

The following tables summarize assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2013, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(Dollars in thousands)	03/31/13 (a)		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	9,761	$	—	$	—	$	9,761
Loan foreclosures	388		—		—		388
Other real estate	1,711		—		—		1,711

The following tables summarize assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2012, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

			Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(Dollars in thousands)	12/31/12 (a)		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	20,815	$	—	$	—	$	20,815
Loan foreclosures	2,562		—		—		2,562
Other real estate	12,771		—		—		12,771

(a) These amounts represent the resulting carrying amounts on the consolidated statement of condition for impaired real estate-secured loans and other real estate for which fair value re-measurements took place during the period. Loan foreclosures represent the fair value portion of the carrying amounts of other real estate properties that were re-measured at the point of foreclosure during the period.

The following table summarizes certain quantitative information about valuation techniques and significant unobservable inputs used in determining Level 3 nonrecurring fair value measurements at March 31, 2013:

	Fair Value at		Valuation	Unobservable		Weighted
(Dollars in thousands)	March 31, 2013		Techniques	Inputs	Range	Average
Impaired loans	$	9,761	Appraisals from comparable properties	Adjustments for market conditions since appraisal	$1 thousand - $170 thousand	$40 thousand
Loan foreclosures	388		Appraisals from comparable properties	Adjustments for market conditions since appraisal	$5 thousand - $110 thousand	$42 thousand
Other real estate	1,711		Appraisals from comparable properties	Adjustments for market conditions since appraisal	$5 thousand - $165 thousand	$46 thousand

16

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

The following table summarizes certain quantitative information about valuation techniques and significant unobservable inputs used in determining Level 3 nonrecurring fair value measurements at December 31, 2012:

	Fair Value at		Valuation	Unobservable		Weighted
(Dollars in thousands)	December 31, 2012		Techniques	Inputs	Range	Average
Impaired loans	$	20,815	Appraisals from comparable properties	Adjustments for market conditions since appraisal	$1 thousand - $956 thousand	$96 thousand
Loan foreclosures	2,562		Appraisals from comparable properties	Adjustments for market conditions since appraisal	$2 thousand - $292 thousand	$97 thousand
Other real estate	12,771		Appraisals from comparable properties	Adjustments for market conditions since appraisal	$1 thousand - $631 thousand	$95 thousand

Collateral dependent loans and foreclosed properties are primarily valued using appraisals based on sales of comparable properties in the same or similar markets. These valuations are updated by appraisal staff using an internal database of factors. The values of foreclosed properties may also be revised when sale discussions indicate or when sale contracts are negotiated that require an additional write-down to the buyers' expectations.

The following table summarizes losses recognized related to nonrecurring fair value measurements of individual assets or portfolios:

	Three Months Ended
	March 31
(Dollars in thousands)	2013		2012
Impaired loans (a)	$	683	$	2,847
Loan foreclosures (b)	125		379
Other real estate (c)	228		1,100

(a) Represents additional impairments on loans which are based on the appraised value of the collateral. These impairments are accrued in the allowance for loan losses and charged to provision for loan loss expense.

(b) Represents foreclosures of loans secured by real estate when the foreclosed value is lower than the carrying value of the loan. These amounts are charged to the allowance for loan losses with the fair value of the foreclosed property being recorded in other real estate.

(c) Represents related losses of foreclosed properties that were measured at fair value subsequent to their initial acquisition.

Impaired Loans. Collateral dependent loans, which are loans for which the repayment is expected to be provided solely by the underlying collateral, are valued for impairment purposes by using the fair value of the underlying collateral. For collateral dependent loans, collateral values are estimated using Level 3 inputs based on observable market data and other internal estimates.

Loan Foreclosures. Certain foreclosed assets, upon initial recognition, were re-measured and reported at fair value through a charge-off to the allowance for possible loan losses based upon the fair value of the foreclosed asset. The fair value of a foreclosed asset, upon initial recognition, is estimated using Level 3 inputs based on appraisals, observable market data and other internal estimates.

Other real estate. Other real estate consists primarily of real estate from loans that have been foreclosed on. It is carried at the lower of cost or fair value less costs to sell. Subsequent to foreclosure, these properties may experience further market declines. When this occurs, the Company writes the property down to management’s best estimate of what the market may be willing to pay. Management considers recent appraisals when available, what other properties have sold for, how long properties have been on the market, the condition of the property, the availability of liquid buyers and other assumptions that market participants may use in determining a price at which they would acquire the property. Since certain significant inputs to these estimates are management-derived and unobservable, fair values are reported as using Level 3 inputs.

17

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

Fair Value of Financial Instruments

The following tables present the carrying amounts and fair values of the Company’s financial instruments at March 31, 2013 and December 31, 2012:

							Fair Value Measurements at March 31, 2013, Using
	March 31, 2013						Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(Dollars in thousands)	Carrying			Estimated
	Amount			Fair Value			(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and short-term investments	$	74,133		$	74,133		$	74,133	$	—	$	—
Securities available for sale	377,051			377,051			—		376,095		956
Loans held for sale	17,573			17,682			—		—		17,682
Loans held for investment	969,388			876,285			—		—		876,285
Agency accounts receivable	155			155			155		—		—
Accrued interest receivable	5,863			5,863			13		1,742		4,108
Nonmarketable equity investments	2,022			2,022			—		—		2,022
Investments in unconsolidated VIEs	3,062			3,062			—		—		3,062
Mortgage derivative assets	278			278			—		—		278
Financial liabilities:
Noninterest-bearing deposits	252,453			252,453			252,453		—		—
NOW, MMDA and savings deposits	747,035			747,035			747,035		—		—
Certificates of deposit	353,287			358,614			—		—		358,614
Short-term borrowings	2,250			2,250			2,250		—		—
Other borrowings	34,877			36,019			—		—		36,019
Junior subordinated debt	30,928			26,232			—		—		26,232
Agency accounts payable	642			642			642		—		—
Accrued interest payable	628			628			31		—		597
Mortgage derivative liabilities	125			125			—		—		125
Other financial instruments:
Commitments to extend credit and letters of credit	(2		)	(368		)	—		—		(368		)
Interest rate swap	(2,396		)	(2,396		)	—		—		(2,396		)

18

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

							Fair Value Measurements at December 31, 2012, Using
	December 31, 2012						Quoted Prices In Active Markets For Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(Dollars in thousands)	Carrying			Estimated
	Amount			Fair Value			(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and short-term investments	$	159,124		$	159,124		$	159,124	$	—	$	—
Securities available for sale	348,562			348,562			—		347,616		946
Loans held for sale	21,014			21,398			—		—		21,398
Loans held for investment	957,981			860,071			—		—		860,071
Agency accounts receivable	151			151			151		—		—
Accrued interest receivable	5,683			5,683			7		1,682		3,994
Nonmarketable equity investments	2,201			2,201			—		—		2,201
Investments in unconsolidated VIEs	3,136			3,136			—		—		3,136
Mortgage derivative assets	317			317			—		—		317
Financial liabilities:
Noninterest-bearing deposits	276,295			276,295			276,295		—		—
NOW, MMDA and savings deposits	755,675			755,675			755,675		—		—
Certificates of deposit	370,705			377,459			—		—		377,459
Short-term borrowings	3,720			3,720			3,720		—		—
Other borrowings	36,007			37,441			—		—		37,441
Junior subordinated debt	30,928			25,795			—		—		25,795
Agency accounts payable	612			612			612		—		—
Accrued interest payable	661			661			23		—		638
Mortgage derivative liabilities	126			126			—		—		126
Other financial instruments:
Commitments to extend credit and letters of credit	(3		)	(346		)	—		—		(346		)
Interest rate swap	(2,484		)	(2,484		)	—		—		(2,484		)

The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:

Cash and due from banks, interest-bearing deposits with banks and Federal funds sold are valued at their carrying amounts which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments.

Securities available for sale are predominantly valued based on prices obtained from an independent nationally recognized pricing service and market yield matrices. An external pricing service is used to electronically provide prices by CUSIP number. These prices include exchange quoted prices, dealer quoted prices and prices derived from market yields published by specialized financial database providers. The price per instrument provided by the pricing service is used and not adjusted. Typically, all securities except for some small municipal issues and the collateralized debt obligations are priced by the primary external provider. For issues that are not priced by the primary provider, we use a third-party value provided by a broker-dealer affiliate of a correspondent bank. The broker-dealer’s valuation system uses prices provided by (1) the same external pricing service that the Company uses, (2) Standard & Poor’s, (3) matrix pricing with market yield inputs provided by Bloomberg and a municipal securities market data provider and (4) the broker-dealer’s trading staff. Any quotes provided by a broker-dealer are usually non-binding. However, the Company rarely uses solicited broker-dealer quotes to price any of its securities. The broker-dealer prices all municipal securities through its pricing matrix. At March 31, 2013, the only securities that were not priced by the primary provider were 10 municipal bonds representing 5 issuers and the collateralized debt obligations. The broker-dealer’s matrix prices were used for the municipal securities and a third-party provider’s modeled prices were used for the collateralized debt obligations (CDOs).

19

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

CDOs are valued by an external party using a model. The model inputs are (1) discount margins based on current market activity and (2) cash flows based upon contractual amounts adjusted for expected defaults, expected deferrals and expected prepayments. Expected defaults and deferrals are determined through a credit analysis of and risk rating assignment to each obligor of the collateral that funds the investment vehicles. Most of these inputs are not directly observable in the market, resulting in the fair values being classified as Level 3 valuations within the fair value accounting hierarchy.

The primary method of validation of investment security values is the comparison of the prices that are received from the primary pricing service provider with the prices that are used in the broker-dealer’s valuation system. The fair values used for selected agency, mortgage-backed and corporate securities are also periodically checked by comparing them to prices obtained from Bloomberg. The CDOs are validated by comparing the fair values with market activity of similar instruments. Management reviews the documentation provided with the CDO pricing and impairment models to assure that sound valuation methodologies are used and to determine whether or not the significant inputs are reasonable.

Loans held for sale are valued by discounting the estimated cash flows using current market rates for instruments with similar credit ratings and maturities and adjusting those rates using dealer pricing adjustments for characteristics unique to the borrower’s circumstances or the structuring of the credit.

Loans held for investment are valued by discounting the estimated future cash flows, using rates at which these loans would currently be made to borrowers with similar credit ratings and similar maturities.

Agency accounts receivable are trade receivables of M&F Insurance Group, Inc. These receivables are short-term in nature and therefore the fair value is assumed to be the carrying value. These receivables are carried in other assets in the statement of condition.

Accrued interest receivable is short-term in nature and therefore the fair value is assumed to be the carrying value.

Nonmarketable equity securities are primarily securities of the Federal Home Loan Banks for which the carrying value is estimated to be an accurate approximation of fair value. These equity securities are carried in other assets in the statement of condition.

Investments in unconsolidated VIEs are the Company’s investment in the First M&F Statutory Trust I, which acquired the Company’s junior subordinated debt through funding provided by the issuance of trust preferred securities, and an investment in a low income housing tax credit entity. The investment in the statutory trust depends on the Company’s own cash flows and therefore, the carrying value is an accurate approximation of fair value. The low income housing tax credit investment is a limited partnership interest for which the carrying value is assumed to be a reasonable estimate of its fair value. These investments are carried in other assets in the statement of condition.

Noninterest-bearing deposits do not pay interest and do not have defined maturity dates. Therefore, the carrying value is estimated to be equivalent to fair value for these deposits.

NOW, MMDA and savings deposits pay interest and generally do not have defined maturity dates. Although there are some restrictions on access to certain savings deposits, these restrictions are not expected to have a material effect on the value of the deposits. Therefore, the fair value for NOW, MMDA and savings deposits is estimated to be their carrying value.

Certificates of deposit pay interest and do have defined maturity dates. The fair value of certificates of deposit is estimated by discounting the future cash flows, using current market rates for certificates of deposit of similar maturities.

Short-term borrowings are highly liquid and therefore the net book value of the majority of these financial instruments approximates fair value due to the short-term nature of these items.

The fair value of other borrowings, which consist of Federal Home Loan Bank advances and borrowings from correspondent banks, is estimated by discounting the future cash flows using current market rates for borrowings of similar terms and maturities.

Junior subordinated debt is valued by discounting the expected cash flows using a current market rate for similar instruments.

Agency accounts payable are trade payables of M&F Insurance Group, Inc. due to insurance companies. These payables are very short term in nature and therefore the fair value of the payables is estimated to be their carrying value. These payables are carried in other liabilities in the statement of condition.

Accrued interest payable is short-term in nature and therefore the fair value is estimated to be the carrying value.

Commitments to extend credit and letters of credit are valued based on the fees charged to enter into similar credit arrangements.

20

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 2:  (Continued)

Mortgage origination and sale commitments are considered derivatives and are therefore carried at fair value with the changes in fair value recorded in mortgage banking income. Mortgage-related commitments with positive values are carried in other assets and those with negative values are carried in other liabilities in the statement of condition. Mortgage derivatives are valued using a combination of market discount rates, dealer quotes, estimated servicing values and pull-through rates.

The interest rate swap is being used to hedge the interest cash flows on the Company’s junior subordinated debentures. It is valued using a discounted cash flow methodology with cash flows being estimated from the 3-month LIBOR curve and discount rates derived from the swap curve.

Note 3:  Investment Securities

The following is a summary of the amortized cost and fair value of securities available for sale at March 31, 2013 and December 31, 2012:

			Gross Unrealized
(Dollars in thousands)	Amortized Cost		Gains		Losses		Fair Value
March 31, 2013:
U.S. Government sponsored entities	$	88,904	$	913	$	42	$	89,775
Mortgage-backed investments	193,714		5,076		143		198,647
Obligations of states and political subdivisions	70,950		2,940		416		73,474
Collateralized debt obligations	3,108		—		2,152		956
Other debt securities	14,003		212		16		14,199
	$	370,679	$	9,141	$	2,769	$	377,051
December 31, 2012:
U.S. Government sponsored entities	$	71,645	$	993	$	23	$	72,615
Mortgage-backed investments	185,317		5,324		78		190,563
Obligations of states and political subdivisions	68,445		3,170		154		71,461
Collateralized debt obligations	3,108		—		2,162		946
Other debt securities	12,758		219		—		12,977
	$	341,273	$	9,706	$	2,417	$	348,562

21

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 3:  (Continued)

Provided below is a summary of securities available for sale which were in an unrealized loss position and the length of time that individual securities have been in a continuous loss position at March 31, 2013 and December 31, 2012. Securities on which we have taken only credit-related other-than-temporary-impairment (OTTI) write-downs are categorized as being “less than 12 months” or “12 months or more” in a continuous loss position based on the point in time that the fair value declined to below the amortized cost basis and not the period of time since the OTTI write-down.

(Dollars in thousands)	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2013:
U.S. Government sponsored entities	$	7,956	$	42	$	—	$	—	$	7,956	$	42
Mortgage-backed investments	25,397		143		—		—		25,397		143
Obligations of states and political subdivisions	16,089		410		324		6		16,413		416
Collateralized debt obligations	—		—		956		2,152		956		2,152
Other debt securities	1,257		16		—		—		1,257		16
	$	50,699	$	611	$	1,280	$	2,158	$	51,979	$	2,769
December 31, 2012:
U.S. Government sponsored entities	$	5,478	$	23	$	—	$	—	$	5,478	$	23
Mortgage-backed investments	13,866		77		880		1		14,746		78
Obligations of states and political subdivisions	11,015		154		—		—		11,015		154
Collateralized debt obligations	—		—		946		2,162		946		2,162
Other debt securities	—		—		—		—		—		—
	$	30,359	$	254	$	1,826	$	2,163	$	32,185	$	2,417

At March 31, 2013, there were 4 U.S. government sponsored entity securities with unrealized losses less than 12 months. There were 10 mortgage-backed securities with unrealized losses less than 12 months. There were 48 municipal securities with unrealized losses less than 12 months and 1 municipal security with an unrealized loss of more than 12 months. There was one corporate security with an unrealized loss of less than 12 months. The unrealized losses associated with the U.S. government sponsored entity, mortgage-backed and corporate securities were primarily driven by changes in market rates and not due to the credit quality of the securities. The municipal securities that were in unrealized loss positions for less than a year were in unrealized loss positions due primarily to fluctuations in interest rates and market liquidity. The one municipal security that was in an unrealized loss position for more than a year was a local university revenue bond that did not indicate any potential cash flow problems. A review of the municipal securities portfolio during 2012 did not indicate any credit deterioration.

There are five collateralized debt obligations that represent the majority of unrealized losses in the investment portfolio. These obligations are secured by commercial bank trust preferred securities. Management has evaluated these instruments for impairment as of each quarter end within the accounting guidelines for determining impairments for beneficial interests using the discounted cash flow approach prescribed, which required management to make assumptions concerning the estimates of the ultimate collectability of the contractual cash flows of the beneficial interests owned. Credit downgrades of the beneficial interests are also factored in when determining whether the impairments in these securities are other-than-temporary. The discounted cash flow estimates depend on the expected cash flows that the beneficial interest issuer will receive on its investments in the trust preferred securities (the CDO collateral) of the commercial bank investees. The ability of the banks that issued trust preferred securities to the beneficial interest issuer to pay their obligations is determined based on an analysis of the financial condition of the banks. Generally, the same factors that result in credit rating downgrades of the beneficial interests also result in negative adjustments to the expected cash flows of the underlying collateral. This analysis results in an estimate of the timing and amount of cash flows derived from a determination of how many would default on their obligations and how many would eventually pay off their obligations and the timing of those events. Those estimated cash flows would first pay off more senior beneficial interests if certain collateral coverage ratios are not maintained, with the remaining amounts eventually flowing through to the interests owned by the Company. Based on this type of analysis for each beneficial interest issuer, the cash flows of each of the five beneficial interests owned by the Company are projected and discounted to their present values and compared to the amortized cost book values of the interests. This analysis has resulted in other-than-temporary impairment (OTTI) conditions for all five of the securities since 2008. During the first quarters of 2012 and 2013, none of the securities incurred other-than-temporary impairments. Management believes that as the economy improves, the deferrals related to the CDO collateral will cure and provide enough cash flows to the CDOs for the Company to recover its adjusted book values.

22

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 3:  (Continued)

Management does not intend to sell any investment securities that have unrealized losses before the time that those losses could be recovered. Management has evaluated the investment securities that have unrealized losses within the framework of the Company’s liquidity and capital needs as well as its ability to hold those securities over an extended recovery period. Management’s evaluation involved (1) assessing whether significant future cash outflows would occur that would require the liquidation of securities and (2) determining if the balance sheet would need to be managed or reduced in a way that would require the liquidation of securities to meet regulatory capital ratio requirements. This analysis was performed to determine if it was more likely than not that the investments would have to be sold before their anticipated recoveries. Management determined that it was not more likely than not that the investments would have to be disposed of prior to their anticipated recoveries. In estimating whether there are other-than-temporary impairment losses on debt securities management considers (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) historical cash flows and economic factors that could detrimentally affect those cash flows and (4) changes in credit ratings of the issuers.

