M&F BANCORP INC /NC/ - Quarter Report: 2010 September (Form 10-Q)

september10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

Commission file number 000-27307

North Carolina

56-1980549

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

2634 Durham Chapel Hill Blvd., Durham, NC 27707-2800

(Address of Principal Executive Offices)

(919) 687-7800

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the previous 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. Yes x No o

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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One)

Large accelerated filer o Accelerated filer o Non-accelerated filer o 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) Yes o No x

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

As of November 5, 2010, there were 2,031,337 shares outstanding of the issuer’s common stock, no par value.

M&F BANCORP, INC

Table of Contents

PART I………………………………………………………………………………………………………………………..............................	1
FINANCIAL INFORMATION……………………………………………………………………………………………..............................	1
Item 1- Financial Statements……………………………………………………………………………………………….............................	1
Item 2 - Management’s Discussion and Analysis………………………………………………………………………............................	19
Item 3 - Quantitative and Qualitative Disclosures about Market Risk………………………………………………...............................	33
Item 4T - Quantitative and Qualitative Disclosures about Market Risk………………………………………………............................	33
PART II………………………………………………………………………………………………………………………............................	33
OTHER INFORMATION…………………………………………………………………………………………………...............................	33
Item 1 - Legal Proceedings……………………………………………………………………………………………….................................	33
Item 1A - Risk Factors………………………………………………………………………………………………………............................	33
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds………………………………………………..............................	33
Item 3 - Defaults Upon Senior Securities………………………………………………………………………………….............................	33
Item 4 - Removed and Reserved………………………………………………………………………………...………….............................	33
Item 5 - Other Information…………………………………………………………………………………………………..............................	33
Item 6 - Exhibits……………………………………………………………………………………………………………...............................	34

M&F BANCORP, INC.

PART I

FINANCIAL INFORMATION

Item 1- Financial Statements

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
(Dollars in thousands)	2010			2009
	(Unaudited)
ASSETS

Cash and cash equivalents	$	63,686		$	30,313
Investment securities available for sale, at fair value		20,467			17,699
Other invested assets		985			1,061
Loans, net of unearned income and deferred fees		205,742			210,111
Allowances for loan losses		(3,831	)		(3,564	)
Loans, net		201,911			206,547
Interest receivable		704			935
Bank premises and equipment, net		4,675			4,852
Cash surrender value of bank-owned life insurance		5,514			5,499
Other real estate owned		1,706			2,176
Deferred tax assets and taxes receivable, net		4,077			4,402
Other assets		1,526			897
TOTAL ASSETS	$	305,251		$	274,381
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Interest-bearing deposits	$	216,721		$	186,791
Noninterest-bearing deposits		45,599			38,016
Total deposits		262,320			224,807

Other borrowings		751			7,766
Other liabilities		5,411			5,253
Total liabilities		268,482			237,826

COMMITMENTS AND CONTINGENCIES

Stockholders' equity:
Series A Preferred stock- $1,000 liquidation value per share, 11,735 shares issued and outstanding as of September 30, 2010 and December 31, 2009		-			11,719
Series B Preferred stock- $1,000 liquidation value per share, 11,735 shares issued and outstanding as of September 30, 2010 and December 31, 2009		11,722			-
Common stock, no par value 10,000,000 shares authorized as of September 30, 2010 and December 31, 2009; 2,031,337 shares issued and outstanding as of September 30, 2010 and December 31, 2009		8,732			8,732
Retained earnings		17,257			17,128
Accumulated other comprehensive loss		(942	)		(1,024	)
Total stockholders' equity		36,769			36,555

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	305,251		$	274,381

See notes to consolidated financial statements.

M&F BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands except per share data)	2010			2009			2010			2009
(Unaudited)
Interest income:
Loans, including fees	$	3,118		$	3,344		$	9,422		$	9,878
Investment securities, including dividends
Taxable		102			133			308			502
Tax-exempt		69			95			223			330
Other		27			7			60			18
Total interest income		3,316			3,579			10,013			10,728
Interest expense:
Deposits		516			659			1,584			2,267
Borrowings		1			12			3			57
Total interest expense		517			671			1,587			2,324
Net interest income		2,799			2,908			8,426			8,404
Less provision for loan losses		156			623			424			804
Net interest income after provision for loan losses		2,643			2,285			8,002			7,600
Noninterest income:
Service charges		389			445			1,246			1,297
Rental income		76			60			226			160
Cash surrender value of life insurance		49			49			152			151
Realized gain on sale of loan		-			14			-			14
Realized gain on sale of securities		-			31			26			140
Realized gain on sale of other real estate owned		12			2			30			17
Realized loss on disposal of assets		-			-			(3	)		-
Impairment of other assets		-			(14	)		-			(88	)
Other income (loss)		1			(1	)		-			17
Total noninterest income		527			586			1,677			1,708
Noninterest expense:
Salaries and employee benefits		1,335			1,240			3,802			4,349
Occupancy and equipment		409			385			1,177			1,302
Directors fees		82			74			229			248
Marketing		56			36			165			144
Professional fees		239			193			735			694
Information technology		213			199			636			503
FDIC deposit insurance		174			157			606			210
OREO expense, net		268			25			550			38
Other		282			149			1,042			857
Total noninterest expense		3,058			2,458			8,942			8,345
Income before income taxes		112			413			737			963
Income tax expense		22			125			156			239
Net income		90			288			581			724
Less preferred stock dividends and accretion		(122	)		(150	)		(417	)		(156	)
Net (loss) income available to common stockholders	$	(32	)	$	138		$	164		$	568
Basic and diluted (losses) earnings per share of common stock:	$	(0.02	)	$	0.07		$	0.08		$	0.28
Weighted average shares of common stock outstanding:
Basic and diluted		2,031,337			2,031,337			2,031,337			2,031,337
Dividends per share of common stock	$	-		$	0.025		$	0.0175		$	0.075

See notes to consolidated financial statements.

M&F BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE LOSS
NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009
											Accumulated
	Number										Other
(Dollars in thousands)	of		Common		Preferred			Retained			Comprehensive
(Unaudited)	Shares		Stock		Stock			Earnings			Loss			Total
Balances as of December 31, 2008		2,031,337	$	8,732	$	-		$	16,972		$	(1,385	)	$	24,319
Issuance of preferred stock, net of issuance costs of $0.018						11,717									11,717
Accretion of preferred stock issuance costs						1									1
Comprehensive income:
Net income									724						724
Other comprehensive income, net of tax												344			344
Total comprehensive income, net of tax															1,068
Dividends declared on preferred stock									(156	)					(156	)
Dividends declared on common stock ($0.05 per share)									(153	)					(153	)

Balances as of September 30, 2009		2,031,337	$	8,732	$	11,718		$	17,387		$	(1,041	)	$	36,796

Balances as of December 31, 2009		2,031,337	$	8,732	$	11,719		$	17,128		$	(1,024	)	$	36,555
Accretion of Series A preferred stock issuance costs						16			(16	)					-
Redemption of Series A preferred stock						(11,735	)								(11,735	)
Issuance of Series B preferred stock						11,721									11,721
Accretion of Series B preferred stock issuance costs						1			(1	)					-

Comprehensive income:
Net income									581						581
Other comprehensive income, net of tax												82			82
Total comprehensive income, net of tax															663
Dividends declared on preferred stock									(400	)					(400	)
Dividends declared on common stock ($0.0175 per share)									(35	)					(35	)

Balances as of September 30, 2010		2,031,337	$	8,732	$	11,722		$	17,257		$	(942	)	$	36,769

See notes to consolidated financial statements

M&F BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009

(Dollars in thousands)	2010			2009
(Unaudited)

Cash flows from operating activities:
Net income	$	581		$	724
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		424			804
Depreciation and amortization		306			406
Loss from disposals of bank premises and equipment		3			-
(Accretion) amortization of discounts/premiums on investments, net		(11	)		11
Loan purchase accounting amortization, net		130			130
Deferred loan origination fees and costs, net		102			84
Impairment on other assets		-			88
Gains on disposition of available for sale securities		(26	)		(140	)
Increase in cash surrender value of bank owned life insurance		(152	)		(151	)
Gain on sale of other real estate owned		(30	)		-
Changes in:
Accrued interest receivable and other assets		380			(807	)
Other liabilities		260			(170	)
Net cash provided by operating activities		1,967			979
Cash flows from investing activities:
Activity in available-for-sale securities:
Sales		-			6,559
Maturities, prepayments and calls		1,968			5,811
Principal collections		2,720			4,702
Purchases		(7,210	)		(3,082	)
Net decrease (increase) in loans		3,849			(3,484	)
Proceeds from sale of loans		-			3,340
Purchases of bank premises and equipment		(132	)		(112	)
Proceeds from sale of bank-owned life insurance policies		137			-
Proceeds from sale of other assets		-			28
Proceeds from sale of real estate owned		110			-
Net cash provided by investing activities		1,442			13,762
Cash flows from financing activities:
Net increase (decrease) in deposits		37,513			(1,278	)
Net decrease from other borrowings		(7,015	)		(19,172	)
Issuance of Series A preferred stock, net of issuance costs		-			11,718
Cash dividends		(534	)		(309	)
Net cash provided by (used in) financing activities		29,964			(9,041	)
Net increase in cash and cash equivalents		33,373			5,700
Cash and cash equivalents as of the beginning of the period		30,313			13,776
Cash and cash equivalents as of the end of the period	$	63,686		$	19,476
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest	$	1,428		$	2,144
Income taxes		168			96
Non-cash financing activities:
Redemption of Series A preferred stock		(11,735	)		-
Issuance of Series B preferred stock		11,735			-

See notes to consolidated financial statements.

M&F BANCORP, INC.

Notes to Consolidated Financial Statements, September 30, 2010, Unaudited

1.	Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts and transactions of M&F Bancorp, Inc. (the “Company”) and its wholly-owned bank subsidiary, Mechanics and Farmers Bank (the “Bank”). All significant inter-company accounts and transactions have been eliminated in consolidation. The Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial statements and in accordance with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. The accompanying Consolidated Financial Statements and Notes are unaudited except for the balance sheet and footnote information as of December 31, 2009, which were derived from the Company’s audited consolidated Annual Report on Form 10-K as of and for the year ended December 31, 2009.

The Consolidated Financial Statements included herein do not include all the information and notes required by GAAP and should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2009.

