Quarterly Report (10-q)

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, 2014

Commission file number 000-027307

(Exact name of registrant as specified in charter)

North Carolina

(State or Other Jurisdiction of

Incorporation or Organization)

56-1980549

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

2634 Durham Chapel Hill Blvd.

Durham, North Carolina

(Address of Principal Executive Offices)

27707-2800

(Zip Code)

(919) 687-7800

(Registrant’s Telephone Number, Including Area Code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

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

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting Company ý
		(Do not check here if a smaller reporting Company)

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

Yes ¨ No ý

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 12, 2014, there were 2,031,337 shares outstanding of the issuer's common stock, no par value.

M&F BANCORP, INC. AND SUBSIDIARY

INDEX
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	3

Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2014 and 2013	4

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2014 and 2013	5

Consolidated Statement of Changes in Stockholders’ Equity for the nine months ended September 30, 2014 and 2013	6

Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	7

Notes to Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 4. Controls and Procedures	46

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	47

Item 5. Other Information	47

Item 6. Exhibits	48

SIGNATURES	50

Index

M&F BANCORP, INC. AND SUBSIDIARY

PART I

FINANCIAL INFORMATION

Item 1 - Financial Statements

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
(Dollars in thousands)	2014			2013
	(Unaudited)
ASSETS

Cash and cash equivalents
Cash and due from banks	$	2,915		$	3,390
Interest-bearing deposits		14,279			22,193
Federal funds sold		—			3,000
Total cash and cash equivalents		17,194			28,583
Investment securities available for sale, at fair value		70,916			65,919
Other invested assets		308			389
Loans, net of unearned income and deferred fees		185,183			189,475
Allowances for loan losses		(3,461	)		(3,493	)
Loans, net		181,722			185,982
Interest receivable		849			912
Bank premises and equipment, net		4,312			4,373
Cash surrender value of bank-owned life insurance		6,143			6,191
Other real estate owned		2,577			3,032
Deferred tax assets and taxes receivable, net		3,674			4,153
Other assets		1,512			1,955
TOTAL ASSETS	$	289,207		$	301,489
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Interest-bearing deposits	$	203,020		$	211,870
Noninterest-bearing deposits		44,000			48,057
Total deposits		247,020			259,927
Other borrowings		786			847
Other liabilities		4,221			4,578
Total liabilities		252,027			265,352

COMMITMENTS AND CONTINGENCIES

Stockholders' equity:
Series B Preferred Stock- $1,000 liquidation value per share, 11,735 shares issued and outstanding		11,728			11,727
Series C Junior Participating Preferred Stock- $0.01 par value, 21,000 shares authorized as of September 30, 2014 and no shares authorized as of December 31, 2013, no shares issued or outstanding		—			—
Common stock, no par value 10,000,000 shares authorized; 2,031,337 shares issued and outstanding		8,732			8,732
Retained earnings		17,939			17,103
Accumulated other comprehensive loss		(1,219	)		(1,425	)
Total stockholders' equity		37,180			36,137

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	289,207		$	301,489

See notes to consolidated financial statements.

Index

M&F BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (LOSS)
	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(Dollars in thousands except for share and per share data)	2014			2013			2014			2013
(Unaudited)
Interest income:
Loans, including fees	$	2,499		$	2,672		$	7,439		$	7,593
Investment securities, including dividends
Taxable		300			166			915			535
Tax-exempt		4			9			19			27
Other		22			21			56			56

Total interest income		2,825			2,868			8,429			8,211
Interest expense:
Deposits		155			188			491			550
Borrowings		1			2			4			5

Total interest expense		156			190			495			555
Net interest income		2,669			2,678			7,934			7,656
Less provision for loan losses		50			10			50			10

Net interest income after provision for loan losses		2,619			2,668			7,884			7,646

Noninterest income:
Service charges		286			289			877			857
Rental income		41			71			138			214
Cash surrender value of life insurance		52			51			153			159
Gain on sale of repossessed assets		—			—			515			—
Other income		364			1			426			4
Total noninterest income		743			412			2,109			1,234

Noninterest expense:
Salaries and employee benefits		1,392			1,369			4,055			4,238
Occupancy and equipment		346			374			1,084			1,119
Directors fees		50			67			154			224
Marketing		33			54			94			142
Professional fees		185			201			564			649
Information technology		274			190			667			611
FDIC deposit insurance		141			135			434			363
Other real estate owned expense, net		116			50			201			237
Gains at foreclosure		—			(5	)		(41	)		(8	)
Delivery expenses		41			44			131			128
Other		383			307			1,046			879
Total noninterest expense		2,961			2,786			8,389			8,582

Income before income taxes		401			294			1,604			298
Income tax expense		173			139			591			140
Net income		228			155			1,013			158

Less preferred stock dividends and accretion		(59	)		(59	)		(177	)		(177	)

Net income (loss) available to common stockholders	$	169		$	96		$	836		$	(19	)


Basic and diluted earnings (loss) per share of common stock:	$	0.08		$	0.05		$	0.41		$	(0.01	)
Weighted average shares of common stock outstanding:
Basic and diluted		2,031,337			2,031,337			2,031,337			2,031,337

See notes to consolidated financial statements.

Index

M&F BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
	For the Three Months Ended						For the Nine Months Ended
(Dollars in thousands)	September 30,						September 30,
(Unaudited)	2014			2013			2014			2013

Net income	$	228		$	155		$	1,013		$	158

Other comprehensive income (loss):
Investment Securities:
Unrealized holding gains (losses) on securities available for sale		(188	)		(271	)		352			(942	)
Tax Effect		70			102			(135	)		339
Net of tax amount		(118	)		(169	)		217			(603	)

Defined benefit pension plans:
Net actuarial gain		(54	)		(90	)		(162	)		(270	)
Prior service cost		54			90			162			270
Tax effect		(11	)		—			(11	)		—
Net of tax amount		(11	)		—			(11	)		—

Other comprehensive income (loss), net of tax		(129	)		(169	)		206			(603	)

Comprehensive income (loss)	$	99		$	(14	)	$	1,219		$	(445	)

See notes to consolidated financial statements.

Index

M&F BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2014 and 2013
										Accumulated
	Number									Other
(Dollars in thousands except for share data)	of		Common		Preferred		Retained			Comprehensive
(Unaudited)	Shares		Stock		Stock		Earnings			Loss			Total
Balances as of December 31, 2012		2,031,337	$	8,732	$	11,725	$	17,230		$	(1,408	)	$	36,279
Accretion of Series B preferred stock issuance costs		—		—		2		(2	)		—			—
Net income		—		—		—		158			—			158
Other comprehensive loss, net of tax		—		—		—		—			(603	)		(603	)
Dividends declared on preferred stock		—		—		—		(175	)		—			(175	)

Balances as of September 30, 2013		2,031,337	$	8,732	$	11,727	$	17,211		$	(2,011	)	$	35,659

Balances as of December 31, 2013		2,031,337	$	8,732	$	11,727	$	17,103		$	(1,425	)	$	36,137
Accretion of Series B preferred stock issuance costs		—		—		1		(1	)		—			—
Net income		—		—		—		1,013			—			1,013
Other comprehensive income, net of tax		—		—		—					206			206
Dividends declared on preferred stock		—		—		—		(176	)		—			(176	)

Balances as of September 30, 2014		2,031,337	$	8,732	$	11,728	$	17,939		$	(1,219	)	$	37,180

See notes to consolidated financial statements.

Index

M&F BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
	For the Nine Months Ended
	September 30,
(Dollars in thousands)	2014			2013
(Unaudited)

Cash flows from operating activities:
Net income	$	1,013		$	158
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses		50			10
Depreciation and amortization		260			263
Gain on disposition of repossessed asset		(515	)		—
Amortization of discounts/premiums on investments, net		545			845
Loan purchase accounting amortization, net		—			43
Deferred income tax provision		201			61
Increase in cash surrender value of bank owned life insurance		(153	)		(161	)
Gain at foreclosure		(41	)		(8	)
Net gain on sale of other real estate owned		(73	)		(30	)
Contribution of other real estate owned		6			—
Writedown of other real estate owned		123			178
Net changes in:
Accrued interest receivable and other assets		49			77
Other liabilities		(357	)		(258	)

Net cash provided by operating activities		1,108			1,178

Cash flows from investing activities:
Activity in available for sale securities:
Maturities and calls		6,657			—
Principal collections		10,577			14,094
Purchases		(22,424	)		(13,008	)
FHLB stock redemptions		81			99
Net (increase) decrease in loans		3,952			(14,393	)
Purchases of bank premises and equipment		(206	)		(63	)
Disposal of bank premises and equipment		7			—
Proceeds from death benefit of bank-owned life insurance policies		201			—
Proceeds from disposition of repossessed asset		1,107			—
Proceeds from sale of other real estate owned		695			69

Net cash provided by (used in) investing activities		647			(13,202	)

Cash flows from financing activities:
Net decrease in deposits		(12,907	)		(965	)
Proceeds from other borrowings		93			93
Repayments of other borrowings		(154	)		(153	)
Cash dividends		(176	)		(175	)

Net cash used in financing activities		(13,144	)		(1,200	)

Net decrease in cash and cash equivalents		(11,389	)		(13,224	)

Cash and cash equivalents as of the beginning of the period		28,583			42,586

Cash and cash equivalents as of the end of the period	$	17,194		$	29,362

See notes to consolidated financial statements.

Index

M&F BANCORP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
	For the Nine Months Ended
	September 30,
(Dollars in thousands)	2014		2013
(Unaudited)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during period for:
Interest	$	462	$	584
Income Taxes		253		—
Noncash Transactions:
Loans transferred to OREO		255		134
Net unrealized gain (loss) on investment securities available for sale, net of deferred income tax		217		(603	)
Loans transferred to foreclosed assets		3		—
Accretion of Series B preferred stock issuance costs		1		2
Transfer of participation loans sold from other borrowings to loans		—		(2,010	)
Transfer between fixed assets and noninerest-bearing deposit account		—		(39	)

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

M&F Bancorp, Inc. (the “Company”) is a bank holding company, and the parent company of Mechanics and Farmers Bank (the “Bank”), a state chartered commercial bank incorporated in North Carolina (“NC”) in 1907, which began operations in 1908. The Bank has seven branches in NC: two in Durham, two in Raleigh, and one each in Charlotte, Greensboro and Winston-Salem. The Company, headquartered in Durham, operates as a single business segment and offers a wide variety of consumer and commercial banking services and products almost exclusively in NC.

Basis of Presentation

The Consolidated Financial Statements include the accounts and transactions of the Company and the Bank, the wholly owned subsidiary. 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, 2013, which were derived from the Company’s audited consolidated Annual Report on Form 10-K as of and for the year ended December 31, 2013.

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, 2013.

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.

Segment Reporting

Based on an analysis performed by the Company, management has determined that the Company has only one operating segment, which is commercial banking. The chief operating decision-maker uses consolidated results to make operating and strategic decisions and therefore, the Company is not required to disclose additional segment information.

Use of Estimates

The financial statements are prepared in accordance with GAAP, which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

New Accounting Pronouncements

In January 2014, the Financial Accounting Standards Board (“FASB”) amended the “Receivables—Troubled Debt Restructurings by Creditors” subtopic of the Codification to address the reclassification of consumer mortgage loans collateralized by residential real estate upon foreclosure. The amendments clarify the criteria for determining that an in substance repossession or foreclosure has occurred, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. The amendments also outline interim and annual disclosure requirements. The amendments will be effective for the Company for interim and annual reporting periods beginning after December 15, 2014. Companies are allowed to use either a modified retrospective transition method or a prospective transition method when adopting this update. Early adoption is permitted. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2016. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

INVESTMENT SECURITIES

The main objectives of our investment strategy are to provide a source of liquidity while managing our interest rate risk, and to generate an adequate level of interest income without taking undue risks. Our investment policy permits investments in various types of securities, certificates of deposits and federal funds sold in compliance with various restrictions in the policy. As of September 30, 2014 and December 31, 2013, all investment securities were classified as available-for-sale.

Our available-for-sale securities totaled $70.9 million and $65.9 million as of September 30, 2014 and December 31, 2013, respectively. Securities with a fair value of $1.0 million were pledged to the Federal Reserve Bank of Richmond (“Federal Reserve Bank”) and an additional $4.0 million and $18.9 million in investments were pledged to public housing authorities in North Carolina and the North Carolina Department of State Treasurer as collateral for public deposits at September 30, 2014. Securities with a fair value of $1.0 million were pledged to the Federal Reserve Bank and an additional $3.5 million and $15.4 million in investments were pledged to public housing authorities in North Carolina and the North Carolina Department of State Treasurer as collateral for public deposits at December 31, 2013. Our investment portfolio consists of the following securities:

U.S. government agency securities ,

U.S. government sponsored residential mortgage backed securities (“MBS”), and

Municipal securities (“Municipals”)

The amortized cost, gross unrealized gains and losses and fair values of investment securities at September 30, 2014 and December 31, 2013 were:

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Unaudited)
September 30, 2014
US government agencies	$	11,372	$	12	$	(101	)	$	11,283
Government sponsored MBS
Residential		58,832		163		(362	)		58,633
Municipals
North Carolina		1,012		10		(22	)		1,000
Total	$	71,216	$	185	$	(485	)	$	70,916

December 31, 2013
US government agencies	$	7,000	$	—	$	(234	)	$	6,766
Government sponsored MBS
Residential		58,086		118		(506	)		57,698
Municipals
North Carolina		1,485		21		(51	)		1,455
Total	$	66,571	$	139	$	(791	)	$	65,919

There were no gross realized gains or losses on sales or calls of securities during the three- or nine-month periods ended September 30, 2014 or 2013.

The amortized cost and estimated market values of securities as of September 30, 2014 and December 31, 2013 by contractual maturities are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. MBS, which are not due at a single maturity date, are grouped based upon the final payment date. MBS may mature prior to the applicable final payment date because of principal prepayments.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

(Dollars in thousands)	As of September 30, 2014
(Unaudited)	Fair Value		Amortized Cost
US government agencies
Due within one year	$	1,998	$	2,000
Due after one year through five years		7,362		7,372
Due after five years through ten years		1,923		2,000
Total US government agencies	$	11,283	$	11,372

Government sponsored MBS
Residential
Due within one year	$	12,843	$	12,909
Due after one year through five years		26,144		26,250
Due after five years through ten years		13,078		13,104
Due after ten years		6,568		6,569
Total government sponsored MBS	$	58,633	$	58,832

Municipals
North Carolina
Due within one year	$	164	$	161
Due after one year through five years		268		261
Due after five years through ten years		568		590
Total North Carolina municipal bonds	$	1,000	$	1,012

(Dollars in thousands)	As of December 31, 2013
	Fair Value		Amortized Cost
US government agencies
Due within one year	$	4,934	$	5,000
Due after one year through five years		1,832		2,000
Total US government agencies	$	6,766	$	7,000

Government sponsored MBS
Residential
Due within one year	$	12,090	$	12,156
Due after one year through five years		25,152		25,314
Due after five years through ten years		12,450		12,560
Due after ten years		8,006		8,056
Total government sponsored MBS	$	57,698	$	58,086

Municipals
North Carolina
Due within one year	$	472	$	465
Due after one year through five years		437		423
Due after five years through ten years		546		597
Total North Carolina municipal bonds	$	1,455	$	1,485

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

All securities owned as of September 30, 2014 and December 31, 2013 are investment grade. The unrealized losses were attributable to changes in market interest rates. The Company evaluates securities for other than temporary impairment on a quarterly basis. Consideration is given to the financial condition and near-term prospects of the issuer, the length of time and extent to which the fair value has been less than cost, and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based on these evaluations, the Company did not deem any securities to be impaired during 2013 or the first nine months of 2014.

As of September 30, 2014 and December 31, 2013, the Company held 66 and 68 investment positions, respectively, with unrealized losses of $485 thousand and $791 thousand, respectively. These investments were in U.S. government agencies, Government sponsored MBS and Municipals. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and industry analysts’ reports. Management had determined that all declines in market values of available-for-sale securities are not other-than-temporary, and the Company will not likely be required to sell these securities.

