FIRST M & F CORPORATION
Post Office Box 520
KOSCIUSKO, MISSISSIPPI 39090






                1997 Annual Report for First M & F Corporation

             Notice of the Annual Shareholders' Meeting for 1998

                             Proxy Statement

                                 Proxy

<PAGE>

Proxy Statement Table of Contents

        1       Letter To Our Shareholders

        2       Notice of Annual Shareholders' Meeting

        3       Proxy Statement
        4       Proposal No. 1  Election of Directors (Item I on Proxy Card)
        5 - 6   Information Concerning Nominees and Directors
        7       Section 16(a) Beneficial Ownership Reporting Compliance
        7       Principal Shareholder
        8 - 9   Executive Compensation
        10      Five Year Shareholder Return Comparison
        11      Independent Public Accountants
        11 - 12 Salary and Committee Benefit Report on Executive Compensation
        12      Transactions With Management
        12 - 13 Committees of the Board of Directors
        13      Other Matters
        13      Proposals for 1999 Annual Meeting

        14      Report of Independent Certified Accountants
        15      Consolidated Statements of Condition
        16      Consolidated Statements of Income
        17      Consolidated Statements of Stockholders' Equity
        18 - 19 Consolidated Statements of Cash Flows
        20 - 39 Notes to Consolidated Financial Statements

        40 - 44 Management's Discussion and Analysis of Financial Condition and
                Operation
        44 - 45 Results of Operations


<PAGE> 
Page 1

FIRST M & F CORPORATION 
Post Office Box 520 
KOSCIUSKO, MISSISSIPPI 39090




                                   March 18, 1998



Dear Shareholder:

Enclosed  you will find a 1997  Annual  Report  for First M & F  Corporation,  a
Notice of the Annual  Shareholders'  Meeting for 1998, a Proxy Statement,  and a
Proxy.

This institution is grateful for the loyalty and support of you, our friends and
shareholders. The Annual Shareholders' Meeting is to be held on Wednesday, April
8, 1998, at 2:00 P.M. at the Mary Ricks Thornton Cultural Center, located at the
corner  of East  Washington  Street  and  North  Huntington  Street,  Kosciusko,
Mississippi.  We encourage you to mark this date on your calendar and make plans
to attend, and share further in the affairs of your corporation.

I urge you to complete the enclosed Proxy promptly and return it in the enclosed
self-addressed postage paid envelope, even if you plan to attend the meeting. If
you attend the meeting, you may withdraw your Proxy and vote in person.

We look forward to seeing you at the Annual Meeting.

                                            Sincerely yours,
                                            FIRST M & F CORPORATION


                                           /s/ Hugh S. Potts, Jr.

                                            Hugh S. Potts, Jr.
                                            Chairman and Chief Executive Officer


<PAGE>
Page 2

FIRST M & F CORPORATION 
Post Office Box 520 
KOSCIUSKO, MISSISSIPPI 39090

March 18, 1998

NOTICE OF ANNUAL SHAREHOLDERS' MEETING


To the Shareholders of
First M & F Corporation
Kosciusko, Mississippi  39090

NOTICE IS HEREBY GIVEN that, pursuant to call of its Directors and in compliance
with the Bylaws,  the regular annual meeting of  shareholders of the FIRST M & F
CORPORATION  (the  "Company"),  KOSCIUSKO,  MISSISSIPPI,  will be held at the 
Mary Ricks  Thornton  Cultural  Center at 204  North  Huntington  Street,  
Kosciusko, Mississippi,  on  Wednesday,  April 8,  1998,  at 2:00 P.M.  for the 
purpose of considering and voting on the following proposals:

1.      ELECTION OF DIRECTORS: The election of five (5) persons listed in the 
        Proxy Statement dated March 18, 1998, accompanying this notice, as 
        members of the Board of Directors for a term of three years.

2.      Whatever other business may be properly brought before the meeting or 
        any adjournment thereof.

Whether or not you contemplate  attending the meeting,  it is requested that you
complete  and return the enclosed  Proxy as soon as possible.  If you attend the
meeting, you may withdraw your Proxy and vote in person.

Only those  shareholders of record at the close of business on February 28, 1998
shall be entitled to notice of and to vote at this meeting.

                      BY ORDER OF THE BOARD OF DIRECTORS


                      /s/ Hugh S. Potts, Jr.

                      Hugh S. Potts, Jr.
                      Chairman and Chief Executive Officer

Dated and mailed at
Kosciusko, Mississippi
On or about March 18, 1998

Enclosures:     1.      Proxy
                2.      Business Reply Envelope
                3.      Annual Report

<PAGE>
Page 3

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

PROXY STATEMENT
DATED MARCH 18, 1998

ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
APRIL 8, 1998


SOLICITATION BY BOARD OF DIRECTORS OF FIRST M & F CORPORATION

This statement is furnished to the  shareholders of First M & F Corporation (the
Company)  in  connection  with the  solicitation  by the Board of  Directors  of
Proxies to be voted at the Annual Meeting of Shareholders to be held at the Mary
Ricks  Thornton  Cultural  Center at 204  North  Huntington  Street,  Kosciusko,
Mississippi,  on  Wednesday,  April 8,  1998,  at 2:00 P. M.,  local time or any
adjournment  (s)  thereof,  for the matters set out in the  foregoing  notice of
Annual Shareholders' Meeting. The approximate date on which this Proxy Statement
and form of proxy are first  being  sent or given to  shareholders  is March 18,
1998.

Only those  shareholders  of record on the books of the  Company at the close of
business on February 28, 1998, (the "Record Date") are entitled to notice of and
to vote at the  meeting.  On that date,  the Company had  outstanding  of record
3,394,656 shares of common stock. Each share is entitled to one (1) vote. In the
election of Directors,  each shareholder has cumulative voting rights, so that a
shareholder  may vote the number of shares  owned by him for as many  persons as
there are  Directors  to be elected,  or he may multiply the number of shares by
the number of Directors to be elected and allocate the resulting votes to one or
any number of candidates.  For example, if the number of Directors to be elected
is five (5), a  shareholder  owning ten (10)  shares may cast ten (10) votes for
each of five (5) nominees,  or cast 50 votes for any one (1) nominee or allocate
the fifty (50) votes among several nominees.

The cost of soliciting  proxies from  shareholders will be borne by the Company.
The initial solicitation will be by mail.  Thereafter,  proxies may be solicited
by  Directors,  officers  and  regular  employees  of the  Company,  by means of
telephone,  telegraph or personal contact,  but without additional  compensation
therefor. The Company will reimburse brokers and other persons holding shares as
nominees for their reasonable  expenses in sending proxy soliciting  material to
the beneficial owners.

Any  shareholder  giving a Proxy has the right to revoke it at anytime before it
is exercised.  A shareholder may revoke his Proxy (1) by personally appearing at
the Annual Meeting, (2) by written notification to the Company which is received
prior to the exercise of the Proxy or (3) by a subsequent  Proxy executed by the
person  executing  the prior  Proxy and  presented  at the Annual  Meeting.  All
properly  executed  Proxies,  if not  revoked,  will be voted as directed on all
matters  proposed by the Board of Directors,  and, if the  shareholder  does not
direct to the  contrary,  the shares will be voted  "For" each of the  proposals
described below.

<PAGE>
Page 4

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

SOLICITATION BY BOARD OF DIRECTORS OF FIRST M & F CORPORATION (continued)

        The presence at the Annual Meeting, in person or by Proxy, of a majority
of the shares of Common Stock  outstanding on February 28, 1998, and entitled to
vote, will constitute a quorum.

The 1997  Annual  Report to  shareholders  of the  Company is  enclosed  for the
information of the shareholders. The audited financial statements of the Company
are  attached  to the  proxy  soliciting  material  for the  information  of the
shareholders.  The Annual Report and audited financial statements are not a part
of the proxy soliciting material.

PROPOSAL NO. 1 - ELECTION OF DIRECTORS (ITEM 1 ON PROXY CARD)

The Board of  Directors of the Company is divided into three (3) classes - Class
I, Class II and Class III.  Classes I and III consist of five (5) Directors each
and  Class II  consists  of six (6)  Directors.  The term of Class II  Directors
expires at the 1998 Annual Meeting.  The term of Class III Directors will expire
at the 1999 Annual  Meeting.  The term of Class I  Directors  will expire at the
2000 Annual Meeting.

The Board of Directors has nominated Barbara K. Hammond, R. Dale McBride, Hugh 
S. Potts, Jr., W. C. Shoemaker and Scott M. Wiggers for election as Class II 
Directors to serve until the 2001 Annual Meeting. Barbara K. Hammond, R. Dale 
McBride, Dr. W. M. Myers, Hugh S. Potts, Jr., W. C. Shoemaker and Scott M. 
Wiggers are currently serving as Class II Directors.

Unless authority is expressly withheld,  the proxy holders will vote the proxies
received by them for the five (5) nominees for Class II Directors  listed above,
reserving the right,  however, to cumulate their votes and distribute them among
the nominees, in their discretion.  Although each nominee has consented to being
named in this Proxy  Statement  and to serve if elected,  if any nominee  should
prior to the Annual Meeting decline or become unable to serve as a Director, the
proxies  will be voted by the proxy  holders  for such  other  persons as may be
designated by the present Board of Directors.  During 1997, the Company's  Board
of Directors had twelve (12) meetings.  No incumbent Director attended less than
75% of the total number of meetings of the Board of Directors or committees upon
which he served.  The following  table provides  certain  information  about the
nominees and the other current Directors of the Company.

Pursuant to Mississippi Law and the Company's Bylaws, Directors are elected by 
a plurality of the votes cast in the election of Directors. A plurality means 
that the  individuals  with the  largest  number of  favorable  votes are  
elected as Directors, up to the maximum number of Directors to be chosen at the 
meeting.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE 
ELECTION OF ALL THE NOMINEES

<PAGE>
Page 5

<TABLE>
<CAPTION>

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

INFORMATION CONCERNING NOMINEES AND DIRECTORS

                                                                    Amount and Nature of
                                Positions & Offices                 Beneficial Ownership    Percent of Common
                                With Company or/and        Director Of Common Stock as of   Stock Beneficially
Name and Age                    Employment                 Since    February 28, 1998       Owned (a)

CLASS I
<S>                     <C>                                 <C>        <C>     <C>                     <C> 
Fred A. Bell, Jr.,      56      District manager,           1981       20,036  (1)                     .59%
                                Mississippi Materials   
                                Corp. (Concrete and     
                                building materials      
                                manufacturer/distributor
                                
Charles T. England,     61      Supervisor of Finance       1980       15,208  (2)                     .45%
                                Company subsidiaries of       
                                Merchants and Farmers    
                                Bank beginning in 1995;  
                                Registered Representative
                                of Security Financial    
                                Network in 1994; Farmer; 
                                formerly Chancery Clerk, 
                                Attala County           

Joseph M. Ivey, 39              Chairman and CEO,           1994      103,022  (3) (4) (12)           3.03%
                                Ivey Mechanical Company
                                (plumbing and electrical
                                contractors)

Susan McCaffery,        58      Member of Audit             1987      115,774  (5) (6)                3.41%
                                Committee; Professor,
                                Wood College         
                                
Edward G. Woodard,      43      Member of Audit             1989        8,306  (7)                     .24%
                                Committee; President,    
                                K. M. Distributing       
                                Company, Inc. (whole-    
                                saler of chain saws, lawn
                                and gardening equipment) 
                                
CLASS II
Barbara K. Hammond,     53      Member of Audit              1995       2,000                          .06%
                                Committee; Specialist,
                                Circuit Capacity      
                                Management, BellSouth 
                                
R. Dale McBride,        58      President, Merchants         1979      17,764  (9)                     .52%
                                and Farmers Bank, Durant

Hugh S. Potts, Jr.,     53      Chairman of the Board        1979     387,304  (5) (10)              11.41%
                                and CEO of the Company    
                                since 1994; Vice Chairman,
                                1983-1993; Vice President,
                                1979-1983                 
W. C. Shoemaker,        65      Consultant, IMC Webb         1979      40,266                         1.19%
                                Graphics (Printing);            
                                President, W.C. Shoemaker,      
                                Inc. (investments & real estate)
                                
Scott M. Wiggers,       53      President since 1988 and     1983       6,300  (8)                     .19%
                                Treasurer since 1979;   
                                Company President,      
                                Merchants & Farmers Bank
                                

<PAGE>
Page 6

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

INFORMATION CONCERNING NOMINEES AND DIRECTORS (continued)