In the opinion of management, the interim financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows in the Consolidated Financial Statements. The unaudited operating results for the periods presented may not be indicative of annual results.

New Accounting Pronouncements

In July 2010, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that affects disclosures about the credit quality of financing receivables and the allowance for credit losses. The ASU amendment seeks to improve the disclosures about the credit quality of an entity’s financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate, by portfolio segment or class of financing receivable, certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses.

Existing disclosures are amended to require an entity to provide the following disclosures about its financing receivables on a disaggregated basis:

(1) A roll-forward schedule of the allowance for credit losses from the beginning of the reporting period to the end of the reporting period on a portfolio segment basis, with the ending balance further disaggregated on the basis of the impairment method;

(2) For each disaggregated ending balance in item (1) above, the related recorded investment in financing receivables;

(3) The nonaccrual status of financing receivables by class of financing receivables;

(4) Impaired financing receivables by class of financing receivables.

The amendments in the ASU also require an entity to provide the following additional disclosures about its financing receivables:

(1) Credit quality indicators of financing receivables at the end of the reporting period by class of financing receivables;

(2) The aging of past due financing receivables at the end of the reporting period by class of financing receivables; and

(3) The nature and extent of troubled debt restructurings that occurred during the period by class of financing receivables and their effect on the allowance for credit losses;

M&F BANCORP, INC.

(4) The nature and extent of financing receivables modified as troubled debt restructurings within the previous twelve months that defaulted during the reporting period by class of financing receivables and their effect on the allowance for credit losses; and

(5) Significant purchases and sales of financing receivables during the reporting period disaggregated by portfolio segments.

The disclosures as of the end of a reporting period will be effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period will be effective for interim and annual reporting periods beginning on or after December 15, 2010. As this ASU is disclosure-related only, we do not expect it to have an impact on our financial condition or results of operations.

In April 2010, the FASB issued an ASU in reference to the effect of a loan modification when the loan is part of a pool that is accounted for as a single asset. This ASU codifies the consensus reached in an earlier Emerging Issues Task Force (“EITF”) issue about the same topic. The amendments to the Codification provides that modifications of loans that are accounted for within a pool do not result in the removal of those loans from the pool even if the modification of those loans would otherwise be considered a troubled debt restructuring. An entity will continue to be required to consider whether the pool of assets in which the loan is included is impaired if expected cash flows for the pool change. The ASU does not affect the accounting for loans that are not accounted for within pools. Loans accounted for individually continue to be subject to the troubled debt restructuring accounting provisions.

This ASU is effective prospectively for modifications of loans accounted for within pools occurring in the first interim or annual period ending on or after July 15, 2010. Early application is permitted. Upon initial adoption of the ASU, an entity may make a one-time election to terminate accounting for loans as a pool. This election may be applied on a pool-by-pool basis and does not preclude an entity from applying pool accounting to subsequent acquisitions of loans with credit deterioration. The Company adopted this Standard as of July 1, 2010. This ASU does not apply to our operations.

On February 24, 2010, the FASB issued ASU to address amendments to certain recognition and disclosure requirements. The amendments in this ASU remove the requirement for a Securities Exchange Commission (“SEC”) filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. generally accepted accounting principles. The FASB believes these amendments remove potential conflicts with the SEC’s literature. All of the amendments in the ASU were effective upon issuance.

In January 2010, the FASB issued an ASU entitled “Fair Value Measurements and Disclosures”. The ASU is aimed at improving disclosures about fair value measurements. This ASU requires new disclosures: (i) of significant transfers in and out of Levels 1 and 2 with reasons for the transfers; and (ii) activity in Level 3 fair value measurements, including purchases, sales, issuances, and settlements on a gross basis. In addition, the reporting entity should provide fair value measurement disclosures for each class of assets and liabilities, and disclosures about inputs and valuation techniques used to measure fair value of both recurring and nonrecurring fair value measurements. The ASU includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plan assets. These amendments change the terminology from major categories of assets to classes of assets and provide a cross reference on how to determine appropriate class to present fair value disclosures. This ASU is effective for interim and annual periods beginning after December 15, 2009, except disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and interim periods within those years. This ASU requires additional disclosures which will not have an impact on the Company’s results of operations or assets.

2.	Preferred Stock Exchange

On June 26, 2009, the Company completed the issuance of 11,735 shares of $1,000 par value Series A Fixed Rate Cumulative Perpetual Preferred Stock ("Series A Preferred Stock") under the Capital Purchase Program ("CPP") as a part of the Troubled Asset Relief Program ("TARP"). The Series A Preferred Stock was issued without warrants, an exception made for Community Development Financial Institutions (“CDFI”) for which serving the underserved is a mandate and business practice.

On August 20, 2010, the Company completed an exchange of the Series A Preferred Stock for an equal amount of $1,000 liquidation value, Series B Fixed Rate Cumulative Perpetual Preferred Stock (“Series B Preferred Stock”), under the Community Development Capital Initiative (“CDCI”). Neither the Series A nor Series B Preferred Stock has any mandatory redemption and/or conversion features.

M&F BANCORP, INC.

Under the CPP terms, the Series A Preferred Stock carried a dividend rate of 5% for the first five years after issuance, payable quarterly, after which the dividend rate increased to 9% until the Series A Preferred Stock is repurchased at its liquidation value. Under the CDCI program, the Series B Preferred Stock carries a dividend rate of 2% for eight years, after which the dividend rate increases to 9% until the Series B Preferred Stock is repurchased at liquidation value. The Company paid the outstanding Series A Preferred Stock dividends up to the date of closing of the CDCI exchange on August 20, 2010.

3.	Earnings Per Share

Basic earnings per share (“EPS”) computations are based upon the weighted average number of shares outstanding during the reporting periods. Diluted EPS computations are based upon the weighted average number of shares outstanding during each reporting period plus the dilutive effect of outstanding stock options. The Company had no options outstanding as of September 30, 2010 and 25,200 options outstanding as of September 30, 2009 all of which were anti-dilutive for the three and nine months ended September 30, 2009. The options and the option plan expired on December 31, 2009.

Loans

Loans are made primarily to customers in the Company’s market areas within North Carolina which include Raleigh, Durham, Charlotte, Winston-Salem, and Greensboro. The Company’s loans, classified by type were as follows:

(Dollars in thousands)	September 30, 2010					December 31, 2009
(Unaudited)	Amount		% of Total			Amount		% of Total
Commercial	$	9,226		4.49	%	$	8,605		4.10	%
Real estate construction		11,317		5.50			16,987		8.08
Consumer		5,312		2.58			5,891		2.80
Commercial real estate		139,860		67.98			135,249		64.37
Consumer real estate		39,583		19.24			42,706		20.33
Other		444		0.21			673		0.32
	$	205,742		100.00	%	$	210,111		100.00	%

M&F BANCORP, INC.

Nonperforming assets were as follows:

(Dollars in thousands)
(Unaudited)	September 30, 2010			December 31, 2009
Loans contractually past due 90 days or more and/or on nonaccrual status
Commercial	$	1,239		$	1,263
Real estate construction		650			681
Commercial real estate		6,930			4,703
Consumer real estate		2,139			2,352
Total nonaccrual loans		10,958			8,999
Foreclosed properties		1,706			2,176
Total nonperforming assets	$	12,664		$	11,175

Nonperforming assets to:
Loans outstanding at end of quarter		6.16	%		5.32	%
Total assets at end of quarter		4.15			4.07
Allowance for loan losses as a percent of nonperforming assets		30.25			31.89

5.	Allowances for Loan Losses

Allowances for loan losses consisted of the following:

(Dollars in thousands)	September 30, 2010							December 31, 2009
(Unaudited)	Loan Balance		Allowance		% of Total Loans			Loan Balance		Allowance		% of Total Loans
Commercial	$	9,226	$	516		0.24	%	$	8,605	$	515		0.26	%
Real estate construction		11,317		135		0.07			16,987		176		0.08
Consumer		5,312		157		0.08			5,891		122		0.06
Commercial real estate		139,860		2,081		1.01			135,249		2,238		1.07
Consumer real estate		39,583		902		0.44			42,706		485		0.23
Other		444		40		-			673		28		-
	$	205,742	$	3,831		1.84	%	$	210,111	$	3,564		1.70	%

M&F BANCORP, INC.

The activity in the allowance for the nine months ended September 30, 2010 and 2009 is as follows:

	As of and for the
(Dollars in thousands)	Nine Months Ended September 30
(Unaudited)	2010		2009

Average amount of loans outstanding, net of unearned income/expense	$	207,084	$	212,778
Amount of loans outstanding at quarter end, net of unearned income		205,742		212,724
Allowance for loan losses:
Balance at beginning of year		3,564		2,962
Loans charged-off:
Commercial		13		3
Consumer		17		55
Commercial real estate		34		165
Consumer real estate		99		12
Total charge-offs		163		235
Recoveries of loans previously charged off:
Commercial		-		18
Consumer		5		14
Commercial real estate		3		-
Consumer real estate		19		7
Total recoveries		27		39
Net loans charged off		136		196
Bounce protection charge-offs (net)		21		30
Provision for loan losses		424		804
Balance at end of period	$	3,831	$	3,540

The loans classified as impaired and Troubled Debt Restructuring (“TDRs”) with the respective allowance are shown in the table below:

(Dollars in thousands)	Impaired and TDR Loans							Impaired and TDR Loans
(Unaudited)	As of September 30, 2010							As of December 31, 2009
	Amount		Allowance		Coverage			Amount		Allowance		Coverage
Impaired loans:
Commercial	$	104	$	53		50.96	%	$	-	$	-		-	%
Commercial real estate		4,836		94		1.94			1,607		35		2.18
Consumer real estate		37		-		-			1,605		-		-
Total	$	4,977	$	147		2.95	%	$	3,212	$	35		1.09	%
TDRs:
Commercial	$	1,239	$	-		-	%	$	1,263	$	-		-	%
Construction		650		-		-			-		-
Commercial real estate		4,952		9		0.18			5,488		203		3.70
Consumer real estate		133		7		5.26			227		-		-

Total	$	6,974	$	16		0.23	%	$	6,978	$	203		2.91	%

M&F BANCORP, INC.

Certain loans in the above table are not included in Note 4, the non-performing assets table, because they are paying as agreed and were not in non-accrual status as of September 30, 2010 and December 31, 2009.