The following table provides a roll forward of the cumulative activity related to credit losses on debt securities for which a portion of an other-than-temporary impairment was recognized in other comprehensive income.

	Three Months Ended
(Dollars in thousands)	March 31
	2013		2012
Beginning balance	$	1,892	$	1,863
OTTI credit losses on previously impaired securities	—		—
Ending balance	$	1,892	$	1,863

The fair values of our CDOs could decline in the future if the underlying performance of the collateral for the trust preferred CDOs deteriorates and credit enhancements in the form of seniority in the cash flow waterfalls do not provide sufficient protection to our contractual principal and interest. As a result, there is a risk that additional OTTI may occur in the future if the economy deteriorates.

The following is a summary of gains and losses on securities available for sale:

	Three Months Ended
(Dollars in thousands)	March 31
	2013		2012
Proceeds from sales	$	6,141	$	33,982
Gross realized gains	54		682
Gross realized losses	38		91
Net gains from sales	$	16	$	591
Gross recognized losses related to the credit component of other-than-temporary impairments	$	—	$	—

Realized gains and losses on securities available for sale are determined using the specific amortized cost of the securities sold.

Securities with a carrying value totaling $248.844 million at March 31, 2013 and $207.088 million at December 31, 2012 were pledged to secure an interest rate swap, public deposits, short-term borrowings and for other purposes required or permitted by law.

23

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 3:  (Continued)

The amortized cost and fair values of debt securities available for sale at March 31, 2013, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with, or without, call or prepayment penalties. Mortgage-backed securities receive monthly payments based on the cash flows of the underlying collateral. Therefore, their stated maturities do not represent the timing of principal amounts received and no maturity distributions are shown for these securities.

(Dollars in thousands)	Amortized Cost		Fair Value
One year or less	$	25,986	$	26,173
After one through five years	91,430		93,421
After five through ten years	46,356		47,297
After ten years	13,193		11,513
	176,965		178,404
Mortgage-backed investments	193,714		198,647
	$	370,679	$	377,051

Note 4:  Loans and Allowance for Loan Losses

The Bank's loan portfolio includes commercial, consumer, agricultural and residential loans originated primarily in its markets in central and north Mississippi, southwest Tennessee, central Alabama and the Florida panhandle. The following is a summary of the Bank's loans held for investment, net of unearned income of $530 thousand at March 31, 2013 and $736 thousand at December 31, 2012:

(Dollars in thousands)	March 31, 2013		December 31, 2012
Construction and land development loans	$	62,116	$	58,745
Other commercial real estate loans	495,337		484,114
Asset-based loans	35,527		36,679
Other commercial loans	114,598		116,871
Home equity loans	39,047		37,736
Other 1-4 family residential loans	203,260		200,992
Consumer loans	37,772		40,336
Total loans	$	987,657	$	975,473

The Bank uses loans as collateral for borrowings at the Federal Reserve Bank and a Federal Home Loan Bank. Approximately $14.635 million and $16.703 million of commercial and consumer loans were pledged to a line of credit with the Federal Reserve Bank at March 31, 2013 and December 31, 2012 respectively. Approximately $103.412 million and $145.064 million of individual real estate-secured loans were pledged to the Federal Home Loan Bank at March 31, 2013 and December 31, 2012, respectively.

During the first quarter of 2013 the Company purchased $561 thousand in commercial real estate participations. No loan purchases were made during the first quarter of 2012.

During the first quarter of 2013 the Company transferred $1.833 million of mortgage loans from held-for-sale status into the portfolio of loans held for investment. During the first quarter of 2012 the Company transferred $1.997 million of mortgage loans from held-for-sale status into the portfolio of loans held for investment.

24

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table presents a summary of the past due status of all loans, including nonaccrual loans, by type at March 31, 2013:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
Construction and land development loans	$	112	$	14	$	694	$	820	$	61,296	$	62,116	$	—
Other commercial real estate loans	865		454		1,464		2,783		492,554		495,337		19
Asset based loans	—		—		81		81		35,446		35,527		—
Other commercial loans	503		37		277		817		113,781		114,598		52
Home equity loans	458		—		—		458		38,589		39,047		—
Other 1-4 family residential loans	2,618		1,657		620		4,895		198,365		203,260		174
Consumer loans	206		44		52		302		37,470		37,772		23
Total	$	4,762	$	2,206	$	3,188	$	10,156	$	977,501	$	987,657	$	268

The following table presents a summary of the past due status of all loans, including nonaccrual loans, by type at December 31, 2012:

(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
Construction and land development loans	$	369	$	26	$	817	$	1,212	$	57,533	$	58,745	$	—
Other commercial real estate loans	1,255		294		3,647		5,196		478,918		484,114		66
Asset based loans	—		—		81		81		36,598		36,679		—
Other commercial loans	366		50		408		824		116,047		116,871		64
Home equity loans	49		—		31		80		37,656		37,736		31
Other 1-4 family residential loans	1,329		584		791		2,704		198,288		200,992		137
Consumer loans	217		60		23		300		40,036		40,336		23
Total	$	3,585	$	1,014	$	5,798	$	10,397	$	965,076	$	975,473	$	321

Loans are placed into nonaccrual status when, in management's opinion, the borrowers may be unable to meet their payment obligations, which typically occurs when principal or interest payments are more than 90 days past due. The following table presents a summary of the nonaccrual status of loans by type at March 31, 2013 and December 31, 2012 and other nonperforming assets:

(Dollars in thousands)	March 31, 2013		December 31,  2012
Construction and land development loans	$	891	$	817
Other commercial real estate loans	2,895		4,244
Asset based loans	81		81
Other commercial loans	612		694
Home equity loans	70		72
Other 1-4 family residential loans	2,684		1,524
Consumer loans	44		12
Total nonaccrual loans	$	7,277	$	7,444
Other real estate owned	24,820		25,970
Total nonperforming credit-related assets	$	32,097	$	33,414

25

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The Company applies internal risk ratings to all loans. The risk ratings range from 10, which is the highest quality rating, to 70, which indicates an impending charge-off. The following definitions apply to the internal risk ratings:

Risk rating 10 – Excellent:

Commercial – Credits in this category are virtually risk-free and are well-collateralized by cash-equivalent instruments. The repayment program is well-defined and achievable. Repayment sources are numerous. No material documentation deficiencies or exceptions exist.

Consumer – This grade is reserved for loans secured by cash collateral on deposit at the Bank with no risk of principal deterioration.

Risk rating 20 – Strong:

Commercial and Consumer – This grade is reserved for loans secured by readily marketable collateral, or loans within guidelines to borrowers with liquid financial statements. A liquid financial statement is a financial statement with substantial liquid assets relative to debts. These loans have excellent sources of repayment, with no significant identifiable risk of collection, and conform in all respects to Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind).

Risk rating 30 – Good:

Commercial – This grade is reserved for the Bank’s top quality loans. These loans have excellent sources of repayment, with no significant identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics: (1) conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind), (2) documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

Consumer – This grade is reserved for the Bank’s top quality loans. These loans have excellent sources of repayment, with no significant identifiable risk of collection, and they: (1) conform to Bank policy, (2) conform to underwriting standards and (3) conform to product guidelines.

Risk rating 31 – Moderate:

Commercial – This grade is given to acceptable loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this risk grade will demonstrate the following characteristics: (1) general conformity to the Bank’s policy requirements, product guidelines and underwriting standards, with limited exceptions – any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors, (2) documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources and (3) adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

Consumer – This grade is given to acceptable loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Consumer loans exhibiting this grade may have up to two mitigated guideline tolerances or exceptions.

Risk rating 32 – Fair:

Commercial – This grade is given to acceptable loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss. Loans assigned this grade may demonstrate some or all of the following characteristics: (1) additional exceptions to the Bank’s policy requirements, product guidelines or underwriting standards that present a higher degree of risk to the Bank – although the combination and/or severity of identified exceptions is greater, all exceptions have been properly mitigated by other factors, (2) unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time – repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected (not historic) performance and (3) marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor.

Consumer – This grade is given to acceptable loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss. Consumer loans exhibiting this grade generally have three or more mitigated guideline tolerances or exceptions.

26

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

Risk rating 40 – Special Mention:

Commercial – Special Mention loans include the following characteristics: (1) loans with underwriting guideline tolerances and/or exceptions and with no mitigating factors, (2) extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date – potential weaknesses are the result of deviations from prudent lending practices, and (3) loans where adverse economic conditions that develop subsequent to the loan origination that don’t jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.

Consumer - Special Mention loans include the following characteristics: (1) loans with guideline tolerances or exceptions of any kind that have not been mitigated by other economic or credit factors, (2) extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date – potential weaknesses are the result of deviations from prudent lending practices, and (3) loans where adverse economic conditions that develop subsequent to the loan origination that do not jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.

Risk rating 50 – Substandard:

Commercial and Consumer – A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to: (1) high debt to worth ratios, (2) declining or negative earnings trends, (3) declining or inadequate liquidity, (4) improper loan structure, (5) questionable repayment sources, (6) lack of well-defined secondary repayment source and (7) unfavorable competitive comparisons. Such loans are no longer considered to be adequately protected due to the borrower’s declining net worth, lack of earnings capacity, declining collateral margins and/or unperfected collateral positions. A possibility of loss of a portion of the loan balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may have exhibited excessive overdue status or extensions and/or renewals.

Risk rating 60 – Doubtful:

Commercial and Consumer – Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt. Among these events are: (1) injection of capital, (2) alternative financing and (3) liquidation of assets or the pledging of additional collateral. The ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been considered for non-accrual status, and the repayment schedule is questionable. Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is charged off.

Risk rating 70 – Loss:

Commercial and Consumer – Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future. Probable Loss portions of Doubtful assets should be charged against the Reserve for Loan Losses. Loans may reside in this classification for administrative purposes for a period not to exceed the earlier of thirty (30) days or calendar quarter-end.

27

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table presents a summary of loans by credit risk rating at March 31, 2013.

(Dollars in thousands)
	Construction		Other Commercial Real Estate		Asset-Based		Other Commercial
10 and 20	$	—	$	—	$	—	$	10,972
30-32	44,247		409,985		25,155		95,857
40	7,754		59,427		10,283		6,578
50	9,515		25,925		89		1,121
60	600		—		—		70
Total	$	62,116	$	495,337	$	35,527	$	114,598

(Dollars in thousands)
	Home Equity		Other 1-4  Family		Consumer		Total
10 and 20	$	—	$	51	$	12,544	$	23,567
30-32	37,195		186,763		24,488		823,690
40	807		9,120		538		94,507
50	1,045		7,238		200		45,133
60	—		88		2		760
Total	$	39,047	$	203,260	$	37,772	$	987,657

The following table presents a summary of loans by credit risk rating at December 31, 2012.

(Dollars in thousands)
	Construction		Other Commercial Real Estate		Asset-Based		Other Commercial
10 and 20	$	—	$	—	$	—	$	10,329
30-32	41,560		394,904		25,830		101,937
40	6,847		62,387		10,572		3,253
50	9,738		26,823		277		1,280
60	600		—		—		72
Total	$	58,745	$	484,114	$	36,679	$	116,871

(Dollars in thousands)
	Home Equity		Other 1-4  Family		Consumer		Total
10 and 20	$	—	$	58	$	13,161	$	23,548
30-32	35,848		184,703		26,439		811,221
40	733		9,529		602		93,923
50	1,155		6,613		132		46,018
60	—		89		2		763
Total	$	37,736	$	200,992	$	40,336	$	975,473

28

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of the collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

The Company uses a five year average in calculating the historical loss rates that are applied to various risk pools of loans in determining the allowance for loan losses for loans not individually tested for impairment. This calculation is a straight historical average which naturally includes recent high-loss years. Management believes that the five year historical loss calculation will better reflect the risks inherent in the recent and current credit environment and that it is more appropriate than an even shorter historical period (e.g., three years) because a shorter period would too heavily weight improved periods and too quickly remove recent periods that included larger losses caused by factors that could still reasonably exist latent in the makeup of the loan class.

The Company uses environmental factors to adjust loss rates to reflect economic conditions and other circumstances that imply risk of loss in the current environment that is not necessarily reflected in the historical loss rates. At December 31, 2012 the Company adjusted the five year loss rates by an economic environmental factor based on recessionary conditions and an illiquid market for undeveloped real estate collateral. The loss rate applied to commercial real estate loans was adjusted upward by 15 basis points. The loss rate applied to commercial, agricultural and municipal loans was adjusted upward by 35 basis points given their dependency on cash flows which are at risk absent a growing economy.

29

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table summarizes loans that were individually reviewed for impairment allowances at March 31, 2013:

(Dollars in thousands)
	Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans without a specific valuation allowance:
Construction and land development loans	$	6,215	$	8,569	$	—
Other commercial real estate loans	19,213		19,656		—
Asset based loans	—		—		—
Other commercial loans	744		744		—
Home equity loans	1,045		1,045		—
Other 1-4 family residential loans	5,596		5,673		—
Consumer loans	150		153		—
Loans with a specific valuation allowance:
Construction and land development loans	$	3,900	$	3,900	$	2,217
Other commercial real estate loans	12,502		13,913		2,351
Asset based loans	—		—		—
Other commercial loans	447		447		299
Home equity loans	—		—		—
Other 1-4 family residential loans	1,730		1,730		359
Consumer loans	52		52		52
Total:
Construction and land development loans	$	10,115	$	12,469	$	2,217
Other commercial real estate loans	31,715		33,569		2,351
Asset based loans	—		—		—
Other commercial loans	1,191		1,191		299
Home equity loans	1,045		1,045		—
Other 1-4 family residential loans	7,326		7,403		359
Consumer loans	202		205		52

30

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table summarizes the average recorded investment in impaired loans and the amount of interest income recognized for the first quarter of 2013:

(Dollars in thousands)	Average Investment In Impaired Loans		Interest Income Recognized
	Quarter-to-Date		Quarter-to-Date
Loans without a specific valuation allowance:
Construction and land development loans	$	6,343	$	68
Other commercial real estate loans	24,018		257
Asset based loans	—		—
Other commercial loans	942		12
Home equity loans	1,102		13
Other 1-4 family residential loans	6,226		57
Consumer loans	124		—
Loans with a specific valuation allowance:
Construction and land development loans	$	3,893	$	41
Other commercial real estate loans	12,346		147
Asset based loans	—		—
Other commercial loans	331		4
Home equity loans	—		—
Other 1-4 family residential loans	1,689		16
Consumer loans	42		1
Total:
Construction and land development loans	$	10,236	$	109
Other commercial real estate loans	36,364		404
Asset based loans	—		—
Other commercial loans	1,273		16
Home equity loans	1,102		13
Other 1-4 family residential loans	7,915		73
Consumer loans	166		1

31

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table summarizes loans that were individually reviewed for impairment allowances at March 31, 2012:

(Dollars in thousands)
	Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans without a specific valuation allowance:
Construction and land development loans	$	12,869	$	17,072	$	—
Other commercial real estate loans	33,625		36,738		—
Asset based loans	—		—		—
Other commercial loans	579		606		—
Home equity loans	322		322		—
Other 1-4 family residential loans	4,455		4,527		—
Consumer loans	119		130		—
Loans with a specific valuation allowance:
Construction and land development loans	$	4,632	$	7,307	$	1,689
Other commercial real estate loans	9,109		10,137		1,340
Asset based loans	—		—		—
Other commercial loans	814		814		361
Home equity loans	325		325		286
Other 1-4 family residential loans	2,353		2,353		420
Consumer loans	39		39		39
Total:
Construction and land development loans	$	17,501	$	24,379	$	1,689
Other commercial real estate loans	42,734		46,875		1,340
Asset based loans	—		—		—
Other commercial loans	1,393		1,420		361
Home equity loans	647		647		286
Other 1-4 family residential loans	6,808		6,880		420
Consumer loans	158		169		39

32

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table summarizes the average recorded investment in impaired loans and the amount of interest income recognized for the first quarter of 2012:

(Dollars in thousands)	Average Investment In Impaired Loans		Interest Income Recognized
	Quarter-to-Date		Quarter-to-Date
Loans without a specific valuation allowance:
Construction and land development loans	$	13,900	$	150
Other commercial real estate loans	34,382		408
Asset based loans	—		—
Other commercial loans	673		9
Home equity loans	325		1
Other 1-4 family residential loans	5,280		53
Consumer loans	130		2
Loans with a specific valuation allowance:
Construction and land development loans	$	4,634	$	32
Other commercial real estate loans	9,614		61
Asset based loans	—		—
Other commercial loans	822		6
Home equity loans	327		2
Other 1-4 family residential loans	2,356		31
Consumer loans	47		1
Total:
Construction and land development loans	$	18,534	$	182
Other commercial real estate loans	43,996		469
Asset based loans	—		—
Other commercial loans	1,495		15
Home equity loans	652		3
Other 1-4 family residential loans	7,636		84
Consumer loans	177		3

33

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table summarizes loans that were individually reviewed for impairment allowances at December 31, 2012:

(Dollars in thousands)
	Recorded Balance		Unpaid Principal Balance		Specific Allowance
Loans without a specific valuation allowance:
Construction and land development loans	$	6,903	$	9,257	$	—
Other commercial real estate loans	27,156		27,353		—
Asset based loans	—		—		—
Other commercial loans	1,093		1,254		—
Home equity loans	1,084		1,084		—
Other 1-4 family residential loans	6,577		6,687		—
Consumer loans	94		97		—
Loans with a specific valuation allowance:
Construction and land development loans	$	3,435	$	3,435	$	2,036
Other commercial real estate loans	14,766		16,177		2,421
Asset based loans	—		—		—
Other commercial loans	259		259		209
Home equity loans	72		72		36
Other 1-4 family residential loans	1,920		1,920		496
Consumer loans	40		40		40
Total:
Construction and land development loans	$	10,338	$	12,692	$	2,036
Other commercial real estate loans	41,922		43,530		2,421
Asset based loans	—		—		—
Other commercial loans	1,352		1,513		209
Home equity loans	1,156		1,156		36
Other 1-4 family residential loans	8,497		8,607		496
Consumer loans	134		137		40

34

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table summarizes activity in the allowance for loan losses for the three months ended March 31, 2013 by loan category:

(Dollars in thousands)
	Construction		Other CRE			Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Balance, beginning of period	$	4,909	$	5,865		$	3,266		$	2,886		$	566		$	—	$	17,492
Provision charged to expense	316		863			42			(4		)	63			—		1,280
Losses charged off	—		(361		)	(119		)	(149		)	(118		)	—		(747		)
Recoveries	34		33			110			18			49			—		244
Balance, end of period	$	5,259	$	6,400		$	3,299		$	2,751		$	560		$	—	$	18,269
Ending balance:
Individually evaluated for impairment	$	2,217	$	2,351		$	299		$	359		$	52		$	—	$	5,278
Ending balance:
Collectively evaluated for impairment	$	3,042	$	4,049		$	3,000		$	2,392		$	508		$	—	$	12,991
Ending balance:
Loans acquired with deteriorated credit quality	$	—	$	—		$	—		$	—		$	—		$	—	$	—
Loans:
Ending balance	$	62,116	$	495,337		$	150,125		$	242,307		$	37,772		$	—	$	987,657
Ending balance:
Individually evaluated for impairment	$	10,115	$	31,715		$	1,191		$	8,371		$	202		$	—	$	51,594
Ending balance:
Collectively evaluated for impairment	$	52,001	$	463,622		$	148,934		$	233,936		$	37,570		$	—	$	936,063
Ending balance:
Loans acquired with deteriorated credit quality	$	—	$	—		$	—		$	—		$	—		$	—	$	—

35

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table summarizes activity in the allowance for loan losses for the three months ended March 31, 2012 by loan category:

(Dollars in thousands)
	Construction			Other CRE			Commercial			Residential			Consumer			Unallocated		Total
Allowance for loan losses:
Balance, beginning of period	$	4,131		$	4,073		$	3,347		$	2,607		$	795		$	—	$	14,953
Provision charged to expense	32			2,446			(355		)	258			(101		)	—		2,280
Losses charged off	(92		)	(1,353		)	(208		)	(239		)	(169		)	—		(2,061		)
Recoveries	355			114			72			320			51			—		912
Balance, end of period	$	4,426		$	5,280		$	2,856		$	2,946		$	576		$	—	$	16,084
Ending balance:
Individually evaluated for impairment	$	1,689		$	1,340		$	361		$	706		$	39		$	—	$	4,135
Ending balance:
Collectively evaluated for impairment	$	2,737		$	3,940		$	2,495		$	2,240		$	537		$	—	$	11,949
Ending balance:
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—	$	—
Loans:
Ending balance	$	70,087		$	498,724		$	144,319		$	224,989		$	41,376		$	—	$	979,495
Ending balance:
Individually evaluated for impairment	$	17,501		$	42,734		$	1,393		$	7,455		$	158		$	—	$	69,241
Ending balance:
Collectively evaluated for impairment	$	52,586		$	455,990		$	142,926		$	217,534		$	41,218		$	—	$	910,254
Ending balance:
Loans acquired with deteriorated credit quality	$	—		$	—		$	—		$	—		$	—		$	—	$	—

36

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

The following table summarizes the balance in the allowance for loan losses at December 31, 2012 by loan category:

(Dollars in thousands)
	Construction		Other CRE		Commercial		Residential		Consumer		Unallocated		Total
Balance December 31, 2012	$	4,909	$	5,865	$	3,266	$	2,886	$	566	$	—	$	17,492
Balance December 31, 2012:
Individually evaluated for impairment	$	2,036	$	2,421	$	209	$	532	$	40	$	—	$	5,238
Balance December 31, 2012:
Collectively evaluated for impairment	$	2,873	$	3,444	$	3,057	$	2,354	$	526	$	—	$	12,254
Balance December 31, 2012:
Loans acquired with deteriorated credit quality	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Loans:
Balance December 31, 2012:	$	58,745	$	484,114	$	153,550	$	238,728	$	40,336	$	—	$	975,473
Balance December 31, 2012:
Individually evaluated for impairment	$	10,338	$	41,922	$	1,352	$	9,653	$	134	$	—	$	63,399
Balance December 31, 2012:
Collectively evaluated for impairment	$	48,407	$	442,192	$	152,198	$	229,075	$	40,202	$	—	$	912,074
Balance December 31, 2012:
Loans acquired with deteriorated credit quality	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Restructured loans are considered to be impaired loans. A troubled debt restructuring occurs when a creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. That concession either stems from an agreement between the creditor and the debtor or is imposed by law or a court. The following table presents information about the Company’s restructured loan portfolio as of March 31, 2013 and December 31, 2012:

(Dollars in thousands)	March 31, 2013				December 31, 2012
	Recorded Balance		Allowance		Recorded Balance		Allowance
Restructured loans with an allowance:
Construction and land development loans	$	398	$	170	$	—	$	—
Other commercial real estate loans	8,559		984		11,038		1,082
Other commercial loans	63		63		—		—
Other 1-4 family residential loans	59		9		59		12
Restructured loans without an allowance:
Construction and land development loans	1,310		—		1,719		—
Other commercial real estate loans	11,751		—		11,115		—
Other commercial loans	—		—		308		—
Other 1-4 family residential loans	565		—		571		—
Total restructured loans	$	22,705	$	1,226	$	24,810	$	1,094

At March 31, 2013, there were no available credit commitments for restructured loans. At December 31, 2012, there were no available credit commitments for restructured loans.

There were no loans restructured during the first quarter of 2013 or during the first quarter of 2012.

37

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 4:  (Continued)

There were no loans modified under the terms of a TDR that became 90 days or more delinquent or were foreclosed on during the three month period ended March 31, 2013, that were initially restructured within the prior twelve months.

The following table presents loans modified under the terms of a TDR that became 90 days or more delinquent or were foreclosed on during the three month period ended March 31, 2012, that were initially restructured within the prior twelve months:

(Dollars in thousands)	Three Months Ended March 31, 2012
	Number of Loans	Amortized Cost
Other commercial loans	1	335
Other 1-4 family residential loans	1	152
Total subsequent defaults	2	$	487

The first quarter of 2012 defaults were subsequent 90 day delinquencies.

Note 5:  Other Intangible Assets

Following is a summary of intangible assets, net of accumulated amortization, included in the consolidated statements of condition:

Core Deposit Intangible
	Three Months Ended
(Dollars in thousands)	March 31
	2013			2012
Beginning Balance	$	4,159		$	4,586
Amortization expense	(106		)	(107		)
Ending Balance	$	4,053		$	4,479
Estimated future amortization expense
Remainder of 2013	$	321
2014	427
2015	427
2016	427
2017	427
2018	427

38

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 6:  Borrowing Arrangements

The following is a summary of other borrowings at March 31, 2013 and December 31, 2012:

(Dollars in thousands)	March 31 2013		December 31 2012
Company’s line of credit in the amount of $5,000,000, maturing in June 2013; secured by approximately 51% of the Bank’s common stock; interest payable quarterly at the prime rate with a floor of 3.50%	$	2,792	$	2,792
Bank’s advances from Federal Home Loan Banks	32,085		33,215
	$	34,877	$	36,007
Company’s junior subordinated debentures, interest payable quarterly at 90-day LIBOR plus 1.33% through March 2036; currently redeemable	$	30,928	$	30,928

The Company’s revolving correspondent line of credit, as modified in March 2012, required three principal payments of at least $125 thousand each – one during the second, third and fourth quarters of 2012. The line of credit contains certain restrictive covenants related to capital ratios, asset quality, returns on average assets, dividends and supervisory actions by the Company’s regulators. The Company was in compliance with the covenants at March 31, 2013.

The Bank has advances and letters of credit from the Federal Home Loan Bank of Dallas (FHLB) collateralized by real estate-secured loans. The Bank must pledge collateral to obtain advances from the FHLB. Based on the amount of collateral pledged as of March 31, 2013 the Bank had approximately $40.318 million in available credit.

The Bank has a line of credit with the Federal Reserve Discount Window collateralized by commercial and consumer loans. The Bank had a line of credit of approximately $9.513 million at March 31, 2013, all of which was available.

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.

The Company may elect to defer up to 20 consecutive quarterly payments of interest on the junior subordinated debentures. During an extension period the Company may not declare or pay dividends on its common stock, repurchase common stock or repay any debt that has equal rank or is subordinate to the debentures. The Company is prohibited from issuing any class of common or preferred stock that is senior to the junior subordinated debentures during the term of the debentures.

In November 2010 the Company entered into a forward-starting, pay-fixed, receive-floating interest rate swap with a notional value of $30 million designed to hedge the variability of interest payments when the junior subordinated debentures reset from a fixed rate of interest to a floating rate of interest on March 15, 2011. The interest rate swap payments became effective on March 15, 2011, and it terminates on March 15, 2018. The terms of the interest rate swap include fixed interest paid by the Company at a rate of 3.795% and floating interest paid based on 90-day LIBOR plus 1.33%. Based on its analysis, the Company expects the hedge to be highly effective.

The Company is a guarantor of the First M&F Statutory Trust I to the extent that if at any time the Trust is required to pay taxes, duties, assessments or governmental charges of any kind, then the Company is required to pay to the Trust additional sums to cover the required payments.

The Company irrevocably and unconditionally guarantees, with respect to the Capital Securities of the First M&F Statutory Trust I, and to the extent not paid by the Trust, accrued and unpaid distributions on the Capital Securities and the redemption price payable to the holders of the Capital Securities.

39

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 7:  Preferred Stock and Common Stock Warrant

On February 27, 2009, the Company issued 30,000 shares of its Fixed Rate Cumulative Perpetual Preferred Stock, Class B Nonvoting, Series A (no par) to the U. S. Treasury as part of its participation in the Capital Purchase Program. Concurrent with the issuance of the preferred stock, the Company also issued a ten-year warrant to purchase up to 513,113 shares of the Company’s common stock at an exercise price of $8.77 per share to the U. S. Treasury. The Company received $30.000 million from the U. S. Treasury in exchange for the preferred stock and common stock warrant. Approximately $28.637 million of the proceeds were allocated to the preferred stock with the remaining $1.363 million being allocated to additional paid-in capital for the common stock warrant. Cumulative dividends on the Class B, Series A Preferred Stock accrued on the $1,000 liquidation preference at a rate of 5% per annum.

On September 29, 2010 the Company redeemed the Class B, Series A Preferred Stock by issuing 30,000 shares of Class B, Series CD Preferred Stock issued pursuant to the U. S. Treasury Community Development Capital Initiative. The book value of the Class B, Series A Preferred Stock on the exchange date was $29.026 million. The fair value of the Class B, Series CD Preferred Stock issued on the exchange date was $16.159 million, resulting in a gain of $12.867 million which was recorded as a credit to retained earnings. The Company’s banking subsidiary, M&F Bank, was certified by the U. S. Treasury as a Community Development Financial Institution (CDFI) on September 28, 2010.

Cumulative dividends on the Class B, Series CD Preferred Stock accrue on the $1,000 liquidation preference at a rate of 2% per annum for the first eight years, and at a rate of 9% per annum thereafter but are paid only if, as, and when declared by the Company’s Board of Directors. The Company’s banking subsidiary must be re-certified as a Community Development Financial Institution (CDFI) by the Community Development Financial Institution Fund of the U. S. Treasury Department at three-year intervals. In the event that the banking subsidiary continues to be uncertified for 180 days, the dividend rate shall increase to 5%. If the banking subsidiary continues to be uncertified for an additional 90 days, then the dividend rate shall increase to 9% until the subsidiary becomes certified, at which time the dividend rate shall revert to its original 2% per annum. The Class B, Series CD Preferred Stock has no maturity date and ranks senior to the Common Stock with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution and winding up of the Company. The Class B, Series CD Preferred Stock is generally non-voting.

The Company may redeem the Class B, Series CD Preferred Stock in whole or in part at $1,000 per share at any time, subject to the consent of the Federal Reserve Bank of St. Louis, which is the Company’s primary Federal banking regulator, and the U.S. Treasury Department.

The fair value of the Class B, Series CD Preferred Stock was determined using a discounted cash flow analysis. Cash flows under scenarios of continuing CDFI certification and loss of CDFI certification, weighted by estimated probabilities, were used. Terminal values were calculated as perpetuities on the dates that the dividend rates would accelerate to 9% under the different scenarios. All cash flows were discounted at a market rate of 10%.

Accretion of the discount associated with the preferred stock is recognized as an increase to preferred stock dividends in determining net income available to common shareholders. The discount on the Class B, Series CD Preferred Stock is being accreted over an eight year period using the effective yield method. The discount accretion recognized on the Class B, Series CD Preferred Stock was $313 thousand during the first three months of 2012. The discount accretion recognized on the Class B, Series CD Preferred Stock was $347 thousand during the first three months of 2013.

The following table summarizes preferred stock of the Company:

(Dollars in thousands)			Shares at		Shares at		Carrying Value
			March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
	Rate		Authorized	Outstanding	Authorized	Outstanding
Class A	—		1,000,000	—	1,000,000	—	$	—	$	—
Class B:			1,000,000		1,000,000
Series A	5	%		—		—	—		—
Series CD	2	%		30,000		30,000	19,212		18,865
							$	19,212	$	18,865

40

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 8:  Pension and Other Employee Benefit Plans

As discussed in Note 18: Employee Benefit Plans, to the December 31, 2012 financial statements, the Bank has a defined benefit pension plan covering substantially all full time employees of the Bank and its subsidiaries. The following table provides a summary of the components of the unamortized pension costs recognized in stockholders’ equity as of March 31, 2013 and December 31, 2012:

(Dollars in thousands)	Balance			2013			Balance
	12/31/12			Amortization			03/31/13
Unamortized actuarial loss	$	2,364		$	(591	)	$	1,773
Deferred taxes	(882		)	220			(662		)
Net unamortized pension costs	$	1,482		$	(371	)	$	1,111

The following is a summary of the components of net periodic benefit costs for the three-month periods ended March 31, 2013 and 2012:

	Three Months Ended
(Dollars in thousands)	March 31
	2013			2012
Interest cost	$	94		$	102
Expected return on plan assets	(144		)	(131		)
Amortization of prior service costs	—			—
Recognized actuarial loss	591			534
Net pension cost	$	541		$	505

The Company made $118 thousand in contributions to the pension plan during the first three months of 2013. The Company made $56 thousand in contributions to the pension plan during the first three months of 2012. The Company expects to make approximately $294 thousand in contributions to the pension plan during the remainder of 2013.

The Company made $75 thousand in contributions to the ESOP and $184 thousand in matching contributions to the 401k plan during the first three months of 2013. The Company made $75 thousand in contributions to the ESOP and $164 thousand in matching contributions to the 401k plan during the first three months of 2012. The Company matches 60% of an employee's first 6% of salary deferral in the 401k plan for all employees with less than three years of credited service and 75% for employees with three years or more of credited service.

The Company has a nonqualified deferred compensation plan for certain senior officers. Participants deferred $22 thousand of compensation and received no distributions during the first three months of 2013. Participants deferred $21 thousand of compensation and received $8 thousand in distributions during the first three months of 2012. Employee benefit expenses include charges for earnings increases of $9 thousand for the first three months of 2013 and $34 thousand for the first three months of 2012. The plan incurred $1 thousand of expenses during the first three months of 2013 and $1 thousand during the first three months of 2012. Liabilities of the plan were $661 thousand at March 31, 2013 and $552 thousand at March 31, 2012, substantially all of which were vested.

41

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 9:  Share-based Compensation

The Company uses the fair value method of accounting for stock-based compensation. 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 stock awards activity:

	2005 Plan							1999 Plan
		Restricted Stock			Stock Options			Stock Options
	Shares Available For Grant	Number of Shares	Weighted Average Grant Date Fair Value		Number Of Shares	Weighted Average Exercise Price		Number Of Shares	Weighted Average Exercise Price
January 1, 2012	613,434	46,000	$	17.032	17,800	$	10.526	15,800	$	16.018
Awards Granted	—	—	—		—	—		—	—
Vested	—	—	—		—	—		—	—
Forfeitures	—	—	—		—	—		—	—
Expired	—	—	—		—	—		—	—
March 31, 2012	613,434	46,000	$	17.032	17,800	$	10.526	15,800	$	16.018
January 1, 2013	240,388	373,646	$	4.510	17,200	$	10.714	10,800	$	17.590
Awards Granted	—	—	—		—	—		—	—
Vested	—	—	—		—	—		—	—
Forfeitures	—	—	—		—	—		—	—
Expired	—	—	—		—	—		—	—
March 31, 2013	240,388	373,646	$	4.510	17,200	$	10.714	10,800	$	17.590
Shares exercisable at March 31, 2013		—	—		11,800	$	13.055	10,800	$	17.590

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. At March 31, 2013, there were $1 thousand in unrecognized compensation costs related to stock option awards.

The Company issues restricted stock awards to certain executives and other key employees. The awards vest over periods of one to seven years and are forfeited in their entirety if the officer leaves the Company before the end of the vesting term. Dividends are paid quarterly to restricted stock grantees. In April2012 the Company granted 298,746 shares of restricted stock to certain officers and other employees. Also during April2012 the Company granted 81,900 shares of restricted stock to the directors of the Company who are not members of management. The April grants vest over a 5 year period and may be forfeited if the employee or director leaves before the completion of the vesting period. The 2012 stock grants do not contain any performance conditions. At March 31, 2013, there were $1.348 million in unrecognized compensation costs for all restricted stock grants. The unrecognized costs at March 31, 2013, are expected to be recognized over a weighted-average period of 4.03 years. The Company estimates that 4.00% (0.80% annual rate) of the employee shares and 2.00% (0.40% annual rate) of the director shares will be forfeited in determining net compensation expenses recognized. The restricted stock agreements have a change-in-control provision which would trigger immediate vesting of the shares and recognition of the remaining unrecognized compensation costs if the Company were to be acquired. This provision would be triggered if the proposed acquisition of the Company by Renasant Corporation is completed.

In July 2010 the Board of Directors approved the reservation of 1,000,000 shares of authorized, unissued shares for issuance in lieu of cash for directors’ fees earned for 2010 and beyond. All shares are issued at market value and provide a convenient way for directors to receive shares of the Company based on the amount of directors’ fees that would otherwise be paid. Directors individually elect a percentage of their compensation, not less than 50%, to be received in common stock with the balance of the fees being paid in cash each quarter. For the first quarter of 2013, 3,118 shares were issued to directors in lieu of fees.