                                                                    Amount and Nature of
                                Positions & Offices                 Beneficial Ownership     Percent of Common
                                With Company or/and     Director    Of Common Stock as       Stock Beneficially
Name and Age                    Employment              Since       February 28, 1998 of     Owned (a)

CLASS III
Jon A. Crocker,         55      Chairman & CEO,          1996          62,595  (11)                   1.84%
                                Merchants & Farmers
                                Bank, Bruce Branch 
                                
Toxey Hall, III         58      Member of Audit          1984           2,112                          .06%
                                Committee; President,  
                                Thomas-Walker-Lacey    
                                (retail discount store)
                                
J. Marlin Ivey,         61      Member of Audit          1979         112,512  (3) (12)               3.31%
                                Committee; President,    
                                Ivey National Corporation
                                (holding company for     
                                various businesses)      
                                
Otho E. Pettit, Jr.,    47      Attorney at Law,         1993          12,179  (13)                    .36%
                                Thornton, Guyton, 
                                Dorrill & Pettit

Charles W. Ritter, Jr., 64      Chairman of Audit       1979          152,000  (14)                   4.48%
                                Committee; President,
                                The Attala Company   
                                (feed manufacturing  
                                company)             
                                
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A                             968,148                         78.5%
GROUP (20 PERSONS)
</TABLE>


(a)     Constitutes sole ownership unless otherwise indicated.
(1)     Includes 200 shares owned by Mr. Bell's wife.
(2)     Mr. England shares voting and investment power with respect to these 
        shares with his wife.
(3)     Director J. Marlin Ivey is the father of director Joseph M. Ivey.
(4)     Includes 225 shares owned by Mr. Joseph Ivey's minor children.
(5)     Mrs. McCaffery and Hugh S. Potts, Jr. are sister. Their father is the 
        Company's former Chief Executive Officer and Chairman of the Board, Hugh
        S. Potts, Sr.
(6)     Mrs. McCaffery shares voting and investment power with respect to 5,437 
        of these shares with her husband and children and includes 15,500 shares
        owned by Mrs. McCaffery's husband.
(7)     Includes 880 shares owned by Mr. Woodard's wife.
(8)     Includes 1,134 shares owned by Mr. Wigger's wife.
(9)     Mr. McBride shares voting and investment power with respect to 13,840 of
        these shares with his wife and children.
(10)    Mr. Potts, Jr. shares voting and investment power with respect to 69,500
        of these shares, which are held in two trusts and includes 36,234 shares
        owned by his wife and minor children. Mr. Potts, Jr. is the trustee over
        The Salt & Light Foundation which owns 36,754 shares.
(11)    Of these shares, 5,070 are registered in the name of BellAire 
        Corporation, of which Mr. Crocker's wife is a director.
(12)    Of these shares, 92,512 are registered in the name of Ivey National 
        Corporation, of which Mr. J. Marlin Ivey is the President and Mr. Joseph
        M. Ivey is an officer.
(13)    Includes 3,726 owned by Mr. Pettit's wife and children.
(14)    Includes 60,000 shares owned by Mr. Ritter's wife.



Charles  W.  Ritter,  Jr.  is a  director  of  Sanderson  Farms,  Inc.,  Laurel,
Mississippi.  None of the other Directors are a director of another company with
a class of  securities  registered  pursuant  to  Section  12 of the  Securities
Exchange Act of 1934 or subject to the reporting  requirements  of Section 15(d)
of the Act, or registered as an investment  company under the Investment Company
Act of 1940.

<PAGE>
Page 7

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
directors  and  executive  officers  to file with the  Securities  and  Exchange
Commission  initial  reports of ownership and reports of changes in ownership of
common stock.  Executive  officers and directors are required by Securities  and
Exchange Commission regulation to furnish the Company with copies of all Section
16(a) forms they file. To the Company's  knowledge,  based solely on a review of
the copies of such reports furnished to the Company and written  representations
that no other reports were  required,  during the fiscal year ended December 31,
1997,  all  Section  16(a)  filing  requirements  applicable  to  the  Company's
executive officers and directors were complied with, except for the following:

Jon A. Crocker  reported  two(2) days late on a Form 4 a disposition  of shares.
This was due to an oversight by the reporting person, with no intent to delay.

Otho E. Pettit, Jr. reported the acquisition of shares to First M & F 
Corporation four (4) days late for the month required. This was due to an 
oversight by the reporting person, with no intent to delay.

PRINCIPAL SHAREHOLDER

Management of the Company knows of no person who owns of record or beneficially,
directly or  indirectly,  more than 5% of the  outstanding  common  stock of the
Company except as set forth below:

                        Amount and Nature of Beneficial Ownership    Percent of
Name and Address of               of Common Stock                      Class
Beneficial Owner

Hugh S. Potts, Jr.               387,304 shares (1)                     11.41%
1104 Walnut Road
Kosciusko, MS  39090

(1)     Mr. Potts shares voting and investment power with respect to 69,500 of 
        these shares, which are held in two trusts.

<PAGE>
Page 8

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

EXECUTIVE COMPENSATION

        The following tables show the annual compensation for 1997, 1996 and 
1995 for the Chief Executive Officer of the Company and all Executive Officers 
of the Company and the Bank whose cash compensation for 1997 exceeded $100,000.
<TABLE>

                                                             Other Annual   All Other (3)
Name and Principal Position   Year    Salary        Bonus    Compensation   Compensation
---------------------------------------------------------------------------------------------------

<S>                           <C>    <C>         <C>            <C>         <C>     
                                                              $ 2,317 (1)
Hugh S. Potts, Jr             1997   $167,308    $ 15,000       3,219 (3)   $  4,183
Chairman of the Board and                                       2,016 (1)
CEO since 4/15/94             1996    153,653      12,292         887 (2)      3,841
                              1995    150,320      21,300       2,441 (1)          0
Scott M. Wiggers              1997    121,731      15,000       1,640 (1)      3,043
President                     1996    113,654       9,092       1,613 (1)      2,841
                              1995    110,260      15,620       1,613 (1)          0
<FN>

(1)     Cost of excess life insurance
(2)     Automobile allowance
(3)     Cost of country club memberships
(4)     All other compensation consists of "Company Contribution" of the 401k plan
</FN>

</TABLE>

PENSION PLAN.     The following table indicates the estimated annual benefits 
payable to persons in specified classifications upon retirement at age 65.

        
Five Years            
Average Annual       Credited Years of Service
Compensation  15        20        25        30        35
-----------------------------------------------------------
$25,000   $ 3,000   $ 4,000   $ 5,000   $ 6,000   $ 7,000
 50,000     6,000     8,000    10,000    12,000    14,000
 75,000     9,000    12,000    15,000    18,000    21,000
100,000    12,000    16,000    20,000    24,000    28,000
160,000    19,200    25,600    32,000    38,400    44,800

Credited years of service for the individuals named in the Summary Compensation
Table above are anticipated to be as follows:  Hugh S. Potts, Jr. - 37 years; 
Scott M. Wiggers - 34 years.

<PAGE>
Page 9

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

EXECUTIVE COMPENSATION (continued)

A  participant  in First M&F's  Pension Plan whose  service is  terminated on or
before his normal  retirement  date is  eligible  to retire and receive a normal
retirement benefit.  The amount of the normal benefit under the Plan is equal to
1/12 of the sum of the amounts  described below in (1) and (2) multiplied by (3)
where:

(1) =   eight-tenths of one percent (0.8%) of the participant average earnings;
(2) =   twenty-five hundredths percent (0.25%) of the participants average 
        earnings in excess of Twenty-Four Thousand and no/100 dollars 
        ($24,000.00); and
(3) =   the participant's benefit service as of his normal retirement date.

If a participant's  annual benefit  commences  before the  participant's  social
security  retirement  age,  but on or after age 62, the amount of the benefit is
reduced.  If the annual benefit of a participant  commences prior to age 62, the
amount of the benefit  shall be the actuarial  equivalent  of an annual  benefit
beginning at age 62 reduced for each month by which benefits commence before the
month in which the  participant  attains  age 62.  If the  annual  benefit  of a
participant  commences after the participant's  social security  retirement age,
the  benefit  amount is adjusted so that it is the  actuarial  equivalent  of an
annual benefit beginning at the participant's social security retirement age.

DIRECTOR COMPENSATION.     Non-officer Directors receive annual compensation in 
the amount of $900 per Board Meeting attended payable at the end of the year, 
plus an additional $20 for each committee meeting attended.



<PAGE>
Page 10

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

FIVE YEAR SHAREHOLDER RETURN COMPARISON

Set forth below is a line graph  comparing the yearly  percentage  change in the
cumulative  total  stockholder  return on the Company's Common Stock against the
cumulative  total return of the NASDAQ Market US Index and the NASDAQ Bank Index
which consists of the period of five (5) years beginning in 1992.

Comparison of Five Year Cumulative Total Return*
    Among First M&F Corporation, The NASDAQ Stock Market (U.S.) Index and The 
    NASDAQ Bank Index



                                  [LINE GRAPH]



Cumulative Total Return        12/92   12/93   12/94   12/95   12/96   12/97
----------------------------------------------------------------------------

First M&F Corporation           100     131     141     249     337     479
NASDAQ Bank                     100     114     114     169     223     377
NASDAQ Stock Market (U.S.)      100     115     112     159     195     240


<PAGE>
Page 11

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

INDEPENDENT PUBLIC ACCOUNTANTS

Shearer,  Taylor & Co., P.A. were the  independent  accountants  for the Company
during the most recently completed fiscal year and will serve as the independent
accountants for the Company during the current fiscal year.  Representatives  of
this firm will be present at the Annual  Meeting and have an opportunity to make
statements  if they so desire and are  expected  to be  available  to respond to
appropriate questions.

SALARY AND BENEFIT COMMITTEE REPORT ON EXECUTIVE COMPENSATION

This report reflects the Company's compensation philosophy for all executive 
officers, as endorsed by the Board of Directors and the Salary and Benefits 
Committee. The committee is comprised of Directors: Hugh S. Potts, Jr., J. 
Marlin Ivey, Charles W. Ritter, Jr., W. C. Shoemaker, and Edward G. Woodard and 
determines annual base salary adjustments and annual pay for performance bonus 
awards.

In determining the compensation to be paid to the Company's  executive  officers
in 1997,  the  Salary  and  Benefit  Committee  employed  compensation  policies
designed  to align  the  compensation  of Mr.  Potts  and Mr.  Wiggers  with the
Company's overall business strategy,  values and management  initiatives.  These
policies are intended to reward  executives  for  strategic  management  and the
enhancement of shareholder value and support a performance-oriented  environment
that rewards achievement of internal goals.

In 1997,  Messrs.  Potts and Wiggers received an increase in base salary of 8.9%
and  7.1%  respectively,  from  their  1996  base  salary.  The  increases  were
consistent with the 18% improvement in company profits for 1996 over 1995.

The Company has established a bonus structure  based upon  performance  goals in
four  categories  which are to be met by  improvements  in ratios or  amounts as
applicable from the last fiscal year. The four categories are: GROWTH,  which is
measured by increases in loan volume and core deposit volume; PROFITS,  measured
by increases in net interest margin (%) and an increase in non-interest  income;
QUALITY,  the goal of which is to maintain the  previous  year's  percentage  of
nonperforming  assets  and  net  charge-offs,  with  a  penalty  factor  if  the
percentage  increases from the previous year; and  PRODUCTIVITY,  measured by an
increase  over 1996 in the  Company's  pre-tax  income  for 1997  divided by the
Company's salaries and benefits expense for 1997.

The model  calculates the bonus by weighting the  categories  according to their
contribution  to the  Company's  net income and  combining  the  results in each
category to arrive at a bonus as a percentage of base salary. A bonus is awarded
if the 1997  Company  results  in any  category  were an  improvement  over 1996
results.  If the 1997  results  were an  improvement  over 1996  results in each
category,  a bonus of approximately  3% of base salary would be awarded.  If the
1997 Company budget was met in each category, the bonus is approximately 11%. If
budget is exceeded in one or more  categories,  the bonus increases on a sliding
scale, with the maximum bonus of approximately 27.4% of base salary.

The Company's loan volume and  corresponding  deposit volume for 1997 were below
the budgeted  amounts by 1.4% and .3%  respectively.  The  investment  portfolio
yield and noninterest  expense coverage were higher than the budgeted amounts in
1997. The calculated model results reflected an 8.99% bonus for Mr. Potts. Based
upon the model, a bonus of $15,000 was awarded to Mr. Potts.