Dividends

During the three months ended March 31, 2010, the Board declared common stock dividends of $0.0175 per share. No common stock dividend was declared during the quarters ended June 30, 2010 or September 30, 2010. The Company declared and paid to the Department of the Treasury (“Treasury”) all TARP dividends on the Series A Preferred Stock issued at the annualized rate of 5% through August 20, 2010 and Series B Preferred Stock issued at the annualized rate of 2% from August 21, 2010 through September 30, 2010.

7.	Benefit Plans

The Company sponsors a non-contributory qualified defined benefit retirement (pension) plan (the “Cash Balance Plan”) for substantially all full-time employees. The Company also sponsors a non-qualified, unfunded supplemental executive retirement plan (the “SERP Plan”) that provides benefits to certain current and former executives. The Company made $0.3 million and $0.4 million in contributions to the Cash Balance Plan during the three and nine months ended September 30, 2010, respectively.

The Company provides post-retirement benefits to certain former executive officers. As of September 30, 2010 and December 31, 2009, the amount of this liability was $0.2 million, and is reflected in Other Liabilities.

The components of the net periodic benefit cost reflected in salaries and employee benefits expense for the three months ended September 30, 2010 and 2009 were as follows:

(Dollars in thousands)	Cash Balance Plan						SERP				Total
(Unaudited)	2010			2009			2010		2009		2010			2009
Service cost	$	33		$	28		$	-	$	-	$	33		$	28
Interest cost		63			63			28		28		91			91
Expected return on plan assets		(53	)		(50	)		-		-		(53	)		(50	)
Amortization of prior service costs		-			-			1		1		1			1
Amortization of net loss		38			45			-		-		38			45
Net periodic cost	$	81		$	86		$	29	$	29	$	110		$	115

The components of the net periodic benefit cost reflected in salaries and employee benefits expense for the nine months ended September 30, 2010 and 2009 were as follows:

(Dollars in thousands)	Cash Balance Plan						SERP				Total
(Unaudited)	2010			2009			2010		2009		2010			2009
Service cost	$	100		$	85		$	-	$	-	$	100		$	85
Interest cost		190			190			83		85		273			275
Expected return on plan assets		(159	)		(151	)		-		-		(159	)		(151	)
Amortization of prior service costs		1			-			3		3		4			3
Amortization of net loss		114			136			-		-		114			136
Net periodic cost	$	246		$	260		$	86	$	88	$	332		$	348

M&F BANCORP, INC.

8.	Comprehensive Income

Comprehensive income includes net income and all other changes to the Company’s equity, with the exception of transactions with stockholders. The Company’s other comprehensive income and accumulated other comprehensive income are comprised of unrealized gains and losses on certain investments in debt securities and pension adjustments.

	For the Nine Months Ended
(Dollars in thousands)	September 30,
(Unaudited)	2010			2009

Net income	$	581		$	724

Items of other comprehensive income, before tax:
Unrealized gains on securities available for sale, net of taxes		158			700
Reclassification adjustments for gains
included in income before income tax expense		(26	)		(140	)
Other comprehensive income before tax expense		132			560

Less: Changes in deferred income taxes related to change in unrealized
gains on securities available for sale		50			216
Other comprehensive income, net of taxes		82			344

Total comprehensive income	$	663		$	1,068

9.	Fair Value Measurement

The Company follows the required disclosures for the Company’s assets and liabilities that are measured at fair value, and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. This category generally includes securities that are traded on an active exchange, such as the New York Stock Exchange, and U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 2 securities include U. S. Government agency obligations, state and municipal bonds and mortgage-backed securities.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Level 3 generally includes OREO and impaired loans when there is no observable market price or if it is impaired.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. While management believes the Company’s valuation methodologies are appropriate and consistent with other financial institutions, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges, which is a Level 1 input, or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities, which is a Level 2 input.

M&F BANCORP, INC.

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired, and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company classifies the impaired loan as nonrecurring Level 3.

Other real estate owned is reported at fair value less anticipated costs to sell. Fair value is based on third party or internally developed appraisals which, considering the assumptions in the valuation, are considered Level 3 inputs.

September 30, 2010 assets measured at fair value on a recurring and non-recurring basis, segregated by fair value hierarchy level, are summarized below:

(Dollars in thousands)				Quoted Prices in		Significant Other		Significant
(Unaudited)				Active Markets for		Observable		Unobservable
				Identical Assets		Inputs		Inputs
Description		September 30, 2010		(Level 1)		(Level 2)		(Level 3)
Recurring:
Government sponsored MBS
	Residential	$	13,242	$ -		$	13,242	$	-
Non-Government sponsored MBS
	Residential		231	-			231		-
Municipal securities
	North Carolina		3,311	-			3,311		-
	Out of state		3,683	-			3,683		-
									-
Nonrecurring:
Other real estate owned			1,706		-		-		1,706
Impaired and TDR loans			11,788		-		-		11,788

	Total	$	33,961	$	-	$	20,467	$	13,494

M&F BANCORP, INC.

December 31, 2009 assets measured at fair value on a recurring and non-recurring basis, segregated by fair value hierarchy level, are summarized below:

(Dollars in thousands)				Quoted Prices in		Significant Other		Significant
(Unaudited)				Active Markets for		Observable		Unobservable
				Identical Assets		Inputs		Inputs
Description		December 31, 2009		(Level 1)		(Level 2)		(Level 3)
Recurring:
Government sponsored MBS
	Residential	$	9,244	$ -		$	9,244	$	-
Non-Government sponsored MBS
	Residential		307	-			307		-
Municipal securities
	North Carolina		4,517	-			4,517		-
	Out of state		3,631	-			3,631		-
	Other invested assets		1,061	-			1,061		-
Nonrecurring:
Other real estate owned			2,176		-		-		2,176
Impaired and TDR loans			8,999		-		-		8,999

	Total	$	29,935	$	-	$	18,760	$	11,175

The “Financial Instruments” topic of the ASC requires the disclosure of the estimated fair value of certain financial instruments. These estimated fair values as of September 30, 2010, have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could have a material effect on these estimates of fair value.

Cash and Cash Equivalents: The carrying amount of cash and cash equivalents approximates fair value.

Loans (other than impaired loans): Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, residential mortgage, and other consumer. Each loan category is further segmented into groups by fixed and adjustable rate interest terms and by performing and non-performing categories.

The fair value of performing loans is typically calculated by discounting scheduled cash flows through their estimated maturity, using estimated market discount rates that reflect the credit and interest rate risk inherent in each group of loans. The estimate of maturity is based on contractual maturities for loans within each group, or on the Company’s historical experience with repayments for each loan classification, modified as required by an estimate of the effect of current economic conditions.

For all loans, assumptions regarding the characteristics and segregation of loans, maturities, credit risk, cash flows, and discount rates are judgmentally determined using specific borrower and other available information.

Accrued Interest Receivable and Payable: The fair value of interest receivable and payable is estimated to approximate the carrying amounts due to the relatively short term of these instruments.

Deposits: The fair value of deposits with no stated maturity, such as demand deposits, checking accounts, savings and money market accounts, is equal to the carrying amount. The fair value of time deposits is based on the discounted value of contractual cash flows, where the discount rate is estimated using the market rates currently offered for deposits of similar remaining maturities.

Borrowings: The fair value of borrowings is based on the discounted value of estimated cash flows. The discounted rate is estimated using market rates currently offered for similar advances or borrowings.

Off-Balance Sheet Instruments: Since the majority of the Company’s off-balance sheet instruments consist of non-fee-producing, variable rate commitments, the Company has determined they do not have a distinguishable fair value.

M&F BANCORP, INC.

As of September 30, 2010 and December 31, 2009, the carrying amounts and associated estimated fair value of financial assets and liabilities of the Company are as follows:

(Dollars in thousands)	September 30, 2010				December 31, 2009
(Unaudited)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	$	63,686	$	63,686	$	30,313	$	30,313
Marketable securities		20,467		20,467		17,699		17,699
Other invested assets		985		985		1,061		1,061
Loans, net of allowances for loan losses		201,911		208,166		206,547		212,158
Accrued interest receivable		704		704		935		935

Liabilities:
Deposits	$	262,320	$	264,940	$	224,807	$	228,506
Other borrowings		751		649		7,766		6,951
Accrued interest payable		306		306		188		188

10.	Restricted Investment in FHLB Stock

Restricted stock, which represents a required investment in the common stock of a correspondent bank, is carried at cost and, as of September 30, 2010 and December 31, 2009, consisted of the common stock of the Federal Home Loan Bank (“FHLB”) of Atlanta.

Management evaluates the restricted stock for impairment in accordance with authoritative accounting guidance under ASC Topic 320, “Investment - Debt and Equity Securities.” Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value. The determination of whether a decline affects the ultimate recoverability of the cost of an investment is influenced by criteria such as (1) the significance of the decline in net assets of the issuing bank as compared to the capital stock amount for that bank and the length of time this situation has persisted, (2) commitments by the issuing bank to make payments required by law or regulation and the level of such payments in relation to the operating performance of that bank, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the issuing bank.

The FHLB of Atlanta announced that it would no longer provide dividend guidance prior to the end of each quarter. The FHLB of Atlanta also announced that it will no longer conduct repurchases of excess activity-based stock on a daily basis, but will make such determinations quarterly. The FHLB of Atlanta has announced $300 million repurchases of excess activity-based stock for each of the first two quarter of 2010, distributed pro rata to the banks with excess stock, as well as small dividends for each of the first two quarters of 2010. Management determined that the FHLB Stock carrying value is not impaired.

11.	Investments

Investment securities represent the second largest component of earning assets. The Company’s securities portfolio consists primarily of the following debt securities:

·	Government sponsored residential mortgage-backed securities (“MBS”)

·	Non-government sponsored residential MBS

·	Municipal securities

·	North Carolina

·	Out of state

All of the securities are classified as available for sale. The available for sale classification allows flexibility in the management of interest rate risk, liquidity, and loan portfolio growth. Securities available for sale are reported at fair value with unrealized gains and losses (net of tax) excluded from operations and reported in other comprehensive income. Interest income includes amortization of purchase premium and accretion of purchase discount. The amortization of premiums and accretion of discounts is determined by using the level yield method. Securities are not acquired for purposes of engaging in trading activities. Realized gains and losses from sales of securities are determined using the specific identification method.

M&F BANCORP, INC.

