|UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-K
|-----------------------------------------------------------------------------------

||X| |  | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ------------------------------------------------------------------------------------

|For the fiscal year ended December 31, 2002


or
|------------------------------------------------

||_| |  | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | -----------------------------------------------------------------------------------------

|For the transition period from _________ to __________


Commission file
number 0-09424
|---------------------------------------------------------------------------------------

|FIRST M&F CORPORATION(Exact Name of Registrant as specified in its Charter)
|---------------------------------------------------------------------------

|MISSISSIPPI                                                    |  | 64-0636653                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification Number)

|221 East Washington Street, Kosciusko, Mississippi |  | 39090     
|-------------------------------------------------- |  | ----------
|(Address of principal executive offices)           |  | (Zip Code)

|Registrants Telephone Number: 662-289-5121


Securities registered
under Section 12(b) of the Act:
|---------------------------------------------------------------------------------------------------

|None                |  | None                                     
|------------------- |  | -----------------------------------------
|Title of Each Class |  | Name of Each Exchange on Which Registered

|Securities
registered pursuant  to section 12(g) of the Act:
|------------------------------------------------------------

|Common Stock, $5 par value |  | None                                     
|-------------------------- |  | -----------------------------------------
|Title of Each Class        |  | Name of Each Exchange on Which Registered

|Indicate
by check mark  whether the Registrant (1) has filed all reports required to be filed by
Section  13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the Registrant was required to file  such
reports), and (2) has been subject to such filing requirements for the past  90 days.

YES
|X|  NO |_|


Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained  herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information  statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. |X|


Based
on closing sale  price for shares on January 31, 2003, the aggregate market value of the
voting  stock held by nonaffiliates of the Registrant was $102,481,983.


Indicate
the number of  shares outstanding of each of the Registrants classes of common
stock, as  of the latest practicable date.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|ClassCommon stock ($5.00 par value) | Outstanding at January 31, 20034,620,436 Shares
|----------------------------------- | -----------------------------------------------

|DOCUMENTS INCORPORATED BY REFERENCE


Portions
of the  following documents are incorporated by reference into Parts III of the Form 10-K
report:  Proxy Statement dated March 7, 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CROSS
REFERENCE INDEX
|---------------------

|         | Page
|-------- | ----
|PART I   |     
|        
|Item 1   |     
|Item 2   |     
|Item 3   |     
|Item 4   |     
|        
|PART II  |     
|        
|Item 5   |     
|Item 6   |     
|Item 7   |     
|Item 7A  |     
|Item 8   |     
|Item 9   |     
|        
|PART III |     
|        
|Item 10  |     
|Item 11  |     
|Item 12  |     
|Item 13  |     
|Item 14  |     
|        
|Part IV  |     
|        
|Item 15  |     
|         |     
|         |     
|         |     

|
|

|* |  | Information
called for  by Part III (Items 10 through 13) is incorporated by reference to the
Registrants Proxy Statement dated March 7, 2003.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

|
|

|BUSINESS


Forward-Looking Statements


This Form 10-K may contain, or incorporate by reference, statements which may constitute
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Prospective investors
are cautioned that any such forward-looking statements are not guarantees for future performance
and involve risks and uncertainties, and that acutal results may differ materially from those
contemplated by such forward-looking statements. Specifically, this discussion includes statements with
respect to the allowance for loan losses; the effect of legal proceedings against the Companys financial
condition, results of operations and liquidity; and market risk disclosures.  Should one or more of these
risks materialize or the assumptions prove to be significantly different, actual results may vary from those
estimated, anticipated, projected or expected.  Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements include significant fluctuations
in interest rates, inflation, economic recession, significant changes in the Federal and state legal and
regulatory environment, significant underperformance in our portfolio of outstanding loans and competition in our markets.
We undertake no obligation to update or revise forward-looking statement to reflect changed assumptions,
the occurrence of unanticipated events or changes to future operating results over time.


General


First
M & F  Corporation (the Company) is a one-bank holding company chartered and
organized under  Mississippi laws in 1979. The Company engages exclusively in the banking
business through  its wholly-owned subsidiary, Merchants and Farmers Bank of Kosciusko
(the Bank).


The
Bank was  chartered and organized under the laws of the State of Mississippi in 1890, and
accounts  for substantially all of the total assets and revenues of the Company. The Bank
is the  seventh largest bank in the state, having total assets of approximately $1.03
billion at  December 31, 2002. The Bank offers a complete range of commercial and
consumer services at  its main office and two branches in Kosciusko and its branches
within central Mississippi,  including Ackerman, Bruce, Brandon, Canton, Cleveland,
Clinton, Durant, Grenada, Lena,  Madison, Oxford, Pearl, Philadelphia, Ridgeland,
Southaven, Starkville, Tupelo, and Weir,  Mississippi.