<PAGE>
Page 12

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

SALARY AND BENEFIT COMMITTEE REPORT ON EXECUTIVE COMPENSATION (continued)

Additionally,  the Company  subscribes to and  participates  in the  Mississippi
Bankers  Association  survey,  which  provides the  Committee  with  comparative
compensation  data from the  Company's  market areas and its peer  groups.  This
information is used by the committee to ensure that it is providing compensation
opportunities  comparable  to its peer group,  thereby  allowing  the Company to
retain talented  executive  officers who contribute to the Company's overall and
long-term success.

Submitted by the Company's Salary and Benefit Committee: Hugh S. Potts, Jr., 
Chairman, J. Marlin Ivey, Charles W. Ritter, Jr., W. C. Shoemaker, and Edward G.
Woodard.

TRANSACTIONS WITH MANAGEMENT

First M & F  Corporations'  subsidiary,  Merchants and Farmers Bank,  Kosciusko,
Mississippi,  (the "Bank") has had,  and expects to have in the future,  banking
transactions in the ordinary  course of its business with  directors,  officers,
principal shareholders, and their associates. Such transactions are completed on
the same terms,  including  interest  rates and  collateral  on loans,  as those
prevailing at the same time for comparable  transactions with others, and do not
involve more than the normal risk of collectibility or present other unfavorable
features.  Such loans are extended on a secured basis.  The aggregate  amount of
loans  outstanding to directors,  principal  officers and their interests to the
Bank as of December 31, 1997, totaled $2,833,000. Other than these transactions,
there were no material  transactions  during 1997 between directors and officers
and the Bank or the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company has a standing Audit Committee of its Board of Directors which met 
two (2) times during 1997. Presently Charles W. Ritter, Jr. serves as Chairman 
and other members are Barbara K. Hammond, J. Marlin Ivey, Susan P. McCaffery, 
Edward G. Woodard and Toxey Hall III. The Audit Committee reviews audit plans, 
examination results of both independent and internal auditors and makes 
recommendations to the Board of Directors concerning independent auditors.

The Company has a standing Salary and Benefit Committee which met five (5) times
during 1997 and makes recommendations to the Board of Directors on all 
officers' salaries and compensation. Presently Hugh S. Potts, Jr. serves as 
Chairman and other members are J. Marlin Ivey, Charles W. Ritter, Jr., W. C. 
Shoemaker, and Edward G. Woodard.


<PAGE>
Page 13

FIRST M & F CORPORATION
1997 Annual Report Proxy Statement

COMMITTEES OF THE BOARD OF DIRECTORS (continued)

The Company does not have a standing Nominating Committee.  The Company's 
Bylaws are silent as to nominations to the Board of Directors, other than those
made by or at the direction of the Board of Directors.

Merchants & Farmers Bank has among other  committees,  an  Investment  Committee
which  meets  quarterly,  a Loan and Policy  Committee  which meets  weekly,  an
Executive  and  Administrative  committee  which  meets  bi-annually,   a  Trust
Committee  which  meets  monthly  and an  Electronic  Data  Processing  Steering
Committee which meets quarterly.

OTHER MATTERS

Management  at  present  knows of no other  business  to be  brought  before the
meeting.  However,  if other business is properly brought before the meeting, it
is the  intention  of  the  management  to  vote  the  accompanying  Proxies  in
accordance with its judgement.

PROPOSALS FOR 1999 ANNUAL MEETING

Any  shareholder  who wishes to present a proposal at the Company's  next Annual
Meeting  and who wishes to have the  proposal  included in the  Company's  Proxy
Statement  and form of proxy for the  meeting  must  submit the  proposal to the
undersigned at the address of the Company not later than November 20, 1998.

                             The accompanying Proxy is solicited by Management.

                             By Order of THE BOARD OF DIRECTORS,


                             /s/ Hugh S. Potts, Jr.

                             Hugh S. Potts, Jr.
                             Chairman and Chief Executive Officer


Dated and mailed at
Kosciusko, Mississippi
On or about March 18, 1998



<PAGE>
Page 14


FIRST M & F CORPORATION
First M & F Corporation and Subsidiary

Report of Independent Certified Public Accountants


                                                             SHEARER
                                                              TAYLOR
                                                               & CO.
                                                     A Professional Association




The Board of Directors and Shareholders
First M & F Corporation
Kosciusko, Mississippi

We have audited the accompanying consolidated statements of condition of First M
& F Corporation and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income,  stockholders' equity and cash flows for each
of the years in the three-year  period ended December 31, 1997.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First M
& F Corporation  and subsidiary as of December 31, 1997 and 1996, the results of
their consolidated  operations and their consolidated cash flows for each of the
years in the  three-year  period ended  December 31, 1997,  in  conformity  with
generally accepted accounting principles.


/s/ Shearer, Taylor & Co., P.A.

Jackson, Mississippi
January 23, 1998

                                                   Certified Public Accountants
                                                 
                                                                6350 I-55 North
                                                                      Suite 330
                                                              P.O. Drawer 13157
                                                        Jackson, MS  39236-3157
                                                         Telephone 601/956-0993

<PAGE>  
Page 15

<TABLE>
<CAPTION>


Consolidated Statements of Condition
First M & F Corporation and Subsidiary

December 31,                                                      1997             1996
---------------------------------------------------------------------------------------
Assets
<S>                                                      <C>              <C>          
        Cash and due from banks                          $  24,719,193    $  20,213,398
        Interest bearing bank balances                      10,801,934          149,794
        Federal funds sold                                   2,000,000          500,000
        Securities available for sale, amortized
                cost of $108,173,000 and $85,944,000       109,002,998       86,443,833
                Investment securities, market value of
                $59,696,000 and $57,536,000                 58,785,352       57,152,860

        Loans, net of unearned income                      360,192,125      345,238,240
                Allowance for possible loan losses          (5,170,000)      (4,475,000)
                                                        --------------------------------
                        Net loans                          355,022,125      340,763,240
                                                        --------------------------------

        Bank premises and equipment                          9,326,709        8,008,727
        Accrued interest receivable                          5,492,942        4,963,438
        Other assets                                         5,749,261        5,565,176
                                                         ------------------------------

                                                         $ 580,900,514    $ 523,760,466
                                                         ==============================

Liabilities and Stockholders' Equity
Liabilities:
        Deposits                                         $ 509,782,762    $ 464,094,123
        Federal funds purchased and other
                short-term borrowings                                -           70,000
        Other borrowings                                    12,860,760        6,561,402
        Accrued interest payable                             2,563,911        2,434,230
        Other liabilities                                    1,487,359        1,512,131
                                                         ------------------------------
                Total liabilities                          526,694,792      474,671,886
                                                         ------------------------------

Stockholders' equity:
        Preferred stock:
                Class A: 500,000 shares authorized                   -               -
                Class B: 500,000 shares authorized                   -               -
        Common stock of $5.00 par value
                15,000,000 shares authorized;
                3,394,656 shares issued                     16,973,280       16,973,280
        Additional paid-in capital                          10,698,388       10,698,388
        Retained earnings                                   26,013,973       21,087,077
        Net unrealized gain on securities available
                for sale, net of income taxes                  520,081          329,835
                                                         ------------------------------
                Net stockholders' equity                    54,205,722       49,088,580
                                                         ------------------------------

                                                         $ 580,900,514    $ 523,760,466
                                                         ==============================
</TABLE>

<PAGE>
Page 16

<TABLE>

Consolidated Statements of Income
First M & F Corporation and Subsidiary

Years Ended December 31,                                               1997           1996           1995
                                                                  ------------------------------------------

<S>                                                               <C>            <C>            <C>         
        Interest income:
        Interest and fees on loans                                $ 34,056,878   $ 31,239,462   $ 27,230,315
        Taxable investments                                          7,279,986      7,393,926      7,300,273
        Tax-exempt investments                                       2,121,879      1,972,186      2,125,596
        Federal funds sold                                             566,951        684,974        595,769
        Interest bearing bank balances                                 190,325        205,377        165,365
                                                                  ------------------------------------------ 
                Total interest income                               44,216,019     41,495,925     37,417,318
                                                                  ------------------------------------------

Interest expense:
        Time deposits of $100,000 or more                            2,370,205      1,703,444      1,684,676
        Other deposits                                              18,079,011     16,507,650     13,079,184
        Securities sold under agreements to
                repurchase and other
                short-term borrowings                                    3,624        939,123      2,551,256
        Other borrowings                                               240,263        391,091        195,137
                                                                  ------------------------------------------
                Total interest expense                              20,693,103     19,541,308     17,510,253
                                                                  ------------------------------------------

                Net interest income                                 23,522,916     21,954,617     19,907,065
Provision for possible loan losses                                   2,050,085      1,220,536      1,508,853
                                                                  ------------------------------------------
                Net interest income after provision
                        for possible loan losses                    21,472,831     20,734,081     18,398,212
                                                                  ------------------------------------------

Other operating income:
        Service charges on deposit accounts                          3,392,019      3,457,679      3,116,512
        Gain (loss) on securities available for sale                    18,701         12,877       (118,673)
        Credit insurance income                                      1,019,452        465,323        428,929
        Other income                                                   535,133        499,822        813,521
                                                                  ------------------------------------------
                Total other operating income                         4,965,305      4,435,701      4,240,289
                                                                  ------------------------------------------

Other operating expenses:
        Salaries and employee benefits                               8,254,436      7,865,799      7,102,960
        Net occupancy expenses                                         980,162        989,017        897,290
        Equipment and data processing expenses                       1,758,309      1,751,978      1,599,754
        Other                                                        4,319,278      4,309,153      4,770,240
                                                                  ------------------------------------------
                Total other operating expenses                      15,312,185     14,915,947     14,370,244
                                                                  ------------------------------------------

                Income before income taxes                          11,125,951     10,253,835      8,268,257

Income taxes                                                         3,211,757      2,864,335      2,017,996
                                                                  ------------------------------------------

                Net income                                        $  7,914,194   $  7,389,500   $  6,250,261
                                                                  ==========================================

Earnings per share                                                $       2.33   $       2.18   $       1.90
                                                                  ==========================================

</TABLE>

<PAGE>
Page 17


Consolidated Statements of Stockholders' Equity
First M & F Corporation and Subsidiary
<TABLE>
<CAPTION>

Years Ended December 31,

                                                     Additional
                                       Common         Paid-in         Retained      Unrealized        Treasury
                                        Stock          Capital        Earnings      Gain (Loss)         Stock         Net
-----------------------------------------------------------------------------------------------------------------------------

<S>                                <C>             <C>             <C>            <C>              <C>           <C>         
January 1, 1995                    $ 15,623,280    $  8,493,316    $ 12,023,304   $ (1,607,233)    $  (48,828)   $ 34,483,839

Net income                                    -               -       6,250,261              -              -       6,250,261
Cash dividends
        ($0.62 per share)                     -               -      (2,030,890)             -              -      (2,030,890)
Sale of 270,000
        shares of common
        stock                         1,350,000       2,160,000               -              -              -       3,510,000
Net change in
        unrealized gain (loss)                -               -               -      2,306,220              -       2,306,220
                                   -------------------------------------------------------------------------------------------

December 31, 1995                    16,973,280      10,653,316      16,242,675        698,987         (48,828)    44,519,430
------------------------------------------------------------------------------------------------------------------------------

Net income                                    -               -       7,389,500              -               -      7,389,500
Cash dividends
        ($0.75 per share)                     -               -      (2,545,098)             -               -     (2,545,098)
Sale of treasury stock                        -          45,072               -              -          48,828         93,900
Net change in
        unrealized gain (loss)                -               -               -       (369,152)              -       (369,152)
                                  ------------------------------------------------------------------------------------------- 


December 31, 1996                    16,973,280      10,698,388      21,087,077        329,835               -     49,088,580
------------------------------------------------------------------------------------------------------------------------------

Net income                                    -               -       7,914,194              -               -      7,914,194
Cash dividends
        ($0.88 per share)                     -               -      (2,987,298)             -               -     (2,987,298)
Net change in
        unrealized gain (loss)                -               -               -        190,246               -        190,246
                                  --------------------------------------------------------------------------------------------

December 31, 1997                  $ 16,973,280    $ 10,698,388    $ 26,013,973     $  520,081      $        -   $ 54,205,722
==============================================================================================================================
</TABLE>


<PAGE>
Page 18

Consolidated Statements of Cash Flows
First M & F Corporation and Subsidiary
<TABLE>
<CAPTION>

Years Ended December 31,                                             1997                   1996             1995
---------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
 <S>                                                            <C>                     <C>             <C>         
        Net income                                              $  7,914,194            $  7,389,500    $  6,250,261
        Adjustments to reconcile net income to
                cash provided by operating activities:
                Depreciation and amortization                      1,209,290               1,174,809         981,396
                Provision for possible loan losses                 2,050,085               1,220,536       1,508,853
                Deferred income taxes                               (235,353)               (150,786)       (207,417)
                (Increase) decrease in interest receivable          (529,504)                 12,010        (970,906)
                Increase (decrease) in interest  payable             129,681                 (95,074)      1,031,223
                Other, net                                           464,432                 250,732         159,156
                                                                -----------------------------------------------------