The Company regularly reviews declines in the fair value of securities below their costs for purposes of determining whether such declines are other-than-temporary in nature. In estimating other-than-temporary losses, management considers adverse changes in expected cash flows, the length of time and extent that fair value has been less than cost, the financial condition and near term prospects of the issuer, and whether it is more likely than not that the Company would be required to sell the investments prior to maturity or recovery of cost. If the Company determines that a decline in the fair value of a security below cost is other-than-temporary, the carrying amount of the security is reduced by any portion of the decline deemed to be credit related, with the corresponding decline charged to earnings. The carrying amount of the security is also reduced by any additional impairment deemed to be non-credit related, with the corresponding decline charged to other comprehensive income. Management decided that there is no impairment in the portfolio for September 30, 2010. Securities available for sale are carried at their fair value, and the mark-to-market adjustments were $0.7 million and $0.5 million unrealized gains as of September 30, 2010 and December 31, 2009, respectively. After considering applicable tax expense, the cumulative mark-to-market adjustment increased stockholders’ equity by $0.4 million and $0.3 million for September 30, 2010 and December 31, 2009, respectively. Future fluctuations in stockholders’ equity will occur due to changes in the fair values of available for sale securities.

On September 30, 2010 and December 31, 2009, the recorded value of investments totaled $20.5 million and $17.7 million, respectively. The interest rates available for reinvesting maturing securities, and changes in the interest rate yield curve were some of the factors that resulted in $2.7 million in principal collections and $2.0 million in calls. To offset the decline in the AFS security portfolio, the Company acquired 6 securities totaling $6.2 million during the quarter ended September 30, 2010.

The following table reflects the fair value of the Company’s investment securities at the dates indicated.

(Dollars in thousands)	September 30, 2010		December 31, 2009
(Unaudited)	Fair Value		Fair Value
Government sponsored MBS
Residential	$	13,242	$	9,244
Non-Government sponsored MBS
Residential		231		307
Municipal securities
North Carolina		3,311		4,517
Out of state		3,683		3,631
	$	20,467	$	17,699

The following table reflects the debt securities by contractual maturities as of September 30, 2010. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay mortgage-backed securities and collateralized mortgage obligations with or without call or prepayment penalties.

(Dollars in thousands)	As of September 30, 2010
(Unaudited)	Fair Value		Amortized Cost
Government sponsored MBS
Residential
Due after one year through five years	$	10	$	9
Due after five years through ten years		521		491
Due after ten years		12,711		12,347
Total government sponsored MBS	$	13,242	$	12,847
Non-government sponsored MBS
Residential
Due after ten years	$	231	$	224
Municipal bonds
North Carolina
Due within one year	$	511	$	497
Due after one year through five years		1,007		938
Due after five years through ten years		1,793		1,730
Total North Carolina municipal bonds	$	3,311	$	3,165
Out of state
Due within one year	$	256	$	255
Due after one year through five years		1,964		1,905
Due after five years through ten years		1,463		1,405
Total out of state municipal bonds	$	3,683	$	3,565

M&F BANCORP, INC.

The amortized cost, gross unrealized gains and losses and fair values of investment securities at September 30, 2010 and December 31, 2009 were as follows:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Unaudited)
September 30, 2010
Government sponsored MBS
Residential	$	12,847	$	408	$	(13	)	$	13,242
Non-Government sponsored MBS
Residential		224		7		-			231
Municipal securities
North Carolina		3,165		146		-			3,311
Out of state		3,565		118		-			3,683
Total at September 30, 2010	$	19,801	$	679	$	(13	)	$	20,467

December 31, 2009
Government sponsored MBS
Residential	$	8,887	$	357	$	-		$	9,244
Non-Government sponsored MBS
Residential		310		-		(3	)		307
Municipal securities
North Carolina		4,402		115		-			4,517
Out of state		3,566		71		(6	)		3,631
Total at December 31, 2009	$	17,165	$	543	$	(9	)	$	17,699

As of September 30, 2010 and December 31, 2009, the fair value of securities with gross unrealized losses by length of time that the individual securities have been in an unrealized loss position were as follows:

	Fair Value					Fair Value					Fair Value
	Gain		(Loss)			Gain		(Loss)			Gain		(Loss)
(Dollars in thousands)	Less Than 12 Months					12 Months or Greater					Total
(Unaudited)	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
September 30, 2010
Government sponsored MBS
Residential	$	3,096	$	(13	)	$	-	$	-		$	3,096		(13	)
Total at September 30, 2010	$	3,096	$	(13	)	$	-	$	-		$	3,096	$	(13	)

December 31, 2009
Government sponsored MBS
Residential	$	-	$	-		$	11	$	-		$	11	$	-
Non-Government sponsored MBS
Residential		-		-			307		(3	)		307		(3	)
Municipal securities
Out of state		244		(6	)							244		(6	)
Total at December 31, 2009	$	244	$	(6	)	$	318	$	(3	)	$	562	$	(9	)

M&F BANCORP, INC.

12.	Commitments and Contingent Liabilities

Commitments to Extend Credit

In the normal course of business, the Company has various commitments to extend credit, which are not reflected in the Consolidated Financial Statements. As of September 30, 2010 and December 31, 2009, the Company had outstanding loan commitments (including available lines of credit) of approximately $15.9 million and $24.7 million, respectively. Commitments under standby letters of credit and financial guarantees amounted to approximately $0.2 million as of September 30, 2010 and December 31, 2009. These lines of credit, standby letters of credit, and financial guarantees represent agreements whereby the Company commits to lend funds to customers up to a predetermined maximum amount during a certain period.

The Company approves lines of credit to consumer customers through home equity and consumer overdraft protection loans, all of which are included in the above commitments to extend credit. As of September 30, 2010 and December 31, 2009, in addition to actual advances made on such loans, the Company’s consumer customers have available additional lines of credit on home equity and consumer overdraft protection loans. Available amounts on home equity lines as of September 30, 2010 and December 31, 2009 were approximately $1.5 million and $2.5 million, respectively. In addition, the available amounts on consumer overdraft protection loans were $1.0 million as of September 30, 2010 and December 31, 2009.

No significant losses are anticipated as a result of these commitments.

During the normal course of business the Company may experience litigation. Based upon known facts and circumstances, management has determined that there are no likely material unfavorable outcomes from litigations as of September 30, 2010.

Fed Funds Line

As of September 30, 2010, the Company has available for use Federal Funds Lines (“Fed Funds Lines”) aggregating $12.0 million from three correspondent banks. The Fed Funds Lines are renewed annually. Interest rates are stated as variable on a daily basis. The Company did not have any outstanding balances as of September 30, 2010. Periodically the Company tests its Fed Funds Lines. During the quarter ended September 30, 2010 the Company withdrew on all three Fed Funds Lines and paid them down the subsequent day.

As of September 30, 2010, the Company had additional borrowing capacity at the FHLB of $11.6 million.

Letters of Credit

In October 2008, the Company secured a $2.0 million letter of credit with FHLB to use as collateral for public deposits. The letter of credit is secured by the Company’s collateral with FHLB and is renewable annually.

13.	Borrowings

The September 30, 2010 and December 31, 2009 borrowings, and accompanying maturities and interest rates were:

(Dollars in thousands)	September 30, 2010
(Unaudited)	Amount		Maturity Date		Rate
Fixed Rate Note	$	751		2020		0.50	%



	December 31, 2009
	Amount		Maturity Date		Rate
Daily Rate Credit (1)	$	2,000		2010		0.36	%
Fixed Rate Note (2)		5,000		2013		0.32
Fixed Rate Note		766		2020		0.50
	$	7,766
(1) Variable rate
(2) In January 2010, the Company took advantage of an opportunity to repay the $5 million Fixed Rate Note referenced in the above table, with no prepayment penalty, and the Company repaid the Daily Rate Credit balance in full.

M&F BANCORP, INC.

14.	Subsequent Events

The Company evaluated subsequent events through the date of issuance of the financial statements and determined there are no further adjustments or disclosures required.

M&F BANCORP, INC.

Item 2 - Management’s Discussion and Analysis

Overview

Management’s Discussion and Analysis is provided to assist readers in understanding and evaluating the results of operations and financial condition of M&F Bancorp, Inc. (the “Company”) and its wholly-owned bank subsidiary, Mechanics and Farmers Bank (the “Bank”). The following discussion is intended to provide a general overview of the Company’s performance for the three and nine months ended September 30, 2010, compared with the same period in 2009. Readers seeking a more in-depth discussion are invited to read the more detailed discussions below, as well as the Consolidated Financial Statements and related notes included under Item 1 of this Quarterly Report on Form 10-Q. All information presented is consolidated data unless otherwise specified.

Financial Highlights for the Three Month Period Ended September 30, 2010

Net income from operations decreased by $0.2 million for the quarter ended September 30, 2010 to $0.1 million from $0.3 million from the same period in 2009. Compared with the quarter ended September 30, 2009, net interest income for the quarter ended September 30, 2010 declined 3.75% and the net interest margin for the quarter ended September 30, 2010 decreased 73 basis points (“bp”). The provision for loan losses decreased $0.5 million, in the quarter ended September 30, 2010 over the quarter ended September 30, 2009, in part due to the $5.7 million decrease in average loans outstanding. Non-interest income decreased 10.07% from the quarter ended September 30, 2009. Non-interest expense increased 24.42%, and income tax expense decreased 82.40% in the quarter ended September 30, 2010 compared to the quarter ended September 30, 2009, due to the large decrease in Income before tax.

Financial Highlights for the Nine Month Period Ended September 30, 2010

Net income from operations decreased by $0.1 million for the nine months ended September 30, 2010 to $0.6 million from $0.7 million from the same period in 2009. Compared with the nine months ended September 30, 2009, net interest income for the nine months ended September 30, 2010 increased 0.26% and the net interest margin for the nine months ended September 30, 2010 decreased 59 bp. The provision for loan losses decreased $0.4 million, in the nine months ended September 30, 2010 over the nine months ended September 30, 2009, in part due to the $4.2 million decrease in average loans outstanding. Non-interest income decreased 1.81%, compared to the nine months ended September 30, 2009. Non-interest expense increased 7.15%, and income tax expense decreased 34.73% in the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009, due to the large decrease in Income before tax.

M&F BANCORP, INC.