42

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 10:  Accumulated Other Comprehensive Income (Loss)

The following is a summary of the gross amounts of accumulated other comprehensive income (loss) and the related income tax effects:

(Dollars in thousands)	Gross			Tax			Net
March 31, 2013:
Net unrealized gain on securities available for sale	$	8,524		$	3,180		$	5,344
Net unrealized loss on other-than-temporarily impaired securities available for sale	(2,152		)	(803		)	(1,349		)
Net unrealized loss on cash flow hedge	(2,396		)	(894		)	(1,502		)
Net unamortized pension costs	(1,773		)	(662		)	(1,111		)
	$	2,203		$	821		$	1,382
December 31, 2012:
Net unrealized gain on securities available for sale	$	9,451		$	3,525		$	5,926
Net unrealized loss on other-than-temporarily impaired securities available for sale	(2,162		)	(806		)	(1,356		)
Net unrealized loss on cash flow hedge	(2,484		)	(927		)	(1,557		)
Net unamortized pension costs	(2,364		)	(882		)	(1,482		)
	$	2,441		$	910		$	1,531
March 31, 2012:
Net unrealized gain on securities available for sale	$	7,036		$	2,624		$	4,412
Net unrealized loss on other-than-temporarily impaired securities available for sale	(2,265		)	(845		)	(1,420		)
Net unrealized loss on cash flow hedge	(1,728		)	(644		)	(1,084		)
Net unamortized pension costs	(3,738		)	(1,394		)	(2,344		)
	$	(695	)	$	(259	)	$	(436	)

The following table summarizes the changes in the gross amounts for each component of other comprehensive income for the quarters ended March 31, 2013 and 2012.

(Dollars in thousands)	Available-for-Sale Securities Without Other-Than-Temporary Impairments			Available-for-Sale Securities With Other-Than-Temporary Impairments			Cash Flow Hedge			Defined Benefit Pension Plan
Balance, 12/31/12	$	9,451		$	(2,162	)	$	(2,484	)	$	(2,364	)
Unrealized gains/losses arising during the period	(911		)	10			(69		)	—
Reclassifications from accumulated other comprehensive income	(16		)	—			157			591
Net other comprehensive income	$	(927	)	$	10		$	88		$	591
Balance, 03/31/13	$	8,524		$	(2,152	)	$	(2,396	)	$	(1,773	)
Balance, 12/31/11	$	7,202		$	(2,318	)	$	(1,834	)	$	(4,272	)
Unrealized gains/losses arising during the period	425			53			(40		)	—
Reclassifications from accumulated other comprehensive income	(591		)	—			146			534
Net other comprehensive income	$	(166	)	$	53		$	106		$	534
Balance, 03/31/12	$	7,036		$	(2,265	)	$	(1,728	)	$	(3,738	)

43

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 10:  (Continued)

The following table summarizes information concerning individual items reclassified out of each component of accumulated other comprehensive income for the quarters ended March 31, 2013 and 2012.

(Dollars in thousands)	Amount Reclassified from Accumulated Other Comprehensive Income for the Quarter Ended (a)
Accumulated Other Comprehensive Income Components	March 31, 2013			March 31, 2012			Affected Line Item in the Statement of Operations
Securities available for sale:
Gains realized on sales of securities	$	16		$	591		Securities gains, net
	(6		)	(220		)	Income tax expense
	$	10		$	371		Net of tax
Cash flow hedge:
Reclassification of interest rate swap settlement	$	(157	)	$	(146	)	Interest expense on junior subordinated debt
	59			54			Income tax benefit
	$	(98	)	$	(92	)	Net of tax
Defined benefit pension plan:
Amortization of actuarial loss	$	(591	)	$	(534	)	(b)
	220			199			Income tax benefit
	$	(371	)	$	(335	)	Net of tax

(a) Positive amounts are credits/revenues and negative amounts are debits/expenses.

(b) This component is included in the computation of net periodic pension expense (see Note 8, Pension and Other Employee Benefit Plans) which is included in salaries and employee benefits expense.

Note 11:  Regulatory Matters

Federal banking regulations require that the Bank maintain certain cash reserves based on a percent of deposits. This requirement was $3.805 million at March 31, 2013 and $3.053 million at December 31, 2012. The reserve requirements were covered by vault cash of $11.490 million at March 31, 2013 and $11.543 million at December 31, 2012.

The Company and its subsidiary bank are subject to various regulatory capital requirements administered by Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, specific capital requirements that involve quantitative measures of assets, liabilities and certain off-balance-sheet items, calculated under regulatory accounting practices must be met. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table below) of Total Capital and Tier I Capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I Capital (as defined) to average assets (as defined). Management believes, as of March 31, 2013, that all capital adequacy requirements have been met.

As of March 31, 2013, the most recent notification by the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Bank's category.

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FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 11:  (Continued)

The Company's and Bank's actual capital amounts and ratios as of March 31, 2013, and December 31, 2012, are also presented in the table:

(Dollars in thousands)	Actual				Minimum Capital				Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio
March 31, 2013:
Total capital (to risk weighted assets):
Company	$	158,512	13.57	%	$	93,457	8.00	%	$	—	—	%
Bank	156,161		13.40	%	93,239		8.00	%	116,548		10.00	%
Tier I capital (to risk weighted assets):
Company	143,864		12.31	%	46,728		4.00	%	—		—	%
Bank	141,547		12.14	%	46,619		4.00	%	69,929		6.00	%
Tier I capital (to average assets):
Company	143,864		9.20	%	62,560		4.00	%	—		—	%
Bank	141,547		9.09	%	62,287		4.00	%	77,859		5.00	%
December 31, 2012:
Total capital (to risk weighted assets):
Company	$	155,088	13.30	%	$	93,319	8.00	%	$	—	—	%
Bank	153,091		13.15	%	93,168		8.00	%	116,459		10.00	%
Tier I capital (to risk weighted assets):
Company	140,471		12.04	%	46,660		4.00	%	—		—	%
Bank	138,497		11.89	%	46,584		4.00	%	69,876		6.00	%
Tier I capital (to average assets):
Company	140,471		8.91	%	63,087		4.00	%	—		—	%
Bank	138,497		8.83	%	62,768		4.00	%	78,460		5.00	%

Dividends paid by the Bank are the primary source of funds available to the Company for payment of dividends to its shareholders and other cash needs. Applicable Federal and state statutes and regulations impose restrictions on the amounts of dividends that may be declared by the Bank. The Bank may also be restricted in its ability to pay dividends due to regulatory violations cited in an examination. In addition to the formal statutes and regulations, regulatory authorities also consider the Bank’s ability to produce current earnings and the adequacy of the Bank's total capital in relation to its assets, deposits and other such items, and as a result, capital adequacy considerations could further limit the availability of dividends from the Bank.

The Bank is required to obtain prior approval from its primary regulators – the Federal Deposit Insurance Corporation (FDIC) and the State of Mississippi Department of Banking and Consumer Finance (MDBCF) – to pay dividends to the Company.

Pursuant to its pending acquisition by Renasant Corporation, the Company may redeem its TARP Community Development Capital Initiative (CDCI) preferred stock and common stock warrant. The funds required to redeem the $30 million par value preferred stock and repurchase the warrant would be obtained from the Bank. Therefore, any such redemption and repurchase transaction will only occur if the Bank receives approval from the FDIC and MDBCF to pay a dividend to the Company in an amount sufficient to complete the transactions.

Under the terms of the Exchange Agreement related to the Company's participation in the TARP CDCI, the Company may not pay common dividends in excess of the current rate of $.01 per share per quarter ($.04 per share per year) through the earlier of September 2018 or the date the preferred stock is redeemed.

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FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 12:  Income Taxes

Income tax expense was as follows:

	Three Months Ended
(Dollars in thousands)	March 31
	2013		2012
Current income tax expense	$	—	$	2
Deferred income tax expense	1,112		510
Total income tax expense	$	1,112	$	512

Net deferred tax assets totaled $9.685 million at March 31, 2013 and $10.533 million at December 31, 2012 and are included in other assets. Management has reviewed its deferred tax assets and determined that it is more likely than not that the deferred tax assets will be realized in the foreseeable future and therefore no valuation allowance has been accrued.

In connection with its previous net operating loss carryforwards and estimated $10.834 million in Federal taxable earnings for 2012, the Company had the following net operating losses and tax credits available for carryover for Federal income tax purposes at December 31, 2012:

(Dollars in thousands)
	Amount		Expiration  Dates
Federal net operating loss from 2010	$	291	2030
Mississippi net operating loss from 2009	5,110		2029
Mississippi net operating loss from 2010	4,707		2030
Alabama net operating loss from 2009	177		2029
Tennessee net operating loss from 2009	908		2029
Tennessee net operating loss from 2010	93		2030
Florida net operating loss from 2009	511		2029
Florida net operating loss from 2010	20		2030
Tax credits from 2008	26		2028
Tax credits from 2009	57		2029
Tax credits from 2010	203		2030
Tax credits from 2011	377		2031
Tax credits from 2012	356		2032
Alternative minimum tax credits from all years	739		indefinite lived

The Company was audited for the tax years of 2008 through 2010 by the Mississippi State Tax Commission. The audit was concluded in 2012 with additional taxes of $3 thousand owed.

The Company had no material recognized uncertain tax positions as of March 31, 2013 or December 31, 2012 and therefore did not have any tax accruals in 2013 or 2012 related to uncertain positions. The Company is no longer subject to Federal income tax examinations of tax returns filed for years before 2009.

46

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 13:  Earnings Per Share

The Company calculates basic earnings per share using the two-class method. The two-class method is an earnings allocation formula that determines earnings per share separately for common stock and participating securities according to dividends declared and participation rights in undistributed earnings. The Company has determined that its outstanding non-vested restricted stock awards are participating securities. Diluted earnings per share are calculated using the more dilutive of the two-class method and the treasury stock method.

The calculation of earnings per share and the reconciliation of earnings per share and earnings per diluted share were as follows:

	Three Months Ended
(Dollars in thousands, except per share data)	March 31
	2013		2012
Net income	$	2,598	$	1,607
Preferred dividends	497		463
Net income attributable to common stock	2,101		1,144
Net income allocated to common stockholders:
Distributed	93		92
Undistributed	1,927		1,047
	$	2,020	$	1,139
Weighted-average basic common and participating shares outstanding	9,605,103		9,202,476
Less: weighted average participating restricted shares outstanding	373,646		46,000
Weighted-average basic shares outstanding	9,231,457		9,156,476
Basic net income per share	0.22		0.12
Weighted-average basic common and participating shares outstanding	9,605,103		9,202,476
Add: share-based options and stock warrant	113,927		—
	9,719,030		9,202,476
Less: weighted average participating restricted shares outstanding	373,646		46,000
Weighted-average dilutive shares outstanding	9,345,384		9,156,476
Dilutive net income per share	0.22		0.12
Weighted-average shares of potentially dilutive instruments that are not included in the dilutive share calculation due to anti-dilutive effect:
Compensation plan-related stock options	19,600		33,600
Common stock warrant	—		513,113

Note 14:  Derivative Financial Instruments

In November 2010 the Company entered into an interest rate swap designed to hedge the interest cash flows of its junior subordinated debentures. The swap became effective on March 15, 2011, which is the date on which the junior subordinated debentures switched from a fixed interest rate to a floating interest rate. The maturity date of the swap is March 15, 2018. The Company expects the hedge to be highly effective and it is being accounted for as a cash flow hedge. The unrealized gains and losses of the interest rate swap are being recorded in accumulated other comprehensive income until the interest payment due dates when the balance remaining in other comprehensive income will be removed and charged or credited to interest expense. The swap is designed to make fixed rate payments at 3.795% to the counterparty and receive floating rate payments at three month LIBOR plus 1.33% from the counterparty. Government sponsored entity securities with a fair value of $1.518 million and cash of $1.974 million were pledged as collateral on the swap at March 31, 2013. Government sponsored entity securities with a fair value of $1.520 million and cash of $1.973 million were pledged as collateral on the swap at December 31, 2012.

The Company enters into interest rate lock agreements related to mortgage loan originations with customers. The Company also enters into forward sale agreements with mortgage investors. The interest rate lock agreements, which are written options, and the forward sale agreements are free-standing derivatives and are carried at fair value on the consolidated statements of condition with changes in fair value being recorded in earnings for the period.

47

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 14:  (Continued)

The following tables summarize the Company’s derivative positions:

	As of March 31, 2013
	Asset Derivatives					Liability Derivatives
(Dollars in thousands)	Balance Sheet Classification	Notional Amount		Fair Value		Balance Sheet Classification	Notional Amount		Fair Value
Derivatives designated in cash flow hedging relationships:
Interest rate swap	Other assets	$	—	$	—	Other liabilities	$	30,000	$	2,396
Derivatives not designated as hedging instruments:
Forward sale agreements	Other assets	12,384		173		Other liabilities	14,061		67
Written interest rate options (locks)	Other assets	5,814		105		Other liabilities	3,274		58
Total derivatives		$	18,198	$	278		$	47,335	$	2,521

	As of December 31, 2012
	Asset Derivatives					Liability Derivatives
(Dollars in thousands)	Balance Sheet Classification	Notional Amount		Fair Value		Balance Sheet Classification	Notional Amount		Fair Value
Derivatives designated in cash flow hedging relationships:
Interest rate swap	Other assets	$	—	$	—	Other liabilities	$	30,000	$	2,484
Derivatives not designated as hedging instruments:
Forward sale agreements	Other assets	21,925		168		Other liabilities	10,888		63
Written interest rate options (locks)	Other assets	8,641		149		Other liabilities	3,287		63
Total derivatives		$	30,566	$	317		$	44,175	$	2,610

Amounts included in the consolidated statements of operations and in other comprehensive income (OCI) in for the three month periods ending on March 31 of 2013 and 2012 are summarized in the following tables:

	Three Months Ended March 31, 2013
(Dollars in thousands)	Amount of pre-tax gain (loss) recognized in OCI (Effective Portion)			Classification of gain (loss) reclassified from AOCI into earnings (Effective Portion)	Amount of pre-tax gain (loss) reclassified from AOCI into earnings (Effective Portion)
Derivatives in cash flow hedging relationships:
Interest rate swap	$	(69	)	Interest on junior subordinated debt	$	(157	)
	Classification of gain (loss) recognized in earnings				Amount of pre-tax gain (loss) recognized in earnings
Derivatives not designated as hedging instruments:
Forward sale agreements	Mortgage banking income				$	355
Written interest rate options (locks)	Mortgage banking income				108
Total					$	463

48

FIRST M & F CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements

(Unaudited)

Note 14:  (Continued)

	Three Months Ended March 31, 2012
(Dollars in thousands)	Amount of pre-tax gain (loss) recognized in OCI (Effective Portion)			Classification of gain (loss) reclassified from AOCI into earnings (Effective Portion)	Amount of pre-tax gain (loss) reclassified from AOCI into earnings (Effective Portion)
Derivatives in cash flow hedging relationships:
Interest rate swap	$	(40	)	Interest on junior subordinated debt	$	(146	)
	Classification of gain (loss) recognized in earnings				Amount of pre-tax gain (loss) recognized in earnings
Derivatives not designated as hedging instruments:
Forward sale agreements	Mortgage banking income				$	248
Written interest rate options (locks)	Mortgage banking income				(371		)
Total					$	(123	)

A net settlement payment of $157 thousand was made to the swap counterparty on March 15, 2013. The Company estimates that approximately $501 thousand will be recognized as a charge to interest expense during the remainder of 2013 related to the swap. The Company expects approximately $665 thousand related to future swap settlements to be recognized as a charge to interest expense over the next twelve months.

The interest rate swap is subject to a master netting arrangement. The Company does not net its derivative positions with related collateral positions.

Note 15:  Variable Interest Entities

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. The subordinated debentures are redeemable at par. The subordinated debentures are the only asset of the Trust. The Trust issued $30.000 million in capital securities through a placement and issued $928 thousand of common securities to the Company.

First M&F Statutory Trust I, which is a wholly owned financing subsidiary of the Company for regulatory and legal purposes, 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.

The Company is involved as a limited partner in two low income housing tax credit entities. The Company has determined that it is not the primary beneficiary of these partnerships because it does not have the power to direct the activities of the entity – primarily construction, renovation and property management – that most significantly impact the entity’s economic performance. The Company had a total investment and a total exposure of $2.134 million in these entities at March 31, 2013 and $2.208 million at December 31, 2012. The low income housing tax credit partnership investments are evaluated for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable.

Note 16:  Pending Merger

On February 6, 2013, First M&F Corporation (First M&F) and Renasant Corporation (Renasant) entered into an Agreement and Plan of Merger providing for the merger of First M&F with and into Renasant, with Renasant the surviving corporation in the merger, and the merger of Merchants and Farmers Bank with and into Renasant Bank, with Renasant Bank the surviving banking corporation. If the merger is completed, holders of First M&F's common stock will receive 0.6425 of a share of Renasant common stock in exchange for each share of First M&F common stock held immediately prior to the merger, subject to the payment of cash in lieu of fractional shares. First M&F will hold a special shareholder meeting in which holders of First M&F common stock will be asked to vote to adopt and approve the merger agreement. Consummation of the merger is contingent upon regulatory and both First M&F and Renasant shareholder approval and other closing conditions.

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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:

• A significant weakening of the economy.

• A collapse of real estate values or the values of other assets that may serve as collateral on customers’ borrowings.

• Adverse changes in interest rates that could destabilize the Company’s net interest margins.

• An unanticipated inflationary spike or deflationary decline.

• A market crash or a highly volatile market.

• A loss of market liquidity for financial products.

• Unfavorable judgments in ongoing litigation.

• Technological disruptions or breaches.

• Unanticipated catastrophic events or natural disasters.

• Unforeseen new competition from outside the traditional financial services industry.

• 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.

• The actual results of the merger with Renasant could vary materially as a result of a number of factors, such as (1) a delay of the merger transaction due to litigation, (2) the possibility that various closing conditions for the merger transaction may not be satisfied or may require more time and resources than expected to satisfy and (3) the possibility that the Merger Agreement may be terminated.

Financial Summary

Net income for the first quarter of 2013 was $2.598 million, or $0.22 basic and diluted earnings per share as compared to net income of $1.607 million, or $0.12 basic and diluted earnings per share for the same period in 2012 and net income of $1.831 million or $0.14 basic and diluted earnings per share for the fourth quarter of 2012. The major factors contributing to the improvement in earnings for the first quarter of 2013 as compared to the first quarter of 2012 were (1) an increase of $724 thousand in mortgage revenues, (2) a $1 million decrease in the loan loss provisions and (3) a decrease in noninterest expenses highlighted by a decrease of $501 thousand in salaries and employee benefits, a $868 thousand decrease in foreclosure expenses and a $166 thousand decrease in FDIC insurance.