The
Bank has five  wholly-owned subsidiaries, M & F Financial Services, Inc., which is
currently  inactive, First M & F Insurance Company, Inc., a credit life insurance
company, M  & F Insurance Agency, Inc., a general insurance agency, M & F
Insurance Group,  Inc., a general insurance agency, and Merchants and Farmers Bank
Securities Corporation, a  real estate property management company. The Bank owns 51% of
a joint venture, Merchants  Financial Services, 49% of which is owned by an unaffiliated
company. The joint venture  engages in small business accounts receivable factoring, and
is consolidated into the  Companys financial statements for reporting purposes.


The
banking system  offers a variety of deposit, investment and credit products to customers.
The Bank  provides these services to middle market and professional businesses, ranging
from payroll  checking, business checking, corporate savings and secured and unsecured
lines of credit.  Additional services include direct deposit payroll, sweep accounts and
letters of credit.  The Bank also offers credit card services to its customers, to
include check debit cards  and automated teller machine cards through several networks.
Trust services are also  offered in the Kosciusko main office.


As
of December 31,  2002, the Company and its subsidiary employed 416 full-time equivalent
employees.


Competition


The
Company competes  generally with other banking institutions, savings associations, credit
unions, mortgage  banking firms, consumer finance companies, mutual funds, insurance
companies, securities  brokerage firms, and other finance related institutions; many of
which have greater  resources than those available to the Company. The competition is
primarily related to  areas of interest rates, the availability and quality of services
and products, and the  pricing of those services and products.


Supervision and Regulation


As a
bank holding  company, First M & F Corporation is subject to regulation under the
Bank Holding  Company Act of 1956, as amended, (the BHCA) and the examination
and reporting  requirements of the Board of Governors of the Federal Reserve System (the
Federal  Reserve Board). Under the BHCA, a bank holding company may not
directly or  indirectly acquire ownership or control of more than 5% of the voting shares
or  substantially all of the assets of any bank or merge or consolidate with another bank
holding company without the prior approval of the Federal Reserve Board. The BHCA also
generally limits the activities of a bank holding company to that of banking, managing or
controlling banks, or any other activity which is determined to be so closely related to
banking or managing or controlling banks that an exception is allowed for those
activities.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|As a
state-chartered  commercial bank, Merchants and Farmers Bank, First M & F Corporations
banking  subsidiary, is subject to regulation, supervision and examination by the
Mississippi  Department of Banking and Consumer Finance. Merchants and Farmers Bank (the
Bank) is also subject to regulation, supervision and examination by the
Federal Deposit Insurance Corporation (the FDIC). State and Federal law also
govern the activities in which the Bank engages, the investments it makes and the
aggregate amount of loans that may be granted to one borrower. The insurance company
subsidiary of the Bank is also regulated and examined by the Insurance Department of the
State of Mississippi.


The
earnings of the  Bank and its subsidiaries are affected by general economic conditions,
management  policies, changes in state and Federal legislation and actions of various
regulatory  authorities, including those referred to above. The following description
summarizes the  significant state and Federal laws to which the Company, the Bank and
subsidiaries are  subject.


Capital


The
Company and the  Bank are required to comply with the capital adequacy standards
established by the Federal  Reserve Board and the FDIC. There are two basic measures of
capital adequacy for bank  holding companies and their banking subsidiaries; a risk-based
measure and a leverage  measure.


The
risk-based  capital standards are designed to make regulatory capital requirements more
sensitive to  differences in risk profile among depository institutions and bank holding
companies, to  account for off-balance sheet exposure, and to minimize disincentives for
holding liquid  assets. Assets and off-balance sheet items are assigned to broad risk
categories, each  with appropriate weights. The resulting capital ratios represent
capital as a percentage  of total risk-weighted assets and off-balance sheet items.


The
minimum guideline  for the total capital to risk-weighted assets, including certain
off-balance sheet items  such as standby letters of credit (total capital ratio)
is 8.0 percent. At  least half of total capital must be composed of common equity,
undivided profits, minority  interests in the equity accounts of consolidated
subsidiaries, noncumulative perpetual  preferred stock, and a limited amount of
cumulative perpetual preferred stock, less  goodwill and certain other intangible assets (Tier
1 capital). The remainder  may consist of subordinated debt, other preferred stock,
a limited amount of loan loss  reserves, and unrealized gains on equity securities
subject to limitations (Tier 2  capital). At December 31, 2002, the Company
and the Bank were in compliance with the  total capital ratio and the Tier 1 capital
ratio requirements. Note 18 of the Notes to  Consolidated Financial Statements presents
the Companys and the Banks capital  ratios.