                        Net cash provided by
                                operating activities              11,002,825               9,801,727       8,752,566
                                                                -----------------------------------------------------

Cash flows from investing activities:
        Purchases of securities available for sale               (53,564,167)            (52,497,658)    (35,055,066)
        Sales of securities available for sale                     3,099,966              12,462,456       8,658,674
        Maturities of securities available for sale               27,886,793              81,031,995      13,868,734
        Purchases of investment securities                       (12,538,559)            (11,756,845)    (15,725,275)
        Maturities of investment securities                       10,837,441               7,322,310       3,645,734
        Net (increase) decrease in:
                Interest bearing bank balances                   (10,652,140)                164,809          91,631
                Federal funds sold                                (1,500,000)                500,000               -
                Loans                                            (18,120,524)            (56,484,357)    (30,772,007)
                Bank premises and equipment                       (2,357,346)             (1,476,495)     (1,469,115)
        Other, net                                                 1,480,807               1,209,601         758,894
                                                                ---------------------------------------------------- 

                        Net cash used in investing activities    (55,427,729)            (19,524,184)    (55,997,796)
                                                                -----------------------------------------------------
</TABLE>


<PAGE>
Page 19

Consolidated Statements of Cash Flows (continued)
First M & F Corporation and Subsidiary
<TABLE>

<CAPTION>

Years Ended December 31,                                     1997             1996           1995
---------------------------------------------------------------------------------------------------

Cash    flows from financing activities: 
Net increase (decrease) in:
<S>                                                    <C>             <C>             <C>         
                Non-interest bearing deposits          $  4,226,406    $  3,955,964    $  2,084,752
                Money market, NOW and
                savings deposits                         24,131,927      32,288,569       9,202,701
                Certificates of deposit                  17,330,306      21,986,764      35,731,155
                Securities sold under agreements
                        to repurchase and other
                        short-term borrowings               (70,000)    (48,223,668)      3,471,643
Proceeds from other borrowings                           10,101,723      11,848,000               -
Repayments of other borrowings                           (3,802,365)     (8,292,095)     (2,226,198)
Cash dividends                                           (2,987,298)     (2,545,098)     (2,030,890)
Proceeds from sale of stock                                       -               -       3,510,000
Treasury stock transactions                                       -          93,900               -
                                                       ---------------------------------------------

                        Net cash provided by
                                financing activities     48,930,699      11,112,336      49,743,163
                                                       ---------------------------------------------

                        Net increase in cash and
                                due from banks            4,505,795       1,389,879       2,497,933

Cash and due from banks at January 1                     20,213,398      18,823,519      16,325,586
                                                        --------------------------------------------

Cash and due from banks at December 31                 $ 24,719,193    $ 20,213,398    $ 18,823,519
                                                       =============================================
</TABLE>


<PAGE>
Page 20

Notes to Consolidated Financial Statements
First M & F Corporation and Subsidiary

Note 1: Summary of Significant Accounting and Reporting Policies

The accounting and reporting  policies of First M & F Corporation  (the Company)
which materially affect the  determination of financial  position and results of
operations  conform to  generally  accepted  accounting  principles  and general
practices within the banking industry. A summary of these significant accounting
and reporting policies is presented below.

Organization and Operations

The Company is a one-bank  holding company that owns 100% of the common stock of
Merchants and Farmers Bank (the Bank) of Kosciusko,  Mississippi.  The Bank is a
commercial  bank and  provides  a full  range of banking  services  through  its
offices in central  Mississippi.  As a state chartered commercial bank, the Bank
is subject to Federal and state regulations and undergoes periodic  examinations
by those regulatory authorities.

Principles of Consolidation

The  consolidated  financial  statements of First M & F Corporation  include the
accounts of the Company and its wholly owned  subsidiary,  Merchants and Farmers
Bank,  and the  accounts of the Bank's wholly owned  finance  subsidiary,  
credit insurance  subsidiary and real estate subsidiary.  All significant  
intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of  assets  and  liabilities  at the date of the
financial  statements and the reported  amounts revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Investments

Securities,  which are available to be sold prior to maturity are  classified as
securities  available  for sale and are  carried  at  market  value.  Unrealized
holding  gains and losses are reported  net of taxes as a separate  component of
stockholders  equity.  Realized  gains  and  losses  on the  sale of  securities
available for sale are determined using the specific identification method.

Investment securities are those securities which the Company has the ability and
intent to hold until maturity and are carried at cost, adjusted for amortization
of premiums and accretion of discounts.

Loans

Loans  are  stated  at the  principal  amount  outstanding.  Unearned  income on
installment loans is recognized as income principally using the interest method.
Interest on all other loans is calculated by using the simple interest method on
daily balances of the principal amount  outstanding.  The Bank  discontinues the
accrual of interest on loans and recognizes income only as received when, in the
judgment  of  management,  the  collection  of  interest,  but  not  necessarily
principal, is doubtful.


<PAGE>
Page 21

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 1: Summary of Significant Accounting and Reporting Policies (continued)

Allowance for Possible Loan Losses

The Bank provides for loan losses  through an allowance for possible loan losses
established through a provision charged to expense. Accordingly, all loan losses
are charged to the  allowance for possible  loan losses and all  recoveries  are
credited  to it.  The  allowance  for  possible  loan  losses  is  based  on the
evaluation of the  collectibility  of loans, past loan loss experience and other
factors which,  in managements  judgment,  deserve  consideration  in estimating
possible  loan losses.  Such other  factors  considered  by  management  include
changes  in the  nature  and  volume  of the loan  portfolio,  current  economic
conditions  that may  affect a  borrowers  ability  to pay,  review of  specific
problem loans, and the relationship of the allowance to outstanding loans.

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation and
amortization.   Provisions  for   depreciation  and  amortization  are  computed
principally  using the  straight-line  method and charged to operating  expenses
over the  estimated  useful lives of the assets.  Costs of major  additions  and
improvements  are  capitalized.  Expenditures  for  maintenance  and repairs are
charged to expense as incurred.

Other Real Estate

Other real estate  acquired  through  partial or total  satisfaction of loans is
carried at the lower of market  value or the  recorded  loan  balance at date of
acquisition  (foreclosure).  Any loss  incurred  at the date of  acquisition  is
charged to the  allowance  for possible  loan losses.  Gains or losses  incurred
subsequent  to the date of  acquisition  are  reported  in  current  operations.
Related operating income and expenses are reported in current operations.

Amortization

The  Company's  costs in excess  of net Bank  assets  acquired  in 1980 are 
being amortized on a straight-line  basis over forty years.  The Bank's costs 
in  excess of  net  assets  acquired  in  branch  acquisitions  are  being  
amortized  on a straight-line basis over five and ten years.

Income Taxes

The Company,  the Bank and the Bank's finance and real estate  subsidiaries  
file consolidated Federal and state income tax returns. Deferred income taxes 
reflect the net tax effect of  temporary  differences  between the  carrying  
amounts of assets and liabilities for financial reporting and income tax 
purposes. Deferred income tax expense (benefit) is the result of changes in 
deferred tax assets and liabilities between reporting periods.

Earnings Per Share

Earnings  per share  calculations  are based on the weighted  average  number of
shares outstanding during the year of 3,394,656 in 1997,  3,393,209 in 1996, and
3,294,736 in 1995.


<PAGE>
Page 22

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 1: Summary of Significant Accounting and Reporting Policies (continued)

Statements of Cash Flows

In the  accompanying  consolidated  statements  of cash  flows,  the Company and
subsidiary  have  defined  cash  equivalents  as those  amounts  included in the
statement  of  condition   caption  Cash  and  Due  from  Banks.  The  following
supplemental disclosures are made related to the consolidated statements of cash
flows:
<TABLE>

                                               1997          1996          1995
                                           ---------------------------------------

<S>                                        <C>           <C>           <C>        
Interest paid                              $20,563,000   $19,636,000   $16,479,000
Federal and state income taxes paid          3,026,000     3,242,000     2,333,000
Federal income tax refunds                           -        60,000       162,000
Other real estate and repossessions
        acquired in noncash foreclosures     1,812,000     1,875,000       227,000
                                           =======================================
</TABLE>

Reclassifications

Certain  reclassifications  have  been  made  to the  1996  and  1995  financial
statements to be consistent with 1997 presentation.

Note 2: Investments

The following is a summary of the  amortized  cost and market value (book value)
of securities available for sale:

                            Amortized      Gross Unrealized        Market
                              Cost       Gain            Loss       Value
-----------------------------------------------------------------------------
December 31, 1997:
 U. S. Treasury
         securities      $ 23,575,000 $ 105,000       $ 24,000   $ 23,656,000
 U. S. Government
         agencies and
         corporations      21,709,000    59,000         36,000     21,732,000
 Mortgage-backed
         investments       43,750,000   182,000         51,000     43,881,000
 Obligations of states
         and political
         subdivisions      15,032,000   541,000          2,000     15,571,000
 Other                      4,107,000    56,000              -      4,163,000
                         -----------------------------------------------------

                         $108,173,000  $943,000       $113,000    $109,003,000
                         =====================================================



<PAGE>
Page 23


Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 2: Investments (continued)
<TABLE>

                                        Amortized           Gross Unrealized        Market
                                          Cost             Gain          Loss       Value
                                       -----------------------------------------------------
December 31, 1996:
<S>                                    <C>           <C>           <C>          <C>         
        U. S. Treasury
                securities             $21,728,000   $    44,000   $    90,000  $ 21,682,000
        U. S. Government
                agencies and
                corporations            15,961,000        29,000        68,000    15,922,000
        Mortgage-backed
                investments             29,086,000       116,000       112,000    29,090,000
        Obligations of
                states and political
                subdivisions            17,649,000       587,000         6,000    18,230,000
        Other                            1,520,000             -             -     1,520,000
                                       -----------------------------------------------------

                                       $85,944,000    $  776,000   $    276,000 $ 86,444,000
                                       =====================================================
</TABLE>

The following is a summary of the  amortized  cost (book value) and market value
of investment securities:
<TABLE>

                                 Amortized          Gross Unrealized          Market
                                   Cost           Gain            Loss         Value
                                -------------------------------------------------------
December 31, 1997:
<S>                             <C>           <C>             <C>           <C>        
        U. S. Treasury
                securities      $ 1,050,000   $       4,000   $     2,000   $ 1,052,000
        U. S. Government
                agencies and
                corporations     11,018,000         109,000         4,000    11,123,000
        Mortgage-backed
                investments      13,094,000          47,000        52,000    13,089,000
        Obligations of states
                and political
                subdivisions     33,623,000         818,000         9,000    34,432,000
                                -------------------------------------------------------

                                $58,785,000     $   978,000   $    67,000   $59,696,000
                                =======================================================
</TABLE>


<PAGE>
Page 24

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 2: Investments (continued)
<TABLE>

                                        Amortized             Gross Unrealized        Market
                                          Cost            Gain            Loss        Value
                                       --------------------------------------------------------

December 31, 1996:
<S>                                    <C>           <C>              <C>           <C>        
        U. S. Treasury
                securities             $ 1,050,000   $        8,000   $     4,000   $ 1,054,000
        U. S. Government
                agencies and
                corporations            13,980,000          185,000        25,000    14,140,000
        Mortgage-backed
                investments             17,888,000           34,000       140,000    17,782,000
        Obligations of
                states and political
                subdivisions            24,235,000          373,000        48,000    24,560,000
                                       --------------------------------------------------------
                                       $57,153,000      $   600,000    $  217,000   $57,536,000
                                       ========================================================
</TABLE>

The  amortized  cost and  market  values of  securities  available  for sale and
investment securities at December 31, 1997, by contractual  maturity,  are shown
below.  Actual  maturities  may  differ  from  contractual   maturities  because
borrowers  may have the right to call or prepay  certain  obligations  with,  or
without, call or prepayment penalties.
<TABLE>

                                 Available for Sale           Investment Securities
                              Amortized        Market       Amortized      Market
                                 Cost          Value           Cost        Value
                            ---------------------------------------------------------

<S>                         <C>            <C>            <C>            <C>         
One year or less            $ 35,836,000   $ 35,766,000   $ 12,425,000   $ 12,469,000
Over one through
        five years            57,722,000     58,347,000     24,762,000     25,220,000
Over five through
        ten years              7,220,000      7,485,000     18,757,000     19,048,000
After ten years                7,395,000      7,405,000      2,841,000      2,959,000
                            ---------------------------------------------------------