As of September 30, 2014 and December 31, 2013, the fair value of securities with gross unrealized losses by length of time that the individual securities have been in an unrealized loss position is as follows:

(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, 2014
US government agencies	$	5,849	$	(24	)	$	1,923	$	(77	)	$	7,772	$	(101	)
Government sponsored MBS
Residential		22,672		(132	)		15,817		(230	)		38,489		(362	)
Municipals
North Carolina		—		—			568		(22	)		568		(22	)
Total	$	28,521	$	(156	)	$	18,308	$	(329	)	$	46,829	$	(485	)

(Dollars in thousands)	Less Than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2013
US government agencies	$	6,766	$	(234	)	$	—	$	—	$	6,766	$	(234	)
Government sponsored MBS
Residential		46,373		(506	)		20		—		46,393		(506	)
Municipals
North Carolina		546		(51	)		—		—		546		(51	)
Total	$	53,685	$	(791	)	$	20	$	—	$	53,705	$	(791	)

FEDERAL HOME LOAN BANK OF ATLANTA (“FHLB”)

To be a member of the FHLB System, the Bank is required to maintain an investment in capital stock of the FHLB in an amount equal to 0.09% and 0.12% at September 30, 2014 and December 31, 2013, respectively, of its total assets as of December 31 of the prior year (up to a maximum of $15.0 million and $20.0 million at September 30, 2014 and December 31, 2013, respectively), plus 4.5% of its outstanding FHLB advances. The carrying value of FHLB stock, which is included in Other Invested Assets on the Consolidated Balance Sheets, as of September 30, 2014 and December 31, 2013 was $0.3 million and $0.4 million, respectively. No ready market exists for the FHLB stock, and it has no quoted market value; however, management believes that the cost approximates the market value as of September 30, 2014 and December 31, 2013. Management has reviewed its investment in FHLB stock for impairment and does not believe it is impaired as of September 30, 2014 or December 31, 2013.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

RECONCILIATIONS OF BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE ("EPS")

Basic EPS is computed by dividing net income (loss) available to common stockholders by the weighted average number shares of common stock outstanding for the period. Basic EPS excludes the dilutive effect that could occur if any options or warrants to purchase shares of common stock were exercised. Diluted EPS is computed by dividing net income (loss) available to common stockholders by the sum of the weighted average number of shares of common stock outstanding for the period plus the number of additional shares of common stock that would have been outstanding if the potentially dilutive common shares had been issued. There are no stock options or warrants outstanding.

ACCUMULATED OTHER 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 defined benefit plan adjustments.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT
For The Three and Nine Months Ended September 30, 2014 and 2013

(Dollars in thousands)
(Unaudited)
	Unrealized Gains and Losses on Available-for- Sale Securities			Defined Benefit Pension Items			Total
Balance as of December 31, 2012	$	426		$	(1,834	)	$	(1,408	)
Other comprehensive loss before reclassifications		(603	)		—			(603	)
Amounts reclassified from accumulated other comprehensive loss		—			—			—
Net current-period other comprehensive loss		(603	)		—			(603	)
Balance as of September 30, 2013	$	(177	)	$	(1,834	)	$	(2,011	)



Balance as of June 30, 2013	$	(8	)	$	(1,834	)	$	(1,842	)
Other comprehensive loss before reclassifications		(169	)		—			(169	)
Amounts reclassified from accumulated other comprehensive loss		—			—			—
Net current-period other comprehensive loss		(169	)		—			(169	)
Balance as of September 30, 2013	$	(177	)	$	(1,834	)	$	(2,011	)



Balance as of December 31, 2013	$	(405	)	$	(1,020	)	$	(1,425	)
Other comprehensive income before reclassifications		217			(11	)		206
Amounts reclassified from accumulated other comprehensive income		—			—			—
Net current-period other comprehensive income		217			(11	)		206
Balance as of September 30, 2014	$	(188	)	$	(1,031	)	$	(1,219	)


Balance as of June 30, 2014	$	(70	)	$	(1,020	)	$	(1,090	)
Other comprehensive loss before reclassifications		(118	)		(11	)		(129	)
Amounts reclassified from accumulated other comprehensive loss		—			—			—
Net current-period other comprehensive loss		(118	)		(11	)		(129	)
Balance as of September 30, 2014	$	(188	)	$	(1,031	)	$	(1,219	)

All amounts are net of tax.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

LOANS AND ALLOWANCE FOR LOAN LOSSES

The activity in the Company’s allowance for loan losses (“ALLL”) for the three and nine month periods ended September 30, 2014 and 2013 and related asset balances at September 30, 2014 and December 31, 2013 is summarized as follows:

	For the Three Months Ended September 30, 2014
					Faith-
					Based		Residential
			Commercial		Non-		Real					Other
(Dollars in thousands)	Commercial		Real Estate		Profit		Estate			Consumer		Loans			Unallocated			Total

ALLL:
Total ending ALLL balances as of June 30, 2014	$	109	$	780	$	1,686	$	645		$	27	$	109		$	93		$	3,449
For the three months ended September 30, 2014
Charge-offs		—		—		—		(40	)		—		(4	)		—			(44	)
Recoveries		—		—		—		4			—		2			—			6
Provision for loan losses		19		7		74		(7	)		—		50			(93	)		50
Total ending ALLL balances as of September 30, 2014	$	128	$	787	$	1,760	$	602		$	27	$	157		$	—		$	3,461

	For the Three Months Ended September 30, 2013
					Faith-
					Based			Residential
			Commercial		Non-			Real						Other
(Dollars in thousands)	Commercial		Real Estate		Profit			Estate			Consumer			Loans			Unallocated			Total

ALLL:
Total ending ALLL balances as of June 30, 2013	$	241	$	806	$	1,278		$	831		$	22		$	43		$	13		$	3,234
For the three months ended September 30, 2013
Charge-offs		—		—		—			(40	)		(1	)		(4	)		—			(45	)
Recoveries		—		25		—			4			6			3			—			38
Provision for loan losses		203		52		(170	)		(57	)		(8	)		3			(13	)		10
Total ending ALLL balances as of September 30, 2013	$	444	$	883	$	1,108		$	738		$	19		$	45		$	—		$	3,237

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

	For the Nine Months Ended September 30, 2014
							Faith-
							Based			Residential
				Commercial			Non-			Real						Other
(Dollars in thousands)	Commercial			Real Estate			Profit			Estate			Consumer			Loans			Unallocated		Total

ALLL:
Total ending ALLL balances as of December 31, 2013	$	184		$	808		$	1,883		$	493		$	19		$	106		$	—	$	3,493
For the nine months ended September 30, 2014
Charge-offs		—			—			—			(71	)		(16	)		(15	)		—		(102	)
Recoveries		—			—			—			13			1			6			—		20
Provision for loan losses		(56	)		(21	)		(123	)		167			23			60			—		50
Total ending ALLL balances as of September 30, 2014	$	128		$	787		$	1,760		$	602		$	27		$	157		$	—	$	3,461

	For the Nine Months Ended September 30, 2013
						Faith-
						Based			Residential
			Commercial			Non-			Real						Other
(Dollars in thousands)	Commercial		Real Estate			Profit			Estate			Consumer			Loans			Unallocated			Total

ALLL:
Total ending ALLL balances as of December 31, 2012	$	90	$	881		$	1,246		$	937		$	30		$	54		$	261		$	3,499
For the nine months ended September 30, 2013
Charge-offs		—		(237	)		—			(73	)		(3	)		(14	)		—			(327	)
Recoveries		—		27			—			12			7			9			—			55
Provision for loan losses		354		212			(138	)		(138	)		(15	)		(4	)		(261	)		10
Total ending ALLL balances as of September 30, 2013	$	444	$	883		$	1,108		$	738		$	19		$	45		$	—		$	3,237

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

	September 30, 2014
					Faith
					Based
			Commercial		Non-		Residential				Other
(Dollars in thousands)	Commercial		Real Estate		Profit		Real Estate		Consumer		Loans		Unallocated		Total
ALLL:
Ending ALLL balance attributable to loans:
Individually evaluated for impairment	$	—	$	148	$	583	$	170	$	—	$	—	$	—	$	901
Collectively evaluated for impairment		128		639		1,177		432		27		157		—		2,560
Total ending ALLL balance	$	128	$	787	$	1,760	$	602	$	27	$	157	$	—	$	3,461

Loans:
Loans individually evaluated for impairment	$	—	$	9,076	$	16,537	$	3,216	$	8	$	—	$	—	$	28,837
Loans collectively evaluated for impairment		8,456		37,578		79,393		23,001		1,243		6,675		—		156,346
Total ending loans balance	$	8,456	$	46,654	$	95,930	$	26,217	$	1,251	$	6,675	$	—	$	185,183

	December 31, 2013
					Faith
					Based
			Commercial		Non-		Residential				Other
(Dollars in thousands)	Commercial		Real Estate		Profit		Real Estate		Consumer		Loans		Unallocated		Total
ALLL:
Ending ALLL balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	931	$	75	$	—	$	—	$	—	$	1,006
Collectively evaluated for impairment		184		808		952		418		19		106		—		2,487
Total ending ALLL balance	$	184	$	808	$	1,883	$	493	$	19	$	106	$	—	$	3,493

Loans:
Loans individually evaluated for impairment	$	—	$	9,029	$	17,661	$	3,947	$	11	$	—	$	—	$	30,648
Loans collectively evaluated for impairment		12,344		50,060		67,802		24,966		1,329		2,326		—		158,827
Total ending loans balance	$	12,344	$	59,089	$	85,463	$	28,913	$	1,340	$	2,326	$	—	$	189,475

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

The Bank experienced $38 thousand and $7 thousand in net loan charge-offs for the three months ended September 30, 2014 and 2013, respectively. Annualized net charge-offs as a percent of average loan balances outstanding totaled 0.08% and 0.02% during the three month periods ended September 30, 2014 and 2013, respectively. The Bank experienced $82 thousand and $272 thousand in net loan charge-offs for the nine months ended September 30, 2014 and 2013, respectively. Annualized net charge-offs as a percent of average loan balances outstanding totaled 0.06% and 0.20% during the nine month periods ended September 30, 2014 and 2013, respectively, and 0.19% for the year ended December 31, 2013.

Loans— Loans are stated at the amount of unpaid principal, net of deferred loan origination fees and costs. Nonrefundable loan fees, net of direct costs, associated with the origination or acquisition of loans are deferred and recognized as an adjustment of the loan yield over the life of the respective loan using the effective interest method. Loans (net) are reduced by the ALLL. Interest on loans is accrued on the daily balances of unpaid principal outstanding. Interest income is accrued and credited to income only if deemed collectible. Other loan fees and charges, representing service charges for the prepayment of loans, for delinquent payments, or for miscellaneous loan services, are recorded in income when collected.

A portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its ALLL. The composition of the loan portfolio, net of deferred fees and costs, by loan classification as of September 30, 2014 and December 31, 2013 was as follows:

(Dollars in thousands)	September 30, 2014			December 31, 2013

Commercial	$	8,456		$	12,344
Commercial real estate:
Construction		1,043			4,758
Owner occupied		25,644			22,186
Other		19,967			32,145
Faith-based non-profit:
Construction		5,991			—
Owner Occupied		84,729			78,761
Other		5,210			6,702
Residential real estate:
First mortgage		20,145			22,350
Multifamily		3,062			3,271
Home equity		2,529			3,051
Construction		481			241
Consumer		1,251			1,340
Other loans		6,675			2,326
Loans, net of deferred fees		185,183			189,475
ALLL		(3,461	)		(3,493	)
Loans, net of ALLL	$	181,722		$	185,982

The Bank has a concentration of loans to faith-based non-profit organizations, in which the Bank has specialized lending experience. As of September 30, 2014, the percentage of loans in this segment, which included construction, real estate secured, and lines of credit, comprised approximately 51.80% of the total loan portfolio and the reserve for these loans was 50.85% of the total allowance. Historically, the Bank has experienced low levels of loan losses in this niche; however, repayment of these loans is generally dependent on voluntary contributions which some have been adversely affected by the recent economic downturn.

Non-Performing Loans and Leases - Generally, all classes of loans and leases are placed on non-accrual status upon becoming contractually past due 90 days or more as to principal or interest (unless loans are adequately secured by collateral, are in the process of collection, and are reasonably expected to result in repayment), or where substantial doubt about full repayment of principal or interest is evident.

When a loan is placed on non-accrual status, regardless of class, the accrued and unpaid interest receivable is reversed and the loan is accounted for on the cash or cost recovery method until qualifying for return to accrual status. All payments received on non-accrual loans and leases are applied against the principal balance of the loan or lease. Loans may be returned to accrual status when all principal and interest amounts contractually due (including any arrearages) are reasonably assured of repayment within a reasonable period, the borrower has demonstrated payment performance for a minimum of six months in accordance with the original or revised contractual terms of the loan, and when doubt about repayment is resolved.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

Generally, for all classes of loans and leases, a charge-off is recorded when it is probable that a loss has been incurred and when it is possible to determine a reasonable estimate of the loss. For all classes of commercial loans and leases, a charge-off is determined on a subjective basis after due consideration of the debtor's prospects for repayment and the fair value of collateral. For closed-end consumer loans, the entire outstanding balance of the loan is charged-off during the month that the loan becomes 120 days past due as to principal or interest. Consumer loans with non-real estate collateral are written down to the value of the collateral, less estimated costs to sell, if repossession of collateral is assured and in process. For residential mortgage and home equity loan classes, a partial charge-off is recorded at 120 days past due as to principal or interest for the amount that the loan balance exceeds the fair value of the collateral less estimated costs to sell.

Impaired Loans - A loan is considered impaired when, based on current information and events, it is probable that the Company will not be able to collect all amounts due from the borrower in accordance with the original contractual terms of the loan, including scheduled interest payments. Impaired loans include all classes of commercial non-accruing loans and Troubled Debt Restructurings ("TDRs"). Impaired loans exclude smaller balance homogeneous loans (consumer and small business non-accruing loans) not in the process of foreclosure that are collectively evaluated for impairment.

For all classes of commercial loans, a quarterly evaluation of specific individual commercial borrowers with identified weaknesses is performed to identify impaired loans. The identification of specific borrowers for review is based on a review of non-accrual loans as well as those loans specifically identified by management as exhibiting above average levels of risk.

When a loan has been identified as being impaired, the amount of impairment is measured 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 estimated fair value of the collateral, less any selling costs, if the loan is collateral-dependent. If the measurement of the impaired loan is less than the recorded investment in the loan (net of deferred loan fees or costs and unamortized premiums or discounts), impairment is recognized by creating or adjusting an existing allocation of the ALLL, or by recording a partial charge-off of the loan to its estimated fair value. Interest payments made on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest income may be accrued or recognized on a cash basis.

Income Recognition on Impaired and Non-accrual Loans - Loans, including impaired loans, are generally classified as non-accrual if they are past due as to maturity, or payment of principal or interest for a period of more than 90 days, unless such loans are well secured and in the process of collection. If a loan or a portion of a loan is classified as doubtful or is partially charged off, the loan is generally classified as non-accrual. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual if full repayment of principal and/or interest is in doubt.

Loans may be returned to accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within a reasonable period of time, and the borrower has demonstrated payment performance for a minimum of six months in accordance with the contractual terms involving payments of cash or cash equivalents. During the non-accrual period, all payments received will be applied to principal. After a loan is returned to accruing status, foregone interest will be accreted to interest income on a pro-rata basis over the remaining term of the loan if full repayment of principal and interest is reasonably assured.

In the case where a non-accrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the remaining loan balance at the contractual interest rate. Receipts in excess of that amount are recorded as recoveries to the ALLL until prior charged off balances have been fully recovered.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

The following tables present loans not past due and the aging of past due loans as of September 30, 2014 and December 31, 2013:

					90 Days
September 30, 2014	30-59 Days		60-89 Days		Or More		Total Past
(Dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Total

Commercial	$	—	$	—	$	—	$	—	$	8,456	$	8,456
Commercial real estate:
Construction		46		—		—		46		997		1,043
Owner occupied		69		—		878		947		24,697		25,644
Other		281		—		5,206		5,487		14,480		19,967
Faith-based non-profit:
Construction		—		—		—		—		5,991		5,991
Owner Occupied		2,595		284		1,053		3,932		80,797		84,729
Other		—		—		—		—		5,210		5,210
Residential real estate:
First mortgage		13		303		4,211		4,527		15,618		20,145
Multifamily		—		—		—		—		3,062		3,062
Home equity		40		14		4		58		2,471		2,529
Construction		—		—		—		—		481		481
Consumer		—		26		9		35		1,216		1,251
Other loans		—		—		—		—		6,675		6,675
Total	$	3,044	$	627	$	11,361	$	15,032	$	170,151	$	185,183

					90 Days
December 31, 2013	30-59 Days		60-89 Days		Or More		Total Past
(Dollars in thousands)	Past Due		Past Due		Past Due		Due		Current		Total

Commercial	$	—	$	4	$	—	$	4	$	12,340	$	12,344
Commercial real estate:
Construction		—		—		—		—		4,758		4,758
Owner occupied		77		—		2,675		2,752		19,434		22,186
Other		—		—		642		642		31,503		32,145
Faith-based non-profit:
Construction		—		—		—		—		—		—
Owner Occupied		2,859		29		333		3,221		75,540		78,761
Other		1		—		—		1		6,701		6,702
Residential real estate:
First mortgage		747		275		2,602		3,624		18,726		22,350
Multifamily		—		—		—		—		3,271		3,271
Home equity		241		—		118		359		2,692		3,051
Construction		—		—		—		—		241		241
Consumer		6		3		9		18		1,322		1,340
Other loans		—		—		—		—		2,326		2,326
Total	$	3,931	$	311	$	6,379	$	10,621	$	178,854	$	189,475

At September 30, 2014 and December 31, 2013, the total recorded investment in impaired loans amounted to $28.9 million and $30.7 million, respectively. Of these impaired loans, $6.5 million and $6.7 million were on non-accrual at September 30, 2014 and December 31, 2013, respectively.