Deposit Insurance Assessments


The
deposits of the  Bank are insured by the FDIC up to the limits set forth under applicable
law. A majority  of the deposits of the Bank are subject to the deposit insurance
assessments of the Bank  Insurance Fund (BIF) of the FDIC. However, a portion
of the Banks  deposits, relating to a savings association acquisition, are subject
to assessments  imposed by the Savings Association Insurance Fund (SAIF) of
the FDIC. The FDIC  equalized the assessment rates for BIF-insured and SAIF-insured
deposits effective January  1, 1997. The assessments imposed on all FDIC deposits for
deposit insurance have an  effective rate ranging from 0 to 27 basis points per $100 of
insured deposits, depending  on the institutions capital position and other
supervisory factors. Legislation was  enacted in 1996 requiring both SAIF-insured and
BIF-insured deposits to pay a pro rata  portion of the interest due on the obligations
issued by the Financing Corporation  (FICO). The FDIC is currently assessing,
effective for the first quarter of  2003, BIF- and SAIF-insured deposits totaling an
additional 1.68 basis points per $100 of  deposits.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|STATISTICAL
DISCLOSURE


The
statistical  disclosures for the Company are contained in Tables 1 through 12.
|-----------------------------------------------------------------------------------------------------------

|TABLE 1 - COMPARATIVE AVERAGE BALANCES/YIELDS
|---------------------------------------------
|                                             

|                                                       |  | 2002 |  |           |  |  |        | 2001 |  |      |   | 2000 |           |  | 
|------------------------------------------------------ |  | ---- |  | --------- |  |  | ------ | ---- |  | ---- | - | ---- | --------- |  | 
|
|
|Interest
      bearing bank balances                   |  |      |  | 7,387     |  |  | 124    |      |  | 1.68 | % |      | 9,032     |  | 
|Federal
      funds sold                               |  |      |  | 10,241    |  |  | 163    |      |  | 1.59 | % |      | 16,173    |  | 
|Taxable
      investments                              |  |      |  | 194,120   |  |  | 9,998  |      |  | 5.15 | % |      | 190,275   |  | 
|Tax-exempt
      investments                           |  |      |  | 56,567    |  |  | 4,104  |      |  | 7.26 | % |      | 59,441    |  | 
|Loans                                                  |  |      |  | 660,529   |  |  | 49,125 |      |  | 7.44 | % |      | 645,541   |  | 
|                                                       |  |      |  |           |  |  |        |     
|Total
      earning assets                             |  |      |  | 928,844   |  |  | 63,514 |      |  | 6.84 | % |      | 920,462   |  | 
|Nonearning
      assets                                |  |      |  | 94,202    |  |  |        |      |  |      |   |      | 89,660    |  | 
|                                                       |  |      |  |           |  |  |        |      |  |      |   |      |           |  | 
|Total
      average assets                             |  |      |  | 1,023,046 |  |  |        |      |  |      |   |      | 1,010,122 |  | 
|                                                       |  |      |  |           |  |  |        |      |  |      |   |      |           |  | 
|NOW,
      MMDA & Savings                              |  |      |  | 362,415   |  |  | 5,986  |      |  | 1.65 | % |      | 291,891   |  | 
|Certificates
      of deposit                          |  |      |  | 355,745   |  |  | 13,813 |      |  | 3.88 | % |      | 415,846   |  | 
|Short-term
      borrowings                            |  |      |  | 20,512    |  |  | 695    |      |  | 3.39 | % |      | 17,301    |  | 
|Other
      borrowings                                 |  |      |  | 72,010    |  |  | 3,208  |      |  | 4.45 | % |      | 83,725    |  | 
|                                                       |  |      |  |           |  |  |        |     
|Total
      interest bearing liabilities               |  |      |  | 810,682   |  |  | 23,702 |      |  | 2.92 | % |      | 808,763   |  | 
|Noninterest
      bearing deposits                     |  |      |  | 98,470    |  |  |        |      |  |      |   |      | 92,928    |  | 
|Noninterest
      bearing liabilities                  |  |      |  | 8,940     |  |  |        |      |  |      |   |      | 8,234     |  | 
|Capital                                                |  |      |  | 104,954   |  |  |        |      |  |      |   |      | 100,197   |  | 
|                                                       |  |      |  |           |  |  |        |      |  |      |   |      |           |  | 
|Total
      average liabilities
            and equity |  |      |  | 1,023,046 |  |  |        |      |  |      |   |      | 1,010,122 |  | 
|                                                       |  |      |  |           |  |  |        |      |  |      |   |      |           |  | 
|Net
      interest margin                              |  |      |  |           |  |  | 39,812 |      |  | 4.29 | % |      |           |  | 
|Less
      tax equivalent adjustment                   |  |      |  |           |  |  |        |      |  |      |   |      |           |  | 
|Investments                                            |  |      |  |           |  |  | 1,531  |      |  |      |   |      |           |  | 
|Loans                                                  |  |      |  |           |  |  | 110    |      |  |      |   |      |           |  | 
|                                                       |  |      |  |           |  |  |        |      |  |      |   |      |           |  | 
|Reported
      net interest margin                     |  |      |  |           |  |  | 38,171 |      |  | 4.11 | % |      |           |  | 