Highlights for the first three months of 2013 and 2012 are as follows:

• Debit card revenues increased by 5.31% for the first quarter of 2013 from the first quarter of 2012

• The net interest margin decreased to 3.53% in the first quarter of 2013 from 3.67% in the first quarter of 2012

• Loans held for investment increased by $8.162 million from the March 31, 2012 balance

• Nonaccrual loans were 0.72% of total loans at March 31, 2013 as compared to 1.45% at March 31, 2012

• Annualized net charge-offs were 0.21% for the first quarter of 2013 as compared to 0.47% for the first quarter of 2012

• As a result of branch closings and other cost-saving initiatives, full-time equivalent employees dropped from 460 employees at March 31, 2012 to 441 employees at March 31, 2013

• On February 6, 2013 the Company entered into an agreement to be acquired by Renasant Corporation. The acquisition is expected to occur in the third quarter of 2013.

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FIRST M & F CORPORATION

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

(Net change, in thousands)

	Loans			Non-Interest Bearing Deposits			Interest Bearing Deposits
1st Qtr 2012	$	(16,845	)	$	6,885		$	32,160
2nd Qtr 2012	3,101			(2,458		)	(46,712		)
3rd Qtr 2012	4,731			(2,461		)	(9,403		)
4th Qtr 2012	(11,854		)	42,611			10,590
1st Qtr 2013	12,184			(23,842		)	(26,058		)

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 Income		Loan Loss Accruals		Non-Interest Income		Non-Interest Expense
1st Qtr 2012	$	12,964	$	2,280	$	5,421	$	13,986
2nd Qtr 2012	12,916		2,280		6,035		14,319
3rd Qtr 2012	12,872		1,980		5,607		14,060
4th Qtr 2012	12,641		1,980		5,735		13,913
1st Qtr 2013	12,227		1,280		5,702		12,939

The following table shows the components of pre-tax basic earnings per share for the last five quarters:

	1st Qtr 2013		4th Qtr 2012		3rd Qtr 2012		2nd Qtr 2012		1st Qtr 2012
Net interest income	$	1.32	$	1.37	$	1.40	$	1.41	$	1.42
Loan loss expense	0.14		0.21		0.21		0.25		0.25
Noninterest income	0.62		0.62		0.61		0.66		0.59
Noninterest expense	1.40		1.51		1.53		1.56		1.53
Net income before taxes	$	0.40	$	0.27	$	0.27	$	0.26	$	0.23

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FIRST M & F CORPORATION

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

	1st Qtr 2013		4th Qtr 2012		3rd Qtr 2012		2nd Qtr 2012		1st Qtr 2012
Net interest margin	3.53	%	3.56	%	3.73	%	3.72	%	3.67	%
Efficiency ratio	71.25	%	74.83	%	75.21	%	74.70	%	75.18	%
Return on assets	0.67	%	0.46	%	0.46	%	0.45	%	0.40	%
Return on  total equity	8.84	%	6.19	%	6.18	%	6.27	%	5.84	%
Return on common equity	8.51	%	5.40	%	5.38	%	5.46	%	4.95	%
Noninterest income to avg. assets	1.47	%	1.44	%	1.44	%	1.54	%	1.36	%
Noninterest income to revenues (1)	31.40	%	30.85	%	29.99	%	31.48	%	29.14	%
Noninterest expense to avg assets	3.34	%	3.49	%	3.62	%	3.65	%	3.50	%
Salaries and benefits to total noninterest expense	49.17	%	45.91	%	49.07	%	47.05	%	49.07	%
Nonaccrual loans to loans	0.72	%	0.75	%	0.62	%	0.64	%	1.45	%
90 day past due loans to loans	0.03	%	0.03	%	0.04	%	0.15	%	0.02	%
Annualized net charge offs as a percent of average loans	0.21	%	0.46	%	0.26	%	1.26	%	0.47	%

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

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

(Dollars in thousands)	1st Qtr 2013		4th Qtr 2012		3rd Qtr 2012		2nd Qtr 2012		1st Qtr 2012
Mortgage originations	$	45,423	$	54,602	$	47,295	$	38,693	$	30,508
Trust revenues	50		44		43		46		41
Retail investment revenues	110		127		70		117		99
Revenues per FTE employee	40		40		40		41		40
Agency commissions per agency FTE employee (1)	24		22		27		22		22

(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 2013	4th Qtr 2012	3rd Qtr 2012	2nd Qtr 2012	1st Qtr 2012
Full-time equivalent employees	441	456	466	468	460
Number of noninterest-bearing deposit accounts	32,830	32,495	32,475	32,469	32,556

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FIRST M & F CORPORATION

Net Interest Income

Net interest income before loan loss expenses for the first quarter of 2013 was $12.227 million as compared to $12.964 million for the first quarter of 2012 and $12.641 million for the fourth quarter of 2012. For the first quarter of 2013 compared to the same quarter of 2012: earning asset yields decreased by 42 basis points, liability costs decreased by 29 basis points, the net interest spread decreased by 14 basis points and the net interest margin decreased by 14 basis points. For the first quarter of 2013 compared to the fourth quarter of 2012: earning asset yields decreased by 12 basis points, liability costs decreased by 11 basis points, the net interest spread decreased by 1 basis point and the net interest margin decreased by 3 basis points.

Balance sheet dynamics affecting the comparative net interest margins for the first quarter of 2013 compared to 2012 include (1) a decrease of .67% in average loans held for investment, (2) an increase in average loans held for investment as a percentage of earning assets from 68.07% in the first quarter of 2012 to 68.29% in the first quarter of 2013, (3) a decrease in average interest-bearing deposits of 5.82%, (4) a decrease in average other borrowings of 9.48% and (5) an increase in average noninterest-bearing deposits as a percentage of total assets from 14.04% in 2012 to 16.23% in 2013.

Balance sheet dynamics affecting the comparative net interest margins for the first quarter of 2013 compared to the fourth quarter of 2012 include (1) a decrease of .58% in average loans held for investment, (2) a decrease in average loans held for investment as a percentage of earning assets from 68.43% in the fourth quarter of 2012 to 68.29% in the first quarter of 2013, (3) a decrease in average interest-bearing deposits of .08%, (4) a decrease in average other borrowings of 2.68% and (5) a decrease in average noninterest-bearing deposits as a percentage of total assets from 16.77% in the fourth quarter of 2012 to 16.23% in the first quarter of 2013.

Yield and cost dynamics affecting the comparative net interest margins for the first quarter of 2013 compared to 2012 include (1) a decrease of 51 basis points in yields on loans held for investment and for sale, (2) a decrease of 18 basis points in investment and short-term funds yields, (3) a decrease of 30 basis points in costs of deposits and (4) a decrease of 2 basis points in costs of borrowings.

Yield and cost dynamics affecting the comparative net interest margins for the first quarter of 2013 compared to the fourth quarter of 2012 include (1) a decrease of 14 basis points in yields on loans held for investment and for sale, (2) an increase of 5 basis points in investment and short-term funds yields, (3) a decrease of 11 basis points in costs of deposits and (4) a decrease of 15 basis points in costs of borrowings.

Net interest income for the first quarter of 2013 was down as compared to the fourth quarter of 2012 as earning asset yields decreased by 12 basis points while liability costs decreased by 11 basis points and the net interest margin decreased by 3 basis points. Average earning assets decreased by $5.294 million while average interest-bearing liabilities decreased by $847 thousand. A primary contributor to the reduced net interest income was the loss of non-interest bearing deposit funding as the difference between average earning assets and average interest bearing liabilities decreased from $249.163 million to $244.716 million.

Net interest income for the first quarter for 2013 as compared to the first quarter of 2012 decreased by 5.68% due primarily to a decline in average earning assets and a decrease in the net interest margin from 3.67% to 3.53%. Average assets declined by $36.019 million, prompted by declines in deposit balances, while yields and costs continued to decline as a result of repricing activity in the declining rate environment. The yield curve continued to flatten over the course of 2012 as the spread between the 10-year and 2-year Treasury rates declined from 183 basis points in March 2012 to 170 basis points in March 2013. The Federal Reserve's monetary policy actions over the last 12 months have resulted in increased short-term rates and decreased long-term rates. This is beginning to result in a slow down in the declining trend of deposit costs and an acceleration in the decline in loan yields. This implies that loan volume growth will be of growing importance in the management of net interest income going forward. The strength of the economy, especially with respect to how it affects consumer spending and the ability of small businesses to grow, will be the primary driver of loan growth over the next year.

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FIRST M & F CORPORATION

The following table shows the components of the net interest margin for the first quarters of 2013 and 2012 and the fourth quarters of 2012 and 2011:

	Yields/Costs				Yields/Costs
	1st Quarter, 2013		4th Quarter, 2012		1st Quarter, 2012		4th Quarter, 2011
Interest bearing bank balances	0.31	%	0.23	%	0.26	%	0.33	%
Federal funds sold	0.24		0.26		0.25		0.25
Taxable investments	1.61		1.59		2.00		1.81
Tax-exempt investments	5.16		5.45		5.83		5.94
Loans held for sale	1.65		2.98		3.06		2.98
Loans held for investment	5.28		5.44		5.80		5.79
Earning asset yield	4.15		4.27		4.57		4.68
Interest checking	0.22		0.34		0.46		0.47
Money market deposits	0.18		0.24		0.52		0.62
Savings deposits	0.80		0.89		0.99		1.05
Certificates of deposit	1.08		1.16		1.39		1.60
Short-term borrowings	0.31		0.57		0.48		0.53
Other borrowings	4.01		4.05		3.97		4.04
Cost of interest-bearing liabilities	0.74		0.85		1.03		1.20
Net interest spread	3.41		3.42		3.54		3.48
Effect of non-interest bearing deposits	0.13		0.16		0.16		0.19
Effect of leverage	(0.01	)	(0.02	)	(0.03	)	(0.03	)
Net interest margin, tax-equivalent	3.53		3.56		3.67		3.64
Less: Tax equivalent adjustments:
Investments	0.05		0.05		0.05		0.05
Loans	0.01		0.01		0.01		0.01
Reported book net interest margin	3.47	%	3.50	%	3.61	%	3.58	%

54

FIRST M & F CORPORATION

The following table shows average balance sheets for the first quarters of 2013 and 2012 and the fourth quarters of 2012 and 2011:

(Dollars in thousands)
	1st Quarter,			4th Quarter,			1st Quarter,			4th Quarter,
	2013			2012			2012			2011
Interest bearing bank balances	$	76,526		$	80,925		$	79,212		$	44,653
Federal funds sold	10,000			5,707			25,000			25,000
Taxable investments	309,373			303,164			299,622			283,986
Tax-exempt investments	44,187			38,464			34,969			33,923
Loans held for sale	13,770			25,194			22,729			20,516
Loans held for investment	977,198			982,894			983,800			993,869
Earning assets	1,431,054			1,436,348			1,445,332			1,401,947
Other assets	139,940			149,119			161,681			162,584
Total assets	$	1,570,994		$	1,585,467		$	1,607,013		$	1,564,531
Interest checking	$	422,966		$	392,825		$	419,260		$	369,789
Money market deposits	212,106			220,774			226,602			186,898
Savings deposits	118,719			118,852			120,835			118,833
Certificates of deposit	361,037			383,291			417,086			459,182
Short-term borrowings	5,337			3,447			5,054			4,809
Other borrowings	66,173			67,996			73,107			74,431
Interest-bearing liabilities	1,186,338			1,187,185			1,261,944			1,213,942
Noninterest-bearing deposits	254,957			265,925			225,610			231,926
Other liabilities	10,490			14,828			8,714			8,180
Stockholders’ equity	119,209			117,529			110,745			110,483
Liabilities and stockholders’ equity	$	1,570,994		$	1,585,467		$	1,607,013		$	1,564,531
Loans to earning assets	68.29		%	68.43		%	68.07		%	70.89		%
Loans to assets	62.20		%	61.99		%	61.22		%	63.53		%
Earning assets to assets	91.09		%	90.59		%	89.94		%	89.61		%
Noninterest-bearing deposits to assets	16.23		%	16.77		%	14.04		%	14.82		%
Equity to assets	7.59		%	7.41		%	6.89		%	7.06		%

55

FIRST M & F CORPORATION

Provision for Loan Losses

The accrual for the provision for loan losses for the first quarter of 2013 was $1.280 million as compared to $1.980 million for the fourth quarter of 2012 and $2.280 million for the first quarter of 2012. Net charge-offs were $503 thousand for the first quarter of 2013 as compared to $1.144 million for the fourth quarter of 2012 and $1.149 million for the first quarter of 2012. The allowance for loan losses as a percentage of loans was 1.85% at March 31, 2013, 1.79% at December 31, 2012, and 1.64% at March 31, 2012.

The provisions for loan loss accruals have decreased from the second quarter of 2012 through the first quarter of 2013 as net charge-offs have declined, substandard loans have declined and the loan portfolio has decreased. Nonaccrual loans since the second quarter of 2012 have been at their pre-2008 levels.

The Credit Risk Management section of this discussion provides further details on the allowance provisioning process.

Non Interest Income

Noninterest income, excluding securities transactions, was $5.686 million for the first quarter of 2013 as compared to $4.830 million for the same period in 2012 and $5.743 million in the fourth quarter of 2012. For the first quarter of 2013 as compared to the first quarter of 2012: (1) deposit revenues decreased by $86 thousand, (2) mortgage banking revenues increased by $724 thousand and (3) agency commissions decreased by $9 thousand. For the first quarter of 2013 as compared to the fourth quarter of 2012: (1) deposit revenues decreased by $215 thousand, (2) mortgage banking revenues decreased by $283 thousand and (3) agency commissions increased by $12 thousand.

The first quarter of 2013 showed a decrease of 3.50% from the first quarter of 2012 and a 8.31%decrease from the fourth quarter of 2012 in deposit revenues. Overdraft fee revenues, which comprise approximately 51% of deposit revenues, decreased by 8.99% from the first quarter of 2012 to the first quarter of 2013 and decreased by 14.23% from the fourth quarter of 2012 to the first quarter of 2013. Overdraft fees are per item charges applied to each check paid on an overdrawn account or returned. These revenue decreases are driven by customer preferences and economic conditions. Additionally, there were fewer business days of activity during the first quarter of 2013 than there were during the fourth quarter of 2012 or the first quarter of 2012. 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 come from customers in the Company’s overdraft protection 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 for accounting purposes and therefore are subject to the Company’s loan accounting 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 protection 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 increased by 5.31% from the first quarter of 2012 to the first quarter of 2013 and increased by .68% from the fourth quarter of 2012 to the first quarter of 2013. Revenues have leveled off since the second quarter of 2012 as the debit card customer base has become more seasoned and personal checking account growth has plateaued. The following table shows the components of deposit account income:

	Three Months Ended
(Dollars in thousands)	March 31
	2013		2012
Service charge revenues	$	274	$	286
Debit/ATM card revenues	892		847
Overdraft fee revenues	1,205		1,324
Service charges on deposit accounts	$	2,371	$	2,457

56

FIRST M & F CORPORATION

Mortgage banking income increased by 127.69% from the first quarter of 2012 to the first quarter of 2013 and decreased by 17.98% from the fourth quarter of 2012 to the first quarter of 2013. Mortgage originations increased by 48.89% from the first quarter of 2012 to the first quarter of 2013 and decreased by 16.81% from the fourth quarter of 2012 to the first quarter of 2013.

The following table summarizes certain performance metrics related to mortgage revenues:

(Dollars in thousands)
	1Q2013			1Q2012
Non-interest income:
Retail revenues	$	713		$	280
Selected non-interest expenses: (a)
Recourse expenses	2			6
Closing and shipping expenses	226			144
Origination-related expenses	228			150
Adjusted revenues	$	485		$	130
Retail originations	$	24,029		$	17,434
Retail sales	$	24,460		$	16,096
Adjusted revenues / dollar sales	1.98		%	0.81		%
Non-interest income:
Wholesale revenues	$	577		$	287
Selected non-interest expenses: (a)
Broker fees	271			203
Recourse expenses	1			—
Closing and shipping expenses	95			70
Origination-related expenses	367			273
Adjusted revenues	$	210		$	14
Wholesale originations	$	21,394		$	13,074
Wholesale sales	$	22,492		$	9,605
Adjusted revenues / dollar sales	0.93		%	0.15		%

(a) Selected noninterest expenses are those expenses related to mortgage closings, credit risk, and broker fees and discounts. They do not include originator, processor, or underwriter compensation costs.

Conventional 30-year mortgage rates moved up steadily by 22 basis points during the first quarter of 2013, ending the quarter at 3.57%. Rates were volatile during the first quarter of 2012 but ended relatively flat as compared to the beginning of the year. Mortgage origination activity remained strong during the first quarter of 2013 with approximately 67% being refinance activity. Management decided to exit the wholesale mortgage business at the end of the first quarter. Therefore, origination volumes are expected to decline due to the exit from this product origination channel.

Agency commission income decreased by 1.09% from the first quarter of 2012 to the first quarter of 2013 and increased by 1.49% from the fourth quarter of 2012 to the first quarter of 2013. Property and casualty commissions decreased by $11 thousand while life and health commissions increased by $3 thousand for the first quarter of 2013 as compared to the first quarter of 2012. Property and casualty commissions decreased by $8 thousand while life and health commissions increased by $21 thousand for the first quarter of 2013 as compared to the fourth quarter of 2012. Insurance commission volumes are expected to be influenced by the strength of the economy, competitive pricing pressures and sales efforts.

57

FIRST M & F CORPORATION

The Company had sales and calls of $2.998 million of U.S. government-sponsored entity (GSE) securities for a net gain of $2 thousand during the first quarter of 2013. The Company also had sales and calls of $3.127 million of municipal securities for a gain of $14 thousand during the first quarter of 2013. The Company had sales and calls of $15.851 million of GSE securities for a net loss of $20 thousand during the first quarter of 2012. The Company also had sales and calls of $17.115 million of mortgage-backed securities for net gains of $596 thousand during the first quarter of 2012. The Company also had sales and calls of $425 thousand of municipal securities for net gains of $15 thousand during the first quarter of 2012. The proceeds from the 2012 and 2013 sales were combined with other funds and reinvested into the portfolio.

The Company owns five separate beneficial interests in collateralized debt obligations that own bank trust preferred securities. These beneficial interests are tested for impairment on a quarterly basis. All of the beneficial interests have incurred other-than-temporary impairments since 2008. Three of the beneficial interests - Trapeza I, Trapeza II and Trapeza V - are deferring their interest payments and are in nonaccrual status. None of the beneficial interests failed impairment tests during the first quarter of 2012 or the first quarter of 2013. The total amount of interest that would have been earned by the securities that were in nonaccrual status during the first quarter of 2013 was $18 thousand and for the first quarter of 2012 was $24 thousand.