                            $108,173,000   $109,003,000   $ 58,785,000   $ 59,696,000
                            =========================================================
</TABLE>

The following is a summary of the amortized cost and market value of securities 
available for sale and investment securities which were pledged to secure public
deposits, short-term borrowings and for other purposes required or permitted by 
law.
<TABLE>

                                       Available for Sale                             Investment Securities
                                Amortized                 Market                Amortized                Market
                                  Cost                    Value                   Cost                    Value
------------------------------------------------------------------------------------------------------------------

<S>                     <C>                     <C>                     <C>                     <C>               
December 31, 1997       $       73,173,000      $       73,719,000      $       40,937,000      $       41,427,000
==================================================================================================================

December 31, 1996       $       54,394,000      $       54,592,000      $       33,770,000      $       34,025,000
==================================================================================================================
</TABLE>

<PAGE>
Page 25


Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 2: Investments (continued)

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

                                         1997            1996             1995
-------------------------------------------------------------------------------

        Gross realized gains    $       19,000  $       30,000  $       48,000
        Gross realized losses                -         (17,000)       (167,000)
-------------------------------------------------------------------------------

                                $       19,000  $       13,000  $     (119,000)
===============================================================================

Note 3: Loans

The  Bank's  loan  portfolio  includes  commercial,  consumer,  agribusiness  
and residential  loans  throughout  the State of  Mississippi,  but primarily in
its market  area in  Central  Mississippi.  The  composition  of the  Company's
loan portfolio, net of unearned income of $15,250,000 and $16,555,000, follows:

                                               1997           1996
                                         ---------------------------

Commercial, financial and agricultural   $ 50,107,000   $ 44,409,000
Residential real estate                   100,581,000     88,601,000
Non-residential real estate               120,881,000    113,590,000
Consumer loans                             88,623,000     98,638,000
                                         ----------------------------
                                         $360,192,000   $345,238,000
                                         ============================

The  Bank's  finance  company  subsidiary  sold  all of the  loans  at two of 
its branches  in 1997  and  closed  these  branches.  Net  loans  sold  amounted
to $2,300,000 and the sales price approximated net loan value.

The Bank has made, and expects in the future to continue to make, in the 
ordinary course of business, loans     to directors and executive officers of 
the Company and the Bank and to affiliates of these directors and officers.     
In the opinion of management, these transactions were made on substantially the 
same terms as those prevailing  at the time for comparable transactions with 
other persons and did not involve more than normal risk of collectibility  or 
contain any other unfavorable features. An analysis of such outstanding loans 
follows:

                                           1997           1996
                                      --------------------------

Loans outstanding at January 1        $ 2,948,000    $ 2,561,000
New loans                               2,302,000      2,098,000
Repayments and removals                (2,417,000)    (1,711,000)
                                      ---------------------------

Loans outstanding at December 31      $ 2,833,000    $ 2,948,000
                                      ===========================

<PAGE>
Page 26

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 4: Allowance for Possible Loan Losses

Transactions  in the  allowance  for  possible  loan  losses are  summarized  as
follows:

                                            1997           1996           1995
                                     ------------------------------------------

Balance at January 1                 $ 4,475,000    $ 4,250,000    $ 3,374,000

Loans charged-off                     (1,447,000)    (1,147,000)      (877,000)
Recoveries                               169,000        151,000        244,000
                                     ------------------------------------------
Net charge-offs                       (1,278,000)      (996,000)      (633,000)
                                     ------------------------------------------

Provision for possible loan losses     2,050,000      1,221,000      1,509,000

Sales of finance company branches        (77,000)             -              -
                                     ------------------------------------------

Balance at December 31               $ 5,170,000    $ 4,475,000    $ 4,250,000
                                     ==========================================

Note 5: Bank Premises and Equipment

A summary of bank premises and equipment follows:

                                                           1997          1996
                                                    -------------------------

Land and buildings                                  $ 9,762,000   $ 9,049,000
Furniture, fixtures and equipment                     8,008,000     7,323,000
Leasehold improvements                                  308,000       334,000
                                                    -------------------------
                                                     18,078,000    16,706,000
Less accumulated depreciation and
  amortization                                        9,655,000     8,921,000
                                                    -------------------------
                                                      8,423,000     7,785,000
Construction in progress, estimated costs to
  complete of $382,000 in 1997 and $889,000 in 1996     904,000       224,000
                                                    -------------------------

                                                    $ 9,327,000   $ 8,009,000
                                                    =========================

Amounts charged to operating  expenses for depreciation and amortization of bank
premises and equipment were $1,039,000 in 1997, $1,005,000 in 1996, and $800,000
in 1995.



<PAGE>
Page 27

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 6: Other Assets

A summary of other assets follows:

                                                 1997         1996
                                           -----------------------

Company's cost in excess of net
        Bank assets acquired in 1980,
        less accumulated amortization
        of $1,728,000 and $1,631,000       $2,149,000   $2,246,000

Bank's costs in excess of net assets
        acquired in branch acquisitions,
         less accumulated amortization
        of $359,000 and $286,000              370,000      443,000

Other real estate, net                        843,000      724,000

Deferred income tax                         1,073,000      977,000

Other                                       1,314,000    1,175,000
                                           -----------------------

                                           $5,749,000   $5,565,000
                                           =======================

Other expenses include amortization of intangible assets as follows:

                                              1997       1996       1995
                                          ------------------------------

Company's costs in excess of net
Bank assets acquired in 1980              $ 97,000   $ 97,000   $ 97,000
Bank's costs in excess of net assets
acquired in branch acquisitions             73,000     73,000     84,000
                                          ------------------------------

                                          $170,000 $  170,000 $  181,000
                                          ==============================

Changes in the  valuation  allowance  for other real  estate are  summarized  as
follows:

                                   1997        1996        1995
                               ---------------------------------

Balance at beginning of year   $ 50,000    $ 61,000    $ 36,000
Provision charged to expense     24,000       9,000      60,000
Writedowns                            -     (20,000)    (35,000)
                               ---------------------------------

Balance at end of year         $ 74,000    $ 50,000    $ 61,000
                               =================================



<PAGE>
Page 28

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 7: Deposits

The following is a summary of deposits at December 31, 1997 and 1996:
<TABLE>

                                                                      1997           1996
                                                              ---------------------------

<S>                                                           <C>            <C>         
Non-interest bearing                                          $ 60,343,000   $ 56,116,000
Interest bearing:
                Money market accounts                           48,102,000     41,880,000
                NOW accounts                                    79,869,000     68,299,000
                Savings accounts                                78,627,000     72,287,000
                Certificates of deposit of $100,000 or more     50,321,000     48,226,000
                Other certificates of deposit                  192,521,000    177,286,000
                                                              ---------------------------
                        Total interest bearing                 449,440,000    407,978,000
                                                              ---------------------------

                        Total deposits                        $509,783,000   $464,094,000
                                                              ===========================
</TABLE>

At December 31, 1997, the scheduled maturities of certificates of deposit are as
follows:

        1998          $ 162,235,000
        1999             42,699,000
        2000             24,408,000
        2001              2,993,000
        2002             10,269,000
        After 2002          238,000
                     --------------
                  

                      $ 242,842,000
                      =============

Note 8: Short-Term Borrowings

The  following  is a summary of  information  related to  securities  sold under
agreements to repurchase and other short-term borrowings:
<TABLE>
                                                                           Weighted
                                         Balance Outstanding              Average Rate
                                   Maximum     Average           At                             At
                                  Month End     Daily         Year End     During Year       Year End
                                  -------------------------------------------------------------------
1997:
<S>                                <C>       <C>              <C>            <C>                   
Federal funds purchased            $     -   $ 64,000         $      -       5.69%               -%
Securities sold under
        agreements to repurchase         -          -                -          -                -
Other short-term
        borrowings by the
        Company                          -      2,000                -       6.50%               -
                                    ----------------------------------------------------------------

                                   $     -   $ 66,000                -        
                                   =================================================================
</TABLE>


<PAGE>  
Page 29

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 8: Short-Term Borrowings (continued)
<TABLE>

                                                                                                     Weighted
                                                 Balance Outstanding                               Average Rate
                                          Maximum           Average             At                            At
                                          Month End          Daily           Year End       During Year    Year End
                                       ----------------------------------------------------------------------------
1996:
<S>                                    <C>                      <C>          <C>                  <C>                       
Federal funds purchased                $          -             $    58,000  $         -          6.95%         -%          
Securities sold under
        agreements to repurchase         50,986,000              19,272,000            -          4.78          -
Other short-term borrowings
        by the Company                      250,000                 245,000       70,000          6.41       6.50
                                       --------------------------------------------------------------------------

                                       $  51,236,00            $ 19,575,000  $    70,000
                                       ==========================================================================

1995:
Federal funds purchased $                 2,700,000            $    219,000  $ 2,700,000          5.62%      5.63%
Securities sold under
        agreements to repurchase         54,847,000              45,631,000   44,659,000          5.32       5.33
Other short-term borrowings
        by the Company                      935,000                 935,000      935,000          8.36       8.25
                                       --------------------------------------------------------------------------

                                       $ 58,482,000            $ 46,785,000  $48,294,000
                                       ==========================================================================
</TABLE>

Federal funds purchased  represent primarily  overnight  borrowings.  Securities
sold under agreements to repurchase primarily  represented a relationship with a
public  university  under a  contract  that  expired  on June  30,  1996.  These
borrowings  repriced on a monthly  basis.  Other  short-term  borrowings  by the
Company represent unsecured borrowings from various individuals and entities.



<PAGE>


Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 9: Other Borrowings
<TABLE>
<CAPTION>

The following is a summary of other borrowings at December 31, 1997 and 1996:

                                                                                     1997          1996
                                                                             ----------------------------

<S>                                                                          <C>               <C>       
Line of credit in the amount of $9,000,000, renewable
        annually; secured by approximately 29% of the Bank's
        common stock; interest payable quarterly at the lenders
        base rate                                                            $     327,000     $  275,000

Advances from Federal Home Loan Bank of Dallas  secured by first mortgage
        loans and Federal Home Loan Bank stock:

        5.56% advance in the amount of $1,000,000; interest is payable
                monthly and principal is payable on September 23, 2000            1,000,000     1,000,000

        5.90% advance in the amount of $2,500,000; principal and
                interest are payable in monthly installments of approximately
                $28,000 through June 1, 2003                                      1,534,000     1,786,000

        Variable rate advance in the amount of $10,000,000;  interest is
                payable  monthly  and is  adjusted  monthly  to 21 basis
                points over LIBOR;  principal is payable on December 30,
                2004                                                             10,000,000             -

        6.05% advance in the amount of $6,000,000; payable in
                monthly installments of $500,000, plus interest through
                July 1, 1997                                                              -     3,500,000
                                                                            -----------------------------

                                                                             $   12,861,000   $ 6,561,000
                                                                             ============================
</TABLE>

Scheduled  principal  payments on the  advances  from  Federal Home Loan Bank of
Dallas are as follows:

        1998          $       227,000
        1999                  261,000
        2000                1,277,000
        2001                  294,000
        2002                  312,000
        After 2002         10,163,000
                       --------------

                      $    12,534,000
                      ===============



<PAGE>
Page 30

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 10: Employee Benefit Plans

The Bank has a defined benefit pension plan covering substantially all full time
employees of the Bank and  subsidiaries.  Benefits  under this plan are based on
years of service and average  annual  compensation  for a five year period.  The
Bank's  funding  policy for the plan is to  contribute  annually in an amount 
not exceeding the allowable Federal income tax deduction. Contributions of 
$157,000, $120,000 and $80,000 were made to the plan in 1997, 1996 and 1995, 
respectively.

Net pension cost (benefit) included the following components:

                                      1997            1996            1995
                               ----------------------------------------------

Service cost                   $     132,000    $     128,000  $     112,000
Interest cost                         210,00          190,000        170,000
Actual return on plan assets        (407,000)        (199,000)      (241,000)
Net amortization and deferral        188,000          (35,000)        30,000
                               ----------------------------------------------

                               $     123,000    $      84,000  $      71,000
                               ==============================================

The following table sets forth the plans funded status and amounts recorded in 
the consolidated statements of condition:

                                              1997                 1996
                                           -----------------------------------

Actuarial present value of:
        Vested benefit obligation          $   2,628,000       $    2,239,000
        Non-vested benefit obligation             47,000               30,000
                                           -----------------------------------

             Total benefit obligation      $   2,675,000       $    2,269,000
                                           ===================================

Projected benefit obligation               $  (3,234,000)      $   (2,681,000)
Market value of plan assets                    3,022,000            2,473,000
                                           -----------------------------------
Plan assets in excess of (less than)            (212,000)            (208,000)
  projected benefit obligation
Unrecognized net loss                            573,000              450,000
Remaining unrecognized net asset at             (139,000)            (174,000)
transition date
Contributions after measurement date                   -              120,000
                                           -----------------------------------

                   Net pension asset       $     222,000       $      188,000
                                           ===================================

The weighted average discount rate and rate of increase in future compensation 
levels used in determining the actuarial present value of the projected benefit 
obligation were 8% and 4%, respectively. The expected long-term rate of return 
on plan assets was 8%.