|Tax equivalent adjustments were made using a blended Federal/State rate of 37.3%.
|---------------------------------------------------------------------------------

|
|

|TABLE 2 - RATE/VOLUME VARIANCES
|-------------------------------
|                               

|                                   | 2002 Compared To 2001Increase (Decrease) Due To |  |  | 2001 Compared To 2000Increase (Decrease) Due To |  
|---------------------------------- | ----------------------------------------------- |  |  | ----------------------------------------------- | -
|
|Interest earned on:                |                                                 |  |  |                                                 |  
|Interest bearing bank balances     |                                                 |  |  | (52                                             | )
|Federal funds sold                 |                                                 |  |  | (172                                            | )
|Taxable investments                |                                                 |  |  | 214                                             |  
|Tax-exempt investments             |                                                 |  |  | (212                                            | )
|Loans                              |                                                 |  |  | 1,198                                           |  
|                                   |                                                 |  |  |                                                 |  
|Total earning assets               |                                                 |  |  | 615                                             |  
|                                  
|Interest paid on:                  |                                                 |  |  |                                                 |  
|NOW, MMDA & Savings                |                                                 |  |  | 1,602                                           |  
|Certificates of deposit            |                                                 |  |  | (2,854                                          | )
|Short-term borrowings              |                                                 |  |  | 125                                             |  
|Other borrowings                   |                                                 |  |  | (598                                            | )
|                                   |                                                 |  |  |                                                 |  
|Total interest bearing liabilities |                                                 |  |  | 72                                              |  
|                                   |                                                 |  |  |                                                 |  
|Change in net interest income      |                                                 |  |  |                                                 |  
|on a tax-equivalent basis          |                                                 |  |  | 543                                             |  

|The rate/volume variances are computed for each line item and are therefore non-additive.
|-----------------------------------------------------------------------------------------

|TABLE 3 - SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY
|-----------------------------------------------------------------------
|                                                                       

|                                                 | Carrying Value of SecuritiesDecember 31 | 
|------------------------------------------------ | --------------------------------------- | 
|
|                                                 |                                        
|Securities Available For Sale                    |                                         | 
|U.S. Treasury                                    |                                         | 
|Government agencies                              |                                         | 
|Mortgage-backed securities                       |                                         | 
|Obligations of states and political subdivisions |                                         | 
|Other securities                                 |                                         | 
|                                                 |                                         | 
|Total securities available for sale              |                                         | 
|                                                
|Securities Held To Maturity                      |                                         | 
|U.S. Treasury                                    |                                         | 
|Government agencies                              |                                         | 
|Mortgage backed securities                       |                                         | 
|Obligations of states and political subdivisions |                                         | 
|Other securities                                 |                                         | 
|                                                 |                                         | 
|Total securities held to maturity                |                                         | 

|
|

|
|

|TABLE 4 - MATURITY DISTRIBUTION AND YIELDS OF SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY
|-----------------------------------------------------------------------------------------------------------
|                                                                                                           