The Company’s holdings are at risk if enough of the trust preferred securities default so that the beneficial interests senior to and equal to the Company’s owned beneficial interests cannot be fully paid. Impairment tests of these beneficial interests are performed each quarter to determine if losses are expected due to cash flow deficiencies. This is primarily done by projecting cash flows to be received on the Company’s interests owned after determining the effect of expected collateral defaults on the payments made by the interests senior to and equal to the Company’s interests owned. If the cash flows expected to be received by the Company are less than the original contractual cash flows, then an other-than-temporary credit-related impairment, which is charged against current earnings, is assumed. The remaining difference between the fair value of the beneficial interest and its book value is charged against other comprehensive income.

The following table summarizes certain financial information about the trust preferred security-backed CDOs at the balance sheet date:

As of March 31, 2013
(Dollars in thousands)
Name of Issuer	Class	Book Value		Fair Value		Unrealized Loss		Moody's Credit Rating	Number of Banks in Issuance	Deferrals and Defaults as a Percent of Collateral		Excess Subordination
Trapeza I 2002-1A	C1	$	474	$	159	$	315	C	17	46.39	%	—	%
Trapeza II 2003-2A	C1	989		278		711		Ca	32	33.49	%	—	%
Tpref Funding II	B	684		219		465		Caa3	32	38.81	%	—	%
Trapeza V 2003-5A	C1	609		167		442		Ca	40	30.65	%	—	%
MM Community Funding IX	B1	352		133		219		Ca	29	39.29	%	—	%
		$	3,108	$	956	$	2,152

The excess subordination percent is an indication of the ability of the collateral, net of expected defaults and deferrals, to cover the payment of the beneficial interests that the Company owns after all senior beneficial interests have been paid off. A positive percent indicates the excess percent of funds available over what is required to pay off the beneficial interests that the Company owns. A percent of zero indicates that the amount of funds available is less than the balance of the beneficial interests that the Company owns.

Significant components of other income for the first quarter of 2013 and 2012 and the fourth quarter of 2012 and 2011 are contained in the following table:

(Dollars in thousands)	1Q2013		4Q2012		1Q2012		4Q2011
Agency profit-sharing revenues	$	396	$	—	$	132	$	—
Loan fees	102		73		178		90
Gains on disposals of branch properties	—		—		—		534
All other income	386		359		340		393
Total other income	$	884	$	432	$	650	$	1,017

Agency profit-sharing revenues are profit sharing distributions received by M&F Insurance Group, Inc. from its underwriting companies generally based on the amount of business written during the previous year adjusted for claims incurred. Loan fees include fees other than origination fees, primarily monthly collateral monitoring fees related to asset-based lending arrangements and fees charged for issuing letters of credit.

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FIRST M & F CORPORATION

The Company has a strategy to increase noninterest revenues as a proportion of total revenues over time. Noninterest revenues as a percentage of total revenues increased from 29.14% in the first quarter of 2012 to 31.40% in the first quarter of 2013, and increased from 30.85% in the fourth quarter of 2012 to 31.40% in the first quarter of 2013. Another metric that the Company monitors is revenues per full-time employee, which were approximately $40 thousand per employee for the first quarter of 2013, $40 thousand for the fourth quarter of 2012, $40 thousand for the first quarter of 2012 and $39 thousand for the fourth quarter of 2011. Insurance product revenues per producer increased to $24 thousand per producer for the first quarter of 2013 from $22 thousand per producer for the first quarter of 2012. Management’s strategic focus is to improve revenues generated per employee while maintaining stability in revenue growth by increasing the mix of noninterest revenues to total revenues.

Non Interest Expense

Noninterest expenses decreased by 7.49% from the first quarter of 2012 to the first quarter of 2013 and decreased by 7.00% from the fourth quarter of 2012 to the first quarter of 2013.

Salary and benefit expenses, which comprise approximately 49% of noninterest expenses, decreased by 7.30% from the first quarter of 2012 to the first quarter of 2013 and decreased by .39% from the fourth quarter of 2012 to the first quarter of 2013. The number of full-time equivalent employees was 441 at March 31, 2013, 456 at December 31, 2012, 460 at March 31, 2012, and 460 at December 31, 2011. The decrease in salary and benefit expenses from the first quarter of 2012 to the first quarter of 2013 was due primarily to a $522 thousand decrease in health care costs. The health care expense reduction was due to a reduction in the liability for expected claims as experience improved during the fourth quarter of 2012 and first quarter of 2013.

Foreclosed property expenses decreased from the first quarter of 2012 to the first quarter of 2013 due primarily to lower property costs and lower write-downs of properties. During the first quarter of 2013, the Company sold $1.309 million of properties as compared to $2.144 million for the fourth quarter of 2012 and $2.839 million for the first quarter of 2012. Management expects expenses and losses related to foreclosed properties to continue to decline as properties are disposed of over the next three to five years if there are no more significant real estate market declines.

The components of foreclosed property expenses for the first quarter of 2013 and 2012 and the fourth quarter of 2012 and 2011 are contained in the following table:

(Dollars in thousands)	1Q2013			4Q2012			1Q2012			4Q2011
Losses (gains) on sales of other real estate	$	190		$	(60	)	$	123		$	338
Write-downs of other real estate	228			1,253			1,100			1,316
Other real estate expenses	178			94			304			520
Rental income on other real estate properties	(8		)	(14		)	(71		)	(127		)
Total foreclosed property expenses	$	588		$	1,273		$	1,456		$	2,047

FDIC insurance assessments decreased by 32.30% from the first quarter of 2012 to the first quarter of 2013 and decreased by 31.90% from the fourth quarter of 2012 to the first quarter of 2013. The primary cause of the expense decrease was an improvement in the Company's assessment rate category. During the fourth quarter of 2012 the Company was elevated to an improved risk category, resulting in an estimated 5 basis point decrease in the assessment rate. FDIC assessments declined from the fourth quarter of 2012 to the first quarter of 2013 as the decreased assessment rate was in effect for a full quarter.

Significant components of other expense for the first quarter of 2013 and 2012 and the fourth quarter of 2012 and 2011 are contained in the following table:

(Dollars in thousands)	1Q2013		4Q2012		1Q2012		4Q2011
Postage and shipping	$	232	$	224	$	234	$	210
Supplies	134		174		185		211
Legal expenses	209		263		292		392
Other professional expenses	402		268		334		285
Insurance expenses	284		282		275		285
Debit card processing expenses	194		278		205		193
Mortgage processing expenses	596		874		422		472
All other expenses	1,373		1,171		884		992
Total other expense	$	3,424	$	3,534	$	2,831	$	3,040

All other expenses for the first quarter of 2013 include $317 thousand related to the pending merger with Renasant Corporation.

59

FIRST M & F CORPORATION

Income Taxes

The average tax rate for the first three months of 2013 was 29.97% as compared to 24.16% for the first three months of 2012. The average tax rates reflect the tax benefits of tax-exempt municipal revenues and tax credit items available for those periods.

At March 31, 2013 the Company had a deferred tax asset of $9.685 million. At December 31, 2012, the Company had a current tax receivable of $175 thousand and a deferred tax asset of $10.533 million. The Company carried forward approximately $291 million in Federal net operating losses (NOLs) and approximately $9.817 million of Mississippi NOLs from its 2012 tax year. Management expects that the remaining net operating losses will be realized through carry-forwards within the next five years. The Company expects to utilize the tax benefits implicit in the deferred tax asset in the foreseeable future when (1) current tax benefits increase as losses are realized through loan charge-offs and collateral foreclosures and dispositions and (2) future earnings become sufficient to absorb the deductions. The following table shows the differences between actual income tax expense and expected income tax expense, listing significant items that affected the average tax rate for each period:

(Dollars in thousands)	Three Months Ended
	March 31
	2013			2012
Amount computed using the Federal statutory rates on income before taxes	$	1,261		$	720
Increase (decrease) resulting from:
State income tax expense, net of Federal effect	101			46
Tax exempt income, net of disallowed interest deduction	(128		)	(120		)
Life insurance income	(54		)	(64		)
Low income housing tax credits	(83		)	(83		)
Other, net	15			13
Total income tax expense	$	1,112		$	512

Assets and Liabilities

Assets decreased by 3.52% from March 31, 2012 to March 31, 2013, and decreased by 3.19% from December 31, 2012. Investments increased by 3.03% from March 31, 2012 to March 31, 2013, and increased by 8.17% from December 31, 2012.

The following table shows net changes in the major balance sheet categories for the quarter-to-date as of March 31, 2013 and 2012 and year-over-year for March 31, 2013:

	March 31, 2013			March 31, 2012			March 31, 2013
(Dollars in thousands)	Net Change			Net Change			Net Change
	QTD			QTD			Year-Over-Year
Cash and due from banks	$	(22,268	)	$	(1,288	)	$	(6,145	)
Interest-bearing bank balances and Federal funds sold	(62,723		)	12,509			(35,310		)
Securities available for sale	28,489			45,196			11,081
Loans held for sale	(3,441		)	2,611			(11,111		)
Loans held for investment	12,184			(16,845		)	8,162
Allowance for loan losses	(777		)	(1,131		)	(2,185		)
Other real estate	(1,150		)	(2,316		)	(9,816		)
Other assets	(1,477		)	(245		)	(11,298		)
Total assets	$	(51,163	)	$	38,491		$	(56,622	)
Total deposits	(49,900		)	39,045			(57,733		)
Total borrowings	(2,600		)	(1,988		)	(8,284		)
Other liabilities	(991		)	(325		)	(21		)
Stockholders’ equity	2,328			1,759			9,416
Total liabilities and equity	$	(51,163	)	$	38,491		$	(56,622	)

60

FIRST M & F CORPORATION

Deposits declined during the first quarter of 2013 primarily in noninterest-bearing deposits. The deposit declines were funded primarily from cash and interest-bearing bank balances. Loans held for investment grew during the first quarter with the largest contributors being construction loans which grew by $3.371 million and multifamily residential property loans which grew by $13.784 million. Other commercial real estate loans, commercial and industrial loans, and consumer loans declined. Other real estate continued to decline during the first quarter of 2013 as $1.309 million of properties were disposed of. Investment securities increased primarily in U.S. government-sponsored entity securities during the first quarter of 2013.

During the first quarter of 2012 deposit growth and decreases in the loan portfolio provided an influx of liquidity. Most of the increase in liquidity was moved into the investment portfolio, primarily in mortgage-backed securities and U.S. government-sponsored entity securities.

Loans as a percent of total assets were 63.70% at March 31, 2013, 60.90% at December 31, 2012, and 60.95% at March 31, 2012. Management projects that the commercial real estate loan portfolio will stabilize and begin to slowly grow over the next twelve months as foreclosures decrease and lending opportunities begin to emerge. Small business and consumer loan growth will depend on the momentum of economic growth.

The following table shows loans held for investment by type as March 31, 2013, December 31, 2012, and March 31, 2012:

(Dollars in thousands)	March 31, 2013		December 31, 2012		March 31, 2012
Commercial real estate	$	557,453	$	542,859	$	568,811
Residential real estate	203,260		200,992		188,891
Home equity lines	39,047		37,736		36,098
Commercial, financial and agricultural	150,125		153,550		144,319
Consumer	37,772		40,336		41,376
Total	$	987,657	$	975,473	$	979,495
Mortgages held for sale	$	17,573	$	21,014	$	28,684

Deposits decreased by 4.09% from March 31, 2012 to March 31, 2013, and decreased by 3.56% from December 31, 2012. The following table shows the breakdown by deposit category of core deposit and public funds deposit changes from December 31, 2012 to March 31, 2013:

	Core Customers					Public Funds					Total Deposits
(Dollars in thousands)	Increase (Decrease)					Increase (Decrease)					Increase (Decrease)
	Amt.			Pct.		Amt.			Pct.		Amt.			Pct.
Noninterest-bearing	$	(21,104	)	(7.90	)%	$	(2,738	)	(29.81	)%	$	(23,842	)	(8.63	)%
NOW	(2,486		)	(1.04	)%	(1,599		)	(0.87	)%	(4,085		)	(0.96	)%
MMDA	(6,745		)	(3.48	)%	585			2.87	%	(6,160		)	(2.88	)%
Savings	1,604			1.36	%	1			0.40	%	1,605			1.36	%
Customer CDs	(12,570		)	(3.66	)%	16			0.14	%	(12,554		)	(3.54	)%
Brokered CDs	(3,537		)	(32.05	)%	(1,327		)	(26.77	)%	(4,864		)	(30.41	)%
Total	$	(44,838	)	(3.82	)%	$	(5,062	)	(2.21	)%	$	(49,900	)	(3.56	)%

A large fluctuation in one account moved core noninterest-bearing deposits during the first quarter. Noninterest-bearing deposits increased in number by 335 accounts, or 1.03%, influenced primarily by a first quarter business loan and deposit account incentive program. The decrease in certificates of deposit resulted primarily from the low interest rate environment as other products have become more attractive.

Increases in core customer money market deposits and public funds NOW deposits drove overall deposit growth for the first three months of 2012, as core customer certificates of deposit decreased. Approximately 84% of the core customer MMDA growth occurred in one commercial account. The decrease in certificates of deposit resulted primarily from the low interest rate environment as other products have become more attractive. Balances in the interest-bearing Summit Checking account increased by $3.493 million during the first three months of 2012 after remaining flat for the calendar year 2011.

Noninterest-bearing deposits represented 18.66% of total deposits at March 31, 2013 as compared to 19.70% at December 31, 2012 and 16.92% at March 31, 2012.

The Company’s long-term strategy is to build the core customer deposit base, relying less on public funds deposits, which tend to be volatile, as a primary source of liquidity. Additional sources of deposits available to the Company are the traditional brokered CD market, which may be used when funding is needed within a short period of time, and reciprocal brokered CD markets which are used to provide enhanced FDIC coverage for customers with large certificate of deposit balances. Additionally, the Company uses repurchase agreements with certain commercial customers in an effort to provide them with better cash management tools.

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FIRST M & F CORPORATION

The following table shows the deposit mix as of March 31, 2013, December 31, 2012, and March 31, 2012:

(Dollars in thousands)	March 31, 2013		December 31, 2012		March 31, 2012
Noninterest-bearing demand	$	252,453	$	276,295	$	238,603
NOW deposits	419,376		423,461		421,249
Money market deposits	207,931		214,091		222,016
Savings deposits	119,728		118,123		121,872
Certificates of deposit	342,158		354,712		390,705
Brokered certificates of deposit	11,129		15,993		16,063
Total	$	1,352,775	$	1,402,675	$	1,410,508

The following table shows the mix of public funds deposits as of March 31, 2013, December 31, 2012, and March 31, 2012:

(Dollars in thousands)	March 31, 2013		December 31, 2012		March 31, 2012
Noninterest-bearing demand	$	6,448	$	9,186	$	9,656
NOW deposits	181,820		183,419		190,881
Money market deposits	20,988		20,403		17,957
Savings deposits	251		250		344
Certificates of deposit	11,187		11,171		12,948
Brokered certificates of deposit	3,630		4,957		4,711
Total	$	224,324	$	229,386	$	236,497

Other borrowings decreased by $6.796 million from March 31, 2012 to March 31, 2013 and decreased by $1.130 million from December 31, 2012. The decreases in borrowings were primarily funded through liquidity provided by cash and interest-bearing bank balances. Amounts of borrowings maturing within one year increased from 54.12% of other borrowings at December 31, 2012 to 62.24% at March 31, 2013. Management intends to continue to allow its Federal Home Loan Bank borrowings to decrease as they mature while deposits are used as a primary source of funding.

Equity

Capital adequacy is continuously monitored by the Company to promote depositor and investor confidence and provide a solid foundation for future growth of the organization. The Company increased its capital position during 2012 and 2013 primarily through the retention of earnings. The Company reduced the quarterly dividend rate to $.01 per share beginning in the second quarter of 2009 after maintaining a $.13 per share quarterly dividend rate from the second quarter of 2005 through the first quarter of 2009. The Company is restricted from increasing the dividend rate until its Community Development Capital Initiative (CDCI) preferred stock is redeemed.

Average year-to-date equity to assets was 7.59% at March 31, 2013, 7.23% at December 31, 2012 and 6.89% at March 31, 2012. Total asset growth has been constrained since the 2009 losses as capital has been rebuilt over time. Corporate strategies have been dominated primarily by capital growth and preservation and secondarily by asset and deposit growth strategies.

The Company has a capital plan that includes monthly monitoring of capital adequacy and projects capital needs out eighteen months. The projections include assumptions made about earnings, dividends and balance sheet growth and are adjusted as needed each month. A capital contingency plan is also maintained as part of the Company’s Strategic Plan and is reviewed with the board of directors periodically. This plan details steps to be taken in the event of a critical capital need.

The Company registered 37.800 million shares in April 2012 to allow it the flexibility of raising capital sufficient to pay off its CDCI obligations and for other capital and liquidity management needs. Management does not have any immediate plans to raise additional capital through a common stock offering.

On February 6, 2013 the Company entered into a merger agreement with Renasant Corporation in which the Company would merge with and into Renasant. Each share of the Company's common stock will be converted into .6425 of a share of Renasant common stock. The merger is subject to regulatory and shareholder approval and is expected to be completed during the third quarter of 2013.

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The Company's CDCI preferred stock will be redeemed and common stock warrant owned by the U.S.Treasury will be repurchased by the Company or both will be purchased by Renasant as part of the merger transaction. The Company may redeem the CDCI preferred stock and repurchase the common stock warrant prior to the merger. The funding for such a transaction would be obtained as a special dividend from M&F Bank to the Company. Any dividend would require the approval of the Bank's state regulator and any redemption and repurchase of the preferred stock and common stock warrant would require the approval of the Federal Reserve.

The Company’s stock is publicly traded on the NASDAQ Global Select Market, also providing an avenue for additional capital if it is needed. The Company’s shares traded at a rate of approximately 10,500 shares per day during 2012. The stock’s closing price was $14.15 per share on March 31, 2013.

The Company’s and Bank’s regulatory capital ratios at March 31, 2013 were in excess of the minimum requirements and qualify the institution as “well capitalized” under the risk-based capital regulations.