Selected Financial Data:

(Dollars in thousands)	As of September 30,
(Unaudited)	2010			2009
Selected Balance Sheet Data
Cash and due from banks	$	63,686		$	19,476
Securities		20,467			20,068
Gross loans		205,742			208,114
Allowance for loan losses		(3,831	)		(3,540	)
Total Assets		305,251			263,474
Deposits		262,320			215,289
Borrowings		751			5,874
Stockholders' equity		36,769			36,796

(Dollars in thousands)	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
(Unaudited)	2010			2009			2010			2009
Summary of Operations
Interest income	$	3,316		$	3,579		$	10,013		$	10,728
Interest expense		517			671			1,587			2,324
Net interest income		2,799			2,908			8,426			8,404
Provision for loan losses		156			623			424			804
Net interest income after provision for loan losses		2,643			2,285			8,002			7,600
Other operating income		527			586			1,677			1,708
Other operating expense		3,058			2,458			8,942			8,345
Pre-tax net income		112			413			737			963
Income tax expense		22			125			156			239
Preferred dividends		(122	)		(150	)		(417	)		(156	)
Net (loss) income (1)	$	(32	)	$	138		$	164		$	568


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
		2010			2009			2010			2009
Per Share Data (1)
Net (loss) income-basic and diluted	$	(0.02	)	$	0.07		$	0.08		$	0.28
Common stock dividends		-			0.0250			0.0175			0.0750
Book value per share of common stock (2)		12.32			12.34			12.32			12.34
Average common shares outstanding		2,031,337			2,031,337			2,031,337			2,031,337

Selected Ratios (1)
(Loss) return on average assets		(0.04	) %		0.21	%		0.22	%		0.87	%
(Loss) return on average stockholders' equity		(0.35	)		1.50			1.76			8.01

Dividend payout ratio	$	-		$	0.36		$	0.22		$	0.27
Average stockholders' equity to average total assets		0.13			0.14			0.13			0.11
Net interest margin (3)		4.08	%		4.81	%		4.10	%		4.69	%

(1) available to common stockholders
(2) stockholders equity reduced for liquidation value of preferred stock
(3) on a tax equivalent basis

M&F BANCORP, INC.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent expectations and beliefs of M&F Bancorp, Inc. (hereinafter referred to as the “Company”) including but not limited to the Company’s operations, performance, financial condition, growth or strategies. These forward-looking statements are identified by words such as “expects”, “anticipates”, “should”, “estimates”, “believes” and variations of these words and other similar statements. For this purpose, any statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Readers should not place undue reliance on forward-looking statements as a number of important factors could cause actual results to differ materially from those in the forward-looking statements. These forward-looking statements involve estimates, assumptions, risks and uncertainties that could cause actual results to differ materially from current projections depending on a variety of important factors, including without limitation:

•		We are likely to be impacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), which became law on July 21, 2010. Much of the Act will require the adoption of regulations by a number of different regulatory bodies, the precise nature, extent and timing of many of these reforms and the impact on us is still uncertain;
•		The Bank’s failure to satisfy the requirements of the Memorandum of Understanding with the Commissioner of Banking of North Carolina and the Regional Director of the Federal Deposit Insurance Corporation’s (“FDIC”) Atlanta Regional Office (the “Bank MOU”);
•		The Company’s failure to satisfy the requirements of the Memorandum of Understanding (“The Company MOU”) with the Federal Reserve Bank of Richmond (“FRB”);
•		The effect of the requirements in the Bank MOU, the Company MOU, and any further regulatory actions;
•		Regulatory limitations or prohibitions with respect to the operations or activities of the Company and/or the Bank;
•		Revenues are lower than expected;
•		Credit quality deterioration which could cause an increase in the provision for credit losses;
•		Competitive pressure among depository institutions increases significantly;
•		Changes in consumer spending, borrowings and savings habits;
•		Our ability to successfully integrate acquired entities or to achieve expected synergies and operating efficiencies within expected time-frames or at all;
•		Technological changes and security and operations risks associated with the use of technology;
•		The cost of additional capital is more than expected;
•		A change in the interest rate environment reduces interest margins;
•		Asset/liability repricing risks, ineffective hedging and liquidity risks;
•		Counterparty risk;
•		General economic conditions, particularly those affecting real estate values, either nationally or in the market area in which we do or anticipate doing business, are less favorable than expected;
•		The effects of the FDIC deposit insurance premiums and assessments;
•		The effects of and changes in monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board;
•		Volatility in the credit or equity markets and its effect on the general economy;
•		Demand for the products or services of the Company and the Bank, as well as their ability to attract and retain qualified people;
•		The costs and effects of legal, accounting and regulatory developments and compliance; and
•		Regulatory approvals for acquisitions cannot be obtained on the terms expected or on the anticipated schedule.

The Company cautions that the foregoing list of important factors is not exhaustive. See also “Risk Factors” which begins on page 11 of the Company’s Annual Report on Form 10-K for the period ended December 31, 2009. The Company undertakes no obligation to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company. For more information on the Company’s critical accounting policies, refer to Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

M&F BANCORP, INC.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The following discussion and analysis of the Company’s financial condition and results of operations are based on the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments regarding uncertainties that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for loan losses, investment and intangible asset values, income taxes, and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. However, because future events and their effects cannot be determined with certainty, actual results may differ from these estimates under different assumptions or conditions, and the Company may be exposed to gains or losses that could be material.

Management believes that the following accounting policies are the most critical to aid in fully understanding and evaluating the Company’s reported financial results, and they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Board of Directors.

Loans — Loans are reported at their outstanding principal balance, net of the allowance for loan losses, and deferred loan origination fees and costs. Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the related loan or commitment as an adjustment to yield, or taken directly into income when the related loan is sold or commitment expires.

Allowance for Loan Losses – The Company maintains an allowance for loan losses to absorb probable losses inherent in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Company’s methodology for assessing the appropriateness of the allowance consists of a specific component for identified problem loans, and a formula component which addresses historical loan loss experience together with other relevant risk factors affecting the portfolio.

The specific component incorporates the results of measuring impaired loans as required by the “Receivables” topic of the FASB Accounting Standards Codification (“ASC”). These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans. A loan is recognized as impaired when it is probable that principal and/or interest are not collectible in accordance with the loan’s contractual terms. A loan is not deemed to be impaired if the Company expects to collect all amounts due, including interest accrued, at the contractual rate during the period of delay. Measurement of impairment can be based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change. If the fair value of the impaired loan is less than the related recorded amount, a specific valuation component is established within the allowance for loan losses or a write-down is charged against the allowance for loan losses if the impairment is considered to be permanent. Measurement of impairment does not apply to large groups of smaller balance homogenous loans, that are collectively evaluated for impairment such as the Company’s portfolios of home equity loans, real estate mortgages, installment and other loans, unless specifically identified as impaired and the estimated value of the underlying collateral does not support the full balance. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments at the time of their examinations.

The formula component is calculated by first applying historical loss experience factors to outstanding loans by type. This component is then adjusted to reflect additional risk factors not addressed by historical loss experience. These factors include the evaluation of then-existing economic and business conditions affecting the key lending areas of the Company and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio. Senior management reviews these conditions quarterly. Management’s evaluation of the loss related to each of these conditions is quantified and reflected in the formula component. The evaluations of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty due to the subjective nature of such evaluations and because they are not identified with specific problem credits.

Actual losses can vary significantly from the estimated amounts. The Company’s methodology permits adjustments to the allowance in the event that, in management’s judgment, significant factors which affect the collectability of the loan portfolio as of the evaluation date have changed.

M&F BANCORP, INC.

Management believes the allowance for loan losses is the best estimate of inherent losses which have been incurred as of September 30, 2010. There is no assurance that the Company will not be required to make future adjustments to the allowance in response to changing economic conditions, particularly in the Company’s service area, since the majority of the Company’s loans are collateralized by real estate.

Loan Restructurings — Loan restructurings (“TDRs”) are renegotiated loans for which concessions have been granted to the borrower that the Company would not have otherwise granted. Restructured loans are returned to accrual status when said loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms, or by the presence of other significant factors.

Investments – The Company records an investment impairment charge when it believes an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions and associated market values of investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.

Other Real Estate Owned (“OREO”) — Real estate properties acquired through loan foreclosure are recorded at estimated fair value, net of estimated selling costs, at time of foreclosure, establishing a new cost basis. Credit losses arising at the time of foreclosure are charged against the allowance for loan losses. Subsequent valuations are periodically performed by management and the carrying value is adjusted by a charge to expense to reflect any subsequent declines in the estimated fair value. Routine holding costs are charged to expense as incurred.

Income Taxes — Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the change is enacted.

Executive Overview

The Company generated the majority of its interest and non-interest income in the first nine months of 2010 and 2009 from traditional lending and deposit banking services. The Company continued to execute management’s strategy of targeting commercial business, diversifying the customer base, and pursuing strategic relationships for deposits.

Regulatory Agreements

The Bank and the directors of the Bank entered into the Bank MOU, which became effective April 30, 2010, upon the execution thereof by the Commissioner of Banking of North Carolina and the Regional Director of the FDIC’s Atlanta Regional Office, the supervisory authorities. The Bank MOU requires the Bank to:

Reduce the balance of adversely classified assets, and develop specific plans and proposals for the reduction and improvement of assets which are adversely classified, and not extend further credit to borrowers whose loans are adversely classified without prior consent of the supervisory authorities;

·	Remain well-capitalized;

·	Maintain adequate liquidity;

·	Not pay dividends to the holding company without prior consent of the supervisory authorities; and

·	Obtain the non-objection of the supervisory authorities before engaging in any transactions that would change the composition of the Bank’s balance sheet by more than 10%.

M&F BANCORP, INC.

Management believes that the Bank has already successfully addressed many of the areas in the Bank MOU, which is characterized by the supervisory authorities as an informal action that is neither published nor made publicly available by the supervisory authorities and is used when circumstances warrant a milder form of action rather than a formal supervisory action. Management is committed to continuing to actively address the items to achieve full compliance and resolution.

On August 11, 2010, the Company’s Board of Directors agreed to enter into the Company MOU with the FRB which resulted from a review of the Bank MOU with the FDIC and North Carolina Commissioner of Banks (“NCCOB”). The Company MOU with the FRB requires the Company to obtain written approval to pay dividends on common or preferred stock and prohibits the Company from receiving dividends from the Bank without prior approval. In addition, the Company may not incur new debt or repurchase shares of common stock without the prior approval of the FRB.