<PAGE>
Page 31

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 10: Employee Benefit Plans (continued)

The Bank has a profit and savings plan which includes features such as an 
Employee Stock Option Plan and a 401(k) plan which provides for certain salary 
deferrals, covering substantially all full time employees of the Bank and 
subsidiaries. Prior to 1996 the Bank did not match employee contributions, but 
made contributions to the plan only at the discretion of the Board of Directors.
Discretionary contributions accrued for this plan were $25,000 in 1997, $25,000 
in 1996 and $40,000 in 1995. In addition, in 1996 the Bank began to match 
employee 401(k) contributions equal to 50% of an employees first 5% of salary 
deferral. Total matching contributions accrued for this plan were $90,000 in 
1997 and $89,000 in 1996.

At December 31, 1997,  the profit and savings plan owned  109,882  shares of the
Company's  common  stock and the pension  plan owned 3,600 shares of the 
Company's common stock.

Note 11: Other Operating Expense

Significant components of other operating expense are summarized as follows:

                                           1997        1996      1995
                                        -------------------------------

Advertising and promotion               $ 454,000 $  501,000 $  399,000
Communications                            484,000    475,000    428,000
Postage and carriers                      532,000    521,000    438,000
Professional fees                         413,000    321,000    533,000
Regulatory insurance and fees             118,000     89,000    510,000
Stationery and supplies                   429,000    494,000    418,000
Other                                   1,889,000  1,908,000  2,044,000
                                       --------------------------------

                                       $4,319,000 $4,309,000 $4,770,000
                                       ================================

Note 12: Income Taxes

The components of income tax expense (benefit) are as follows:

                       Federal          State                Total
                   --------------------------------------------------
                   
1997:
        Current    $  3,126,000        $    321,000    $   3,447,000
        Deferred       (205,000)            (30,000)        (235,000)
                   --------------------------------------------------

        Total      $  2,921,000        $    291,000    $   3,212,000
                   ==================================================

1996:
        Current    $  2,929,000        $     86,000    $   3,015,000
        Deferred         (4,000)           (147,000)        (151,000)
                   --------------------------------------------------

        Total      $  2,925,000        $    (61,000)   $   2,864,000
                   ==================================================

<PAGE>
Page 32


Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 12: Income Taxes (continued)

                         Federal             State            Total
                 --------------------------------------------------------
1995:
        Current $       2,225,000       $         -    $       2,225,000
        Deferred        (207,000)                 -             (207,000)
                ---------------------------------------------------------

        Total   $       2,018,000       $         -    $       2,018,000
                =========================================================

The  differences  between  actual  income tax  expense and  expected  income tax
expense are summarized as follows:
<TABLE>

                                                1997                   1996                    1995
                                         -----------------------------------------------------------
<S>                                      <C>                    <C>                     <C>        
Amount computed using the
        Federal statutory rates on
        income before income taxes       $ 3,783,000            $ 3,486,000             $ 2,811,000
Increase (decrease) resulting from:
Tax exempt income, net of
        disallowed interest deduction       (690,000)              (609,000)               (662,000)
State income tax expense (benefit),
        net of Federal effect                192,000                (40,000)                      -
Small life insurance company deduction
        (on amended returns in 1997)         (67,000)                     -                 (68,000)
Amortization of intangible assets             33,000                 33,000                  37,000
Other, net                                   (39,000)                (6,000)               (100,000)
                                         -----------------------------------------------------------

                                         $ 3,212,000            $ 2,864,000             $ 2,018,000
                                         ===========================================================
</TABLE>

The components of deferred income tax expense (benefit) are as follows:
<TABLE>

                                               1997                 1996         1995
                                          --------------------------------------------
<S>                                      <C>                    <C>         <C>        
Financial loan loss provision in excess
        of tax provision                  $(344,000)           $(229,000)   $(280,000)
Tax depreciation greater (less) than
        financial depreciation               28,000               (1,000)       8,000
Prepaid pension asset                        13,000               18,000        3,000
Life insurance income                        18,000               13,000      (19,000)
Other real estate                           (17,000)               2,000       28,000
Federal Home Loan Bank stock dividends       35,000               38,000       34,000
Accrued expenses                             47,000              (71,000)     (32,000)
Prior period adjustment                           -              129,000      (13,000)
Other, net                                  (15,000)             (50,000)      64,000
                                          --------------------------------------------

                                          $(235,000)           $(151,000)   $(207,000)
                                          ============================================
</TABLE>


<PAGE>
Page 33

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 12: Income Taxes (continued)

The  components  of the recorded net deferred tax asset at December 31, 1997 and
1996, consist of the following:

                                                          1997           1996
                                                   ---------------------------

Allowance for possible loan losses                 $ 1,631,000    $ 1,287,000
Life insurance income                                   19,000         37,000
Other real estate                                       36,000         19,000
Accrued expenses                                        75,000        122,000
Other, net                                              78,000         63,000
Depreciation                                          (234,000)      (206,000)
Prepaid pension asset                                  (83,000)       (70,000)
Federal Home Loan Bank stock dividends                (140,000)      (105,000)
Unrealized gain on securities available for sale      (309,000)      (170,000)
                                                   ---------------------------

                                                   $ 1,073,000    $   977,000
                                                   ===========================

Note 13: Preferred Stock

The Company is authorized to issue 500,000  shares of cumulative  Class A voting
preferred  stock of no par  value  and  500,000  shares  of  cumulative  Class B
non-voting preferred stock of no par value. Dividend rates, redemption terms and
conversion terms may be set by the Board of Directors.

Note 14: Commitments and Contingencies

The Company and Bank, in the normal course of business, are defendants in 
certain legal claims. In the opinion of management, and based on the advice of 
legal counsel, the ultimate resolution of these matters is not anticipated to 
have a material effect on the Company's consolidated financial position.

The  consolidated  financial  statements do not reflect various  commitments and
contingent  liabilities  which arise in the normal  course of business and which
involve elements of credit risk, interest rate risk and liquidity risk. The Bank
makes commitments to extend credit and issues standby and commercial  letters of
credit in the normal  course of business to fulfill the  financing  needs of its
customers.

Commitments to extend credit are agreements to lend money to customers pursuant 
to certain specified conditions and generally have fixed expiration dates or 
other termination clauses. Credit card arrangements represent the amount that 
preapproved credit limits exceed actual balances. Since many of these 
commitments are expected to expire without being drawn upon, the total 
commitment amounts do not necessarily represent future cash requirements. When 
making these commitments, the Bank applies the same credit policies and 
standards  as it does in the normal lending process. Collateral is obtained 
based upon the Bank's assessment of a customers credit worthiness.


<PAGE>
Page 34

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 14: Commitments and Contingencies (continued)

Standby and commercial  letters of credit are conditional  commitments issued by
the Bank to  guarantee  the  performance  of a customer to a third  party.  When
issuing  letters  of credit,  the Bank  applies  the same  credit  policies  and
standards as it does in the normal lending process. Collateral is obtained based
upon the Bank's assessment of a customers credit worthiness.

The maximum credit exposure in the event of nonperformance  for loan commitments
and standby letters of credit and credit card arrangements is represented by the
contract amount of the instruments.

A summary of commitments and contingent  liabilities at December 31, 1997, is as
follows:

        Commitments to extend credit    $       27,500,000
        Standby letters of credit                2,545,000
        Credit card arrangements                 3,524,000
                                        ------------------
                                        $       33,569,000
                                        ==================

Note 15: Regulatory Matters

Federal banking regulations require that the Bank maintain certain cash reserves
based on a percent of deposits.  This requirement was $9,702,000 at December 31,
1997.

The Bank is required to maintain  minimum  amounts of capital to average  assets
and to average  risk  weighted  assets,  as defined  and  determined  by banking
regulators. The Bank's regulatory capital was in excess of minimum capital 
levels required by regulatory authorities at December 31, 1997.

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the  maintenance  of minimum  amounts and ratios (set forth in the table
below) of Total  Capital and Tier I Capital (as defined in the  regulations)  to
risk-weighted assets (as defined), and of Tier I Capital (as defined) to average
assets (as  defined).  Management  believes,  as of December 31, 1997,  that all
capital adequacy requirements have been met.

As of April 7, 1997,  the date of the most  recent  examination  by the  Federal
Deposit  Insurance  Corporation,  the Bank was  categorized as well  capitalized
under the regulatory  framework for prompt corrective  action. To be categorized
as well  capitalized  the Bank must maintain  minimum total  risk-based,  Tier I
risk-based,  Tier I  leverage  ratios  as set forth in the  table.  There are no
conditions  or events since that  notification  that  management  believes  have
changed the Bank's category.


<PAGE>
Page 35

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 15: Regulatory Matters (continued)

The Company's actual capital amounts and ratios as of December 31, 1997 and 
1996, are also presented in the table (in thousands of dollars):
<TABLE>

                                                                                 To Be Well
                                                                              Capitalized Under
                                                             For Capital      Prompt Corrective
                                          Actual          Adequacy Purposes   Action Provisions
                                    Amount       Ratio   Amount        Ratio  Amount      Ratio
                                    ------------------------------------------------------------
<S>                                 <C>          <C>     <C>          <C>    <C>          <C>   
December 31, 1997:
Total capital
        (to risk weighted assets)   $55,791      15.08%  $29,597      8.00%  $36,997      10.00%

Tier I capital
        (to risk weighted assets)    51,167      13.83    14,799      4.00    22,198       6.00

Tier I capital
        (to average assets)          51,167       8.89    23,029      4.00    28,786       5.00
================================================================================================

December 31, 1996:
Total capital
        (to risk weighted assets)   $50,509      14.22%  $28,410      8.00%  $35,512      10.00%

Tier I capital
        (to risk weighted assets)    46,070      12.97    14,205      4.00    21,307       6.00

Tier I capital
        (to average assets)          46,070       8.73    21,098      4.00    26,372       5.00
================================================================================================
</TABLE>

Dividends paid by the Bank are the primary source of funds available to the 
Company for payment of dividends to its shareholders and other cash needs. 
Applicable Federal and state statutes and regulations impose restrictions on the
amounts of dividends that may be declared by the Bank. In addition to the formal
statutes and regulations, regulatory authorities also consider the adequacy of 
the Bank's total capital in relation to its assets, deposits and other such 
items and, as a result, capital adequacy considerations could further limit the 
availability of dividends from the Bank. These restrictions are not anticipated 
to have a material effect on the ability of the Bank to pay dividends to the 
Company.



<PAGE> 
Page 36

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 16: Fair Value of Financial Instruments

Statement  of Financial  Accounting  Standards  No. 107 (SFAS 107),  Disclosures
about Fair Value of Financial  Instruments  requires  that the Company  disclose
estimated fair value for its financial  instruments.  However,  such disclosures
may  be  deemed  not  to  be  practicable   for  certain  classes  of  financial
instruments. A summary of financial instruments and related disclosures follows:

Cash and due from banks,  interest bearing deposits with banks and Federal funds
sold - The net book value of these financial instruments approximates fair value
due to the immediate availability or short maturity of these investments.

Investments  - Fair value of these  financial  instruments  is  considered to be
their quoted market value as disclosed in note 2.

Loans - The fair value of variable rate loans that reprice frequently,  and with
no significant  changes in credit risk, are based on carrying  values.  The fair
value of fixed rate loans is  estimated  by  discounting  the future cash flows,
using  the  current  rates at  which  these  loans  would  currently  be made to
borrowers with similar credit ratings and similar maturities. The carrying value
of loans,  net of the reserve for possible  loan  losses,  is  $355,022,000  and
$340,763,000  and the  estimated  net fair  value of loans is  $353,521,000  and
$339,399,000 at December 31, 1997 and 1996.