The following table highlights certain regulatory capital ratios for the Company:

(Dollars in thousands)	March 31, 2013			December 31, 2012			March 31, 2012
Tier 1 capital	$	143,864		$	140,471		$	128,826
Total risk-based capital	158,512			155,088			143,395
Risk-weighted assets	1,168,212			1,166,489			1,164,034
Risk-based ratios:
Tier 1 capital	12.31		%	12.04		%	11.07		%
Total risk-based capital	13.57		%	13.30		%	12.32		%
Tier 1 leverage	9.20		%	8.91		%	8.08		%
Total capital to assets ratio	7.79		%	7.39		%	6.93		%

Interest Rate Risk and Liquidity Management

Interest rate sensitivity is a function of the repricing characteristics of the Company's portfolio of assets and liabilities. Interest rate sensitivity management focuses on repricing relationships of these assets and liabilities during periods of changing market interest rates. Management seeks to minimize the effect of interest rate movements on the volatility of net interest income. 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. In addition to these monthly reviews, a quarterly sensitivity analysis is performed to determine the potential effects of changes in interest rates on the Company's net interest margin, net interest income and market value of equity. The Company generally designs strategies to keep the one-year change in net interest income no more than 10% lower than current levels based on interest rate shocks of 100 basis points down and 200 basis points up. The Committee also monitors all loan originations, excluding residential mortgages, with maturities of greater than five years. Management believes, at March 31, 2013, 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. Although the Company has hedged it's floating rate subordinated debt, most interest rate risk mitigation strategies are carried out through pricing and product structures. The Company is currently in a positive 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 assets to reprice than the amount of liabilities 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. The Company monitors liquid assets such as cash equivalents and unpledged marketable securities to assure that there is sufficient liquidity available to cover deposit maturities over a one month horizon plus other potential volatile deposit movements. The Company also runs longer-term sensitivity tests on the earning asset and liability cash flows under simulated conditions with interest rates moving up 200 basis points and down 100 basis points. Strategies are implemented to mitigate any indicated weaknesses. 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. The Company has limited lines available through the Federal Reserve, the Federal Home Loan Bank and correspondent banks to meet anticipated liquidity needs.

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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. Maximum exposure guidelines by loan class are reviewed monthly. The Company’s credit standards are enforced within the Bank as well as within all of its wholly-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 by establishing an allowance through a charge to the provision 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 protection program and are overdrawn in excess of thirty days are generally charged-off. Deposits in the overdraft protection 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 internal and external loan review personnel, past due status, collateral reviews, loan growth and loss history. As part of the allowance evaluation, certain impaired loans are tested to determine if individual impairment allowances are required. A loan is considered to be impaired if management estimates that it is probable that the Company will be unable to collect all contractual payments due. Impairment review meetings are held monthly to review existing and new impairments. Loans with high risk grades, generally implying a substandard classification, are considered impaired and therefore are selected for individual impairment allowance tests. Loan grades are a significant indicator in determining which loans to individually test for impairment amounts because the loan grading process incorporates past due status, payment history, customer financial condition and collateral value in assigning individual grades to loans. Nonaccrual loans are also generally selected for individual impairment allowance tests. Loans that have been modified in a troubled debt restructuring are also selected for individual impairment allowance tests. For collateral-dependent loans, those for which the repayment is expected to be provided solely by the underlying collateral, the impairment allowance is primarily based on the value of the related collateral. Otherwise, impairment allowance calculations are based on the estimated present value of expected cash flows discounted at the effective interest rate of the loan. Real estate collateral is primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Updated appraisals or internally prepared evaluations are obtained for individually tested loans as management deems appropriate based on the date of the latest appraisal, the current status of the loan, known market conditions, current negotiations with borrowers and the outlook for action against the borrower. Other extenuating circumstances that may affect this frequency are judicial foreclosure delays, sales contracts, settlement agreements and lawsuits. Subsequent adjustments may be made to appraised values for current conditions that were not in existence at the time of the appraisal. The Company uses a database of information by market and real estate type that is updated quarterly in preparing evaluations and updating appraisal values. Management also uses this database of information along with other relevant information such as collateral sales negotiations or foreclosed property sales to adjust collateral values. 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 allowances are grouped into risk-rated pools and evaluated based on historical loss experience. Additionally, in determining the allowances for pools of loans, management considers specific qualitative external credit risk factors (“environmental factors”) that may not be reflected in historical loss rates such as: (1) potential disruptions in the real estate market and their effect on real estate concentrations; (2) trends in loan to value exception rates; (3) general economic conditions, including extending or worsening recessionary pressures; (4) past due rates; and (5) reviews of underwriting standards in our various markets. These and other environmental factors are reviewed on a quarterly basis. The Company uses a five-year period in calculating average historical loss rates.

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At the end of 2012, and continuing into the first quarter of 2013, the Company added environmental factors of approximately 15 basis points to the commercial real estate loan pool loss rate and added 35 basis points to the commercial loan pool loss rate for economic uncertainty in the market for undeveloped real estate and in the small business environment, reflecting slow sales growth in the Company's small business markets.

The Company experienced a large increase in the amount of past due and nonaccrual real estate-secured construction and commercial loans during 2008. The trend in nonaccrual and past due loans stabilized in the fourth quarter of 2009 and began its decline in 2011. Management addressed the problem of liquidating nonperforming loans by creating a special problem asset group within the organization in 2009, separate from the ongoing credit operations and lending activities of the Company. Problem loans, including large nonaccrual loans, were assigned to this group of specialists with the intent of liquidating the loans or their collateral in an orderly fashion. Nonaccrual loans have moved downward from their high of $74.420 million in the second quarter of 2009 and fallen to $7.277 million at March 31, 2013. Management has made much progress recently in improving the credit quality of the portfolio as substandard and loss loans have fallen from 5.88% of loans held for investment at March 31, 2012 to 4.65% at March 31, 2013. Construction and development substandard and loss loans decreased from 24.97% of their outstanding balances to 16.28% and other commercial real estate substandard and loss loans decreased from 6.02% of their outstanding balances to 5.23% during the same period. The portfolio clean-up since 2008 came at the expense of higher net charge-offs. However, during 2013 net charge-offs have been $503 thousand as compared to $1.149 million for the first quarter of 2012. Approximately 24.85% of the net charge-off activity in 2013 was related to foreclosure transactions. Approximately 32.99% of the net charge-offs for the first quarter of 2012 were related to foreclosure transactions.

The primary challenges during 2013 and beyond will be maintaining credit quality and liquidating foreclosed properties. The Company sold $1.309 million of foreclosed properties for $1.119 million during the first quarter of 2013. During the first quarter of 2012 $2.839 million of properties were sold for $2.716 million. Over the past twelve months $11.581 million of properties have been sold for approximately 93.15% of their book value. As sales outpaced foreclosure activity over the past twelve months and also during the first quarter of 2013, the Company faces the challenge of selling the remaining properties, with the most difficult task being the disposition of construction and land development properties which makes up over 75% of the balance of other real estate owned.

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The following table shows the nonaccrual loan balance trend since 2009, indicating a significant drop in numbers of nonaccrual loans as well as a reduction in the number and balances of large nonaccrual loans:

(Dollars in thousands)	03/31/13		12/31/12		12/31/11		12/31/10		12/31/09
Construction and land development:
Total number	5		2		10		22		54
Total balance	$	891	$	817	$	4,398	$	13,993	$	25,655
Number, $500 thousand or more	1		1		3		7		13
Balance, $500 thousand or more	$	600	$	600	$	2,989	$	10,553	$	19,297
Other commercial real estate:
Total number	15		12		14		26		18
Total balance	$	2,895	$	4,244	$	9,937	$	13,027	$	9,789
Number, $500 thousand or more	1		1		4		6		2
Balance, $500 thousand or more	$	536	$	2,322	$	8,185	$	10,152	$	3,496
1-4 family residential:
Total number	31		21		28		40		57
Total balance	$	2,754	$	1,596	$	1,896	$	3,863	$	4,490
Number, $500 thousand or more	—		—		—		1		1
Balance, $500 thousand or more	$	—	$	—	$	—	$	941	$	1,024
Total real estate:
Total number	51		35		52		88		129
Total balance	$	6,540	$	6,657	$	16,231	$	30,883	$	39,934
Number, $500 thousand or more	2		2		7		14		16
Balance, $500 thousand or more	$	1,136	$	2,922	$	11,174	$	21,646	$	23,817
Commercial, financial & agricultural:
Total number	15		14		17		23		33
Total balance	$	693	$	775	$	913	$	2,151	$	4,459
Number, $500 thousand or more	—		—		—		1		2
Balance, $500 thousand or more	$	—	$	—	$	—	$	784	$	2,411
Consumer:
Total number	6		3		5		10		10
Total balance	$	44	$	12	$	33	$	93	$	156
Number, $500 thousand or more	—		—		—		—		—
Balance, $500 thousand or more	$	—	$	—	$	—	$	—	$	—
Total portfolio:
Total number	72		52		74		121		172
Total balance	$	7,277	$	7,444	$	17,177	$	33,127	$	44,549
Number, $500 thousand or more	2		2		7		15		18
Balance, $500 thousand or more	$	1,136	$	2,922	$	11,174	$	22,430	$	26,228

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As the trend in nonaccrual real estate-secured loans has declined, individual impairment allowances have also declined since 2009. The following table shows a distribution of the totals for construction loans evaluated for impairment and the impairment allowances allocated to those loans at March 31, 2013 and December 31, 2012:

	March 31, 2013				December 31, 2012
(Dollars in thousands)	Loan Balance		Impairment Allowance		Loan Balance		Impairment Allowance
Non-accrual loans	$	891	$	28	$	817	$	—
Accruing loans with an allowance	3,806		2,189		3,435		2,036
Accruing loans without an allowance	5,418		—		6,086		—
Total	$	10,115	$	2,217	$	10,338	$	2,036

The following table shows a distribution of the totals for commercial real estate loans evaluated for impairment and the impairment allowances allocated to those loans at March 31, 2013 and December 31, 2012:

	March 31, 2013				December 31, 2012
(Dollars in thousands)	Loan Balance		Impairment Allowance		Loan Balance		Impairment Allowance
Non-accrual loans	$	2,895	$	329	$	4,244	$	443
Accruing loans with an allowance	11,533		2,022		11,711		1,978
Accruing loans without an allowance	17,287		—		25,967		—
Total	$	31,715	$	2,351	$	41,922	$	2,421

The following table shows the trend in credit quality related to the largest segments of the real estate loan portfolio:

(Dollars in thousands)	Outstanding Balances		Past Due 30-89 Days And Still Accruing		Past Due 90 Days Or More And Still Accruing		Nonaccrual		Year-To-Date Net Charge-Offs (Recoveries)
Construction and development loans:
03/31/13	$	62,116	$	112	$	—	$	891	$	(34	)
12/31/12	58,745		395		—		817		1,117
09/30/12	57,613		166		—		1,465		840
06/30/12	67,814		325		—		1,373		918
03/31/12	70,087		254		23		4,519		(263		)
Loans secured by 1-4 family properties:
03/31/13	$	242,307	$	3,168	$	174	$	2,754	$	131
12/31/12	238,728		1,962		168		1,596		788
09/30/12	234,825		2,275		77		1,467		241
06/30/12	226,110		2,232		81		1,864		241
03/31/12	224,989		2,810		87		2,352		(81		)
Commercial real estate-secured loans:
03/31/13	$	495,337	$	1,018	$	19	$	2,895	$	328
12/31/12	484,114		1,549		66		4,244		2,901
09/30/12	496,862		15,569		172		2,658		2,522
06/30/12	499,370		1,177		1,368		2,557		2,443
03/31/12	498,724		3,061		75		7,125		1,239

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

(Dollars in thousands)	March 31			December 31			March 31
	2013			2012			2012
Nonaccrual loans	$	7,277		$	7,444		$	14,604
Other real estate	24,820			25,970			34,636
Nonaccrual investment securities	604			733			646
Total non-performing assets	$	32,701		$	34,147		$	49,886
Past due 90 days or more and still accruing interest	$	268		$	321		$	245
Restructured loans (accruing)	21,657			21,800			19,077
Ratios:
Nonaccrual loans to loans	0.72		%	0.75		%	1.45		%
Past due 90 day loans to loans	0.03		%	0.03		%	0.02		%
Non-performing credit assets to loans and other real estate	3.12		%	3.27		%	4.72		%
Non-performing assets to assets	2.11		%	2.13		%	3.10		%

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. The Company does not offer a subprime product. Accordingly, the Company has virtually no direct 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.

As the Company worked to reduce nonaccrual loan balances starting in 2009, a natural byproduct was an increase in real estate foreclosures. The slow economy and stagnant real estate markets have combined to impede the process of disposing of foreclosed properties. However, during 2012 and 2013 more properties were sold than were foreclosed on. The following table shows the activity in the other real estate properties and the progress to date:

	QTD			QTD
(Dollars in thousands)	March 31, 2013			March 31, 2012
Balance at beginning of period	$	25,970		$	36,952
Foreclosures	387			1,565
Third-party lien pay-offs	—			—
Improvements	—			58
Write downs	(228		)	(1,100		)
Properties sold	(1,309		)	(2,839		)
Balance at end of period	$	24,820		$	34,636

Construction properties are the largest segment of other real estate. These properties have been slow to move, as undeveloped properties have attracted very few interested buyers. The following table shows foreclosed real estate balances by type at March 31, 2013, December 31, 2012 and March 31, 2012:

(Dollars in thousands)	March 31, 2013		December 31, 2012		March 31, 2012
Construction and land development	$	18,683	$	19,189	$	22,435
Farmland	2,309		2,263		2,418
1-4 family residential	290		326		1,913
Multifamily residential	864		864		950
Nonfarm nonresidential	2,674		3,328		6,920
	$	24,820	$	25,970	$	34,636

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Off-Balance Sheet Arrangements

The Company’s primary off-balance sheet arrangements are in the form of loan commitments, operating lease commitments and an interest rate swap. At March 31, 2013, the Company had $146.442 million in unused loan commitments outstanding. Of these commitments, $96.337 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 a borrower’s business and are usually related to the acquisition of inventory or of assets to be used in the customer’s 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. At March 31, 2013, the Company had $4.445 million in financial standby letters of credit issued and outstanding.

Liabilities of $2 thousand at March 31, 2013, and $2 thousand at March 31, 2012, were 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 $9.088 million at March 31, 2013. 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, 2013, mortgage origination-related derivatives with positive fair values of $105 thousand were included in other assets, and derivatives with negative fair values of $58 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, 2013, the Company had $26.445 million in locked forward sales agreements in place. Forward sale-related derivatives with positive fair values of $173 thousand were included in other assets, and derivatives with negative fair values of $67 thousand were included in other liabilities.

Mortgages that are sold generally have recourse obligations if any of the first four payments become past due over 30 days under certain investor contracts and over 90 days under other investor contracts. 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 only originates for sale mortgages that conform to FNMA and FHA underwriting guidelines. Mortgages sold that were still in the recourse period were $82.479 million at March 31, 2013. A recourse liability of $221 thousand was recorded for these mortgages as of March 31, 2013.

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 space.

The Company is a guarantor of the First M&F Statutory Trust I to the extent that if at any time the Trust is required to pay taxes, duties, assessments or governmental charges of any kind, then the Company is required to pay to the Trust additional sums to cover the required payments.

The Company irrevocably and unconditionally guarantees, with respect to the Capital Securities of the First M&F Statutory Trust I, and to the extent not paid by the Trust, accrued and unpaid distributions on the Capital Securities and the redemption price payable to the holders of the Capital Securities.

In November 2010 the Company entered into a forward-starting interest rate swap designed to hedge the variability of cash flows on the quarterly interest payments of the junior subordinated debentures, issued in relation to a trust preferred security financing in 2006, that switched in March 2011 from a fixed-rate of 6.44% to a floating rate of 3-month LIBOR plus 1.33%. The interest rate swap has a notional value of $30 million which is equivalent to the net principal balance of the junior subordinated debentures. The effective date of the swap was March 15, 2011 with an expiration date of March 15, 2018.

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Critical Accounting Policies

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States and general practices within the financial services industry. The preparation of the financial statements requires management to make certain judgments and assumptions in determining 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.

(1) Allowance for loan losses

(2) Fair value

(3) Contingent liabilities

(4) Income taxes

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 collectability of individual loans and reflects that collectability by assigning loan grades to individual credits. The grades 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 individual loans are impaired and to group remaining 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. Generally, all loans (1) risk-rated as substandard, doubtful or loss, (2) in nonaccrual status or (3) classified as troubled debt restructurings are considered to be impaired and are therefore individually tested for impairment allowances. Impairment estimates may be based on discounted cash flows or collateral values. Real estate collateral is primarily valued using appraisals based on sales of comparable properties in the same or similar markets. Updated appraisals or internally prepared evaluations are obtained for individually tested loans as management deems appropriate based on the date of the latest appraisal, the current status of the loan, known market conditions, current negotiations with borrowers and the outlook for action against the borrower. Other extenuating circumstances that may affect this frequency are judicial foreclosure delays, sales contracts, settlement agreements and lawsuits. Subsequent adjustments may be made to appraised values for current conditions that were not in existence at the time of the appraisal. The Company uses a database of information by market and real estate type that is updated quarterly in preparing evaluations and updating appraisal values. Management also uses this database of information along with other relevant information such as collateral sales negotiations or foreclosed property sales to adjust collateral values. 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 loans not individually tested for impairment allowances. Various external environmental factors are also considered in estimating the allowance for pools of loans. Concentrations of credit by loan type and collateral type are also reviewed to estimate exposures and risks of loss for loans aggregately evaluated in risk pools. 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 pools 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.

Fair value

Certain of the Company’s assets and liabilities are financial instruments carried at fair value. This includes securities available for sale, mortgage-related derivatives and interest rate swaps. Most of the assets and liabilities carried at fair value are based on either quoted market prices, market prices for similar instruments or market data for the instruments being valued. At March 31, 2013, approximately 1.1% of assets and liabilities measured at fair value were based on significant unobservable inputs.

The fair values of available-for-sale securities are generally based upon quoted market prices or observable market data related to those securities. These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information. When market observable data is not available, which generally occurs due to the lack of liquidity for certain instruments, the valuation of the security is subjective and may involve substantial judgment. This is the case for certain trust-preferred-backed collateralized debt obligations that are held in the investment portfolio.

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The Company reviews the investment securities portfolio to identify and evaluate securities that have unrealized losses for other-than-temporary impairment. An impairment exists when the current fair value of an individual security is less than its amortized cost basis. The primary factors that the Company considers in determining whether an impairment is other-than-temporary are the financial condition and projected performance of the issuer, the length of time and extent to which the security has had an unrealized loss, and the Company’s intent to sell and assessment of the likelihood that the Company would be required to sell the security before it could recover its cost. For beneficial interests such as collateralized debt obligations the Company uses the prescribed expected cash flow analysis as well as its intent related to the disposition of its investment to determine whether an other-than-temporary impairment exists.