The recorded investment and related information for impaired loans is summarized as follows for September 30, 2014, December 31, 2013 and September 30, 2013:

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

	September 30, 2014
							For the Nine Months Ended				For the Three Months Ended
	Unpaid						Interest		Average		Interest		Average
	Principal		Recorded		ALLL		Income		Recorded		Income		Recorded
(Dollars in thousands)	Balance		Investment		Allocated		Recognized		Investment		Recognized		Investment

With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Construction		77		82		—		4		221		1		80
Owner occupied		3,355		3,367		—		118		3,190		77		3,251
Other		3,130		3,135		—		47		2,855		—		3,257
Faith based non-profit:
Construction		—		—		—		—		—		—		—
Owner occupied		10,005		10,021		—		445		9,952		161		9,623
Other		157		159		—		6		26		6		79
Residential real estate:
First mortgage		2,580		2,550		—		93		2,718		46		2,562
Multifamily		—		—		—		—		—		—		—
Home equity		126		126		—		4		69		4		75
Construction		—		—		—		—		—		—		—
Consumer		8		8		—		1		9		1		8
Impaired loans with no allowance recorded	$	19,438	$	19,448	$	—	$	718	$	19,040	$	296	$	18,935

With an allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Construction		280		285		39		14		141		2		282
Owner occupied		2,234		2,258		109		73		376		73		1,129
Other		—		—		—		—		2,285		—		1,090
Faith based non-profit:
Construction		—		—		—		—		—		—		—
Owner occupied		6,375		6,389		583		234		6,777		57		6,843
Other		—		—		—		—		—		—		—
Residential real estate:
First mortgage		500		480		141		7		541		2		514
Multifamily		—		—		—		—		—		—		—
Home equity		78		66		29		3		114		—		116
Construction		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—
Impaired loans with allowance recorded	$	9,467	$	9,478	$	901	$	331	$	10,234	$	134	$	9,974
Impaired loans	$	28,905	$	28,926	$	901	$	1,049	$	29,274	$	430	$	28,909

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

	December 31, 2013
							Interest
	Unpaid						Earned		Average
	Principal		Recorded		ALLL		For the		Recorded
(Dollars in thousands)	Balance		Investment		Allocated		Year		Investment

With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	74
Commercial real estate:
Construction		363		364		—		28		321
Owner occupied		3,181		3,183		—		142		1,194
Other		5,486		5,503		—		256		4,858
Faith based non-profit:
Construction		—		—		—		—		—
Owner occupied		14,151		14,203		—		681		12,880
Other		—		—		—		—		—
Residential real estate:
First mortgage		3,116		3,119		—		213		2,143
Multifamily		—		—		—		—		—
Home equity		77		77		—		3		50
Construction		—		—		—		—		—
Consumer		11		11		—		—		9
Impaired loans with no allowance recorded	$	26,385	$	26,460	$	—	$	1,323	$	21,529

With an allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Construction		—		—		—		—		—
Owner occupied		—		—		—		—		59
Other		—		—		—		—		251
Faith based non-profit:
Construction		—		—		—		—		—
Owner occupied		3,510		3,500		931		242		631
Other		—		—		—		—		—
Residential real estate:
First mortgage		621		623		38		29		1,017
Multifamily		—		—		—		—		—
Home equity		131		131		37		6		42
Construction		—		—		—		—		—
Consumer		—		—		—		—		—
Impaired loans with allowance recorded	$	4,262	$	4,254	$	1,006	$	277	$	2,000
Impaired loans	$	30,647	$	30,714	$	1,006	$	1,600	$	23,529

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

	September 30, 2013
							For the Nine Months Ended				For the Three Months Ended
	Unpaid						Interest		Average		Interest		Average
	Principal		Recorded		ALLL		Income		Recorded		Income		Recorded
(Dollars in thousands)	Balance		Investment		Allocated		Recognized		Investment		Recognized		Investment

With no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	98	$	—	$	—
Commercial real estate:
Construction		362		364		—		21		276		10		274
Owner occupied		3,418		3,184		—		84		706		67		1,067
Other		4,931		4,948		—		170		4,265		56		4,025
Faith based non-profit:
Construction		—		—		—		—		—		—		—
Owner occupied		16,593		16,648		—		663		10,764		365		11,511
Other		—		—		—		—		—		—		—
Residential real estate:
First mortgage		2,712		2,680		—		155		1,668		145		2,120
Multifamily		—		—		—		—		—		—		—
Home equity		8		8		—		—		50		—		30
Construction		—		—		—		—		—		—		—
Consumer		12		13		—		—		7		—		10
Impaired loans with no allowance recorded	$	28,036	$	27,845	$	—	$	1,093	$	17,834	$	643	$	19,037

With an allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial real estate:
Construction		—		—		—		—		—		—		—
Owner occupied		—		—		—		—		59		—		59
Other		—		—		—		—		334		—		—
Faith based non-profit:
Construction		—		—		—		—		—		—		—
Owner occupied		458		459		87		29		364		—		442
Other		—		—		—		—		—		—		—
Residential real estate:
First mortgage		1,273		1,276		239		58		877		58		960
Multifamily		—		—		—		—		—		—		—
Home equity		91		91		26		4		23		4		46
Construction		—		—		—		—		—		—		—
Consumer		—		—		—		—		—		—		—
Impaired loans with allowance recorded	$	1,822	$	1,826	$	352	$	91	$	1,657	$	62	$	1,507
Impaired loans	$	29,858	$	29,671	$	352	$	1,184	$	19,491	$	705	$	20,544

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

The recorded investment in TDRs, which are included in total impaired loans, was $25.2 million, $26.4 million and $24.5 million at September 30, 2014, December 31, 2013 and September 30, 2013, respectively.

Reserve for Credit Losses - The Company's reserve for credit losses is comprised of two components, the ALLL and the reserve for unfunded commitments (the “Unfunded Reserve”).

Allowance for Loan Losses (“ALLL”) - The ALLL is a valuation allowance that is established through a provision for loan losses charged to expense. When management believes that the collectability of the principal is unlikely, loans are charged against the ALLL. Subsequent recoveries, if any, are credited to the ALLL.

The ALLL is management's estimate of probable losses that are inherent in the loan portfolio. The ALLL is based on regular quarterly assessments. The methodologies for measuring the appropriate level of the ALLL include the combination of a quantitative historical loss history by loan type and a qualitative analysis for loans not classified as impaired or TDRs ("ASC 450 reserve"), and a specific allowance method for impaired and TDR loans ("ASC 310 reserve"). The qualitative analysis for the ASC 450 reserve is patterned after the guidelines provided under Securities Exchange Commission (“SEC”) Staff Accounting Bulletin 102 and the Federal Financial Institutions Examination Council (“FFIEC”) Interagency Policy Statement on the Allowance for Loan and Lease Losses and include the following:

Changes in lending policies and procedures, including underwriting standards and collection, charge-off, and recovery practices;

Changes in national economic and business conditions and developments and the effect of unemployment on African Americans, who are the majority of our customers;

Changes in the nature and volume of the loan portfolio;

Changes in the experience, ability, and depth of lending management and staff;

Changes in trends of the volume and severity of past due and classified loans; and changes in trends in the volume of non-accrual loans, troubled debt restructurings and classified loans;

Changes in the quality of the loan review system and the degree of oversight by the Bank’s Board of Directors;

The existence and effect of any concentrations of credit, and changes in the level of such concentrations; and

The effect of external factors such as competition and legal and regulatory requirements.

Management has developed, from historical loan and economic information, quantitative drivers for certain qualitative factors. Management has identified which factors, by nature, are subjective, such as lending policies, competition and regulatory requirements. The quantitative drivers of qualitative factors, to which different weights are assigned based on management’s judgment, are reviewed and updated quarterly based on updated quarterly and eight-quarter rolling data. The quantitative loss history is based on an eight-quarter rolling history of losses incurred by different loan types within the loan portfolio.

A specific ALLL is established for loans identified as impaired or TDRs, based on significant conditions or circumstances related to the specific credits. The specific allowance amounts are determined by a method prescribed by ASC 310, Receivables. Loans identified as impaired and non-accruing TDRs are accounted for in accordance with one of three valuations: (i) the present value of future cash flows discounted at the loan's effective interest rate; (ii) the loan's observable market price, or (iii) the fair value of the collateral, if the loan is collateral dependent, less estimated liquidation costs.

For commercial business, faith-based non-profit, real estate and certain consumer loans, the measurement of loan impairment is based on the present value of the expected future cash flows, discounted at the loan's effective interest rate, or on the fair value of the loan's collateral if the loan is collateral dependent. Most consumer loans are smaller balance and homogeneous, and are evaluated for impairment on a collective basis, applying the quantitative loss history and the qualitative factors. Impairment losses are included in the ALLL through a charge to the provision for loan losses.

The Company uses several credit quality indicators to manage credit risk on an ongoing basis. The Company's credit risk rating system was developed to aid in the risk management process by grouping credits with similar risk profiles into pass (which includes internal watch), special mention, or criticized categories, which includes substandard, doubtful, and loss. Credit risk ratings are applied individually to all classes of loans. Internal credit reviews and external contracted credit review examinations are used to determine and validate loan risk grades. The credit review system takes into consideration factors such as: borrower's background and experience; historical and current financial condition; credit history and payment performance; economic conditions and their impact on various industries; type, market value and volatility of the market value of collateral; lien position; and the financial strength of guarantors.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

The process of assessing the adequacy of the ALLL is necessarily subjective. Further, and particularly in periods of economic downturns, it is reasonably possible that future credit losses may exceed historical loss levels and may also exceed management's current estimates of incurred losses inherent within the loan portfolio. As such, there can be no assurance that future loan charge-offs will not exceed management's current estimate of what constitutes a reasonable ALLL.

The Company and the Bank are subject to periodic examination by their federal and state regulators, and may be required by such regulators to recognize additions to the allowance for loan losses based on the regulators' assessment of credit information available to them at the time of their examinations.

Reserve for Unfunded Commitments - The Unfunded Reserve is a component of other liabilities and represents the estimate for probable credit losses inherent in unfunded commitments to extend credit. Unfunded commitments to extend credit include loans with usable balances available, new commitments to lend that are not yet funded, and standby and commercial letters of credit. The process used to determine the Unfunded Reserve is consistent with the process for determining the quantitative portion of the ASC 450 reserve, as adjusted for estimated funding probabilities and historical eight quarter rolling quantitative loan loss factors. The level of the Unfunded Reserve is adjusted by recording an expense or recovery in other noninterest expense. The balances of $27.8 thousand and $12.5 thousand for September 30, 2014 and December 31, 2013, respectively, are reflected in other liabilities on the Consolidated Balance Sheets.

The following table presents the recorded investment in non-accrual loans and loans past due over 90 days still on accrual by class of loans as of September 30, 2014 and December 31, 2013, respectively:

					90 Days
					or More
					Past Due
September 30, 2014					Still
(Dollars in thousands)	Non-accrual		Number		Accruing		Number

Commercial	$	—		—	$	—		—
Commercial real estate:
Construction		—		—		—		—
Owner occupied		520		3		358		2
Other		2,651		3		2,587		3
Faith-based non-profit:
Construction		—		—		—		—
Owner Occupied		134		2		919		3
Other		—		—		—		—
Residential real estate:
First mortgage		2,995		39		1,656		6
Multifamily		—		—		—		—
Home equity		192		8		—		—
Construction		—		—		—		—
Consumer		8		1		1		1
Other loans		—		—		—		—
Total	$	6,500		56	$	5,521		15

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

					90 Days
					or More
					Past Due
December 31, 2013					Still
(Dollars in thousands)	Non-accrual		Number		Accruing		Number

Commercial	$	—		—	$	—		—
Commercial real estate:
Construction		—		—		—		—
Owner occupied		2,676		3		—		—
Other		532		3		110		1
Faith-based non-profit:
Construction		—		—		—		—
Owner Occupied		29		1		332		1
Other		—		—		—		—
Residential real estate:
First mortgage		3,348		43		253		5
Multifamily		—		—		—		—
Home equity		124		7		—		—
Construction		—		—		—		—
Consumer		11		2		—		—
Other loans		—		—		—		—
Total	$	6,720		59	$	695		7

Non-accrual loans and loans past due over 90 days still accruing interest include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified impaired loans. Loans for which principal or interest is in default for 90 days or more are classified as a non-accrual unless they are well secured and in process of collection.

Those loans over 90 days still accruing interest were in the process of modification. In these cases, the borrowers are still making payments. Borrowers have continued to make payments on these loans while administrative and legal due processes are proceeding which will enable the Bank to extend or modify maturity dates.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans for reserves according to the loan's classification as to credit risk. This analysis includes non-homogenous loans, such as commercial, commercial real estate and faith-based non–profit entities, and mortgage loans in process of foreclosure for which the loan to value does not support repayment in full. This analysis is performed on at least a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Management believes that there is a moderate likelihood of some loss related to those loans and leases that are considered special mention.

Substandard. Loans classified as substandard are inadequately protected by the current sound financial repayment capacity and debt service coverage of the obligor or of the collateral pledge, if any. Loans so classified have a well-defined weakness or weaknesses that may jeopardize the liquidation of our repayment according to the original terms of the debt. In addition to commercial and faith-based non-profit loans with identified weaknesses, substandard loans include loans within the mortgage and consumer portfolio segments that are past due 90 days or more as to principal or interest if the loan to value does not support full repayment. Substandard loans are evaluated for impairment on an individual loan basis unless the substandard loan is a smaller homogeneous loan that is not a TDR and is not in the process of foreclosure. These loans exhibit a distinct possibility that the Company will sustain some loss if the deficiencies related to the loss are not corrected in a timely manner.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss. Based on current facts and circumstances, loans classified as loss are not expected to be repaid, or that collateral will be difficult to liquidate. Loans classified as loss are charged off to the ALLL with board approval.

Pass. Loans not identified as special mention, substandard, doubtful or loss are classified as pass.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

The following is a breakdown of loans by risk categories at September 30, 2014 and December 31, 2013:

September 30, 2014
(Dollars in thousands)	Pass		Special Mention		Substandard		Total

Commercial	$	2,450	$	3,170	$	2,836	$	8,456
Commercial real estate:
Construction		686		—		357		1,043
Owner occupied		21,749		2,978		917		25,644
Other		14,663		469		4,835		19,967
Faith-based non-profit:
Construction		5,991		—		—		5,991
Owner Occupied		71,760		3,542		9,427		84,729
Other		5,210		—		—		5,210
Residential real estate:
First mortgage		16,417		409		3,319		20,145
Multifamily		2,970		32		60		3,062
Home equity		2,288		—		241		2,529
Construction		481		—		—		481
Consumer		1,224		14		13		1,251
Other loans		6,675		—		—		6,675
Total	$	152,564	$	10,614	$	22,005	$	185,183

December 31, 2013
(Dollars in thousands)	Pass		Special Mention		Substandard		Total

Commercial	$	12,342	$	—	$	2	$	12,344
Commercial real estate:
Construction		4,396		—		362		4,758
Owner occupied		17,586		625		3,975		22,186
Other		27,584		2,703		1,858		32,145
Faith-based non-profit:
Construction		—		—		—		—
Owner Occupied		66,626		7,474		4,661		78,761
Other		6,701		1		—		6,702
Residential real estate:
First mortgage		17,890		427		4,033		22,350
Multifamily		3,171		38		62		3,271
Home equity		2,668		—		383		3,051
Construction		241		—		—		241
Consumer		1,323		—		17		1,340
Other loans		2,326		—		—		2,326
Total	$	162,854	$	11,268	$	15,353	$	189,475

Loans Modified as a TDR - Loans are considered to have been modified as a TDR when the Company makes certain concessions to a borrower experiencing financial difficulty. Concessions to the borrower at modification may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified as a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. Since the economic crisis began in 2008, management has elected to offer concessions to borrowers with identified financial weaknesses, even if the borrowers have continued making scheduled payments, working with the borrowers to enable them to continue to satisfy their loan repayment obligations to the Company.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

The following tables present TDRs as of September 30, 2014 and December 31, 2013.