Deposits  - The fair  value of  demand  deposits,  NOW  accounts,  money  market
accounts and savings  deposits is the carrying amount at the reporting date. The
fair value of  certificates  of deposit is estimated by  discounting  the future
cash flows, using current market rates for deposits of similar  maturities.  The
carrying value of deposits is $509,783,000  and  $464,094,000  and the estimated
net fair value of deposits is $510,561,000 and $463,428,000 at December 31, 1997
and 1996.

Short-term  and  other  borrowings  - The net  book  value  of  these  financial
instruments  approximates fair value due to the short term nature of these items
or their applicable interest rates and repricing and repayment terms.

Commitments  to extend  credit - As  disclosed  in note 14, the Bank has certain
commitments  to extend credit at December 31, 1997.  These  commitments  include
different types of borrowers, collateral requirements,  maturity dates, interest
rates and repricing schedules.  Due to the effort and difficulty in implementing
a valuation model to estimate the fair value of these commitments, the Bank does
not consider the disclosure to be practicable for these items.  However,  due to
the pricing,  terms and  conditions  for the  outstanding  commitments to extend
credit, in the opinion of management, the estimated fair value of commitments to
extend credit is not  materially  different from the stated amounts as disclosed
in note 14.


<PAGE>
Page 37

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 17: Summarized Financial Information of First M & F Corporation

Summarized  financial  information  of First M & F Corporation  (parent  company
only) is as follow:

STATEMENTS OF CONDITION

Assets                                      1997          1996
                                    ---------------------------

        Cash                        $     246,639 $       5,038
        Investment in subsidiary       54,171,760    49,317,454
        Other investments                  22,500        22,500
        Land and building                  67,639        70,558
        Other assets                       52,393        18,030
                                    ---------------------------

                                      $54,560,931   $49,433,580
                                    ===========================

Liabilities and Stockholders Equity

        Short-term borrowings        $          - $    70,000
        Note payable to bank              326,723     275,000
        Other liabilities                  28,486           -
        Stockholders equity            54,205,722  49,088,580
                                    -------------------------

                                      $54,560,931 $49,433,580
                                     ========================

STATEMENTS OF INCOME

<TABLE>
                                                                  1997         1996         1995
                                                            ------------------------------------
                
Income:
<S>                                                         <C>          <C>          <C>       
        Dividends received from subsidiary                  $3,350,000   $3,000,000   $2,450,000
        Equity in undistributed earnings of
                subsidiary, net of amortization              4,664,004    4,475,208    3,931,154
        Other income                                             7,174        6,770        6,141
                                                            ------------------------------------
        Total income                                         8,021,178    7,481,978    6,387,295
                                                            ------------------------------------

Expenses:
        Interest                                                31,216       53,341      109,737
        Other expenses                                         127,861        79,51       67,395
                                                            ------------------------------------
        Total expenses                                         159,077      132,852      177,132
                                                            ------------------------------------

        Income before income taxes                           7,862,101    7,349,126    6,210,163

        Income tax benefit                                      52,093       40,374       40,098
                                                            ------------------------------------

        Net income                                          $7,914,194   $7,389,500   $6,250,261
                                                            ====================================
</TABLE>


<PAGE>
Page 38

Notes to Consolidated Financial Statements (continued)
First M & F Corporation and Subsidiary

Note 17: Summarized Financial Information of First M & F Corporation (continued)
<TABLE>
<CAPTION>

STATEMENTS OF CASH FLOWS

                                                                        1997                    1996                    1995
                                                                    -----------------------------------------------------------

<S>                                                                 <C>                    <C>                     <C>        
Cash flows from operating activities:
        Net income                                                  $ 7,914,194            $ 7,389,500             $ 6,250,261
        Adjustments to reconcile net income to
                net cash provided by operating activities:
                Equity in undistributed earnings
                        of subsidiary                                (4,664,004)            (4,475,208)             (3,931,154)
                Other, net                                               (3,014)               (53,154)                (67,394)
                                                                   ------------------------------------------------------------
                        Net cash provided by operating activities     3,247,176              2,861,138               2,251,713
                                                                   ------------------------------------------------------------

Cash flows from investing activities -
        additional investment in subsidiary                                   -                      -              (3,500,000)
                                                                   ------------------------------------------------------------

Cash flows from financing activities:
        Increase (decrease) in:
                Short-term borrowings                                   (70,000)              (865,066)                  2,119
                Note payable to bank                                     51,723                275,000                (502,000)
        Cash dividends                                               (2,987,298)            (2,545,098)             (1,730,890)
        Proceeds from sale of stock                                           -                      -               3,510,000
        Treasury stock transactions                                           -                 93,900                       -
                                                                   ------------------------------------------------------------
                        Net cash provided by (used in)
                                financing activities                 (3,005,575)            (3,041,264)              1,279,229
                                                                   ------------------------------------------------------------

                        Net increase (decrease) in cash                 241,601               (180,126)                 30,942

        Cash at January 1                                                 5,038                185,164                 154,222
                                                                   ------------------------------------------------------------

        Cash at December 31                                         $   246,639            $     5,038             $   185,164
                                                                   =========================================================== 
</TABLE>


<PAGE>
Page 39

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
First M & F Corporation and Subsidiary

Financial Condition

The purpose of this  discussion is to focus on significant  changes in financial
condition and results of  operations  of the Company and its banking  subsidiary
during  the past three  years.  The  discussion  and  analysis  is  intended  to
supplement and highlight information contained in the accompanying  consolidated
financial  statements and selected  financial  data presented  elsewhere in this
report  and in the  enclosed  Financial  Summary - First M & F  Corporation  and
Subsidiary.

Summary

The  performance  for the Company during 1997 was the best in the history of the
organization.  Net income for 1997 was $7.914 million,  a 9.7% increase over the
previous  high of $7.390  million in 1996.  Net income for 1996 was 18.2% higher
than 1995 net income of $6.250  million.  The increases in net income per common
share for 1997 and 1996 were 6.9% and 14.7%, respectively. Net income per common
share increased 22.6% during 1995.  Pretax income for 1997 was up $872 thousand,
or 8.5%, over 1996 while income tax expense  increased $347 thousand,  or 12.1%,
partly due to the increase in the effective tax rate to 28.9%. Pretax income for
1996 was up $1.99  million,  or  24.0%,  over  1995  while  income  tax  expense
increased $846 thousand,  or 41.9%,  partly due to increase in the effective tax
rate from 24.4% in 1995 to 27.9% in 1996.

A significant factor in the growth of the Company was the acquisition of Farmers
and Merchants Bank of Bruce, Mississippi  on December 31, 1995, which increased 
assets by approximately $32 million. Additionally, 1996 operations include the 
full years performance of new branch locations constructed, staffed and opened 
in the Starkville, Philadelphia, and Grenada market areas in 1995 which have 
contributed to the loan and deposit growth of the Company. These growth trends 
continued in 1997.

At year end 1997,  total  assets were $581  million,  an increase of 10.91% over
year end 1996 and 14.90%  over 1995.  The return on average  assets for 1997 was
1.41% as  compared  to 1.40% for 1996 and 1.30% in 1995.  The  return on average
equity in 1997 was 15.28% as compared to 15.80% in 1996 and 15.79% in 1995.

The average equity to average assets ratio for the Company at December 31, 1997,
of 9.20%  places the Company  well above the  minimum  capital  guidelines.  The
Company's Tier-I and total capital ratios (to risk weighted assets) of 13.03% 
and 15.08%, respectively, at December 31, 1997, categorize the banking 
subsidiary of the  Company  as  well  capitalized   according  to  Federal  
Deposit  Insurance Corporation regulations.

Earning Assets

Average  earning asset mix for 1997 was 66.9% for loans and 30.4% for investment
securities.  This mix  compared  to 64.4% for  loans  and  32.2% for  investment
securities in 1996 and 61.2% loans and 36.0%  investments  in 1995. The shift in
average  earning  assets has been a result of the Company being able to increase
and  expand  its  operations  in  several  key  Mississippi  markets  -  Oxford,
Starkville,  Philadelphia  and  Madison/Rankin  counties  - while  reducing  the
investment securities  portfolio.  These trends slowed somewhat in 1997, and the
Company  began to increase  investments  in  securities  as loan demand  slowed.
Average  balances  of  Federal  funds  sold  decreased  in 1997 after a two year
increase  based on funding  requirements  necessitated  by changes in investment
mix.

<PAGE>
Page 40

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued)
First M & F Corporation and Subsidiary

Earning Assets (continued)

The  Company  experienced  continued  growth in  deposits in 1997 as a result of
system wide marketing effects and continued growth in newer market areas. During
1996,   the   Company   absorbed   the   loss  of  a  major   state   university
deposit/overnight  repurchase  relationship  that had  existed  over a  six-year
period and had provided a  significant  source of funding for the  Company.  The
payout of this  relationship  involved  securities  specifically  purchased with
maturities  in  June,  July  and  August,   1996,  to  effect  the  roll-out  of
approximately $47 million in funds during those months.

The mix of earning assets is monitored on a continuous basis in order to react
to interest rate movements and to maximize returns on earnings assets.

Financial Condition

The Company's trend in growth and mix of assets and liabilities is illustrated 
by the following summary of average balances by major portfolios and components 
of  interest earning assets and interest bearing liabilities
(in thousands of dollars):
<TABLE>

                                                            1997                            1996
                                               Average    Increase Percent  Average       Increase  Percent
                                               Balance   (Decrease) Change  Balance      (Decrease) Change
                                             --------------------------------------------------------------

<S>                                          <C>         <C>         <C>      <C>       <C>         <C>   
Average Assets
Federal funds sold                           $  10,782   $  (2,057) -16.0%    12,839    $   2,993   30.40%
Loans, net of unearned
        discount                                349,684     32,671  10.31    317,013       41,591   15.10
Interest bearing
        bank balances                             3,378       (556)-14.13      3,934        1,144   41.00
Taxable investments                             117,064     (3,292) -2.73    120,356         (935)  -0.77
Tax-exempt investments                           41,941      3,617   9.44     38,324       (2,148)  -5.13
                                             --------------------------------------------------------------
        Total interest
                earning assets                  522,849     30,383   6.17    492,466       42,645    9.48
Non interest
        earning assets                           39,888      5,353  15.50     34,535        3,735   12.13
                                             --------------------------------------------------------------
        Total average
                assets                       $  562,737  $  35,736   6.79% $ 527,001    $  46,380    9.65%
                                             ==============================================================

Average Liabilities and Capital
DDA and savings                              $  207,098  $  31,715  18.08% $ 175,383    $  30,413   20.98%
Time deposits                                   237,123     17,085   7.76    220,038       28,748   15.03
Short-term funds                                     64    (19,266)-99.67     19,330      (26,520) -57.84
Federal Home Loan
        Bank advances                             3,628     (2,309) -46.7      5,937        2,455   70.51
                                             --------------------------------------------------------------
        Total interest bearing
                liabilities                     447,913     27,225   6.47    420,688       35,096    9.10
Non interest bearing
        liabilities and capital                 114,824      8,511   8.01    106,313       11,284   11.87
                                              -------------------------------------------------------------
        Total average liabilities
                and capital                  $  562,737   $ 35,736   6.79%  $527,001     $ 46,380    9.65%
                                             ==============================================================
</TABLE>


<PAGE>
Page 41

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued)
First M & F Corporation and Subsidiary

Loans

Average  loans in 1997  increased  10.3%  over  1996 and  average  loans in 1996
increased 15.1% over 1995. Total loans outstanding at year end 1997 increased by
4.3% from 1996 while  increasing  by 18.4% at year end 1996 as  compared to year
end 1995.  The 1996 growth in the portfolio  resulted from the Company's  
ongoing efforts to increase the portfolio through concerted loan origination 
programs. A slow down in consumer  lending was the primary  factor in the lower 
growth rate for 1997.  Consumer loans  decreased by 10.2% from December 31, 
1996 to December 31, 1997, with much of the decrease due to reductions in 
indirect lending.

In 1997,  commercial,  financial and agricultural  lending  increased 12.8% over
1996,  residential real estate increased 13.5% and  non-residential  real estate
increased  6.4%.  These trends  continue to reflect the diversity of the markets
served and the general condition of the economy during the year.  Although solid
loan growth is important to the Company,  management  does not  anticipate  past
levels of lending growth to continue.