|                                    | Within
      One
      Year | Yield | After
      One
      But Within
      Five
      Years | Yield  | After
      Five
      But Within
      Ten Years | Yield | Over
      Ten Years | Yield | Total | Yield  
|----------------------------------- | --------------------------- | ----- | ------------------------------------------------------- | ------ | ------------------------------------------------- | ----- | -------------------- | ----- | ----- | -------
|                                    |                            
|Securities
      Available For Sale |                             |       |                                                         |        |                                                   |       |                      |       |       |        
|U.S.
      Treasury                 |                             |       |                                                         | 500    |                                                   |       | 2.77                 | %     |       | 0      
|Government
      agencies           |                             |       |                                                         | 7,513  |                                                   |       | 5.25                 | %     |       | 50,099 
|Mortgage-backed
      securities    |                             |       |                                                         | 61,241 |                                                   |       | 5.30                 | %     |       | 31,300 
|Obligations
      of states and     |                             |      
|political
      subdivisions        |                             |       |                                                         | 12,024 |                                                   |       | 7.32                 | %     |       | 25,683 
|Other
      debt securities         |                             |       |                                                         | 503    |                                                   |       | 3.77                 | %     |       | 2,877  
|                                    |                             |       |                                                         |        |                                                   |       |                      |       |       |        
|Total
      securities available    |                             |      
|for
      sale                      |                             |       |                                                         | 81,781 |                                                   |       | 5.56                 | %     |       | 109,959
|Equity
      securities             |                             |       |                                                         |        |                                                   |       |                      |       |       |        
|                                    |                             |      
|                                    |                             |       |                                                         |        |                                                   |       |                      |       |       |        

|Tax equivalent adjustments were
made using a blended Federal rate of 34.0% and a State rate of 5.0%.  The amounts shown
represent the investment portfolio as stated at amortized cost.


Non mortgage backed securities are
categorized in the earlier of their maturity dates or their call dates.  Mortgage backed
securities are distributed based upon their estimated average lives.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|TABLE 5 - COMPOSITION OF THE LOAN PORTFOLIO
|-------------------------------------------
|                                           

|                                         | 2002 |  | 2001 |         | 2000 |  | 1999   |   | 1998 |        
|---------------------------------------- | ---- |  | ---- | ------- | ---- |  | ------ | - | ---- | -------
|
|
|
|Commercial, financial   and agricultural |      |  |      | 94,169  |      |  | 13.87  | % |      | 86,040 
|Non-residential real estate              |      |  |      | 262,141 |      |  | 38.62  | % |      | 234,950
|Residential real estate                  |      |  |      | 244,032 |      |  | 35.95  | % |      | 247,384
|Consumer loans                           |      |  |      | 78,395  |      |  | 11.55  | % |      | 92,875 
|Lease financing                          |      |  |      | 9       |      |  | 0.00   | % |      | 33     
|                                         |      |  |      |         |      |  |        |   |      |        
|Total loans                              |      |  |      | 678,746 |      |  | 100.00 | % |      | 661,282

|
|

|
|

|TABLE 6 - LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
|----------------------------------------------------------------------
|                                                                      

|Maturity distribution of loans at December 31, 2002
|---------------------------------------------------

|                                       | WithinOne Year | One to FiveYears | After FiveYears | Total  
|-------------------------------------- | -------------- | ---------------- | --------------- | -------
|                                       |                |                 
|Commercial, financial and agricultural |                |                  |                 | 56,433 
|Non-residential real estate            |                |                  |                 | 85,486 
|Residential real estate                |                |                  |                 | 58,020 
|Consumer loans                         |                |                  |                 | 37,923 
|                                       |                |                  |                 |        
|Total loans                            |                |                  |                 | 237,862

|Rate sensitivity of loans at December 31, 2002.
|-----------------------------------------------

|                    | One to FiveYears | After FiveYears | Total
|------------------- | ---------------- | --------------- | -----
|                    |                  |                
|Fixed rate loans    |                  |                 |      
|Floating rate loans |                  |                 |      
|                    |                  |                 |      
|                    |                  |                 |      

|TABLE 7 - NONPERFORMING ASSETS AND PAST DUE LOANS
|-------------------------------------------------
|                                                 

|Combined                                | 2002 |  | 2001 |       | 2000 |  | 1999  |  | 1998 |      
|--------------------------------------- | ---- |  | ---- | ----- | ---- |  | ----- |  | ---- | -----
|                                        |      | 
|Nonaccrual loans                        |      |  |      | 1,583 |      |  | 1,825 |  |      | 1,385
|Restructured loans                      |      |  |      | 0     |      |  | 0     |  |      | 0    
|                                        |      |  |      |       |      |  |       |  |      |      
|Total nonperforming loans               |      |  |      | 1,583 |      |  | 1,825 |  |      | 1,385
|Other real estate owned                 |      |  |      | 950   |      |  | 1,077 |  |      | 965  
|                                        |      |  |      |       |      |  |       |  |      |      
|Total nonperforming assets              |      |  |      | 2,533 |      |  | 2,902 |  |      | 2,350
|Accruing loans past due 90 days or more |      |  |      | 2,170 |      |  | 2,209 |  |      | 1,906
|                                        |      |  |      |       |      |  |       |  |      |      
|Total nonperforming assets and loans    |      |  |      | 4,703 |      |  | 5,111 |  |      | 4,256