	Troubled Debt Restructurings
	September 30, 2014
					Non-accrual				Total
	Accrual Status				Status				Modifications
(Dollars in thousands)	Number		Amount		Number		Amount		Number		Amount

Commercial real estate:
Construction		2	$	357		—	$	—		2	$	357
Owner occupied		5		5,069		—		—		5		5,069
Other		3		480		1		2,576		4		3,056
Faith-based non-profit:
Owner occupied		19		16,246		1		23		20		16,269
Other		1		157		—		—		1		157
Residential real estate:
First mortgage		1		29		2		170		3		199
		31	$	22,338		4	$	2,769		35	$	25,107

	Troubled Debt Restructurings
	December 31, 2013
					Non-accrual				Total
	Accrual Status				Status				Modifications
(Dollars in thousands)	Number		Amount		Number		Amount		Number		Amount

Commercial real estate:
Construction		2	$	362		—	$	—		2	$	362
Owner occupied		4		506		1		2,598		5		3,104
Other		5		4,953		—		—		5		4,953
Faith-based non-profit:
Owner occupied		21		17,632		1		29		22		17,661
Residential real estate:
First mortgage		1		29		3		244		4		273
		33	$	23,482		5	$	2,871		38	$	26,353

No loans were restructured during the three or nine months ended September 30, 2014. One loan totaling $1.8 million was restructured during the 12 months ended September 30, 2014, and was paying as restructured as of September 30, 2014. No loans were restructured during the three or nine months ended September 30, 2013. Loans totaling $701 thousand were restructured during the 12 months ended September 30, 2013. All loans restructured during that period were paying as restructured as of September 30, 2013. The Company considers a restructured loan to be “paying” unless it is more than 90 days past due, foreclosed upon or charged-off.

There was one loan totaling $2.6 million modified as TDRs and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the three or nine months ended September 30, 2014. There were no loans modified as TDRs and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the three or nine months ended September 30, 2013.

TDR defaults can result in a higher ALLL and a corresponding higher provision for loan losses because they generally negatively impact the timing of and expected collections from these impaired loans. Impaired loans, which include TDRs, are evaluated for specific additions to the ALLL by subtracting the recorded investment in these impaired loans from their fair values. Fair values are generally determined by the present value of future cash flows, collateral value, or liquidation value. Defaults generally reduce the present value of the future cash flows and can negatively influence the collateral values if the declining real estate values are affecting the sale of collateral.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

OTHER REAL ESTATE OWNED (“OREO”)

At the time of foreclosure, real estate is recorded at fair market value based on appraised value less estimated costs to sell, such as realtor, legal and recording fees and expenses. Subsequent to foreclosure, properties are appraised annually and adjusted to the lower of carrying amount or fair market value less estimated costs to sell. At September 30, 2014 and December 31, 2013, OREO totaled $2.6 million and $3.0 million, respectively.

BORROWINGS

Borrowings as of September 30, 2014 consisted of an FHLB borrowing of $0.8 million with an interest rate of 0.50% that matures in 2020, $1.0 thousand FHLB advance with an interest rate of 0.36% that matures October 1, 2014, and a capital lease of $0.1 million with an interest rate of 1.60%. Borrowings as of December 31, 2013 consisted of an FHLB borrowing of $0.7 million with an interest rate of 0.50% that matures in 2020 and a capital lease of $0.2 million with an interest rate of 1.60%.

The Company has federal funds lines of credit with three correspondent banks totaling $10.0 million at September 30, 2014 and December 31, 2013. The Company periodically tests its federal funds lines of credit with its correspondent banks. These lines were tested during the three months ended September 30, 2014. The Company had unused borrowing capacity with the FHLB of $5.0 million as of September 30, 2014 and $5.3 million as of December 31, 2013, respectively. In addition, the Company has the ability to borrow from the Federal Reserve Bank to the extent of investment securities pledged to the Federal Reserve Bank.

COMMITMENTS AND CONTINGENCIES

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized on the Consolidated Balance Sheets. The contractual amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.

The Bank’s exposure to credit losses in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank utilizes the same credit policies in making commitments and conditional obligations as it does for balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is not a violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, upon extension of credit is based on management’s credit evaluation of the counter parties. Collateral varies and may include real estate, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. To the extent deemed necessary, collateral of varying types and amounts is held to secure customer performance under certain of those letters of credit outstanding.

Financial instruments whose contract amounts represent credit risk as of September 30, 2014 and December 31, 2013, respectively, are commitments to extend credit (including availability of lines of credit), and standby letters of credit. The Bank evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral deemed necessary by the Bank is based on management’s credit evaluation and underwriting guidelines for the particular loan.

Commitments outstanding at September 30, 2014 are summarized in the following table:

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

(Dollars in thousands)	Commercial letters of credit		Other loan commitments		Total commitments

Less than one year	$	133	$	3,629	$	3,762
One to three years		284		9,943		10,227
Three to five years		—		5,120		5,120
More than five years		93		1,606		1,699
Total	$	510	$	20,298	$	20,808

10.

FAIR VALUE MEASUREMENT

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. Fair value measurements are required to be separately disclosed by level within the fair value hierarchy. The Company bases fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

For assets and liabilities recorded at fair value, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy.

Fair value measurements for assets and liabilities where there exists limited or no observable market data and, therefore, are based primarily upon estimates, are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as loans held for sale, loans held for investment, OREO, and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1 —Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.

Level 2 —Valuations are obtained from readily available pricing sources via independent providers for market transactions involving similar assets or liabilities. The Company’s principal market for these securities is the secondary institutional markets and valuations are based on observable market data in those markets. Level 2 securities include U. S. Agencies, state and municipal bonds and MBS.

Level 3 — Valuations for assets and liabilities that are derived from other valuation methodologies, including option pricing models, discounted cash flow models and similar techniques, and not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets.

Assets and Liabilities Measured on a Recurring Basis:

Available-for-Sale Investment Securities: Investment securities are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using matrix pricing, which is a mathematical technique used widely 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. Level 1 securities include those traded on nationally recognized securities exchanges, U.S. Treasury securities, and money market funds. Level 2 securities include U.S. government agency securities, mortgage-backed securities issued by government-sponsored entities, municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

Assets measured at fair value on a recurring basis as of September 30, 2014 were:

(Dollars in thousands)			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
Description	September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Recurring:

US government agencies	$	11,283	$	—	$	11,283	$	—
Government sponsored MBS
Residential		58,633		—		58,633		—
Municipals
North Carolina		1,000		—		1,000		—
Mortgage servicing rights		22		—		—		22
Total	$	70,938	$	—	$	70,916	$	22

Assets measured at fair value on a recurring basis as of December 31, 2013 were:

(Dollars in thousands)			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
Description	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Recurring:

US government agencies	$	6,766	$	—	$	6,766	$	—
Government sponsored MBS
Residential		57,698		—		57,698		—
Municipals
North Carolina		1,455		—		1,455		—
Mortgage servicing rights	$	25		—		—		25
Total	$	65,944	$	—	$	65,919	$	25

The table below displays changes in all recurring Level 3 Assets from December 31, 2013 to September 30, 2014 and December 31, 2012 to December 31, 2013.

(Dollars in thousands)	Mortgage Servicing Rights

Beginning balance (December 31, 2013)	$	25
Amortization		3
Ending Balance (September 30, 2014)	$	22

(Dollars in thousands)	Mortgage Servicing Rights

Beginning balance (December 31, 2012)	$	36
Amortization		11
Ending Balance (December 31, 2013)	$	25

Index

M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

Assets and Liabilities Measured on a Nonrecurring Basis:

Impaired loans: Impaired loans are evaluated and valued at the time the loan is identified as impaired, and are carried at the lower of cost or market value. Market value is measured based on the value of the collateral securing these loans or net present value of expected future cash flows discounted at the loan’s effective interest rate. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The value of business equipment, inventory, and accounts receivable collateral is based on net book value on the business’ financial statements and, if necessary, discounted based on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s selling costs and other expenses. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above. The Company records impaired loans as nonrecurring Level 3, when management believes the underlying collateral is worth less than the appraised value.

OREO: Foreclosed assets are adjusted to fair value, less estimated carrying costs and costs to sell, upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of the carrying value or the fair value, less estimated costs to sell. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. The Company records foreclosed assets as nonrecurring Level 3.

Repossessed Assets: Repossessed assets are adjusted to fair value, less estimated costs to sell, upon transfer of the loans to repossessions. Subsequently, repossessed assets are carried at the lower of the carrying value or the fair value, less estimated costs to sell. Fair value is based upon independent market prices, appraised values of the collateral, or management’s estimation of the value of the collateral. The Company records repossessed collateral as nonrecurring Level 3.

Mortgage Servicing Rights: Mortgage servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The Company stratifies its mortgage servicing portfolio on the basis of loan type. The assumptions used in the discounted cash flow model are those that we believe market participants would use in estimating future net servicing income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. Significant assumptions in the valuation of mortgage servicing rights include changes in interest rates, estimated loan repayment rates, and the timing of cash flows, among other factors. Mortgage servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Assets measured at fair value on a nonrecurring basis as of September 30, 2014 and December 31, 2013 were:

(Dollars in thousands)			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
Description	September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Nonrecurring:

OREO	$	2,577	$	—	$	—	$	2,577
Impaired loans:
Commercial real estate		8,979		—		—		8,979
Faith-based non-profit		15,986		—		—		15,986
Residential real estate		3,052		—		—		3,052
Consumer		8		—		—		8
Total	$	30,602	$	—	$	—	$	30,602

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M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

(Dollars in thousands)			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
Description	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Nonrecurring:

OREO	$	3,032	$	—	$	—	$	3,032
Repossessed collateral		590		—		—		590
Impaired loans:
Commercial real estate		9,050		—		—		9,050
Faith-based non-profit		16,772		—		—		16,772
Residential real estate		3,875		—		—		3,875
Consumer		11		—		—		11
Total	$	33,330	$	—	$	—	$	33,330

Quantitative Information about Level 3 Fair Value Measurements

(Dollars in thousands)

Significant

Valuation

Unobservable

Description

September 30, 2014

Technique

Inputs

Input Value

Nonrecurring:

OREO

2,577

discounted appraisals

collateral discounts

6-20%

Impaired loans

28,025

discounted appraisals

collateral discounts

6-20%

Total

30,602

(Dollars in thousands)

Significant

Valuation

Unobservable

Description

December 31, 2013

Technique

Inputs

Input Value

Nonrecurring:

OREO

3,032

discounted appraisals

collateral discounts

6-20%

Repossessed collateral

590

discounted appraisals

collateral discounts

20-50%

Impaired loans

29,708

discounted appraisals

collateral discounts

6-20%

Total

33,330

The Company discloses estimated fair values for its significant financial instruments. The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for other financial assets and liabilities are discussed below.

The Company had no transfers between any of the three levels in 2013 or 2014.

Cash and Cash Equivalents: The carrying amount of cash, due from banks, and federal funds sold approximates fair value, and is therefore considered Level 1 input.

Loans (other than impaired), net of allowances for loan losses: Fair values are estimated for portfolios of loans with similar financial characteristics. The majority of the Company’s loans and lending-related commitments are not carried at fair value on a recurring basis on the Consolidated Balance Sheets, nor are they actively traded.

The fair value of performing loans is calculated by discounting scheduled cash flows through their individual contractual maturity, using discount rates that reflect the credit risk, overhead expenses, interest rate earned and again, contractual maturity of each loan. The maturity is based on contractual maturities for each loan, modified as required by an estimate of the effect of historical prepayments and current economic conditions.

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M&F BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements, continued

For all loans, assumptions regarding the characteristics and segregation of loans, maturities, credit risk, cash flows, and discount rates are determined using specific borrower and other available information and are therefore considered a Level 3 input.

Accrued Interest Receivable and Payable: The fair value of interest receivable and payable is estimated to approximate the carrying amounts and is therefore considered a Level 1 input.

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 and is therefore considered a Level 1 input. The fair value of certificates of deposit 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 and is therefore considered a Level 2 input.

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 and is therefore considered a Level 3 input.

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.

As of September 30, 2014 and December 31, 2013, the carrying amounts and associated estimated fair value of financial assets and liabilities of the Company are as follows:

	September 30, 2014
(Dollars in thousands)	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3

Assets:
Cash and cash equivalents	$	17,194	$	17,194	$	17,194	$	—	$	—
Investment securities available for sale		70,916		70,916		—		70,916		—
Loans, net of allowances for loan losses		181,722		186,011						186,011
Accrued interest receivable		849		849		849		—

Liabilities:
Non-maturity deposits	$	122,064	$	122,064	$	122,064	$	—	$	—
Maturity deposits		124,956		124,618		—		124,618		—
Other borrowings		786		738		—		—		738
Accrued interest payable		108		108		108		—		—

	December 31, 2013
(Dollars in thousands)	Carrying		Estimated
	Amount		Value		Level 1		Level 2		Level 3

Assets:
Cash and cash equivalents	$	28,583	$	28,583	$	28,583	$	—	$	—
Investment securities available for sale		65,919		65,919		—		65,919		—
Loans, net of allowances for loan losses		185,982		189,387						189,387
Accrued interest receivable		912		912		912		—

Liabilities:
Non-maturity deposits	$	116,115	$	116,115	$	116,115	$	—	$	—
Maturity deposits		143,812		143,314		—		143,314		—
Other borrowings		847		791		—		—		791
Accrued interest payable		75		75		75		—		—

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M&F BANCORP, INC. AND SUBSIDIARY

ITEM 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

INTRODUCTION

The following discussion and analysis is intended to aid the reader in understanding and evaluating the Company’s consolidated results of operations and financial condition. This discussion is designed to provide more comprehensive information about the major components of the Company’s results of operations, financial condition, liquidity, and capital resources than may be obtained from reading the financial statements alone. This discussion should be read in conjunction with, and is qualified in its entirety by reference to, the Company’s Consolidated Financial Statements, including the related notes thereto presented under Item 1 in this Quarterly Report on Form 10-Q. All information presented is consolidated data unless otherwise specified.

CAUTIONARY STATEMENT REGARDING 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 the Company and Mechanics and Farmers Bank (the “Bank”), 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 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 but not limited to those risk factors identified in the section headed "Risk Factors", beginning on page 10 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the Securities and Exchange Commission (the "SEC") on March 18, 2014 (the "Annual Report"). The Company undertakes no obligation to update any forward-looking statement, whether written or not, which may be made from time to time by or on behalf of the Company.

IMPACT OF RECENT DEVELOPMENTS ON THE BANKING INDUSTRY

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law. The Dodd-Frank Act was intended primarily to overhaul the financial regulatory framework following the global financial crisis and has impacted, and will continue to impact, all financial institutions including the Company and the Bank. The Dodd-Frank Act contains provisions that have, among other things, established a Bureau of Consumer Financial Protection (the "CFPB"), established a systemic risk regulator, consolidated certain federal bank regulators and imposed increased corporate governance and executive compensation requirements on financial institutions. 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 the U.S. Congress. The federal agencies are given significant discretion in drafting and implementing regulations. Many regulations have been promulgated, and more additional regulations are expected to be issued in 2014 and thereafter. Consequently, many of the details and much of the impact of the Dodd-Frank Act may not be known for many months or years.

Many of the provisions of the Dodd-Frank Act are focused on financial institutions that are significantly larger than the Company and the Bank. As rules and regulations are promulgated by the federal agencies, the Bank will have to address each to ensure compliance with applicable provisions of the Act and compliance costs are expected to increase.

It is expected that the Dodd-Frank Act and the regulations it requires could increase the non-interest expense and compliance costs of the Bank and comparable financial institutions. Although neither the possible increase in the Bank’s interest expense and compliance costs, nor any one or more of the other aspects of Dodd-Frank Act discussed above, may have a material effect upon the Company’s future financial performance by themselves, the specific impact of the Dodd-Frank Act cannot be determined with specificity until after all required or otherwise proposed regulations are issued in final form. We believe that our operating income will be adversely affected, as will the operating expenses of other community financial institutions, in the future as a consequence of the implementation of the Dodd-Frank Act. Because of the current uncertainty about the schedule of implementation, the breadth of the regulations expected to be issued, and other similar factors, we cannot quantify the amount of any adverse impact.

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 to the impact of the recent recession or the increased focus of banking regulators upon capital and liquidity levels.

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M&F BANCORP, INC. AND SUBSIDIARY

EXECUTIVE SUMMARY

As discussed in more detail below, the following is an executive summary of the Company’s significant results for the three months ended September 30, 2014.

Net income before preferred stock dividends and accretion was $228 thousand and $155 thousand for the three months ended September 30, 2014 and 2013, respectively. Net income available to common stockholders was $169 thousand or $0.08 per share and $96 thousand or $0.05 per share for the quarters ended September 30, 2014 and 2013, respectively.