Impact of Recent Developments on the Banking Industry

Congress enacted the Dodd-Frank Act on July 21, 2010. This new law will significantly change the current bank regulatory structure and affect the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Act is a significant piece of legislation that will have major effects on the financial services industry, including the Company, financial condition and operations of banks and bank holding companies. Management is currently evaluating the impact of the Act; however, uncertainty remains as to its operational impact, which could have a material adverse impact on the Company’s business, results of operations and financial condition. Many of the provisions of the Act are aimed at financial institutions that are significantly larger than the Company and the Bank. Notwithstanding this, there are many other provisions that the Company and the Bank are subject to and will have to comply with, including any new rules applicable to the Company and the Bank promulgated by the Bureau of Consumer Financial Protection, a new regulatory body dedicated to consumer protection. As rules and regulations are promulgated by the agencies responsible for implementing and enforcing the Act, the Company and the Bank will have to address each to ensure compliance with applicable provisions of the Act and compliance costs are expected to increase.

The Dodd-Frank Act requires various federal agencies to adopt a broad range of new implementing rules and regulations, and to prepare numerous studies and reports for Congress. The federal agencies are given significant discretion in drafting the implementing rules and regulations, and consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

The Dodd-Frank Act will, among other things, eliminate the Office of Thrift Supervision, tighten capital standards, create a new Consumer Financial Protection Bureau and result in new laws and regulations that are expected to increase our costs of operations. Certain provisions of the Dodd-Frank Act are expected to have a near term impact on the Company.

Effective one year after the date of enactment is a provision of the Dodd-Frank Act that eliminates the federal prohibitions on paying interest on demand deposits, thus allowing businesses to have interest bearing checking accounts. Depending on competitive responses, this significant change to existing law could have an adverse impact on the Company’s interest expense.

The Dodd-Frank Act broadens the base for FDIC insurance assessments. Assessments will now be based on the average consolidated total assets less tangible equity capital of a financial institution. The Dodd-Frank Act also permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per depositor, retroactive to January 1, 2009, and non-interest bearing transaction accounts have unlimited deposit insurance through December 31, 2013.

The Dodd-Frank Act will require publicly traded companies to give stockholders a non-binding vote on executive compensation and so-called “golden parachute” payments, and by authorizing the Securities Exchange Commission (“SEC”) to promulgate rules that would allow stockholders to nominate their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve Board to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded or not.

M&F BANCORP, INC.

The Dodd-Frank Act creates a new Consumer Financial Protection Bureau with broad powers to supervise and enforce consumer protection laws. The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. The Dodd-Frank Act also weakens the federal preemption rules that have been applicable for national banks and federal savings associations, and gives state attorneys general the ability to enforce federal consumer protection laws.

It is difficult to predict at this time what specific impact the Dodd-Frank Act and the yet to be written implementing rules and regulations will have on community banks. However, it is expected that at a minimum they will increase our operating and compliance costs and could increase our interest expense.

The banking industry, including the Company, is operating in a challenging and volatile economic environment. The effects of the downturn in the housing market have adversely impacted credit markets, consumer confidence and the broader economy. Although the Bank remains profitable, it has not been immune from the impact of the current recession or the increased focus of banking regulators upon capital and liquidity levels. A material change in volatile funding, brokered deposits, or the balance sheet composition would require receipt of non-objections from the federal and state regulators. At its annual Strategic Planning session in September 2009, the Board of Directors of the Bank directed management to limit material changes to the balance sheet, and to focus on asset quality, liquidity, and managing the Bank through the challenging economic environment. Subsequently, the Board established higher liquidity targets which Management achieved by December 31, 2009. All of the Bank’s Certificate of Deposit Account Registry Service® (“CDARS”) brokered deposits are reciprocal, relationship-based deposits.

Issuance of Preferred Stock to the United States Treasury (the “Treasury”) under the Capital Purchase Program (“CPP”) and Community Development Capital Initiative (“CDCI”)

In June 2009, the Company entered into a Securities Purchase Agreement with the Treasury pursuant to which, among other things, the Company sold to the Treasury for an aggregate purchase price of $11.7 million, 11,735 shares of Series A Fixed Rate Cumulative Perpetual Preferred Stock ("Series A Preferred Stock"), constituting 5.00% of the Company’s risk-weighted assets. As a condition of the CPP, the Company is prohibited from paying any dividends on its common stock unless all accrued and unpaid dividends are paid on the Series A Preferred Stock for all past dividend periods (including the latest completed dividend period). Except with the Treasury’s prior approval, the Company is generally prohibited from repurchasing its common stock until the earlier of September 2012 or until the Treasury no longer owns any of the Series A Preferred Stock (the “Restriction Period”). In addition, except with the Treasury’s prior approval, during the Restriction Period, the Company is restricted from increasing its quarterly cash dividend on its common stock above the last quarterly dividend ($0.05) declared prior to November 17, 2008.

On August 20, 2010, the Company redeemed and exchanged the Series A Preferred Stock issued with Series B Fixed Rate Cumulative Perpetual Preferred Stock (“Series B Preferred Stock”)through the newly created CDCI program.

CDCI was designed for Community Development Financial Institutions (“CDFI”) and has lowered the TARP dividend rate for CDFI's from 5% for 5 years to 2% for 8 years. The CDCI program is expected to reduce the TARP dividends’ impact on capital by approximately $0.3 million annually. The Company paid the outstanding Series A Preferred Stock dividends up to the date of closing of the CDCI exchange on August 20, 2010.

Financial Condition

Total assets increased 11.25%, or $30.9 million, to $305.3 million as of September 30, 2010 from $274.4 million as of December 31, 2009.

Cash and cash equivalents increased $33.4 million or 110.09%, to $63.7 million as of September 30, 2010, compared to $30.3 million as of December 31, 2009, driven by a $38.5 million increase in CDARS ® deposits.

Investment securities increased $2.8 million from $17.7 million as of December 31, 2009 to $20.5 million as of September 30, 2010. The entire investment portfolio is classified as available-for-sale and is comprised of investment-grade securities. Seven securities with a book value of $7.2 million were purchased and $2.0 million were called during the nine months ended September 30, 2010. Principal payments of $2.7 million were received during the three month period.

Deposits increased 16.69%, or $37.5 million, to $262.3 million as of September 30, 2010 from $224.8 million as of December 31, 2009. The $37.5 million increase was mainly due to a $38.5 million increase in CDARS ® deposits. The Company used $7.0 million of the deposit increase to pay down debt, while decreasing loans outstanding by $4.4 million.

All other assets comprised of interest receivable, bank premises and equipment, bank-owned life insurance, other real estate owned, income taxes, and other miscellaneous assets, decreased by a net of $0.6 million during the nine months ended September 30, 2010. Other real estate owned led the decline with $0.5 million in asset write downs.

M&F BANCORP, INC.

Total stockholders’ equity increased $0.2 million to $36.8 million as of September 30, 2010 from $36.6 million at December 31, 2009. The net income before dividends of $0.6 million was mostly offset by preferred and common stock dividends and a small other comprehensive income for the nine months ended September 30, 2010. The Company declared dividends totaling $0.4 million during the nine months ended September 30, 2010, comprised of a 5.00% preferred stock dividend for the period from January 1, 2010 to August 20, 2010 and a 2.00% preferred stock dividend from August 21, 2010 to September 30, 2010.

Common stock dividends of $0.0175 per share were paid during the first quarter 2010. The Company’s Board of Directors did not declare a common stock dividend during the second or third quarters of 2010, to preserve capital and to ensure that the Company continues to serve as a source of strength for the Bank.

Results of Operations, Three Months Ended September 30, 2010 and 2009

Net income from operations for the three months ended September 30, 2010 decreased $0.2 million to $0.1 million from $0.3 million for the same period in 2009. For the three months ended September 30, 2010 when compared to the same period in 2009, interest income decreased 7.35%, or $0.3 million, and interest expense decreased 22.95%, or $0.2 million, resulting in an overall decline in net interest income of 3.75%.

Interest income on loans decreased $0.2 million, in part due to the $5.7 million decrease in average loans outstanding to $207.1 million from $212.8 million, and a 27 bp decrease in yield to 6.02% from 6.29% for the three months ended September 30, 2010 and 2009, respectively. Interest income on securities decreased $0.1 million, when comparing the three months ended September 30, 2010 with the same period in 2009, primarily due to the average balances of the portfolio decreasing by $3.1 million.

Total interest expense decreased 22.95%, or $0.2 million, for the three months ended September 30, 2010 as compared to the same period in 2009, reflecting a 51 bp decrease from 1.52% to 1.01% in the average cost of interest-bearing deposits. The 91.67% decrease in interest expense on borrowed funds during the three months ended September 30, 2010 from the same period in 2009 was primarily due to a $5.1 million reduction in average balances outstanding for the three months ended September 30, 2010 to $0.8 million. In addition, the average borrowing rate decreased from 82 bp in the quarter ended September 30, 2009 to 52 bp in the quarter ended September 30, 2010.

The Company made a concerted effort to decrease the use of borrowed funds and high yielding deposits while closely managing its liquidity in order to maximize its net interest margin in 2010. This effort has been realized through consistent deposit growth in both core deposits (checking, savings, money markets, smaller balance certificates of deposit) and CDARS® deposits.

During the three months ended September 30, 2010, the Company decreased its expense for loan loss provision $0.5 million from the three months ended September 30, 2009. The provision for loan losses is the result of management’s assessment of the Company’s delinquency ratios, non-performing assets, charge-off history, and composition of loans in the portfolio. Management performs a thorough review of the loan portfolio quarterly, and an outside loan review firm reviews a substantial portion of the loan portfolio semi-annually.

Non-interest income decreased 10.07%, or $0.1 million, in the three months ended September 30, 2010 as compared to the same period in 2009. Decreases in realized gain on securities and service charges were the largest contributors to the decrease in non-interest income. Management is uncertain as to what impact the recent amendment to Regulation E and the recently enacted Dodd-Frank Act will have on non-interest income in the future.

Non-interest expense increased 24.41%, or $0.6 million, in the three months ended September 30, 2010 as compared to the same period in 2009. The following were the biggest contributors to change:

·	OREO expense increased $0.2 million, mainly due to the decrease in collateral value of certain OREO properties

·	Salaries and benefits increased $0.1 million, mainly driven by an increase in part time and full time employees

·	Miscellaneous expenses increased $0.1 million, driven by increases in bank bond insurance, franchise tax, contributions, operational losses, and employee training expenses.

