As a participant in the Capital Purchase Program (the “CPP”) being administered by the United States Department of the Treasury (“Treasury”), First M&F Corporation is adopting this Excessive Expenditures Policy (this “Policy”) pursuant to the requirements of the American Recovery and Reinvestment Act of 2009, as implemented by the Interim Final Rule published June 15, 2009, by Treasury. Once this Policy has been adopted, a copy of this Policy will be provided to Treasury and the Federal Reserve Bank and the text of this Policy will be posted on M&F Bank’s Internet website. Moreover, First M&F Corporation will maintain this Policy during the remainder of its CPP participation, and, in the event the Board of Directors adopts any material amendment to this Policy, within 90 days of such amendment First M&F will provide the amended policy to Treasury and the Federal Reserve and will post the amended policy on the M&F Bank Internet website.

I. INTRODUCTION

It is the overall policy of First M&F Corporation (the Company, including M&F Bank and subsidiaries) to prohibit excessive expenditures on any of the following to the extent such expenditures are not reasonable expenditures for staff development, reasonable performance incentives, or other similar reasonable measures conducted in the normal course of the Company’s business operations:

• Entertainment or events;
• Office and facility renovations;
• Aviation or other transportation services; and
• Other similar items, activities, or events for which First M&F Corporation or M&F Bank may reasonably anticipate incurring expenses, or reimbursing an employee for incurring expenses.

This Policy is not intended to apply to bona fide business development or marketing expenditures, provided that the expenditure in question does not involve the conferring of a significant benefit on any employee or group of employees of First M&F Corporation or M&F Bank.

The following policies and procedures shall govern such expenditures.

II. PROHIBITED EXPENDITURES

The following types or categories of expenditures are prohibited:

• Entertainment, where the expenditure amount exceeds $25,000 per item, activity, or event or per employee receiving the item or participating in the activity or event;
• Events or sponsorship of events, where the expenditure amount exceeds $25,000 per item, activity, or event or per employee receiving the item or participating in the activity or event;
• Office or facility renovations, where the expenditure amount exceeds $5 million per item, activity, or event or per employee receiving the item or participating in the activity or event;
• Aviation services, where the expenditure amount exceeds $25,000 per item, activity, or event or per employee receiving the item or participating in the activity or event;
• Other transportation services, where the expenditure amount exceeds $25,000 per item, activity, or event or per employee receiving the item or participating in the activity or event; and

III. EXPENDITURES REQUIRING PRIOR APPROVAL

The following types or categories of expenditures require prior approval (in accordance with the procedures described in part IV. below):

• Entertainment, where the expenditure amount exceeds $ 10,000 per item, activity, or event or per employee receiving the item or participating in the activity or event;
• Events or sponsorship of events, where the expenditure amount exceeds $10,000 per item, activity, or event or per employee receiving the item or participating in the activity or event;
• Office or facility renovations, where the expenditure amount exceeds $25,000 per item, activity, or event or per employee receiving the item or participating in the activity or event;
• Aviation services, where the expenditure amount exceeds $10,000 per item, activity, or event or per employee receiving the item or participating in the activity or event;
• Other transportation services, where the expenditure amount exceeds $10,000 per item, activity, or event or per employee receiving the item or participating in the activity or event; and

IV. APPROVAL PROCEDURES

The Company’s approval process for most covered expenditures is embedded in the annual budgeting process. Covered expenditures must be approved by the budget committee pursuant to written requests that first have department manager approval. The budget committee will either approve requested expenditures and include in the budget or reject such expenditures and remove from the budget.

For expenditures outside of the normal budget process, or for unforeseen expenditures requiring prior approval, such prior approval may be obtained by submitting a written request to the following person(s):

• Where the amount of the proposed covered expenditure is less than $10,000, or $25,000 in the case of office or facility renovations, the written request must be approved by an appropriate superior designated as a bank officer or holding the office of department manager or higher with the Company.
• Where the amount of the proposed expenditure is greater than or equal to $10,000, or $25,000 in the case of office or facility renovations, but less than the prohibited amount, the written request must be approved by an appropriate superior who is an SEO (which generally includes the CEO, the CFO, and the three most highly compensated executive officers other than the CEO and CFO) or by an executive officer of a substantially similar level of responsibility with the Company.

V. CEO AND CFO CERTIFICATION OF CERTAIN APPROVALS

With respect to each expenditure requiring the prior approval of (i) any SEO (defined as the CEO; the CFO; the three most highly compensated executive officers other than the CEO and CFO who were serving as executive officers at the end of the last completed fiscal year; and up to two additional individuals who would qualify but for the fact that the individual was not serving as an executive officer at the end of the last completed fiscal year), (ii) any executive officer of a substantially similar level of responsibility, or (iii) the Company’s Board of Directors (or a committee of the Board), the CEO and the CFO will both certify in writing that the approval of such expenditure was properly obtained.

VI. PROMPT REPORTING OF, AND ACCOUNTABILITY FOR, VIOLATIONS

If any employee of the Company becomes aware of a violation of this Policy, he or she must promptly report the violation to the Company’s Internal Auditor. Upon receiving such a report, the Internal Auditor must then conduct a discreet investigation, preliminary in nature, of the facts and circumstances giving rise to the allegation. If, after an appropriate investigation, the Internal Auditor concludes there is a substantial likelihood that a violation has occurred, then the Internal Auditor must submit to the Audit Committee of the Board of Directors a written report describing (i) the alleged violation, (ii) the Auditor’s preliminary investigation into the allegation, and (iii) the reasons for the Auditor’s conclusion that there is a substantial likelihood that a violation of this Policy has occurred. Upon receiving this written report, the Audit Committee will conduct a full inquiry into the facts and circumstances giving rise to the allegation.

If, after conducting a full inquiry into the facts and circumstances giving rise to the allegation, the Audit Committee determines that a violation of this Policy has occurred, the offending employee must be appropriately held accountable for the violation, in accordance with existing disciplinary policy.