Net interest income totaled $2.7 million for the three months ended September 30, 2014 and 2013. The net interest margin on a tax equivalent (“TE”) basis for the three months ended September 30, 2014 was 3.76% compared to 4.01% for the three months ended September 30, 2013, a decrease of 25 basis points (“bps”).

The balance of the ALLL as a percentage of loans outstanding increased slightly to 1.87% as of September 30, 2014 compared to 1.84% as of December 31, 2013. Loans outstanding decreased $4.3 million from $189.5 million at December 31, 2013 to $185.2 million at September 30, 2014. Net charge-offs were $38 thousand and $7 thousand during the three months ended September 30, 2014 and 2013, respectively. The provision for loan losses totaled $50 thousand and $10 thousand for the quarters ended September 30, 2014 and 2013, respectively.

Noninterest income increased by $331 thousand during the third quarter of 2014 compared to the same period in 2013 due to the recognition of a $355 thousand Bank Enterprise Award.

Noninterest expense increased $175 thousand in the third quarter of 2014 compared to the same period in 2013 primarily due to increases in information technology, net OREO expenses, FDIC deposit insurance premiums and other miscellaneous expenses.

Preferred stock dividends and accretion in the quarters ended September 30, 2014 and 2013 were $59 thousand. The dividend yield for the three months ended September 30, 2014 and 2013 was 2.00%.

As discussed in more detail below, the following is an executive summary of the Company’s significant results for the nine months ended September 30, 2014.

Net income before preferred stock dividends and accretion was $1.0 million and $158 thousand for the nine months ended September 30, 2014 and 2013, respectively. Net income available to common stockholders was $836 thousand or $0.41 per share for the nine months ended September 30, 2014 compared to a net loss of $19 thousand or $0.01 per share for the nine months ended September 30, 2013.

Net interest income totaled $7.9 million and $7.7 million for the nine months ended September 30, 2014 and 2013, respectively. The net interest margin on a TE basis for the nine months ended September 30, 2014 was 3.75% compared to 3.85% for the nine months ended September 30, 2013, a decrease of 10 bps.

The balance of the ALLL as a percentage of loans outstanding increased slightly to 1.87% as of September 30, 2014 compared to 1.84% as of December 31, 2013. Loans outstanding decreased $4.3 million from $189.5 million at December 31, 2013 to $185.2 million at September 30, 2014. Net charge-offs were $82 thousand and $272 thousand during the nine months ended September 30, 2014 and 2013, respectively. The provision for loan losses totaled $50 thousand and $10 thousand for the nine months ended September 30, 2014 and 2013, respectively.

Noninterest income increased by $875 thousand during the nine months ended September 30, 2014 compared to the same period in 2013, mainly due to the realization of $515 thousand gains on the sales of repossessed assets and the recognition of a $355 thousand Bank Enterprise Award during the period ended September 30, 2014.

Noninterest expense decreased $193 thousand during the nine months ended September 30, 2014 compared to the same period in 2013 primarily driven by reductions in salaries and benefits, occupancy and equipment, directors fees, marketing, professional fees and net OREO expenses.

Preferred stock dividends and accretion during the nine months ended September 30, 2014 and 2013 were $177 thousand. The dividend yield for the nine months ended September 30, 2014 and 2013 was 2.00%.

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 (“GAAP”). 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 values, income taxes, 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.

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M&F BANCORP, INC. AND SUBSIDIARY

The Company’s significant accounting policies are discussed below and in the Annual Report. 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 and Risk Committee of the Board of Directors.

ALLL – The Company records an estimated ALLL for loan losses based on known problem loans and estimated risks inherent within the existing loan portfolio. The allowance calculation takes into account historical loss trends, current market, and economic conditions. If economic conditions were to decline significantly or the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional increases to the allowance may be required.

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.

Deferred Taxes – The Company assesses the need to record a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. The Company considers anticipated future taxable income and ongoing prudent and feasible tax planning strategies in determining the need for the valuation allowance which, at this time, it deems not to be necessary. In the event the Company were to determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Foreclosed Assets - Foreclosed assets represent properties acquired through foreclosure or physical possession. Write-downs to fair value of foreclosed assets at the time of transfer are charged to allowance for loan losses. Subsequent to foreclosure, the Company periodically evaluates the value of foreclosed assets held for sale and records an impairment charge for any subsequent declines in fair value less selling costs. Subsequent declines in value are charged to operations. Fair value is based on an assessment of information available at the end of a reporting period and depends upon a number of factors, including historical experience, economic conditions, and issues specific to individual properties. The evaluation of these factors involves subjective estimates and judgments that may change.

Fair Value Estimates - Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market inputs. For financial instruments that are traded actively and have quoted market prices or observable market inputs, there is minimal subjectivity involved in measuring fair value. However, when quoted market prices or observable market inputs are not fully available, significant management judgment may be necessary to estimate fair value. In developing our fair value measurements, we maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines Level 1 and 2 valuations as those that are based on quoted prices for identical instruments traded in active markets and quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. Level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that we believe market participants would use in pricing the asset or liability. Financial assets that are recorded at fair value on a recurring basis include available-for-sale investment securities.

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M&F BANCORP, INC. AND SUBSIDIARY

FINANCIAL CONDITION

The Company’s financial condition is measured in terms of its asset and liability composition, asset quality, capital resources and liquidity.

Assets. Total assets decreased from $301.5 million at December 31, 2013 to $289.2 million at September 30, 2014. Cash and cash equivalents decreased from $28.6 million at December 31, 2013 to $17.2 million at September 30, 2014. Investment securities increased by $5.0 million primarily due to net purchases of investments. Gross loans decreased $4.3 million primarily due to a $2.9 million reduction of a loan participation and loan runoff. OREO decreased slightly from $3.0 million at December 31, 2013 to $2.6 million at September 30, 2014. Other assets decreased $443 thousand during the nine-month period primarily due to the liquidation of repossessed collateral totaling $590 thousand along with reduction in other miscellaneous asset accounts.

Liabilities. Total liabilities decreased from $265.4 million at December 31, 2013 to $252.0 million at September 30, 2014. The change was primarily driven by a $17.0 million decrease in the Bank’s time deposits greater than $100,000 (primarily Certificate of Deposit Account Registry Service (“CDARS”) deposits), which are subject to significant volatility due to seasonality, partially offset by growth in core deposits, such as interest-checking and savings. Noninterest-bearing deposits decreased $4.1 million from December 31, 2013 to September 30, 2014. We believe a significant portion of that decrease to be temporary. Other borrowings decreased by $61 thousand due to principal payments on long-term leases and other long-term debt.

Stockholders’ Equity. Total consolidated stockholders’ equity increased from $36.1 million at December 31, 2013 to $37.2 million at September 30, 2014. For the nine months ended September 30, 2014, the net increase in retained earnings was comprised of $1.0 million of net income, offset by dividends and accretion on preferred stock of $177 thousand. The Company did not pay a common stock dividend during the first nine months of 2014. Accumulated other comprehensive loss represents the unrealized loss on available-for-sale securities and the unrealized loss related to the deferred pension liability, net of deferred taxes. Accumulated other comprehensive loss was in a net unrealized loss position of $1.2 million at September 30, 2014 compared to a net unrealized loss position of $1.4 million at December 31, 2013.

On September 23, 2014, the Board of Directors adopted a rights agreement to ensure that the Board of Directors remains in the best position to perform its fiduciary duties and to enable all stockholders of the Company to receive fair and equal treatment. Adopting the rights agreement is also designed to allow all stockholders of the Company to realize the long-term value of their investment by reducing the likelihood that any person or group would gain control of the Company through open market accumulation without appropriately compensating the Company’s stockholders for such control or providing the Board of Directors sufficient time to make informed judgments. The rights may cause substantial dilution to any person or group that attempts to acquire the Company without the approval of the Board of Directors. As a result, the overall effect of the rights agreement and the issuance of the rights may be to render more difficult or discourage a merger, tender or exchange offer or other business combination involving the Company that is not approved by the Board.

RESULTS OF OPERATIONS

Three months ended September 30, 2014 compared with three months ended September 30, 2013

General. Net income before preferred stock dividends was $228 thousand and $155 thousand for the three months ended September 30, 2014 and 2014, respectively. Preferred stock dividends and accretion in the quarters ended September 30, 2014 and 2013 were $59 thousand. Dividend yield on the Company’s preferred stock for the three months ended September 30, 2014 and 2013 was 2.00%. Net income available to common stockholders was $169 thousand or $0.08 per share and $96 thousand or $0.05 per share for the three months ended September 30, 2014 and 2013, respectively.

Net Interest Income. Net interest income, the difference between total interest income from loans and investments, and total interest expenses from deposits and borrowings, is the Company’s principal source of earnings. The amount of net interest income is determined by the volume of interest-earning assets, the level of rates earned on those assets, and the volume and cost of underlying funding from deposits and borrowings. Net interest income decreased $9 thousand, or 0.34%, to $2.7 million for the three months ended September 30, 2013 compared to the comparable period of 2013. Average earning assets for the three months ended September 30, 2014 were $283.9 million, up 6.05% compared to $267.7 million for the three months ended September 30, 2013. Net interest margin is the total of net interest income divided by average earning assets. On a fully TE basis, net interest margin was 3.76% and 4.01% for the three months ended September 30, 2014 and 2013, respectively. Net interest spread is the difference between rates earned on interest-earning assets and the interest paid on deposits and borrowed funds. The net interest spread decreased 23 bps to 3.69% for the three months ended September 30, 2014 from 3.92% for the three months ended September 30, 2013. The yield on average interest-earning assets was 3.98% and 4.30% for the three months ended September 30, 2014 and 2013, a decrease of 32 bps, while the interest rate on average interest-bearing liabilities for those periods was 0.29% and 0.38%, respectively,

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M&F BANCORP, INC. AND SUBSIDIARY

Interest income decreased 1.50% for the three months ended September 30, 2014 to $2.8 million from $2.9 million for the three months ended September 30, 2013. The average balances of loans, which had overall yields of 5.41% and 5.89% for the three months ended September 30, 2014 and 2013, respectively, increased from $181.5 million for the three months ended September 30, 2013 to $184.7 million for the three months ended September 30, 2014. The average balance of investment securities increased $14.0 million from $56.0 million for the three months ended September 30, 2013 to $70.0 million for the three months ended September 30, 2014. The TE yield on investment securities increased from 1.30% for the three months ended September 30, 2013 to 1.76% for the three months ended September 30, 2014. The average balances of federal funds and other short-term investments decreased from $30.2 million for the three months ended September 30, 2013 to $29.2 million for the three months ended September 30, 2014. The average yield in this category was 0.30% and 0.28% during the third quarters of 2014 and 2013, respectively.

Interest expense decreased 17.89% for the three months ended September 30, 2014 to $156 thousand from $190 thousand for the three months ended September 30, 2013. Average total interest-bearing deposits, including savings, interest-bearing demand deposits and time deposits increased from $199.0 million for the three months ended September 30, 2013 to $210.8 million for the three months ended September 30, 2014. The average rate paid on interest-bearing deposits decreased nine bps from 0.38% for the three months ended September 30, 2013 to 0.29% for the three months ended September 30, 2014.

The average rate on borrowings decreased from 0.91% for the three months ended September 30, 2013 to 0.50% for the three months ended September 30, 2014. The average borrowings outstanding decreased from $879 thousand during the three months ended September 30, 2013 to $797 thousand during the three months ended September 30, 2014. The interest expense on borrowed funds decreased from $2 thousand to $1 thousand from the third quarter of 2013 to the same period in 2014.

The following table, Average Balances, Interest Earned or Paid, and Interest Yields/Rates reflects the Company’s effective yield on earning assets and cost of funds. Yields and costs are computed by dividing income or expense for the year by the respective daily average asset or liability balance. Changes in net interest income from year to year can be explained in terms of fluctuations in volume and rate. In the table, the amount earned on nontaxable securities is reflected as actual, whereas the rate on nontaxable securities is stated at the TE rate.

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M&F BANCORP, INC. AND SUBSIDIARY

Average Balances, Interest Earned or Paid, and Interest Yields/Rates
For the Three Months Ended September 30, 2014 and 2013
(Dollars in thousands)	2014									2013
(Unaudited)	Average Balance			Amount Earned/Paid			Average Rate			Average Balance			Amount Earned/Paid			Average Rate
Assets
Loans receivable (1):	$	184,744		$	2,499			5.41	%	$	181,463		$	2,672			5.89	%
Taxable securities		69,561			300			1.73			55,088			166			1.21
Nontaxable securities(2)		422			4			6.05			889			9			6.59
Federal funds sold and other interest on short-term investments		29,165			22			0.30			30,244			21			0.28
Total interest earning assets		283,892			2,825			3.98	%		267,684			2,868			4.30	%
Cash and due from banks		2,526									3,384
Other assets		18,707									22,172
Allowance for loan losses		(3,435	)								(3,253	)
Total assets	$	301,690								$	289,987

Liabilities and Equity
Savings deposits	$	54,696		$	15			0.11	%	$	51,120		$	18			0.14	%
Interest-bearing demand deposits		20,868			4			0.08			19,539			4			0.08
Time deposits		135,281			136			0.40			128,350			166			0.52
Total interest-bearing deposits		210,845			155			0.29			199,009			188			0.38
Borrowed funds		797			1			0.50			879			2			0.91
Total interest-bearing liabilities		211,642			156			0.29	%		199,888			190			0.38	%
Non-interest-bearing deposits		48,565									48,947
Other liabilities		4,439									5,595
Total liabilities		264,646									254,430
Stockholders' equity		37,044									35,557
Total liabilities and stockholders' equity	$	301,690								$	289,987

Net interest income				$	2,669								$	2,678

Non-taxable securities					4									9
Tax equivalent adjustment (3)					2									6

Tax equivalent net interest income				$	2,671								$	2,684
Net interest spread (4)								3.69	%								3.92	%
Net interest margin (5)					3.76	%								4.01	%

(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 37.30% for 2014 and 38.55% for 2013.

(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.

Index

M&F BANCORP, INC. AND SUBSIDIARY

Provision for loan losses. The provision for loan losses was $50 thousand and $10 thousand for the three months ended September 30, 2014 and 2013, respectively. The increased provision was primarily attributable to the specific allowance method for impaired loans.

Noninterest Income. Noninterest income increased 80.34% or $331 thousand for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. The increase was due to the recognition of a $355 thousand Bank Enterprise Award, which reflects the Bank’s dedication to financing and supporting community and economic development activities in economically distressed areas. No such income was recognized during the comparable period of 2013. Service charge income decreased by $3 thousand as a result of lower customer based activities. Rental income decreased by $30 thousand for the three months ended September 30, 2014 when compared to the same period in 2013. The decrease in rental income was driven by lower occupancy and occupancy rates during the third quarter of 2014 as compared to the same period in 2013.

Noninterest Expense. Noninterest expense represents the costs of operating the Company and the Bank. Management regularly monitors all categories of noninterest expense with the goal of improving productivity and operating performance. Noninterest expense increased 6.28% to $3.0 million for the three months ended September 30, 2014 from $2.8 million for the three months ended September 30, 2013.

Salaries and employee benefits expenses for the three months ended September 30, 2014 and 2013 were $1.4 million.

Occupancy expense decreased by $28 thousand during the three months ended September 30, 2014 from the same period in 2013. The decrease was primarily due to lower security expenses and repairs/maintenance during the more recent period.

Information technology costs increased by 44.21% or $84 thousand to $274 thousand in 2014. The increase was mainly due to a systems conversion, which occurred during mid-August 2014.

Directors and advisory board fees decreased by $17 thousand or 25.37% from $67 thousand in the third quarter of 2013 to $50 thousand in the corresponding 2014 period as a result of fewer committee and board meetings during the more recent period as well as a restructuring of compensation arrangements.

Professional fees decreased by $16 thousand or 7.96% from 2013 to 2014 primarily as a result of lower audit and legal expenses.

Net OREO expenses increased $66 thousand from $50 thousand in the third quarter of 2013 to $116 thousand in the corresponding 2014 period. Principally, write-downs during the 2014 period decreased by $3 thousand to $9 thousand compared to $12 thousand during the corresponding 2013 period, and gains on the sales of OREO totaled $48 thousand during the third quarter of 2014 compared to a net gain of $2 thousand during the comparable quarter in 2013, partially offset with increases in other OREO expenses such as legal fees, insurance and property taxes.

FDIC deposit insurance expense increased from $135 thousand for the three months ended September 30, 2013 to $141 thousand for the three months ended September 30, 2014. The increase represents larger average deposit balances during 2014 compared to 2013.