M&F BANCORP, INC.

Average Balances, Interest Earned or Paid, and Interest Yields/Rates
For the Three Months Ended September 30, 2010 and 2009
(Dollars in thousands)	2010									2009
(Unaudited)	Average Balance			Amount Earned/Paid			Average Rate			Average Balance			Amount Earned/Paid			Average Rate
Assets
Loans receivable (1):	$	207,084		$	3,118			6.02	%	$	212,810		$	3,344			6.29	%
Taxable securities		10,778			102			3.79			11,499			133			4.63
Nontaxable securities(2)		6,731			69			6.67			9,131			95			6.95
Federal funds sold and other interest on short-term investments		54,027			27			0.20			13,435			7			0.21
Total interest earning assets		278,620			3,316			4.82	%		246,875			3,579			5.86	%
Cash and due from banks		1,939									1,974
Other assets		18,820									17,928
Allowance for loan losses		(3,826	)								(3,153	)
Total assets	$	295,553								$	263,624

Liabilities and Equity
Savings deposits	$	52,166		$	45			0.35	%	$	47,939		$	50			0.42	%
Interest-bearing demand deposits		26,463			25			0.38			25,943			25			0.39
Time deposits		124,928			446			1.43			99,876			584			2.34
Total interest-bearing deposits		203,557			516			1.01			173,758			659			1.52
Borrowed funds		773			1			0.52			5,885			12			0.82
Total interest-bearing liabilities		204,330			517			1.01	%		179,643			671			1.49	%
Non-interest-bearing deposits		48,697									41,714
Other liabilities		5,579									5,534
Total liabilities		258,606									226,891
Stockholders' equity		36,947									36,733
Total liabilities and stockholders' equity	$	295,553								$	263,624

Net interest income				$	2,799								$	2,908

Non-taxable securities					69									95
Tax equivalent adjustment (3)					43									60

Tax equivalent net interest income				$	2,842								$	2,968
Net interest spread (4)								3.81	%								4.37	%
Net interest margin (5)					4.08	%								4.81	%

(1) Loans receivable include nonaccrual loans for which accrual of interest income has not been recorded.
(2) The tax equivalent rate is computed using a blended federal and state tax rate of 38.55%
(3) The tax equivalent adjustment is computed using a blended tax rate of 38.55%.
(4) Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average interest-earning assets.

M&F BANCORP, INC.

Results of Operations, Nine months ended September 30, 2010 and 2009

Net income from operations for the nine months ended September 30, 2010 decreased $0.1 million to $0.6 million from $0.7 million for the same period in 2009. For the nine months ended September 30, 2010 when compared to the same period in 2009, interest income decreased 6.66%, or $0.7 million, and interest expense decreased 31.71%, or $0.7 million, resulting in an overall increase in net interest income of 0.26%, or $0.02 million.

Interest income on loans decreased $0.5 million, in part due to the $4.2 million decrease in average loans outstanding to $207.1 million from $211.2 million, and a 16 bp decrease in yield to 6.07% from 6.23% for the nine months ended September 30, 2010 and 2009, respectively. Interest income on securities decreased $0.3 million, when comparing the nine months ended September 30, 2010 with the same period in 2009, primarily due to the average balances of the portfolio decreasing by $7.5 million.

Total interest expense decreased 31.71%, or $0.7 million, for the nine months ended September 30, 2010 as compared to the same period in 2009, reflecting a 64 bp decrease from 1.68% to 1.04% in the average cost of interest-bearing deposits. Interest expense on borrowed funds decreased 94.74% during the nine months ended September 30, 2010 from the same period in 2009. The large decline was primarily driven by $6.8 million in lower average balances outstanding from $7.6 million to $0.8 million for the nine months ended September 30, 2009 and 2010, respectively. In addition, the average borrowing rate decreased from 1.00% in the quarter ended September 30, 2009 to 0.52% in the quarter ended September 30, 2010. The Company has made a concerted effort to decrease the use of borrowed funds and high yielding deposits while closely managing its liquidity in order to maximize its net interest margin in 2010.

During the nine months ended September 30, 2010, the Company decreased its expense for loan loss provision $0.4 million from the nine months ended September 30, 2009, primarily due to decreases in loan balances. The provision for loan losses is the result of management’s assessment of the Company’s delinquency ratios, non-performing assets, charge-off history, and composition of loans in the portfolio. Management performs a thorough review of the loan portfolio quarterly, and an outside loan review firm reviews a substantial portion of the loan portfolio semi-annually.

Non-interest income decreased 1.81% in the nine months ended September 30, 2010 as compared to the same period in 2009. The largest contributors to the decrease in non-interest income were decreases in realized gain on securities and service charges, offset by an increase in rental income. Management is uncertain as to what impact the recent amendment to Regulation E and the recently enacted Dodd-Frank Act will have on non-interest income in the future.

Non-interest expense increased 7.15%, or $0.6 million, in the nine months ended September 30, 2010 as compared to the same period in 2009. During the nine month period ended September 30, 2010, the Company maintained fewer employees than the same period in 2009, resulting in a $0.5 million decrease in salary and benefits expense. In the first half of 2009, occupancy and equipment costs decreased $0.1 million in 2010 because during 2009 the Company had two additional branches, one of which was leased. Offsetting these savings were increases in Information technology expenses of $0.1 million, due to higher processing fees, FDIC insurance expense increases of $0.4 million, and OREO expenses increased $0.5 million mainly due to the decrease in collateral value of certain OREO properties. Increases in the provision for off balance sheet items, franchise tax, bank bond and insurance, and contributions all led to the increase of $0.2 million in other expense.

M&F BANCORP, INC.

Average Balances, Interest Earned or Paid, and Interest Yields/Rates
For the Nine Months Ended September 30, 2010 and 2009
(Dollars in thousands)	2010									2009
(Unaudited)	Average Balance			Amount Earned/Paid			Average Rate			Average Balance			Amount Earned/Paid			Average Rate
Assets
Loans receivable (1):	$	207,084		$	9,422			6.07	%	$	211,243		$	9,878			6.23	%
Taxable securities		10,778			308			3.81			14,355			502			4.66
Nontaxable securities(2)		6,731			223			7.19			10,649			330			6.72
Federal funds sold and other interest on short-term investments		54,027			60			0.15			8,485			18			0.28
Total interest earning assets		278,620			10,013			4.86	%		244,732			10,728			5.92	%
Cash and due from banks		1,939									2,116
Other assets		18,931									18,085
Allowance for loan losses		(3,826	)								(3,058	)
Total assets	$	295,664								$	261,875

Liabilities and Equity
Savings deposits	$	52,166		$	128			0.33	%	$	50,130		$	227			0.60	%
Interest-bearing demand deposits		26,463			73			0.37			26,954			120			0.59
Time deposits		124,928			1,383			1.48			102,740			1,920			2.49
Total interest-bearing deposits		203,557			1,584			1.04			179,824			2,267			1.68
Borrowed funds		773			3			0.52			7,617			57			1.00
Total interest-bearing liabilities		204,330			1,587			1.04	%		187,441			2,324			1.65	%
Non-interest-bearing deposits		48,567									40,568
Other liabilities		5,595									5,487
Total liabilities		258,492									233,496
Stockholders' equity		37,171									28,379
Total liabilities and stockholders' equity	$	295,663								$	261,875

Net interest income				$	8,426								$	8,404

Non-taxable securities					223									330
Tax equivalent adjustment (3)					140									207

Tax equivalent net interest income				$	8,566								$	8,611
Net interest spread (4)								3.82	%								4.27	%
Net interest margin (5)					4.10	%								4.69	%

(1) Loans receivable include nonaccrual loans for which accrual of interest income has not been recorded.
(2) The tax equivalent rate is computed using a blended federal and state tax rate of 38.55%
(3) The tax equivalent adjustment is computed using a blended tax rate of 38.55%.
(4) Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average interest-earning assets.

M&F BANCORP, INC.

Loan Portfolio and Adequacy of the Allowances for Loan Losses

Allowance for Loan Losses – The Company maintains an allowance for loan losses which management believes to be adequate to absorb probable losses inherent in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Company’s methodology for assessing the appropriateness of the allowance consists of a specific component for identified problem loans, and a formula component which addresses historical loan loss experience together with other relevant risk factors affecting the portfolio.

The specific component incorporates the results of measuring impaired loans as required by the “Receivables” topic of the ASC. These accounting standards prescribe the measurement methods, income recognition and disclosures related to impaired loans. A loan is recognized as impaired when it is probable that principal and/or interest are not collectible in accordance with the loan’s contractual terms. A loan is not deemed to be impaired if there is a short delay in receipt of payment or if, during a longer period of delay, the Company expects to collect all amounts due including interest accrued at the contractual rate during the period of delay. Measurement of impairment can be based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral, if the loan is collateral dependent. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change. If the fair value of the impaired loan is less than the related recorded amount, a specific valuation component is established within the allowance for loan losses or a write-down is charged against the allowance for loan losses if the impairment is considered to be permanent. Measurement of impairment does not apply to large groups of smaller balance homogenous loans, unless specifically identified as impaired and the estimated value of the underlying collateral does not support the full balance, that are collectively evaluated for impairment such as the Company’s portfolios of home equity loans, real estate mortgages, and installment loans.

The formula component uses the actual net loss/recovery history, by loan type, the Company has incurred for the past eight quarters ended on September 30, 2010 on average loans outstanding over the same period. This component is then adjusted to reflect additional external risk factors not addressed by historical loss experience. These factors include the evaluation of existing economic and business conditions affecting the key lending areas of the Company and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions within portfolio segments that existed as of the balance sheet date and the impact that such conditions were believed to have had on the collectability of the loan portfolio. Senior management reviews these conditions quarterly. Management’s evaluation of the loss related to each of these conditions is quantified and reflected in the formula component. The evaluations of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty due to the subjective nature of such evaluations and because they are not identified with specific problem credits. An additional qualitative factor was included in the allowance calculation for any non-homogenous classified loans that were not paid current (defined as less than 30 days past due) at September 30, 2010, and which had a loan to value of more than 50.00%.

Actual losses may vary significantly from the estimated amounts. The Company’s methodology permits adjustments to the allowance in the event that, in management’s judgment, significant factors which affect the collectability of the loan portfolio as of the evaluation date have changed.