|
|

|TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
|---------------------------------------------------
|                                                   

|                                       | 2002 |  | 2001 |        | 2000 |  | 1999   |   | 1998 |       
|-------------------------------------- | ---- |  | ---- | ------ | ---- |  | ------ | - | ---- | ------
|                                       |      | 
|Balance at beginning of year           |      |  |      | 8,426  |      |  | 8,510  |   |      | 7,629 
|Adjustment for purchase acquisition    |      |  |      | 0      |      |  | 0      |   |      | 0     
|Charge offs                            |      | 
|Commercial, financial and agricultural |      |  |      | (650   | )    |  | (2,313 | ) |      | (1,897
|Real estate - nonresidential           |      |  |      | (332   | )    |  | (301   | ) |      | (176  
|Real estate - residential              |      |  |      | (474   | )    |  | (507   | ) |      | (164  
|Consumer                               |      |  |      | (1,849 | )    |  | (2,167 | ) |      | (1,989
|                                       |      |  |      |        |      |  |        |   |      |       
|Total                                  |      |  |      | (3,305 | )    |  | (5,288 | ) |      | (4,226
|Recoveries                             |      | 
|Commercial, financial and agricultural |      |  |      | 82     |      |  | 74     |   |      | 70    
|Real estate - nonresidential           |      |  |      | 37     |      |  | 20     |   |      | 37    
|Real estate - residential              |      |  |      | 6      |      |  | 50     |   |      | 46    
|Consumer                               |      |  |      | 517    |      |  | 645    |   |      | 655   
|                                       |      |  |      |        |      |  |        |   |      |       
|Total                                  |      |  |      | 642    |      |  | 789    |   |      | 808   
|                                       |      |  |      |        |      |  |        |   |      |       
|Net charge offs                        |      |  |      | (2,663 | )    |  | (4,499 | ) |      | (3,418
|Provision for loan losses              |      |  |      | 4,495  |      |  | 4,415  |   |      | 4,299 
|                                       |      |  |      |        |      |  |        |   |      |       
|Balance at end of year                 |      |  |      | 10,258 |      |  | 8,426  |   |      | 8,510 
|Net Charge Offs To Average Loans       |      |  |      | 0.40   | %    |  | 0.69   | % |      | 0.54  

|
|

|
|

|TABLE 9 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
|-------------------------------------------------
|                                                 

|                                       | December 31
|-------------------------------------- | -----------
|
|
|                                       |            
|Commercial, financial and agricultural |            
|Non-residential real estate            |            
|Residential real estate                |            
|Consumer loans                         |            
|                                       |            
|Total loans                            |            

|Allowance As A Percentage Of Loan Type
|--------------------------------------

|                                       | December 31
|-------------------------------------- | -----------
|
|
|                                       |            
|Commercial, financial and agricultural |            
|Non-residential real estate            |            
|Residential real estate                |            
|Consumer loans                         |            
|                                       |            
|Total loans                            |            

|Net Charge Offs As A Percent Of Year End Loans Outstanding, By Type
|-------------------------------------------------------------------

|                                       | December 31
|-------------------------------------- | -----------
|
|
|                                       |            
|Commercial, financial and agricultural |            
|Non-residential real estate            |            
|Residential real estate                |            
|Consumer loans                         |            
|                                       |            
|Total loans                            |            

|
|

|
|

|TABLE 10 - TIME DEPOSITS OF $100,000 OR MORE
|--------------------------------------------
|                                            

|The
table below shows maturities of outstanding time deposits of $100,000 or more at
December 31, 2002 (in thousands):
|----------------------------------------------------------------------------------------------------------------------

|                                      | 
|------------------------------------- | 
|Three months or less                  | 
|Over three months through six months  | 
|Over six months through twelve months | 
|Over one year                         | 
|                                      | 
|Total                                 | 

|TABLE 11 - SELECTED RATIOS
|--------------------------
|                          

|The
following table reflects ratios for the Company for the last three years:
|-----------------------------------------------------------------------------

|                         | 2002 |  | 2001 |       | 2000 |  |      
|------------------------ | ---- |  | ---- | ----- | ---- |  | -----
|                         |      | 
|Return on average assets |      |  |      | 1.00  | %    |  | 0.71 
|Return on average equity |      |  |      | 9.75  | %    |  | 7.14 
|Dividend payout ratio    |      |  |      | 45.05 | %    |  | 64.52
|Equity to assets ratio   |      |  |      | 10.26 | %    |  | 9.92 