During the third quarter of 2013, the Company realized a $5 thousand gain at foreclosure with no gain during the comparable quarter of 2014.

Other expenses increased $76 thousand for the three months ended September 30, 2014 from the three months ended September 30, 2013. The increase in other expenses was primarily driven by a $53 thousand increase in loan related expenses, an $18 thousand increase in loss on cash items and a $14 thousand increase in charitable contributions, partially offset with decreases in other miscellaneous expenses.

Provision for Income Taxes. The Company recorded an income tax expense of $173 thousand and $139 thousand for the three months ended September 30, 2014 and 2013, respectively. The overall effective rate was 43.14% and 47.28% for the three months ended September 30, 2014 and 2013, respectively. The decrease in the effective tax rate during 2014 was largely driven by a reduction in state income tax rates.

Nine months ended September 30, 2014 compared with nine months ended September 30, 2013

General. Net income before preferred stock dividends was $1.0 million and $158 thousand for the nine months ended September 30, 2014 and 2013, respectively. Preferred stock dividends and accretion during the nine months ended September 30, 2014 and 2013 were $177 thousand. Dividend yield on the Company’s preferred stock for the nine months ended September 30, 2014 and 2013 was 2.00%. Net income available to common stockholders for the nine months ended September 30, 2014 was $836 thousand or $0.41 per share compared to a net loss available to common stockholders for the nine months ended September 30, 2013 of $19 thousand or $0.01 per share.

Index

M&F BANCORP, INC. AND SUBSIDIARY

Net Interest Income. Net interest income, the difference between total interest income from loans and investments, and total interest expenses from deposits and borrowings, is the Company’s principal source of earnings. The amount of net interest income is determined by the volume of interest-earning assets, the level of rates earned on those assets, and the volume and cost of underlying funding from deposits and borrowings. Net interest income increased $278 thousand or 3.63% from $7.7 million for the nine months ended September 30, 2013 to $7.9 million for the nine months ended September 30, 2014. Average earning assets for the nine months ended September 30, 2014 were $282.4 million, up 6.40% compared to $265.4 million for the nine months ended September 30, 2013. Net interest margin is the total of net interest income divided by average earning assets. On a fully TE basis, net interest margin was 3.75% and 3.85% for the nine months ended September 30, 2014 and 2013, respectively. Net interest spread is the difference between rates earned on interest-earning assets and the interest paid on deposits and borrowed funds. The net interest spread decreased from 3.75% for the nine months ended September 30, 2013 to 3.67% for the nine months ended September 30, 2014. The yield on average interest-earning assets was 3.98% and 4.13% for the nine months ended September 30, 2014 and 2013, a decrease of 15 bps, while the interest rate on average interest-bearing liabilities for those periods was 0.31% and 0.38%, respectively, a decrease of seven bps due to the ongoing low interest rate environment.

Interest income increased 2.65% for the nine months ended September 30, 2014 to $8.4 million from $8.2 million for the nine months ended September 30, 2013. The average balances of loans, which had overall yields of 5.32% and 5.68% for the nine months ended September 30, 2014 and 2013, respectively, increased from $178.3 million for the nine months ended September 30, 2013 to $186.4 million for the nine months ended September 30, 2014. The average balance of investment securities increased $9.0 million from $58.5 million for the nine months ended September 30, 2013 to $67.5 million for the nine months ended September 30, 2014. The TE yield on investment securities increased from 1.32% for the nine months ended September 30, 2013 to 1.87% for the nine months ended September 30, 2014. Reduced principal payments on MBS contributed to the improvement in yield on investment securities. The average balances of federal funds and other short-term investments totaled $28.6 million and $28.7 million for the nine months ended September 30, 2014 and 2013, respectively. The average yield in this category was 0.26% during the nine months ended September 30, 2014 and 2013.

Interest expense decreased 10.81% for the nine months ended September 30, 2014 to $495 thousand from $555 thousand for the nine months ended September 30, 2013. Average total interest-bearing deposits, including savings, interest-bearing demand deposits and time deposits increased from $195.0 million for the nine months ended September 30, 2013 to $209.9 million for the nine months ended September 30, 2014. The average rate paid on interest-bearing deposits decreased seven bps from 0.38% for the nine months ended September 30, 2013 to 0.31% for the nine months ended September 30, 2014.

The average rate on borrowings increased from 0.43% for the nine months ended September 30, 2013 to 0.65% for the nine months ended September 30, 2014. The average borrowings outstanding decreased $748 thousand from $1.6 million during the nine months ended September 30, 2013 to $817 thousand during the nine months ended September 30, 2014. The interest expense on borrowed funds decreased $1 thousand to $4 thousand during the nine months ended September 30, 2014 compared to $5 thousand during the same period in 2013.

Index

M&F BANCORP, INC. AND SUBSIDIARY

Average Balances, Interest Earned or Paid, and Interest Yields/Rates
For the Nine Months Ended September 30, 2014 and 2013
(Dollars in thousands)	2014									2013
	Average Balance			Amount Earned/Paid			Average Rate			Average Balance			Amount Earned/Paid			Average Rate
Assets
Loans receivable (1):	$	186,382		$	7,439			5.32	%	$	178,263		$	7,593			5.68	%
Taxable securities		66,788			915			1.83			57,563			535			1.24
Nontaxable securities(2)		681			19			5.93			890			27			6.58
Federal funds sold and other interest on short-term investments		28,574			56			0.26			28,723			56			0.26
Total interest earning assets		282,425			8,429			3.98	%		265,439			8,211			4.13	%
Cash and due from banks		2,730									3,264
Other assets		19,669									21,253
Allowance for loan losses		(3,467	)								(3,396	)
Total assets	$	301,357								$	286,560

Liabilities and Equity
Savings deposits	$	52,833		$	47			0.12	%	$	50,987		$	60			0.16	%
Interest-bearing demand deposits		21,107			12			0.08			21,927			13			0.08
Time deposits		135,920			432			0.42			122,073			477			0.52
Total interest-bearing deposits		209,860			491			0.31			194,987			550			0.38
Borrowed funds		817			4			0.65			1,565			5			0.43
Total interest-bearing liabilities		210,677			495			0.31	%		196,552			555			0.38	%
Non-interest-bearing deposits		49,511									48,311
Other liabilities		4,478									5,796
Total liabilities		264,666									250,659
Stockholders' equity		36,692									35,901
Total liabilities and stockholders' equity	$	301,358								$	286,560

Net interest income				$	7,934								$	7,656

Non-taxable securities					19									27
Tax equivalent adjustment (3)					12									17

Tax equivalent net interest income				$	7,946								$	7,673			`
Net interest spread (4)								3.67	%								3.75	%
Net interest margin (5)					3.75	%								3.85	%

(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 37.30% for 2014 and 38.55% for 2013.

(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.

Provision for loan losses. There was a provision for loan losses of $50 thousand and $10 thousand for the nine months ended September 30, 2014 and 2013, respectively. The increased provision was primarily attributable to specific allowance method for impaired loans.

Noninterest Income. Noninterest income increased 70.91% or $875 thousand for the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013. The increase was due to the gains on sales of repossessed collateral totaling $515 thousand and the recognition of a $355 thousand Bank Enterprise Award during the nine months ended September 30, 2014 compared to no gain during the comparable period of 2013. While the Bank has historically experienced gains and or losses on the disposal of repossessed collateral, the amounts have generally been immaterial. However, during the nine months ended September 30, 2014, the sale of one piece of collateral resulted in a gain of $514 thousand. We do not anticipate such large gains in the future. Service charge income increased by $20 thousand primarily due to increased fees earned from overdraft, non-sufficient-fee (“NSF”) income and interchange income from the usage of debit cards, which are customer activity based. Rental income decreased by $76 thousand for the nine months ended September 30, 2014 when compared to the same period in 2013. The decrease in rental income was driven by lower occupancy and occupancy rates during the nine months ended September 30, 2014 as compared to the same period in 2013.

Index

M&F BANCORP, INC. AND SUBSIDIARY

Noninterest Expense. Noninterest expense represents the costs of operating the Company and the Bank. Management regularly monitors all categories of noninterest expense with the goal of improving productivity and operating performance. Noninterest expense decreased 2.25% to $8.4 million for the nine months ended September 30, 2014 from $8.6 million for the nine months ended September 30, 2013.

Salaries and employee benefits expenses decreased $183 thousand to $4.1 million during the nine months ended September 30, 2014 compared to the comparable period in 2013. The decrease was a result of cost containment measures.

Occupancy expense decreased by $35 thousand during the nine months ended September 30, 2014 from the same period in 2013. The decrease was primarily due to lower depreciation, insurance expense, and repairs and maintenance during the more recent period.

Information technology costs increased by 9.17% or $56 thousand to $667 thousand in 2014. The increase was mainly due to a core systems conversion, which occurred during mid-August of 2014.

Directors and advisory board fees decreased by $70 thousand or 31.25% from $224 thousand during the first nine months of 2013 to $154 thousand in the corresponding 2014 period as a result of fewer committee and board meetings during the more recent period as well as a restructuring of compensation arrangements.

Professional fees decreased by $85 thousand or 13.10% from 2013 to 2014 primarily as a result of lower audit and legal expenses.

Net OREO expenses decreased $36 thousand from $237 thousand during the first nine months of 2013 to $201 thousand in the corresponding 2014 period. Principally, write-downs during the 2014 period decreased by $55 thousand to $123 thousand compared to $178 thousand during the 2013 period, and gains on the sales of OREO totaled $73 thousand during the first nine months of 2014 compared to a net loss of $8 thousand during the comparable nine months of 2013, partially offset with increases in other OREO expenses which include legal fees, insurance and property taxes on OREO.

FDIC deposit insurance expense increased from $363 thousand for the nine months ended September 30, 2013 to $434 thousand for the nine months ended September 30, 2014. The increase represents larger average deposit balances during 2014 compared to 2013.

During the nine months ended September 30, 2014, the Company realized $41 thousand in gains at foreclosure compared to $8 thousand during the comparable period of 2013.

Other expenses increased $167 thousand for the nine months ended September 30, 2014 from the nine months ended September 30, 2013. The increase in other expenses was primarily driven by a $53 thousand in loan related activities, $30 thousand increase in off-balance sheet provisions for unfunded letters of credit and lines of credit, $23 thousand increase in training, $27 thousand increase in charitable contributions and a $18 thousand increase in check fraud losses.

Provision for Income Taxes. The Company recorded an income tax expense of $591 thousand and $140 thousand for the nine months ended September 30, 2014 and 2013, respectively. The overall effective rate decreased from 46.98% in 2013 to 36.85% in 2014. The decrease in the effective tax rate during 2014 was largely driven by permanent differences in non-taxable income in proportion to taxable income during the period.

ASSET QUALITY

ALLL. The provision for loan losses is the amount charged against earnings, to establish an adequate allowance for loan losses. Loan losses and recoveries are charged to or credited to this allowance, rather than reported as a direct expense or recovery. As of September 30, 2014 and December 31, 2013, the allowance for loan losses was $3.5 million, which represented approximately 1.87% and 1.84% of total loans outstanding on those respective dates.

Nonperforming assets, defined as non-accruing loans plus OREO and other repossessed assets, at September 30, 2014 were 3.14% of total assets compared to 3.43% at December 31, 2013.

Of the non-accruing loans totaling $6.5 million at September 30, 2014, 99.87% of the outstanding balance is secured by real estate, which management believes mitigates the risk of loss. The recorded investment in TDRs in compliance with their modified terms totaled $20.6 million or 81.65% of total recorded investment in TDRs at September 30, 2014. GAAP does not provide specific guidance on when a loan may be returned to accrual status. Federal banking regulators have provided guidance that interest on impaired loans, including TDRs, should only be recorded when there has been a sustained period of repayment performance, the loan is well secured, and collection under any revised terms is assessed as probable. The Company follows this Federal banking regulators guidance.

Index

M&F BANCORP, INC. AND SUBSIDIARY

Loans are generally placed on non-accrual status when the scheduled payments reach 90 days past due. Loans are charged-off, with Board approval, when the Chief Credit Officer and his staff determine that all reasonable means of collection of the outstanding balances, except through foreclosure, have been exhausted. The Company continues its collection efforts subsequent to charge-off, which results in some recoveries each year. See Note 6 to the consolidated financial statements for additional discussion of loans and ALLL.

Past due loans increased from $10.6 million at December 31, 2013 to $15.0 million at September 30, 2014. Approximately $7.1 million of past due loans represent loans that had matured and were in the process of being renewed.

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 25.86% liquidity ratio is the sum of cash, overnight funds, and un-pledged, marketable securities divided by the sum of deposits and short-term borrowings (less the full amount of pledged deposits). Management believes that core deposit activity, $5.0 million in available borrowing capacity from the FHLB of Atlanta at September 30, 2014, and Fed Funds accommodations of $10.0 million will be adequate to meet the short-term and long-term liquidity needs of the Company. The Company had $665 thousand outstanding from the FHLB as of September 30, 2014. The maximum outstanding balance from FHLB at any time during the first nine months of 2014 was $681 thousand. The Company periodically draws on its Fed Funds accommodations to test the lines availability.

The Company participates in the Certificate of Deposit Account Registry Service (“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 continuing depositor has renewed annual $20 million in deposits for several years, and increased the balance by an additional $5 million during the fourth quarter of 2013. There is no guarantee, however, this trend will continue. During the third quarter of 2014, the Company’s largest CDARS depositor withdrew $12.5 million, which accounts for the large reduction in time-deposit balances from December 31, 2013 to September 30, 2014. The funds were redeposited during early October 2014; the withdrawal of funds for a seven-day period is a standard practice with the depositor. In management’s opinion, this and other large depositors have stable and long-term relationships with the Bank.

Capital Resources

The Company and the Bank are subject to various regulatory capital requirements administered by their federal and state banking regulators. 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. The Bank is required to obtain the non-objection of its regulators before engaging in any transactions that would materially change the composition of the Bank’s balance sheet. Also, the Bank’s Memorandum of Understanding with its regulators requires the Bank to maintain a tier 1 leverage capital ratio of not less than 8.00%, and a total risk based capital ratio of not less than 10.00%.

Index

M&F BANCORP, INC. AND SUBSIDIARY

The September 30, 2014 and December 31, 2013 regulatory capital levels of the Company and Bank compared to the regulatory standards were:

	September 30, 2014

						For Capital
						Adequacy					To Be Well
(Dollars in thousands)	Actual					Purposes					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk weighted assets)
Company	$	38,472		18.28	%	$	16,834		8.00	%		n/a		n/a
Bank		37,452		17.80			16,834		8.00		$	21,043		10.00	%
Tier 1 (to risk weighted assets)
Company	$	35,831		17.03	%	$	8,417		4.00	%		n/a		n/a
Bank		34,811		16.54			8,417		4.00		$	12,626		6.00	%
Tier 1 (to average total assets)
Company	$	35,831		11.97	%	$	11,972		4.00	%		n/a		n/a
Bank		34,811		11.63			11,973		4.00		$	14,966		5.00	%

	December 31, 2013

						For Capital
						Adequacy					To Be Well
(Dollars in thousands)	Actual					Purposes					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital (to risk weighted assets)
Company	$	37,006		17.42	%	$	16,990		8.00	%		n/a		n/a
Bank		35,573		16.77			16,975		8.00		$	21,219		10.00	%
Tier 1 (to risk weighted assets)
Company	$	34,341		16.17	%	$	8,495		4.00	%		n/a		n/a
Bank		32,910		15.51			8,487		4.00		$	12,731		6.00	%
Tier 1 (to average total assets)
Company	$	34,341		11.87	%	$	11,576		4.00	%		n/a		n/a
Bank		32,910		10.69			12,316		4.00		$	15,395		5.00	%

Item 4 — 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 formats.

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.

Index

M&F BANCORP, INC. AND SUBSIDIARY

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 5. Other Information

The Board of Directors of the Company amended and restated its Bylaws on November 12, 2014, authorizing the Chair of the Board of Directors (rather than the President or a Vice-President) of the Company to sign certificates for shares of the Company. A copy of the Amended and Restated Bylaws is attached as Exhibit 3(ii) and incorporated herein by reference.

Index

M&F BANCORP, INC. AND SUBSIDIARY

ITEM 6. EXHIBITS
The following exhibits are filed with or incorporated by reference into this report.

Exhibit No.		Description of Exhibit

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 10KSB 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)		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.

Exhibit 3(i)(e)		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 3(i)(f)		Articles of Amendment., adopted by the Board of Directors of the Company and filed with the North Carolina Department of the Secretary of State on September 23, 2014, incorporated by reference to Exhibit 3.1 to the Form 8-K filed with the SEC on September 23, 2014.

Exhibit 3(ii)		Amended and Restated Bylaws of the Company, dated November 12, 2014.

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)		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.