The Company enters into interest rate lock agreements with customers during the mortgage origination process. These interest rate lock agreements are considered written options and are accounted for as free-standing derivatives. The Company also enters into forward sale agreements with investors who purchase originated mortgages. These forward sale agreements are also considered free-standing derivatives. Free-standing derivatives are accounted for at fair value with changes flowing through current earnings. The Company values interest rate lock agreements using the current 30-year and 15-year mortgage rates as a discount rate and adjusts cash flows based on dealer quoted pricing adjustments for certain credit characteristics of the commitments and estimated pull-through rates. The Company values forward sale agreements based on an average of investor quotes for mortgage commitments with similar characteristics with adjustments made for estimated servicing values.

The Company enters into interest rate swaps. Interest rate swaps are valued using a discounted cash flow model. Future net cash flows are estimated based on the forward LIBOR rate curve, the payment terms of the swap and potential credit events. These cash flows are discounted using rates derived from the forward swap curve, with the resulting fair value being classified as a Level 3 valuation.

Other real estate acquired through partial or total satisfaction of loans is carried at the lower of fair value, net of estimated costs to sell, or cost. The original cost of other real estate is recognized as the fair value of the property, net of estimated costs to sell, at the date of acquisition. Any loss incurred at the date of acquisition is charged to the allowance for loan losses. The fair values of other real estate are usually based on appraisals by third parties. These fair values may also be adjusted for other market data that the Company becomes aware of.

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.

Income taxes

The Company, the Bank and the Bank's wholly owned subsidiaries file consolidated Federal and state income tax returns. The estimates that pertain to the income tax expense or benefit and the related current and deferred tax assets and liabilities involve a high degree of judgment related to the ultimate measurement and resolution of tax-related matters. Management determines the appropriate tax treatment of transactions and filing positions based on reviews of tax laws and regulations, court actions and other relevant information. These judgments enter into the estimates of current and deferred tax expenses or benefits and the related current and deferred tax assets and liabilities. Changes in these estimates occur as tax rates, tax laws or regulations change, as court decisions change the merits of certain tax treatments and as examinations by taxing authorities change our treatments of tax items. These changes impact tax accruals and can materially affect our operating results. Management regularly evaluates our uncertain tax positions and estimates the appropriate level of tax accrual adjustments based on these evaluations.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Deferred income tax expenses (benefits) result from changes in deferred tax assets and liabilities between reporting periods. A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent upon the generation of a sufficient level of future taxable income and the recoverability of taxes paid in prior years. In determining whether a valuation allowance is needed, management considers (1) the amount of taxable income from prior years that may be used for carrybacks, (2) estimated future taxable earnings and (3) the effects of tax planning strategies.

Interest and penalties assessed by the taxing authorities are classified as income tax expense in the statement of operations.

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Recent Accounting Pronouncements

Accounting Standards Update No. 2011-03, “Transfers and Servicing (Topic 860) – Reconsideration of Effective Control for Repurchase Agreements." ASU 2011-03 provides guidance related to the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 clarifies the guidance related to whether an entity has maintained effective control over transferred assets and therefore must treat the transaction as a financing rather than as a sale. ASU 2011-03 provides that the criterion pertaining to an exchange of collateral should not be a determining factor in assessing effective control. The assessment of effective control must focus on a transferor's contractual rights and obligations with respect to transferred financial assets, not on whether the transferor has the practical ability to perform in accordance with those rights or obligations. Therefore, the amendments in this Update remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. ASU 2011-03 became effective for the Company as of January 1, 2012. Adoption of ASU 2011-03 did not have a material impact on the Company's financial position or results of operations.

Accounting Standards Update No. 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS." ASU 2011-04 clarifies how fair values should be measured for instruments classified in stockholders' equity and under what circumstances premiums and discounts should be applied in fair value measurements. The guidance also permits entities to measure fair value on a net basis for financial instruments that are managed based on net exposure to market risks or counterparty credit risks. Required new disclosures for financial instruments classified as Level 3 fair values include (1) quantitative information about unobservable inputs used in measuring fair values, (2) qualitative discussion of the sensitivity of fair value measurements to changes in unobservable inputs and (3) a description of the valuation processes used. ASU 2011-04 also requires disclosure of fair value levels for financial instruments that are not recorded at fair value but for which fair value is required to be disclosed. ASU 2011-04 became effective for the Company prospectively for interim and annual periods beginning on January 1, 2012. Adoption of ASU 2011-04 did not have a material impact on the Company's financial position or results of operations.

Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income." ASU 2011-05 requires that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. ASU 2011-05 became effective for the Company retrospectively for interim and annual periods beginning on January 1, 2012. Certain provisions related to the presentation of reclassification adjustments were deferred by ASU 2011-12 as noted below. Adoption of ASU 2011-05 did not have a material impact on the Company's financial position or results of operations.

Accounting Standards Update No. 2011-11, “Balance Sheet (Topic 210) – Disclosures about Offsetting Assets and Liabilities." ASU 2011-11 requires the disclosure of both gross and net information about financial instruments, such as sales and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and lending arrangements, and derivative instruments that are eligible for offset in the statement of financial position and/or subject to a master netting arrangement or similar agreement. ASU 2013-01, "Balance Sheet (Topic 210) - Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," clarifies that ordinary trade receivables are not within the scope of ASU 2011-11. ASU 2011-11, as amended by ASU 2013-01, became effective for interim and annual periods beginning on January 1, 2013. Adoption of ASU 2011-11 did not have a material impact on the Company's financial position or results of operations.

Accounting Standards Update No. 2011-12, “Comprehensive Income (Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." ASU 2011-12 defers changes in ASU 2011-05 that relate to the presentation of reclassification adjustments to allow the FASB time to redeliberate whether to require presentation of such adjustments on the face of the financial statements to show the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. ASU 2011-12 became effective concurrent with the effective date of ASU 2011-05.

Accounting Standards Update No. 2013-02, “Comprehensive Income (Topic 220) – Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." ASU 2013-02 requires disclosure of amounts reclassified out of accumulated other comprehensive income in their entirety, by component, on the face of the statement of operations or in the notes to the financial statements. Amounts that are not required to be classified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. ASU 2013-02 became effective prospectively for fiscal years and interim periods beginning on January 1, 2013. Adoption of ASU 2013-02 did not have a material impact on the Company's financial position or results of operations.

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Item 3 - Quantitative and Qualitative Disclosures About Market Risk

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

Interest rate shock analysis shows that the Company will experience a 1.81% decrease over 12 months in its net interest income with a gradual (12 month ramp) and sustained 100 basis point decrease in interest rates. A gradual and sustained increase in interest rates of 200 basis points will result in a 3.22% increase in net interest income.

An analysis of the change in market value of equity shows how an interest rate shock will affect the difference between the market value of assets and the market value of liabilities. With all financial instruments being stated at market value, the market value of equity will increase by 19.41% with an immediate and sustained increase in interest rates of 200 basis points. The market value of equity will decrease by 14.87% with an immediate and sustained decrease in interest rates of 100 basis points.

Item 4 - Controls and Procedures

The management of the Company conducted an evaluation, under the supervision and with the participation of its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2013. The Company's disclosure controls and procedures are designed to ensure that information 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 rules and forms of the SEC, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2013.

There have been no changes to the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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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.

On March 5, 2013, a putative shareholder class action lawsuit, Zeng vs. Hugh S. Potts, Jr. et al., was filed in the United States District Court for the Northern District of Mississippi against the Company, the members of its board of directors, M&F Bank, Renasant Corporation and Renasant Bank. This lawsuit is purportedly brought on behalf of a putative class of holders of the Company's common stock and seeks a declaration that it is properly maintainable as a class action. The lawsuit alleges that the Company's directors breached their fiduciary duties and/or violated Mississippi law in connection with the merger with Renasant Corporation and Renasant Bank and that the Company, M&F Bank, Renasant Corporation and Renasant Bank aided and abetted those alleged breaches of fiduciary duty by, among other things, agreeing to consideration that undervalues the Company, agreeing to deal protection devices that preclude a fair sales process, and making inadequate disclosures to shareholders regarding the merger. Among other relief, the plaintiff seeks to enjoin the merger of the Company and M&F Bank with and into Renasant Corporation and Renasant Bank.

Also on March 5, 2013, the Company received a shareholder litigation demand letter from a shareholder alleging that members of the Company's board of directors breached their fiduciary duties in connection with the merger with Renasant Corporation and Renasant Bank and that the Company, M&F Bank, Renasant Corporation and Renasant Bank aided and abetted those alleged breaches of fiduciary duties. The demand letter asked the Company to remedy the alleged breaches of fiduciary duties prior to closing the merger. A draft complaint was attached to the demand letter proposed to be filed in the Circuit Court of Attala County, Mississippi, if the Company did not take the action requested in the demand letter. The draft complaint seeks, among other relief, to enjoin the merger. Under applicable Mississippi law, the Company has 90 days from March 5, 2013 to respond to the demand letter before any further action can be taken. On April 5, 2013, the alleged shareholder in the demand letter filed an Amended Shareholder Derivative Petition For Breaches of Fiduciary Duty with the Circuit Court of Attala County, Mississippi. The Amended Shareholder Derivative Petition For Breaches of Fiduciary Duty alleges, among other things, that irreparable harm to the shareholders will occur absent judicial relief. On April 30, 2013, the Plaintiff filed a Motion to Compel Limited Expedited Discovery, seeking multiple categories of documents and several depositions on an expedited basis. On May 10, 2013, the Defendants filed a Motion to Stay the derivative proceeding and their opposition to Motion for Expedited Discovery.

The Company believes the claims asserted are without merit and intends to vigorously defend against the lawsuit.

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FIRST M & F CORPORATION AND SUBSIDIARY

Item 1A – Risk Factors

The following risk factors contain information concerning factors that could materially affect our business, financial condition or future results. The risk factors that are described below and that are discussed in Item 1A to Part 1 of the Company's annual report on Form 10-K for the year ended December 31, 2012 should be considered carefully in evaluating the Company's overall risk profile. Additional risks not presently known, or that we currently deem immaterial, also may have a material adverse affect on the Company's business, financial condition or results of operations.

Additional Risk Factors Relating to Pending Merger with Renasant

Certain of the Company's directors and executive officers have interests in the merger that may differ from the interests of the Company's shareholders including, if the merger is completed, the receipt of financial and other benefits.

The Company's executive officers and directors have interests in the merger that are in addition to, and may be different from, the interests of the Company's shareholders generally. These interests include acceleration of vesting and payouts of their First M&F Corporation equity compensation awards, the right to potentially receive cash severance payments and other benefits under executive change in control agreements and potential accelerated payouts of deferred compensation balances. Two directors, Hugh S. Potts, Jr. (who is the Company's Chief Executive Officer) and Hollis C. Cheek, will be appointed to Renasant's and Renasant Bank's respective boards of directors upon completion of the merger.

In addition, we anticipate that Mr. Potts will retire as an employee effective upon completion of the merger but immediately thereafter enter into a consulting arrangement with Renasant. Although no formal consulting agreement has been entered into at this time, it is expected that Mr. Potts will provide consulting services with respect to the integration of the Company into Renasant for a fee based on Mr. Potts' current annual base salary paid pro rata over the service period. The parties anticipate that this consulting arrangement will terminate at the end of 2013.

Pending litigation against the Company and the current members of the Company's board of directors could result in an injunction preventing completion of the merger or the payment of damages in the event the merger is completed.

On March 5, 2013, a putative shareholder class action lawsuit, Zeng vs. Hugh S. Potts, Jr. et al., was filed in the United States District Court for the Northern District of Mississippi against the Company, the members of its board of directors, M&F Bank, Renasant Corporation and Renasant Bank. This lawsuit is purportedly brought on behalf of a putative class of holders of the Company's common stock and seeks a declaration that it is properly maintainable as a class action. The lawsuit alleges that the Company's directors breached their fiduciary duties and/or violated Mississippi law in connection with the merger with Renasant Corporation and Renasant Bank and that the Company, M&F Bank, Renasant Corporation and Renasant Bank aided and abetted those alleged breaches of fiduciary duty by, among other things, agreeing to consideration that undervalues the Company, agreeing to deal protection devices that preclude a fair sales process, and making inadequate disclosures to shareholders regarding the merger. Among other relief, the plaintiff seeks to enjoin the merger of the Company and M&F Bank with and into Renasant Corporation and Renasant Bank.

Also on March 5, 2013, the Company received a shareholder litigation demand letter from a shareholder alleging that members of the Company's board of directors breached their fiduciary duties in connection with the merger with Renasant Corporation and Renasant Bank and that the Company, M&F Bank, Renasant Corporation and Renasant Bank aided and abetted those alleged breaches of fiduciary duties. The demand letter asked the Company to remedy the alleged breaches of fiduciary duties prior to closing the merger. A draft complaint was attached to the demand letter proposed to be filed in the Circuit Court of Attala County, Mississippi, if the Company did not take the action requested in the demand letter. The draft complaint seeks, among other relief, to enjoin the merger. Under applicable Mississippi law, the Company has 90 days from March 5, 2013 to respond to the demand letter before any further action can be taken. On April 5, 2013, the alleged shareholder in the demand letter filed an Amended Shareholder Derivative Petition For Breaches of Fiduciary Duty with the Circuit Court of Attala County, Mississippi. The Amended Shareholder Derivative Petition For Breaches of Fiduciary Duty alleges, among other things, that irreparable harm to the shareholders will occur absent judicial relief. On April 30, 2013, the Plaintiff filed a Motion to Compel Limited Expedited Discovery, seeking multiple categories of documents and several depositions on an expedited basis. On May 10, 2013, the Defendants filed a Motion to Stay the derivative proceeding and their opposition to Motion for Expedited Discovery.

One of the conditions to the closing of the merger is that no law, judgment, order, writ, decree or injunction shall have been enacted, entered, promulgated, or enforced by any Governmental Entity, including a court of competent jurisdiction, which prohibits the completion of the merger. If a plaintiff is successful in obtaining an injunction prohibiting the defendants from completing the merger, then such injunction may prevent the merger from becoming effective, or from becoming effective within the expected time frame. If completion of the merger is prevented or delayed, it could result in substantial costs to the Company and to Renasant. In addition, the Company and Renasant could incur costs associated with the indemnification of the Company's directors and officers.

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

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not applicable.

Item 5 – Other Information

None.

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Item 6 – Exhibits

2.1	Agreement and Plan of Merger by and among Renasant Corporation, Renasant Bank, First M&F Corporation and Merchants and Farmers Bank dated as of February 6, 2013. Incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 11, 2013.
3.1	Articles of Incorporation of the Registrant.  Incorporated herein by reference to Exhibit 3 to the Company's Form S-1 (File No. 33-08751) September 15, 1986, incorporated herein by reference.
3.2	Amended and Restated Articles of Incorporation of the Registrant. Incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K filed on March 14, 2012.
3.3	By-laws of the Registrant, 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.
3.4	Amended and Restated Bylaws of the Registrant. Incorporated herein by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K filed on March 14, 2012.
4.1	Warrant to Purchase up to 513,113 Shares of Common Stock of the Registrant. Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on March 5, 2009.
10.1	First M&F Corporation 2005 Equity Incentive Plan. Filed as Appendix A to the Company’s Proxy Statement, March 15, 2005, incorporated herein by reference.
10.2	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.
10.3	Letter Agreement, including as Exhibit A thereto, Securities Purchase Agreement. Incorporated herein by reference to Exhibit A to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on March 5, 2009.
10.4	Form of Preferred Stock Certificate.  Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on March 5, 2009.
10.5	Side Letter Agreement.  Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on March 5, 2009.
10.6	CDCI Letter Agreement dated September 29, 2010. Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 5, 2010.
10.7	Form of Change in Control Agreement between the Company and John G. Copeland, effective May 3, 2004. Incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K filed on March 14, 2012.
11	Computation of Earnings Per Share – Filed herewith as Note 13 to the consolidated financial statements.
31	Rule 13a-14(a) Certification of Hugh S. Potts, Jr., Chief Executive Officer and Rule 13a-14(a) Certification of John G. Copeland, Chief Financial Officer.
32	Section 1350 Certification of Hugh S. Potts, Jr., Chief Executive Officer and Section 1350 Certification of John G. Copeland, Chief Financial Officer.

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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.

Date: May 10, 2013

BY:	/s/ Hugh S. Potts, Jr.	BY:	/s/ John G. Copeland
	Hugh S. Potts, Jr.		John G. Copeland
	Chairman of the Board and Chief Executive Officer (principal executive officer)		Executive Vice President and Chief Financial Officer (principal financial officer)
		BY:	/s/ Robert C. Thompson, III
			Robert C. Thompson, III
			Vice President – Accounting Policy (principal accounting officer)

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EXHIBIT INDEX

2.1	Agreement and Plan of Merger by and among Renasant Corporation, Renasant Bank, First M&F Corporation and Merchants and Farmers Bank dated as of February 6, 2013. Incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 11, 2013.
3.1	Articles of Incorporation of the Registrant.  Incorporated herein by reference to Exhibit 3 to the Company's Form S-1 (File No. 33-08751) September 15, 1986, incorporated herein by reference.
3.2	Amended and Restated Articles of Incorporation of the Registrant. Incorporated herein by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K filed on March 14, 2012.
3.3	By-laws of the Registrant, 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.
3.4	Amended and Restated Bylaws of the Registrant. Incorporated herein by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K filed on March 14, 2012.
4.1	Warrant to Purchase up to 513,113 Shares of Common Stock of the Registrant. Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K, filed on March 5, 2009.
10.1	First M&F Corporation 2005 Equity Incentive Plan. Filed as Appendix A to the Company’s Proxy Statement, March 15, 2005, incorporated herein by reference.
10.2	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.
10.3	Letter Agreement, including as Exhibit A thereto, Securities Purchase Agreement. Incorporated herein by reference to Exhibit A to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on March 5, 2009.
10.4	Form of Preferred Stock Certificate.  Incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K, filed on March 5, 2009.
10.5	Side Letter Agreement.  Incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K, filed on March 5, 2009.
10.6	CDCI Letter Agreement dated September 29, 2010. Incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K, filed on October 5, 2010.
10.7	Form of Change in Control Agreement between the Company and John G. Copeland, effective May 3, 2004. Incorporated herein by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K filed on March 14, 2012.
11	Computation of Earnings Per Share – Filed herewith as Note 13 to the consolidated financial statements.
31	Rule 13a-14(a) Certification of Hugh S. Potts, Jr., Chief Executive Officer and Rule 13a-14(a) Certification of John G. Copeland, Chief Financial Officer.
32	Section 1350 Certification of Hugh S. Potts, Jr., Chief Executive Officer and Section 1350 Certification of John G. Copeland, Chief Financial Officer.

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