|TABLE 12 - SHORT-TERM BORROWINGS
|--------------------------------
|                                

|The
table below presents certain information regarding the Companys short-term borrowings for
each of the last three years (in thousands of dollars):
|------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | 2002 |  | 2001 |        | 2000 |  |       
|---------------------------------------- | ---- |  | ---- | ------ | ---- |  | ------
|                                         |     
|Outstanding at end of period             |      |  |      | 23,599 |      |  | 16,458
|Maximum outstanding at any month-end     |      | 
|during the period                        |      |  |      | 23,599 |      |  | 20,562
|Average outstanding during the period    |      |  |      | 20,512 |      |  | 17,301
|Interest paid                            |      |  |      | 695    |      |  | 756   
|Weighted average rate during each period |      |  |      | 3.39   | %    |  | 4.37  

|
|

|PROPERTIES


The
Banks legal  headquarters is a 21,000 square foot, three story, brick building
located at 134 West  Washington Street. The building has a banking office and drive-up
facility occupying the  first floor. This building houses the primary administrative
offices of the Bank and  Company.


The
Bank owns its  main office building and 29 of its branch facilities. The remaining
facilities are  occupied under lease agreements, the terms of which range from month to
month to five  years. It is anticipated that all leases will be renewed.







LEGAL
PROCEEDING


There
has been a  trend toward increased litigation against financial services companies
arising out of  consumer lending and other consumer financial transactions, especially in
Mississippi.  Some of these actions have resulted in large settlements or substantial
damage awards.


Some
of the  Companys subsidiaries are subject to similar cases that seek substantial
damages for  claims arising out of transactions that involve relative small amounts of
money. While the  allegations vary from case to case, in general they allege that loans
were originated or  renewed in a way that the borrowers were improperly sold insurance
products, such as  credit life insurance. The Company has denied these allegations and
will vigorously defend  the claims.


The
number of these  lawsuits filed against some of the Companys subsidiaries increased
during 2001 and  2002. Similarly, the number of plaintiffs participating in these
lawsuits has increased  significantly. Management has no reason to know whether these
trends will continue. It is  not possible to determine with any certainty at this point
in time the potential exposure  related to damages in connection with these suits. Future
legislation and court decisions  may limit the amount of damages that can be recovered in
legal proceedings. However,  management cannot predict at this time whether such
legislation and court decisions will  occur or the effect they may have on cases
involving our subsidiaries.


Additionally,
the  Company and its subsidiaries are defendants in various other lawsuits arising out of
the  normal course of business. In the opinion of management, the ultimate resolution of
this  category of claims should not have a material adverse effect on the Companys
consolidated financial position or results of operations.




SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS


No
matters were  submitted to a shareholder vote during the fourth quarter of 2002.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|MARKET
FOR THE REGISTRANTS COMMON STOCKAND
RELATED STOCKHOLDER MATTERS


Effective
September  1, 1996, the Companys common stock was listed with the National
Association of  Securities Dealers, Inc. Automated Quotation National Market System
(NASDAQ) and became  subject to trading and reporting over the counter with most
securities dealers.


At
December 31, 2002,  there were 1,299 shareholders of record of the Companys common
stock. On December  31, 2002, the Companys stock closed at $27.75 per share.



STOCK AND DIVIDEND PERFORMANCE


Investment Data
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | December
      31, 2002 | 
|------------------------------------ | ----------------------- | 
|                                    
|52-Week
      range                  |                         | 
|Closing
      stock price            |                         | 
|Earnings
      per share (basic)     |                         | 
|Book
      value per share           |                         | 
|Shares
      outstanding             |                         | 
|Stock
      appreciation since 12/97 |                         | 

|Stock and Dividend Performance
|------------------------------

|                                | 2002 |  | 2001 |       | 2000 |   | 1999  |   | 1998 |      
|------------------------------- | ---- |  | ---- | ----- | ---- | - | ----- | - | ---- | -----
|
|Price/earnings
      ratio      |      |  |      | 12.50 | x    |   | 13.23 | x |      | 11.03
|Price/book
      value ratio    |      |  |      | 1.18  | x    |   | .95   | x |      | .80  
|Book
      value/share          |      |  | $    | 23.59 |      | $ | 21.68 |   | $    | 21.01
|Dividend
      payout ratio     |      |  |      | 45.1  | %    |   | 64.5  | % |      | 65.4 
|Historical
      dividend yield |      |  |      | 4.9   | %    |   | 5.9   | % |      | 3.3  