Exhibit 4(iii)		Rights Agreement, dated as of September 23, 2014, between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent, incorporated by reference to Exhibit 4.1 to the Form 8-K filed with the SEC on September 23, 2014.

Exhibit 10(i)*		Employment Agreement dated January 12, 2007 by and among Kim D. Saunders, the Company and the Bank, incorporated by reference to Exhibit 99.1 to the Form 8-K filed with the SEC on January 18, 2007.

Exhibit 10(ii)		Letter Agreement and certain side letters, all 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.

Index

M&F BANCORP, INC. AND SUBSIDIARY


Exhibit 10(iii) *		Employment Agreement Amendment, dated August 11, 2014, among the Company, the Bank and James H. Sills, III, incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the SEC on June 26, 2009.

Exhibit 31(i)		Certification of James H. Sills, III.

Exhibit 31(ii)		Certification of Randall C. Hall.

Exhibit 32		Certification pursuant to 18 U.S.C. Section 1350.
Exhibit 101		Financial information submitted in XBRL format.

* Management contracts and compensatory arrangements.

Index

M&F BANCORP, INC. AND SUBSIDIARY

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	M&F Bancorp, Inc.

Date: November 12, 2014	By:	/s/ James H. Sills, III
		James H. Sills, III
		President, Chief Executive Officer

	By:	/s/ Randall C. Hall
		Randall C. Hall
		Chief Financial Officer

Index

M&F BANCORP, INC. AND SUBSIDIARY

		Index to Exhibits

Exhibit No.		Description of Exhibit

Exhibit 3(ii)		Amended and Restated Bylaws of the Company, dated November 12, 2014.
Exhibit 31(i)		Certification of James H. Sills, III.

Exhibit 31(ii)		Certification of Randall C. Hall.

Exhibit 32		Certification pursuant to 18 U.S.C. Section 1350.

Exhibit 101		Financial information submitted in XBRL format.

Exhibit 3 (ii)

AMENDED AND RESTATED BYLAWS

M&F BANCORP, INC.

ARTICLE I

OFFICES

Section 1. Principal Office. The principal office of the corporation shall be located at such place as the Board of Directors may fix from time to time.

Section 2. Registered Office. The registered office of the corporation required by law to be maintained in the State of North Carolina may be, but need not be, identical with the principal office.

Section 3. Other Offices. The corporation may have offices at such other places, either within or without the State of North Carolina, as the Board of Directors may designate or as the affairs of the corporation may require from time to time.

ARTICLE II

MEETINGS OF SHAREHOLDERS

Section 1. Place of Meetings. All meetings of shareholders shall be held at the principal office of the corporation, or at such other place, either within or without the State of North Carolina, as shall in each case be (i) fixed by the Chief Executive Officer, the President, the Chair of the Board, or the Board of Directors and designated in the notice of the meeting or (ii) agreed upon by a majority of the shareholders entitled to vote at the meeting.

Section 2. Annual Meetings. The annual meeting of shareholders shall be held during the first six (6) calendar months following the end of the corporation’s fiscal year, on any day (except Saturday, Sunday, or a legal holiday) during that period as shall be determined by the Board of Directors, for the purpose of electing directors of the corporation and for the transaction of such other business as may be properly brought before the meeting.

Section 3. Substitute Annual Meeting. If the annual meeting shall not be held within the time designated by these Bylaws, a substitute annual meeting may be called in accordance with the provisions of Section 4 of this Article II. A meeting so called shall be designated and treated for all purposes as the annual meeting.

Section 4. Special Meetings. Special meetings of the shareholders may be called at any time by the Chief Executive Officer, the President, the Chair of the Board of Directors or the Board of Directors.

Section 5. Notice of Meetings. Written notice stating the date, time, and place of the meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of any shareholders’ meeting, either by personal delivery, or by mail by or at the direction of the Chief Executive Officer, the President, the Chair of the Board of Directors or the Board of Directors, to each shareholder entitled to vote at such meeting, provided that such notice must be given to all shareholders with respect to any meeting at which a merger or share exchange is to be considered and in such other instances as required by law. If mailed, such notice shall be deemed to be effective when deposited in the United States mail, correctly addressed to the shareholder at the shareholder’s address as it appears on the current record of shareholders of the corporation, with postage thereon prepaid.

In the case of a special meeting, the notice of meeting shall include a description of the purpose or purposes for which the meeting is called; but, in the case of an annual or substitute annual meeting, the notice of meeting need not include a description of the purpose or purposes for which the meeting is called unless such a description is required by the provisions of Chapter 55 of the North Carolina General Statutes.

When a meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before adjournment and if a new record date is not fixed for the adjourned meeting. If a new record date is fixed for the adjourned meeting (which must be done if the new date is more than 120 days after the date of the original meeting), notice of the adjourned meeting must be given as provided in this Section 5 to persons who are shareholders as of the new record date.

Section 6. Waiver of Notice. Any shareholder may waive notice of any meeting before or after the meeting. The waiver must be in writing, signed by the shareholder, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. A shareholder’s attendance, in person or by proxy, at a meeting (i) waives objection to lack of notice or defective notice of the meeting, unless the shareholder or his/her proxy at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder or his/her proxy objects to considering the matter before it is voted upon.

Section 7. Shareholders’ List. Before each meeting of shareholders, the Secretary of the corporation shall prepare an alphabetical list of the shareholders entitled to notice of such meeting. The list shall be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder. The list shall be kept on file at the principal office of the corporation, or at a place identified in the meeting notice in the city where the meeting will be held, for the period beginning two (2) business days after notice of the meeting is given and continuing through the meeting, and shall be available for inspection by any shareholder, his/her agent or attorney, at any time during regular business hours. The list shall also be available at the meeting and shall be subject to inspection by any shareholder, his/her agent or attorney, at any time during the meeting or any adjournment thereof.

Section 8. Voting Groups. All shares of one (1) or more classes or series that, under the Articles of Incorporation or the North Carolina Business Corporation Act, are entitled to vote and be counted together collectively on a matter at a meeting of shareholders constitute a voting group. All shares entitled by the Articles of Incorporation or the North Carolina Business Corporation Act to vote generally on a matter are for that purpose a single voting group. Classes or series of shares shall not be entitled to vote separately by voting group unless expressly authorized by the Articles of Incorporation or specifically required by law.

Section 9. Quorum. Shares entitled to vote as a separate voting group may take action on a matter at the meeting only if a quorum of those shares exist. A majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter.

Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.

In the absence of a quorum at the opening of any meeting of shareholders, such meeting may be adjourned from time to time by the vote of a majority of the votes cast on the motion to adjourn; and, subject to the provisions of Section 5 of this Article II, at any adjourned meeting any business may be transacted that might have been transacted at the original meeting if a quorum exists with respect to the matter proposed.

Section 10. Proxies. Shares may be voted either in person or by one (1) or more proxies authorized by a written appointment of proxy signed by the shareholder or by his/her duly authorized attorney in fact. An appointment of proxy is valid for eleven months from the date of its execution unless a different period is expressly provided in the appointment form.

Section 11. Voting of Shares. Subject to the provisions of the Articles of Incorporation, each outstanding share shall be entitled to one (1) vote on each matter voted on at a meeting of shareholders.

Except in the election of directors as governed by the provisions of Section 4 of Article III, if a quorum exists, action on a matter by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater vote is required by law or the Articles of Incorporation or these Bylaws.

Absent special circumstances, shares of the corporation are not entitled to vote if they are owned, directly or indirectly, by a second corporation in which the corporation owns, directly or indirectly, a majority of the shares entitled to vote for directors of the second corporation; provided that this provision does not limit the power of the corporation or such second corporation to vote shares held by it in a fiduciary capacity.

ARTICLE III

BOARD OF DIRECTORS

Section 1. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors.

Section 2. Number and Qualification. The number of directors constituting the Board of Directors shall be not less than three (3) nor more than nine (9) as may be fixed by resolution duly adopted by the Board of Directors prior to the annual meeting at which such directors are to be elected; and, in the absences of such a resolution, the number of directors shall be the number elected at the preceding annual meeting. Any directorships not filled by the shareholders shall be treated as vacancies to be filled by and in the direction of the Board of Directors only.

Section 3. Nominations. At any meeting of shareholders at which directors are to be elected, nominations for election to the Board of Directors may be made by the Board of Directors or, subject to the conditions described below, by any holder of shares entitled to be voted at that meeting in the election of directors. To be eligible for consideration at the meeting of shareholders, all nominations, other than those made by the Board of Directors, shall be in writing and must be delivered to the Secretary of the corporation not less than thirty (30) days nor more than fifty (50) days prior to the meeting at which such nominations will be made; provided, however, that if less than twenty-one (21) days’ notice of the meeting is given to shareholders, such nominations must be delivered to the Secretary of the corporation not later than the close of business on the seventh day following the day on which the notice of meeting was mailed.

Section 4. Election. Except as provided in Section 7 of this Article III, the directors shall be elected at the annual meeting of shareholders. Those persons who receive the highest number of votes at a meeting at which a quorum is present shall be deemed to have been elected.

Section 5. Terms of Directors. Each initial director shall hold office until the earliest of the first shareholders' meeting at which directors are elected, or until such director's death, resignation, or removal.

At all times that the number of directors is less than nine (9), each director shall be elected to a term ending as of the next succeeding annual meeting of shareholders or until his or her earlier death, resignation, retirement, removal or disqualification or until his or her successor shall be elected and shall qualify.

In the first election of directors that the total number of directors is nine (9) or more, the directors shall be divided into three (3) classes, as nearly equal as possible in number as may be, to serve in the first instance for terms of one (1), two (2) and three (3) years, respectively, from the date such class of directors takes office or until their earlier death, resignation, retirement, removal or disqualification or until their successors shall be elected and shall qualify, and thereafter the successors in each class of directors shall be elected for terms of three (3) years or until their earlier death, resignation, retirement, removal, or disqualification or until their

successors shall be elected and shall qualify. In the event of any increase or decrease in the number of directors at a time that the directors are so classified, the additional or eliminated directorships shall be classified or chosen so that all classes of directors shall remain or become as nearly equal as possible in number.

Notwithstanding the provisions of this Section 5, a decrease in the number of directors does not shorten an incumbent director's term. Despite the expiration of a director's term, such director shall continue to serve until a successor shall be elected and qualified or until there is a decrease in the number of directors.

Section 6. Removal. Any director may be removed from office at any time, with or without cause, by a vote of the shareholders if the number of votes cast to remove such director exceeds the number of votes cast not to remove him/her. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him/her. A director may not be removed by the shareholders at a meeting unless the notice of that meeting states that the purpose, or one (1) of the purposes, of the meeting is removal of the director. If any directors are so removed, new directors may be elected at the same meeting.

Section 7. Vacancies. Any vacancy occurring in the Board of Directors, including without limitation a vacancy resulting from an increase in the number of directors or from the failure by the shareholders to elect the full authorized number of directors, may be filled by the shareholders or by the Board of Directors, whichever group shall act first. If the directors remaining in office do not constitute a quorum, the directors may fill the vacancy by the affirmative vote of a majority of the remaining directors or by the sole remaining director. If the vacant office was held by a director elected by voting group, only the remaining director or directors elected by that voting group or the holders of shares of that voting group are entitled to fill the vacancy.

Section 8. Chair of the Board of Directors. There may be a Chair of the Board of Directors elected by the directors from their number at any meeting of the Board of Directors. The Chair shall serve in such position at the pleasure of the Board of Directors and shall preside at all meetings of the Board of Directors and shareholders, serve as a member of the Executive Committee, and perform such other duties as may be directed by the Board of Directors. He/She shall sign, with the Secretary, an Assistant Secretary, or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation.

In the absence of the Chair, the Vice Chair shall preside at meetings of directors or shareholders.

Vice Chair of the Board of Directors. The Vice Chair may be elected by the Directors from their number at any meeting of the Board of Directors. The Vice Chair shall serve in such position at the pleasure of the Board of Directors and in the absence of the Chair, shall preside at all meetings of the Board of Directors and shareholders, serve as a member of the Executive Committee, and perform such other duties as may be directed by the Board Directors.

Section 9. Compensation. The Board of Directors may provide for the compensation of directors for their services as such and for the payment or reimbursement of any or all expenses incurred by them in connection with such services.

ARTICLE IV

MEETINGS AND COMMITTEES OF DIRECTORS

Section 1. Regular Meetings. A regular meeting of the Board of Directors shall be held immediately after, and at the same place as, the annual meeting of shareholders. In addition, the Board of Directors may provide, by resolution, the time and place, either within or without the State of North Carolina, for the holding of additional regular meetings.

Section 2. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chair of the Board or the President if such officer is also a director, or by any three (3) or more directors. Such a meeting may be held either within or without the State of North Carolina, as fixed by the person or persons calling the meeting.

Section 3. Notice of Meetings. Regular meetings of the Board of Directors may be held without notice. The person or persons calling a special meeting of the Board of Directors shall, at least two (2) days before the meeting, give or cause to be given notice thereof by any usual means of communication. Such notice need not specify the purpose for which the meeting is called. Any duly convened regular or special meeting may be adjourned by the directors to a later time without further notice.

Section 4. Waiver of Notice. Any director may waive notice of any meeting before or after the meeting. The waiver must be in writing, signed by the director entitled to the notice, and be delivered to the corporation for inclusion in the minutes or for filing with the corporate records. A director’s attendance at or participation in a meeting waives any required notice of such meeting unless the director at the beginning of the meeting, or promptly upon arrival, objects to holding the meeting or to transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.

Section 5. Quorum. Unless the Articles of Incorporation or these Bylaws provide otherwise, a majority of the number of directors fixed by or pursuant to these Bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, or if no number is so fixed, a majority of the number of directors in office immediately before the meeting begins shall constitute a quorum.

Section 6. Manner of Acting. Except as otherwise provided in the Articles of Incorporation or these Bylaws, including Section 9 of this Article IV, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 7. Presumption of Assent. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (i) he/she objects at the beginning of the meeting, or promptly upon his/her arrival, to holding it or to transaction of business at the meeting, or (ii) his/her assent or abstention from the action taken is entered in the minutes of the meeting, or (iii) he/she files written notice of his/her dissent or abstention with the presiding officer of the meeting before its adjournment or with the corporation immediately after the adjournment of the meeting. Such right of dissent or abstention is not available to a director who votes in favor of the action taken.

Section 8. Action Without Meeting. Action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if the action is taken by all members of the Board of Directors. The action must be evidenced by one (1) or more written consents signed by each director before or after such action, describing the action taken, and included in the minutes or filed with the corporate records.

Section 9. Committees of the Board of Directors. The Board of Directors may create such committees of the Board of Directors as it shall consider appropriate, including without limitation those committees specifically provided for in these Bylaws. The creation of a committee of the Board of Directors and appointment of members to it must be approved by the greater of (i) a majority of the number of directors in office when the action is taken or (ii) the number of directors required to take action pursuant to Section 6 of this Article IV. Each committee of the Board of Directors must have two (2) or more members and, to the extent authorized by law, shall have such duties and authority as may be described in these Bylaws or otherwise specified by the Board of Directors. Each committee member shall serve at the pleasure of the Board of Directors. The provisions in these Bylaws governing meetings, actions without meeting and other requirements of the Board of Directors shall also apply to any committees of the Board of Directors established pursuant to these Bylaws.

Section 10. Executive Committee. There may be a standing committee of the Board of Directors to be known as the Executive Committee and consisting of not fewer than three (3) directors, one (1) of whom shall be the Chair of the Board of Directors and one (1) of whom shall be the President of the corporation, if such officer is also a director. Except as limited by Section 9 of this Article IV or otherwise limited by law, the Executive Committee is empowered to act for and on behalf of the Board of Directors in any and all matters in the interim between meetings of the Board of Directors. Within the powers conferred upon it, action by the Executive Committee shall be as binding upon the corporation as if performed by the full Board of Directors. Such actions shall be reported to the Board of Directors for review at its next meeting following such action. The committee shall meet as often as it considers necessary or advisable.

Section 11. Audit Committee. There may be a standing committee of the Board of Directors to be known as the Audit Committee and consisting of not fewer than three (3) directors. The Audit Committee shall supervise examination of the assets and the liabilities and the internal audit program of the corporation and its subsidiaries, cause outside audits to be performed on the financial statements of the corporation, and shall make periodic reports to the Board of Directors.

ARTICLE V

OFFICERS

Section 1. Officers of the Corporation. The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and such Vice Presidents or other officers (including assistant officers) as may from time to time be appointed by or under the authority of the Board of Directors. Any two (2) or more offices may be held by the same person, but no officer may act in more than one (1) capacity where action of two (2) or more officers is required.