Management believes the allowance for loan losses is the best estimate of probable losses which have been incurred as of September 30, 2010. There is no assurance that the Company will not be required to make future adjustments to the allowance in response to changing economic conditions, particularly in the Company’s service area, since the majority of the Company’s loans are collateralized by real estate. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments at the time of their examinations.

The allowance for loan losses as of September 30, 2010, was $3.8 million or 1.86% of total loans outstanding, compared with 1.70% of total loans outstanding as of December 31, 2009.

As of September 30, 2010, loans totaling $12.0 million were classified as impaired, of which $7.0 million were classified as TDRs. Of the Company’s nonperforming assets, 90.22% are secured by real estate collateral, which management believes mitigates the Company’s exposure to losses as compared to those loans that are unsecured or collateralized with other types of assets. All impaired loans are evaluated individually for inherent losses for which an allowance will be recorded. If collateral and other factors support full repayment, or if a direct write-down of the loan balance has been recorded, the allowance is adjusted accordingly.

M&F BANCORP, INC.

Consumer real estate mortgage loans comprised 19.24% of the total loans outstanding at September 30, 2010. The Company’s history of realized losses in consumer real estate mortgages as compared to the average consumer real estate mortgages outstanding from October 1, 2008 through September 30, 2010 is 36 bp. As of September 30, 2010, 41.07% of the total loans outstanding were to faith-based and non-profit organizations, in which the Company has specialized lending experience. The faith based and non-profit loans are classified as commercial, commercial real estate, and real estate construction. The Company’s history of realized losses during October 1, 2008 through September 30, 2010 is 8 bp when compared to the average loans outstanding in this unique market.

For additional information regarding the allowances for loan losses for the quarter ended September 30, 2010 see Note 4 to the Consolidated Financial Statements.

Nonperforming Assets

The ratio of nonperforming assets to total assets is one indicator of the exposure to credit risk. Nonperforming assets of the Company consist of non-accrual loans 90 days or more past due and foreclosed assets, which have been acquired as a result of foreclosure or deed-in-lieu-of foreclosure. All foreclosed assets are recorded at the estimated realizable value, a Fair Market Value estimate.

Non-accrual loans increased from $9.0 million as of December 31, 2009 to $11.0 million as of September 30, 2010. Management continues to monitor all non-accrual loan relationships to identify any improvements or deterioration in borrowers’ cash flow and to maintain the value of any underlying collateral. In addition, significant loans in non-accrual status or in excess of 90 days delinquent for a period of one year or more are required to have a new appraisal performed to reevaluate the underlying collateral.

Management considers the allowance for loan losses of $3.8 million as of September 30, 2010 to be sufficient to cover the probable loan losses inherent in its loan portfolio.

For additional information regarding nonperforming assets as of September 30, 2010 and 2009, see Note 4 to the Consolidated Financial Statements.

Liquidity and Capital Resources

Liquidity, Interest Rate Sensitivity and Market Risks

The objectives of the Company’s liquidity management policy include providing adequate funds to meet the needs of depositors and borrowers at all times, providing funds to meet the basic needs for on-going operations of the Company, and to meet regulatory requirements. The 30.08% liquidity ratio is the sum of cash, overnight funds, and un-pledged, marketable U.S. Government and agency securities divided by the sum of deposits and short-term borrowings (less the full amount of pledged deposits). Management believes that core deposit activity, $11.6 million in available borrowing capacity from the FHLB of Atlanta at September 30, 2010, and Fed Funds accommodations of $12.0 million will be adequate to meet the short-term and long-term liquidity needs of the Company. The Company had $0.8 million outstanding from the FHLB as of September 30, 2010. The maximum outstanding balance from FHLB at any time during the second quarter of 2010 was $0.8 million. The Company periodically draws on its Fed Funds accommodations to test the lines availability.

The Company participates in the CDARS program, which enables depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount. Through the CDARS program, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. All of the Bank’s CDARS® brokered deposits are reciprocal, relationship-based deposits. There are several large depositors in the CDARs program, and the largest depositor committed to renew $20 million in deposits for another twelve months. In the management’s opinion, the large depositors have stable and long term relationships with the Bank.

M&F BANCORP, INC.

Capital Resources

The Bank is subject to various regulatory capital requirements administered by supervisory authorities. Failure to satisfy minimum capital requirements may result in certain mandatory and additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements. As discussed under the section heading, "Executive Overview - Impact of Recent Developments on the Banking Industry" on page 24 of this Quarterly Report on Form 10-Q, at its annual Strategic Planning session in September 2009, the Board of Directors of the Bank directed management to limit material changes to the balance sheet, and to focus on asset quality, liquidity, and managing the Bank through the challenging economic environment. Subsequently, the Board established higher liquidity targets which Management achieved by December 31, 2009. The Bank is required to obtain the non-objection of the supervisory authorities before engaging in any transactions that would materially change the composition of the Bank’s balance sheet. Also, the MOU requires the Bank to maintain a tier 1 leverage capital ratios of not less than 8.00%, and a total risk based capital ratio of not less than 10.00%.

The September 30, 2010 regulatory capital levels of the Company and Bank compared to the regulatory standards were:

	September 30, 2010
						For Capital
						Adequacy					To Be Well
(Dollars in thousands)	Actual					Purposes					Capitalized
(Unaudited)	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total capital (to risk weighted assets)
The Company	$	36,671		17.82	%	$	16,462		8.00	%	$	20,578		10.00	%
The Bank		33,552		16.35			16,422		8.00			20,527		10.00

Tier 1 (to risk weighted assets)
The Company	$	34,085		16.56	%	$	8,231		4.00	%	$	12,347		6.00	%
The Bank		30,972		15.09			8,211		4.00			12,316		6.00

Tier 1 (to Average total assets)
The Company	$	34,085		11.65	%	$	11,704		4.00	%	$	14,630		5.00	%
The Bank		30,972		10.64			11,643		4.00			14,554		5.00

	December 31, 2009
						For Capital
						Adequacy					To Be Well
(Dollars in thousands)	Actual					Purposes					Capitalized
(Unaudited)	Amount		Ratio			Amount		Ratio			Amount		Ratio

Total capital (to risk weighted assets)
The Company	$	36,871		15.58	%	$	18,934		8.00	%	$	23,667		10.00	%
The Bank		33,257		14.11			18,854		8.00			23,568		10.00

Tier 1 (to risk weighted assets)
The Company	$	33,908		14.33	%	$	9,467		4.00	%	$	14,200		6.00	%
The Bank		30,306		12.86			9,427		4.00			14,141		6.00

Tier 1 (to Average total assets)
The Company	$	33,908		13.00	%	$	10,435		4.00	%	$	13,044		5.00	%
The Bank		30,306		11.30			10,727		4.00			13,409		5.00

M&F BANCORP, INC.

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4T — Controls and Procedures

The Company’s management, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer (its principal executive officer and principal financial officer, respectively), has concluded, based on its evaluation as of the end of the period covered by this report, that the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, (“the Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms.

There were no changes in internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1 - Legal Proceedings

From time to time, the Company becomes involved in legal proceedings occurring in the ordinary course of business. Management believes there currently are no pending or threatened proceedings that are reasonably likely to result in a material effect on the Company’s consolidated financial condition or results of operations

Item 1A - Risk Factors

Not applicable

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

Not applicable.

Item 3 - Defaults Upon Senior Securities

Not applicable.

Item 4 - Removed and Reserved

Item 5 - Other Information

Not applicable

M&F BANCORP, INC.

Item 6 – Exhibits

Exhibit 3(i)(a)		Amended and Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3(i) to the Form 10-QSB for the quarter ended September 30, 1999, filed with the SEC on November 12, 1999.
Exhibit 3(i)(b)		Articles of Amendment, adopted by the Shareholders of the Company on May 3, 2000, filed with the North Carolina Department of the Secretary of State on July 12, 2000, and incorporated by reference to Exhibit 3(v) to the Form 10-KSB for the year ended December 31, 2005, filed with the SEC on March 31, 2006.
Exhibit 3(i)(c)		Articles of Amendment, adopted by the Shareholders of the Company on June 9, 2009, filed with the North Carolina Department of the Secretary of State on June 11, 2009, and incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on June 26, 2009.
Exhibit 3(i)(d) Exhibit 3(i)(e)		Articles of Amendment, adopted by the Board of Directors of the Company on June 10, 2009, filed with the North Carolina Department of the Secretary of State on June 25, 2009, and incorporated by reference to Exhibit 4.2 to the Form 8-K filed with the SEC on June 26, 2009. Articles of Amendment, adopted by the Board of Directors of the Company on July 27, 2010, filed with the North Carolina Department of the Secretary of State on August 20, 2010, and incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on August 23, 2010.

Exhibit 4(i)		Specimen Stock Certificate, incorporated by reference to Exhibit 4 to the Form 10-KSB for the year ended December 31, 2000, filed with the SEC on April 2, 2001.
Exhibit 4(ii) Exhibit 4(iii) Exhibit 10(i)		Form of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, incorporated by reference to Exhibit 4.3 to the Form 8-K filed with the SEC on June 26, 2009. Form of Certificate for the Fixed Rate Cumulative Perpetual Preferred Stock, Series B, incorporated by reference to Exhibit 4.2 to the Form 8-K filed with the SEC on August 23, 2010. Letter Agreement and exhibits, dated August 20, 2010 between the Company and the United States Department of the Treasury, with respect to the issuance and sale of the Fixed Rate Cumulative Perpetual Preferred Stock, Series B, incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on August 23, 2010.
Exhibit 31(i)		Certification of Kim D. Saunders.
Exhibit 31(ii)		Certification of Lyn Hittle.
Exhibit 32		Certification pursuant to 18 U.S.C. Section 1350.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			M&F Bancorp, Inc.
Date:	November 16, 2010	By:	/s/ Kim D. Saunders
			Kim D. Saunders
			President and Chief Executive Officer

Date:	November 16, 2010	By:	/s/ Lyn Hittle
			Lyn Hittle
			Chief Financial Officer

M&F BANCORP, INC.

EXHIBIT INDEX

Exhibit 31(i)		Certification of Kim D. Saunders.
Exhibit 31(ii)		Certification of Lyn Hittle.
Exhibit 32		Certification pursuant to 18 U.S.C. Section 1350.