Investment Securities

The  composition  of the total  investment  securities  portfolio  reflects  the
Company's  strategy of maximizing  portfolio  yields  commensurate  with risk 
and liquidity  considerations.  The  primary  objectives  of  this  strategy  
are to maintain  an  appropriate  level of  liquidity  and  provide a tool to 
assist in controlling  the Company's  interest  rate position  while  producing 
an adequate level of interest income.  Investment year end balances  increased 
by 16.8% from 1996 to 1997 as loan demand lagged behind prior years. As 
discussed  above,  the 1997 and 1996 average balances of the portfolio were 
significantly influenced by the loss of a major  contractual  deposit  
relationship  which was paid out over approximately  three to four  months in 
1996 as  securities  purchased  for this purpose  matured.  The portfolio,  
reconstructed  through an aggressive  deposit gathering  campaign  and  
advances  from the  Federal  Home Loan Bank of Dallas, performed  well during 
1997,  contributing  interest  income at a fully  taxable equivalent rate of 
6.60%, as compared to 6.55% for 1996 and 6.50% for 1995.

The Company  continues to place emphasis on tax-exempt  investments and believes
this  investment  strategy  will continue to have merit in light of tax planning
objectives   and   local   community   and   statewide   tax-exempt   investment
opportunities.  The  Company's  tax  equivalent  yield on this  component  of 
the portfolio was 7.67% for 1997, compared to 7.80% in 1996 and 7.96% in 1995.

The mix of the portfolio continues to reflect diversity in strategy. At December
31, 1997,  the mix reflected  14.7% in treasuries,  19.5% in agencies,  29.3% in
municipals  and  34.0% in  mortgage-backs.  Gains and  losses in the  securities
available for sale segment of the portfolio reflected a minor amount of gain for
1997 and 1996 as  compared  to 1995 where  repositioning  losses were taken as a
strategy to improve overall  long-term  yields.  Summaries of amortized cost and
market values by major components of the portfolio can be found in the footnotes
to the consolidated  financial statements.  The footnotes also reflect summaries
of maturities in the portfolio by years.


<PAGE>
Page 42

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued)
First M & F Corporation and Subsidiary

Deposits and Borrowed Funds

The Company  experienced steady deposit growth in 1997. Total deposits increased
by 9.8% from  December  31, 1996 to December 31,  1997,  while  interest-bearing
deposits  increased  by 10.2%.  Average  interest-bearing  deposit  and  savings
accounts  increased by 18.1% and average time deposits  increased by 7.8% during
1997.  Changes  in the  Company's  markets,  the  loss of the  contractual  
funds relationship  in 1996,  and the overall  good  economy  enjoyed by most  
banking institutions,  influenced  not only the asset mix,  but the  deposit  
mix of the Company.  Average  interest-bearing deposit and savings accounts 
increased 20.9% and average  time  deposits  increased  15.0%  during  1996.  
Short-term  funds, represented by the contract overnight repurchase agreement,  
as explained above, terminated July 1, 1996, and resulted in a loss of 
approximately  $47 million in funds. To respond,  the Company  introduced a new 
savings  product,  The Liberty Fund, in July,  1996,  and a certificate  of 
deposit sales campaign in late fall 1996, both of which were highly successful 
in attracting new deposit monies.

Cost of funds were not materially  affected as a result of this repositioning of
the mix of  deposits.  The  average  cost of  interest  bearing  funds for 1997,
including  advances from The Federal Home Loan Bank of Dallas,  was 4.62%.  This
compared  to 4.65%  for 1996 and 4.54% for 1995.  Data  relative  to  short-term
borrowings are shown in the footnotes to the consolidated financial statements.

Liquidity Management

Liquidity  is the  ability  of a bank to  convert  assets  into  cash  and  cash
equivalents without significant loss and to raise additional funds by increasing
liabilities.  Liquidity  management involves maintaining the Company's ability 
to meet the day-to-day cash flow  requirements  of customers,  whether they 
wish to withdraw funds or to borrow funds to meet their capital needs.  Asset  
liability management functions not only assure adequate liquidity in order for 
the Bank to meet the needs of customers,  but also to maintain the  appropriate 
sensitivity between  interest  earning  assets  and  interest  bearing  
liabilities.   Daily monitoring  of the  sources  and uses of  funds  is  
necessary  to  maintain  an acceptable  cash  position  that meets these  
requirements.  As disclosed in the consolidated  statements  of cash flows,  the
cash provided and cash used in the various  activities of bank operations is 
reflected for the years 1997, 1996 and 1995.

Interest Rate Sensitivity Management

Interest rate sensitivity is a function of the repricing  characteristics of the
Company's  portfolio  of  assets  and  liabilities.   Interest  rate  
sensitivity management  focuses on repricing  relationships  of these assets and
liabilities during periods of changing market interest rates.  Management  seeks
to minimize the effect of interest  rate  movement on net interest  income.  At 
December 31, 1997, the Company's various assets and liabilities that were 
subject to repricing indicated a cumulative  gap of liabilities  net of assets 
of  $29.741  million or 5.12% repricing  within 90-days.  At the 91 to 180-day 
time  frame,  the Company's cumulative gap of  liabilities  net of assets  
repricing  was $31.227  million or 5.38%.   The  Company's  asset  liability   
committee,   comprised  of  executive management, sets the day-to-day guidelines
and approves strategies affecting net interest income within the policy limits 
approved by the board of directors.


<PAGE>
Page 43

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued)
First M & F Corporation and Subsidiary

Capital Resources

Capital adequacy is continuously  monitored by the Company to promote  depositor
and investor  confidence and provide a solid foundation for future growth of the
organization.  Dividends  paid  investors of $2.987  million or $0.88 per common
share during 1997  represent a 17.3%  increase  over 1996 and a dividend  payout
ratio of 37.8%.  The dividend payout for 1996 was 34.4%.  The Company intends to
continue a dividend  payout ratio that is competitive  in the banking  industry,
dependent on future  earnings,  the assessment of future capital needs, and such
other factors which may affect the Company.

The  Company has  satisfied  its capital  requirements  principally  through the
retention of earnings.  However,  the  acquisition  at December 31, 1995 and the
1995  capital  infusion  assisted  in  strengthening   this  position.   Average
shareholder equity for 1997 was 9.20% compared to 8.87% for 1996.


RESULTS OF OPERATIONS

Net Interest Income

Net  interest  income is the largest  component  of the  Company's net income 
and represents income from interest earning assets less the cost of interest 
bearing liabilities. Net interest income for 1997 was $23.5 million as compared 
to $20.0 million for 1996 and $19.9  million  for 1995.  The 7.1%  increase  for
 1997 and 10.3%  increase  for 1996 were  attributable  to several  factors  
including  an increase in average loans, a closer attention to funding costs of 
deposits,  and the improved mix of funding  sources.  Additionally,  as a result
of the loss of the contract deposit  relationship,  a slight improvement in net 
margin occurred in 1996. During 1995 and 1994,  repositioning in the securities 
portfolio, in an attempt to improve overall  portfolio  yield, was  
accomplished.  Although these factors  contributed  to the  Company  being able 
to control and monitor the net interest margin,  the other contributors have 
been the stable local economies in which the  Company  participates  and the 
steady  demand for loans over the past several years.

Provision For Loan Losses

During  1997,  the Company's  provision  for loan losses was $2.050  million,  
an increase of 70.0% over the 1996 provision of $1.221 million.  The 1996 
provision for loan losses  reflected a decrease of 19.1% from the 1995 provision
of $1.509 million.  The total  provision  for 1997 was  approximately  $470  
thousand over estimated  budget targets for 1997 as net charge-offs increased by
$282 thousand from 1996 to 1997 as consumer losses  increased.  Nonperforming  
loans increased lightly from 0.27% of loans to 0.32% of loans. The total 
provision for 1996 was approximately  $300 thousand over  estimated  budget 
targets for 1996, as credit quality deteriorated slightly in the fourth quarter 
of 1996 as past dues, charge-offs and bankruptcies increased.

The overall condition of the loan portfolio from a credit quality  standpoint is
better than peer averages considering the various indicators available,  such as
past  dues,  collections,  and other  factors.  The ratio of the  allowance  for
possible  loan losses to  outstanding  loans at December  31,  1997,  was 1.44%,
compared to 1.30% for 1996, and 1.46% for 1995.


<PAGE>
Page 44

RESULTS OF OPERATIONS (continued)
First M & F Corporation and Subsidiary

Noninterest Income

One of  the  Company's  key  long-term  strategies  is to  boost  its  growth  
in noninterest  income.  Management  continues to emphasize this area of 
operations through  increased focus and  budget/incentive  programs.  Total 
other operating income for 1997 was $4.965  million as compared  to $4.436  
million for 1996 and $4.240  million for 1995.  Service  charge on deposit  
related  products,  which accounted  for the majority of this category in all 
years  presented,  decreased 1.9% in 1997 and increased 10.9% over 1995.  
Credit  insurance income was $1.019 million in 1997 and included a one time 
collection of reinsurance  settlement by the Bank's insurance subsidiary in the 
amount of $530 thousand.  Credit insurance income,  exclusive of this 
reinsurance  income, was $489 thousand in 1997, which was a 5.2% increase over 
1996. Had this reinsurance settlement not been received in 1997,  noninterest  
income would have  remained  flat when  compared to 1996. Noninterest income 
increased by 4.6% from 1995 to 1996.

Noninterest Expense

Another  strategy of the  Company is to contain  noninterest  expense  within an
overall  company  growth  discipline.  Noninterest  expenses  increased  by $396
thousand from 1996 to 1997, an increase of 2.7%.  Noninterest  expense increased
by $546 thousand from 1995 to 1996, an increase of 3.8%.

Salaries and benefits  comprise the largest portion of noninterest  expenses and
reflected  an increase of 4.9% for 1997.  This  compared to an increase of 10.7%
for 1996 and  13.9%  for  1995.  Both 1996 and 1995  reflect  the  increases  in
staffing  and  compliment  required  as  the  result  of new  branch  facilities
completed in late 1995.  Additional  staffing has also been  required in several
locations  as a result of  increased  volume and demand.  Details of  additional
changes  in levels of other  expenses  have been shown in the  footnotes  to the
consolidated financial statements and in the statements themselves.

Income Taxes

The Company's  effective tax rate was 28.9% in 1997,  27.97% in 1996 and 24.4% 
in 1995.  The 1997  increase  was due to the fact that the Company had state 
income tax expense for the first time in 1997. The increase was partially  
offset by an increased investment in tax-exempt  securities.  The 1996 increase 
was primarily the result of a reduction  in  tax-exempt  income and the loss of 
the small life insurance  company  exemption in 1996 as a result of the Company 
exceeding $500 million in consolidated assets.



<PAGE>

PROXY FIRST M & F CORPORATION, KOSCIUSKO, MISSISSIPPI
PROXY SOLICITED BY MANAGEMENT FOR THE ANNUAL MEETING OF
SHAREHOLDERS, APRIL 8, 1998

     KNOW ALL MEN BY THESE PRESENTS that I, the undersigned
Shareholder of First M & F Corporation, Kosciusko, Mississippi,
do hereby nominate, constitute and appoint Hugh S. Potts, Jr., J.
Marlin Ivey, Charles W. Ritter, Jr., W. C. Shoemaker, and Edward
G. Woodard, or any one of them (with full power to act alone), my
true and lawful attorney(s) with full power of substitution, for
me and in my name, place and stead to vote all the common stock
of said corporation, standing in my name on its books on the day
of election at the annual meeting of its shareholders to be held
at the Mary Ricks Thornton Cultural Center, 204 North Huntington
Street, Kosciusko, Mississippi, on April 8, 1998, at 2:00 P.M.;
or at any adjournments thereof with all the powers the
undersigned would possess if personally present, as follows:

(1) WITH ( ) WITHOUT ( ) Authority to vote for the election of
the five (5) directors listed as nominees in the Proxy Statement,
dated March 18, 1998, accompanying notice of said meeting for a
term of three years.

(2) Upon whatever other business may be properly brought before
the meeting or any adjournments thereof in accordance with
recommendation of Management. Management at present knows of no
other business to be presented by or on behalf of the corporation
or its management at the meeting.

     This Proxy will be voted in accordance with the instructions
above. Where no contrary specification is made, it will be voted
FOR proposal One (1) and proposal Two (2). If
any other business is presented at said meeting, or any
adjournment thereof, this Proxy will be voted in accordance with
the recommendations of Management.

     THIS PROXY IS SOLICITED ON BEHALF OF MANAGEMENT AND MAY BE
REVOKED PRIOR TO ITS EXERCISE. 

IN WITNESS WHEREOF, I have hereunto 
set my hand this                     19 
                 ---------  --------   ---
                  Month     Day

NOTE: When signing as Attorney, 
Executor, Administrator, Trustee 
or Guardian, please give title. 
If more than one Trustee, all should 
sign. All joint owners must sign.
                                   ------------------------------
                                   Signature(s) of Shareholder(s)






 PLEASE SIGN PROMPTLY AND RETURN IN THE ENCLOSED RETURN ENVELOPE