Section 2. Appointment and Term. The officers of the corporation shall be appointed by the Board of Directors or by a duly appointed officer authorized by the Board of Directors to appoint one (1) or more officers. Each officer shall hold office until his/her death, resignation, retirement, removal, disqualification, or his/her successor shall have been appointed. The appointment of officers shall be held immediately after the adjournment of the Annual Meeting.

Section 3. Compensation of Officers. The compensation of all officers of the corporation shall be fixed by or under the authority of the Board of Directors, and no officer shall serve the corporation in any other capacity and receive compensation therefor unless such additional compensation shall be duly authorized. The appointment of an officer does not itself create contract rights.

Section 4. Removal. Any officer may be removed by the Board of Directors at any time with or without cause; but such removal shall not itself affect the officer’s contract rights, if any, with the corporation except to the extent, if any, specified in any such contract.

Section 5. Resignation. An officer may resign at any time by communicating his/her resignation to the corporation, orally or in writing. A resignation is effective when communicated unless it specifies in writing a later effective date. If a resignation is made effective at a later date that is accepted by the corporation, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor does not take office until the effective date. An officer’s resignation does not affect the corporation’s contract rights, if any, with the officer except to the extent, if any, specified in any subcontract.

Section 6. Bonds. The Board of Directors may by resolution require any officer, agent, or employee of the corporation to give bond to the corporation, with sufficient sureties, conditioned on the faithful performance of the duties of his/her respective office or position, and to comply with such other conditions as may from time to time be required by the Board of Directors.

Section 7. President. The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He/She shall sign, with the Secretary, an Assistant Secretary, or any other proper officer of the corporation thereunto authorized by the Board of Directors, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed, and in general he/she shall perform all duties incident to the office of the President and such other duties as may be prescribed by the Board of Directors from time to time. The President shall be entitled to attend all regular and special meetings and meetings of committees of the Board of Directors. If the President of the corporation is also a director of the corporation, he/she shall serve as a member of the Executive Committee.

Section 8. Vice Presidents. In the absence of the President or in the event of his/her death, inability or refusal to act, the Vice Presidents, unless otherwise determined by the Board of Directors, shall perform the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President (or Assistant Vice President) may sign, with the Secretary, an Assistant Secretary, or any other proper officer of the corporation thereunto authorized by the Board of Directors, any instruments which may be signed by the President, and shall perform such other duties as from time to time may be prescribed by the President or Board of Directors.

Section 9. Secretary. The Secretary shall: (i) keep the minutes of the meetings of shareholders, of the Board of Directors, and of all committees of the Board of Directors, in one or more books provided for that purpose; (ii) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (iii) maintain and authenticate the records of the corporation and be custodian of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (iv) sign with the Chair of the Board of Directors, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (v) maintain or cause to be maintained, and have general charge of, the stock transfer books of the corporation; (vi) prepare or cause to be prepared shareholder lists prior to each meeting of shareholders as required by law; (vii) attest the signature or certify the incumbency or signature of any officer of the corporation; and (viii) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be prescribed by the President or by the Board of Directors.

Section 10. Treasurer. The Treasurer shall be, and may be designated as such as, the corporation’s Chief Financial Officer, and shall: (i) have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such depositories as shall be selected in accordance with the provisions of Section 4 of Article VI of these Bylaws; (ii) maintain, or cause to be maintained, appropriate accounting records as required by law; (iii) prepare, or cause to be prepared, annual financial statements of the corporation that include a balance sheet as of the end of the fiscal year and income and cash flow statement for that year, which statements, or a written notice of their availability, shall be mailed to each shareholder within 120 days after the end of such fiscal year; and (iv) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be prescribed by the President or by the Board of Directors.

Section 11. Assistant Officers. In the absence of a duly appointed officer of the corporation, or in the event of his/her death, inability or refusal to act, any person appointed by the Board of Directors, and designated by title as an assistant to that officer, unless otherwise determined by the Board of Directors, may perform the duties of, and when so acting shall have all the powers of and be subject to all the restrictions upon, that officer. Such assistant officers shall perform such other duties as from time to time may be prescribed by the President or by the Board of Directors.

ARTICLE VI

CONTRACTS, LOANS, CHECK, AND DEPOSITS

Section 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authorization may be general or confined to specific instances. Also, the Board of Directors may limit, condition, restrict or deny such authority to any officer or officers, or any agent or agents.

Section 2. Loans. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances.

Section 3. Checks and Drafts. All checks, drafts, or other orders for the payment of money, issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by the Board of Directors.

Section 4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such depositories as may be selected by or under the authority of the Board of Directors.

ARTICLE VII

SHARES AND THEIR TRANSFER

Section 1. Certificate for Shares. The Board of Directors may authorize the issuance of some or all of the shares of the corporation’s classes or series without issuing certificates to represent such shares. If shares are represented by certificates, the certificates shall be in such form as required by law and as determined by the Board of Directors. Certificates shall be signed, either manually or in facsimile, by the Chair of the Board of Directors, and by the Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer. All certificates for shares shall be consecutively numbered or otherwise identified and entered into the stock transfer books of the corporation. When shares are represented by certificates, the corporation shall issue and deliver, to each shareholder to whom such shares have been issued or transferred, certificates representing the shares owned by him/her. When shares are not represented by certificates, then within a reasonable time after the issuance or transfer of such shares, the corporation shall send the shareholder to whom such shares have been issued or transferred a written statement of the information required by law to be on certificates.

Section 2. Stock Transfer Books. The corporation shall keep or cause to be kept a book or set of books, to be known as the stock transfer book of the corporation, containing the name of each shareholder of record, together with such shareholder’s address and the number of class or series of shares held by him/her. Transfers of shares of the corporation shall be made only on the stock transfer books of the corporation (i) by the holder of record thereof or by his/her legal representative, who shall provide proper evidence of authority to transfer; (ii) by his/her attorney authorized to effect such transfer by power of attorney duly executed and filed with the Secretary; and (iii) on surrender for cancellation of the certificate for such shares (if the shares are represented by certificates).

Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation claimed to have been lost or destroyed, upon receipt of an affidavit of such fact from the person claiming the certificate to have been lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors shall require that the owner of such lost or destroyed certificate, or his/her legal representative, give the corporation a bond in such sum and with such surety or other security as the Board of Directors may direct as indemnity against any claims that may be made against the corporation with respect to the certificate claimed to have been lost or destroyed, except where the Board of Directors by resolution finds that in the judgment of the Board of Directors the circumstances justify omission of a bond.

Section 4. Fixing Record Date. The Board of Directors may fix a future date as the record date for one (1) or more voting groups in order to determine the shareholders entitled to notice of a shareholders’ meeting, to demand a special meeting, to vote, or to take any other action. Such record date may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at a shareholders’ meeting is effective for an adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting.

If no record date is fixed by the Board of Directors for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the first notice of the meeting is delivered to shareholders shall be the record date for such determination of shareholders.

The Board of Directors may fix a date as the record date for determining shareholders entitled to a distribution or share dividend. If no record date is fixed by the Board of Directors for such determination, it is the date of the Board of Directors authorizes the distribution or share dividend.

Section 5. Holder of Record. Except as otherwise required by law, the corporation may treat the person in whose name the shares stand of record on its books as the absolute owner of the shares and the person exclusively entitled to receive notification and distributions, to vote, and to otherwise exercise the rights, powers, and privileges of ownership of such shares.

Section 6. Shares Held by Nominees. The corporation shall recognize the beneficial owner of shares registered in the name of the nominee as the owner and shareholder of such shares for certain purposes if the nominee in whose name such shares are registered files with the Secretary a written certificate in a form prescribed by the corporation, signed by the nominee, indicating the following: (i) the name, address, and taxpayer identification number of the nominee; (ii) the name, address, and taxpayer identification number of the beneficial owner; (iii) the number and class or series of shares registered in the name of the nominee as to which the beneficial owner shall be recognized as the shareholder; and (iv) the purposes for which the beneficial owner shall be recognized as the shareholder.

The purposes for which the corporation shall recognize the beneficial owner as the shareholder may include the following: (i) receiving notice of, voting at, and otherwise participating in shareholders’ meetings; (ii) executing consents with respect to the shares; (iii) exercising dissenters’ rights under the North Carolina Business Corporation Act; (iv) receiving distributions and share dividends with respect to the shares; (v) exercising inspection rights; (vi) receiving reports, financial statements, proxy statements, and other communications from the corporation; (vii) making any demand upon the corporation required or permitted by law; and (viii) exercising any other rights or receiving any other benefits of a shareholder with respect to the shares.

The certificate shall be effective ten (10) business days after its receipt by the corporation and until it is changed by the nominee, unless the certificate specifies a later effective time or an earlier termination date.

If the certificate affects less than all of the shares registered in the name of the nominee, the corporation may require the shares affected by the certificate to be registered separately on the books of the corporation and be represented by a share certificate that bears a conspicuous legend stating that there is a nominee certificate in effect with respect to the shares represented by that share certificate.

ARTICLE VIII

GENERAL PROVISIONS

Section 1. Distributions. The Board of Directors may from time to time authorize, and the corporation may grant, distributions and share dividends to its shareholders pursuant to law and subject to the provisions of its Articles of Incorporation.

Section 2. Seal. The corporate seal of the corporation shall consist of two concentric circles between which is the name of the corporation and in the center of which is inscribed SEAL; and such seal, as impressed or affixed on the margin hereof, is hereby adopted as the corporate seal of the corporation.

Section 3. Fiscal Year. The fiscal year of the corporation shall be fixed by the Board of Directors.

Section 4. Amendments. Except as otherwise provided in the Articles of Incorporation or by law, these Bylaws may be amended or repealed and new Bylaws may be adopted by the Board of Directors.

No Bylaw adopted, amended, or repealed by the shareholders shall be readopted, amended, or repealed by the Board of Directors, unless the Articles of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of Directors to adopt, amend, or repeal that particular Bylaw or the Bylaws generally.

Section 5. Definitions. Unless the context otherwise requires, terms used in these Bylaws shall have the meanings assigned to them in the North Carolina Business Corporation Act to the extent defined therein.

ARTICLE IX

INDEMNIFICATION

In addition to any indemnification required or permitted by law, and except as otherwise provided in these Bylaws, any person who at any time serves or has served as a director, officer, employee or agent of the corporation and any such person who serves or has served at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan, shall have a right to be indemnified by the corporation to the full extent allowed by applicable law against liability and litigation expense arising out of such status or activities in such capacity. “Liability and litigation expense” shall include costs and expenses of litigation (including reasonable attorneys’ fees), judgments, fines and amounts paid in settlement which are actually and reasonably incurred in connection with or as a consequence of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals.

Promptly after the final disposition or termination of any matter which involves liability or litigation expense as described above or at such earlier time as it sees fit, the corporation shall determine whether any person described in this Article IX is entitled to indemnification thereunder. Such determination shall be limited to the following issues: (i) whether the persons to be indemnified are persons described in this Article IX, (ii) whether the liability or litigation expense incurred arise out of the status or activities of such persons as described in this Article IX, (iii) whether liability was actually incurred and/or litigation expense was actually and reasonably incurred, and (iv) whether the indemnification requested is permitted by applicable law. Such determination shall be made by a majority vote of directors who were not parties to the action, suit or proceeding (or, in connection with “threatened” actions, suits or proceedings, who were not “threatened parties”). If at least two such disinterested directors are not obtainable, or, even if obtainable, if at least half of the number of disinterested directors so direct, such determination shall be made by independent legal counsel in written opinion.

Litigation expense incurred by a person described in this Article IX in connection with a matter described in this Article IX may be paid by the corporation in advance of the final disposition or termination of such matter, if the corporation receives an undertaking, dated, in writing and signed by the person to be indemnified, to repay all such sums unless such person is ultimately determined to be entitled to be indemnified by the corporation as provided in this Article IX. Requests for payments in advance of final disposition or termination shall be submitted in writing unless this requirement is waived by the corporation.

Notwithstanding the foregoing, no advance payment shall be made as to any payment or portion of a payment for which the determination is made that the person requesting payment will not be entitled to indemnification. Such determination may be made only by a majority vote of disinterested directors or by independent legal counsel as next provided. If there are not at least two disinterested directors, the notice of all requests for advance payment shall be delivered for review to independent legal counsel for the corporation. Such counsel shall have the authority to disapprove any advance payment or portion of a payment for which it appears that the person requesting payment will not be entitled to indemnification.

The corporation shall not be obligated to indemnify persons described in this Article IX for any amounts paid in settlement unless the corporation consents in writing to the settlement. The corporation shall not unreasonably withhold its consent to proposed settlements. The corporation’s consent to a proposed settlement shall not constitute an agreement by the corporation that any person is entitled to indemnification hereunder. The corporation may waive the requirement of this section for its written consent as fairness and equity may require.

A person described in this Article IX may apply to the corporation in writing for indemnification or advance expenses. Such applications shall be addressed to the Secretary or, in the absence of the Secretary, to any officer of the corporation. The corporation shall respond in writing to such applications as follows: to a request for indemnity under this Article IX, within ninety days after receipt of the application; to a request for advance expenses under this Article IX within fifteen days after receipt of the application.

If any action is necessary or appropriate to authorize the corporation to pay the indemnification required by these Bylaws, the Board of Directors shall take such action, including (i) making a good faith evaluation of the indemnification request, (ii) giving notice to, and obtaining approval by, the shareholders of the corporation, and (iii) taking any other action.

The right of indemnification or advance expenses provided herein shall be enforceable in any court of competent jurisdiction. A legal action may be commenced if a claim for indemnity or advance expenses is denied in whole or in part, or upon the expiration of the time periods provided above. In any such action, if the claimant establishes the right to indemnification, he or she shall also have the right to be indemnified against the litigation expense (including, without limitation, reasonable attorneys’ fees) of such action.

As provided by N.C. Gen. Stat. §55-8-57, the corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or as a trustee or administrator under an employee benefit plan, against any liability asserted against him/her and incurred by him/her in any such capacity or arising out of his/her status as such, whether or not the corporation has the power to indemnify him/her against such liability.

The right to indemnification provided herein shall not be deemed exclusive of any other rights to which any persons seeking indemnity may be entitled apart from the provisions of this bylaw, except there shall be no right to indemnification as to any liability or litigation expense for which such person is entitled to receive payment under any insurance policy other than a directors’ and officers’ liability insurance policy maintained by the corporation. Such right inures to the benefit of the heirs and legal representatives of any persons entitled to such right. Any person who at any time after the adoption of this bylaw serves or has served in any status or capacity described in this Article IX, shall be deemed to be doing or to have done so in reliance upon, and as consideration for, the right of indemnification provided herein. Any repeal or modification hereof shall not affect any rights or obligations then existing. The right provided herein shall not apply as to persons serving institutions which are hereafter merged into or combined with the corporation, except after the effective date of such merger or combination and only as to status and activities after such date.

If this Article or any portion hereof shall be invalidated on any ground by any court or agency of competent jurisdiction, then the corporation shall nevertheless indemnify each person described in this Article IX to the full extent permitted by the portion of this Article that is not invalidated and also to the full extent (not exceeding the benefits described herein) permitted or required by other applicable law.

This is to certify that the foregoing is a true and accurate copy of the Amended and Restated Bylaws and all amendments thereto of M&F Bancorp, Inc., Durham, North Carolina as adopted with amendments as of November 12, 2014.

/s/ Valerie M. Quiett

Secretary

M&F BANCORP, INC. AND SUBSIDIARY

Exhibit 31 (i)

RULE 13a-14(a) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, James H. Sills, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of M & F Bancorp, Inc.:

2 Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to

state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2014	/s/ James H. Sills, III
	James. H. Sills, III
	President and Chief Executive Officer
	M&F Bancorp, Inc.

M&F BANCORP, INC. AND SUBSIDIARY

Exhibit 31 (ii)

RULE 13a-14(a) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Randall C. Hall, certify that:

1. I have reviewed this quarterly report on Form 10-Q of M & F Bancorp, Inc.:

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to

state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(a)

(b)

(c)

(d)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 12, 2014	/s/ Randall C. Hall
	Randall C. Hall
	Chief Financial Officer
	M&F Bancorp, Inc.

M&F BANCORP, INC. AND SUBSIDIARY

Exhibit 32

M & F BANCORP, INC.

Certification of Periodic Financial Report

Pursuant to 18 U.S.C. Section 1350

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 the undersigned officers of M & F Bancorp, Inc. (the “Company”) certify that the Quarterly Report on Form 10-Q of the Company for the quarter ended September 30, 2014 fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and information contained in that Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 12, 2014		/s/ James. H. Sills, III
		James. H. Sills, III
		President, Chief Executive Officer

Date: November 12, 2014		/s/ Randall C. Hall
		Randall C. Hall
		Chief Financial Officer

* This certification is made solely for purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.

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