|Quarterly Closing Common StockPrice Ranges and Dividends Paid
|-------------------------------------------------------------

|2002:    | First |  | Second |       | Third |   | Fourth | 
|-------- | ----- |  | ------ | ----- | ----- | - | ------ | 
|        
|High     |       |  | $      | 24.50 |       | $ | 26.50  | 
|Low      |       |  |        | 20.50 |       |   | 22.60  | 
|Close    |       |  |        | 23.50 |       |   | 25.00  | 
|Dividend |       |  |        | .25   |       |   | .25    | 
|        
|2001:    |       |  |        |       |       |   |        | 
|        
|High     |       |  | $      | 21.88 |       | $ | 25.50  | 
|Low      |       |  |        | 16.63 |       |   | 19.00  | 
|Close    |       |  |        | 19.38 |       |   | 23.00  | 
|Dividend |       |  |        | .25   |       |   | .25    | 

|
|

|SELECTED FINANCIAL DATA
|-----------------------

|(Thousands,
      except per share data)      | 2002 |  | 2001 |           | 2000 |   | 1999      |   | 1998 |          
|--------------------------------------------- | ---- |  | ---- | --------- | ---- | - | --------- | - | ---- | ---------
|
|EARNINGS                                      |      |  |      |           |      |   |           |   |      |          
|                                             
|Interest
      income                         |      |  | $    | 61,873    |      | $ | 70,320    |   | $    | 73,354   
|Interest
      expense                        |      |  |      | 23,702    |      |   | 37,355    |   |      | 41,227   
|                                              |      |  |      |           |      |   |           |   |      |          
|Net
      interest income                     |      |  |      | 38,171    |      |   | 32,965    |   |      | 31,127   
|Provision
      for loan losses               |      |  |      | 4,495     |      |   | 4,415     |   |      | 4,299    
|Noninterest
      income                      |      |  |      | 14,088    |      |   | 13,783    |   |      | 10,576   
|Noninterest
      expense                     |      |  |      | 33,394    |      |   | 32,118    |   |      | 29,803   
|Income
      taxes                            |      |  |      | 4,135     |      |   | 3,062     |   |      | 1,522    
|                                              |      |  |      |           |      |   |           |   |      |          
|Net
      income                              |      |  | $    | 10,235    |      | $ | 7,153     |   | $    | 7,079    
|                                              |      |  |      |           |      |   |           |   |      |          
|Net
      interest income, taxable equivalent |      |  | $    | 39,812    |      | $ | 34,769    |   | $    | 33,981   
|                                              |      |  |      |           |      |   |           |   |      |          
|Cash
      dividends paid                     |      |  | $    | 4,610     |      | $ | 4,615     |   | $    | 4,626    
|                                              |      |  |      |           |      |   |           |   |      |          
|                                             
|PER COMMON
      SHARE                        |      |  |      |           |      |   |           |   |      |          
|                                             
|Net income                                    |      |  | $    | 2.22      |      | $ | 1.55      |   | $    | 1.53     
|Cash
      dividends paid                     |      |  |      | 1.00      |      |   | 1.00      |   |      | 1.00     
|Book
      value                              |      |  |      | 23.59     |      |   | 21.68     |   |      | 21.01    
|Closing
      stock price                     |      |  |      | 27.75     |      |   | 20.50     |   |      | 16.88    
|                                             
|SELECTED
      AVERAGE BALANCES               |      |  |      |           |      |   |           |   |      |          
|                                             
|Assets                                        |      |  | $    | 1,023,046 |      | $ | 1,010,122 |   | $    | 1,009,619
|Earning
      assets                          |      |  |      | 937,991   |      |   | 933,061   |   |      | 928,792  
|Loans                                         |      |  |      | 663,503   |      |   | 648,444   |   |      | 631,295  
|Investments                                   |      |  |      | 256,861   |      |   | 259,412   |   |      | 280,135  
|Total
      deposits                          |      |  |      | 816,630   |      |   | 800,665   |   |      | 791,797  
|Equity                                        |      |  |      | 104,954   |      |   | 100,197   |   |      | 91,986   
|                                             
|SELECTED
      YEAR-END BALANCES              |      |  |      |           |      |   |           |   |      |          
|                                             
|Assets                                        |      |  | $    | 1,037,134 |      | $ | 1,018,309 |   | $    | 1,020,416
|Earning
      assets                          |      |  |      | 935,166   |      |   | 917,328   |   |      | 926,415  
|Loans                                         |      |  |      | 678,746   |      |   | 661,282   |   |      | 633,209  
|Investments                                   |      |  |      | 236,110   |      |   | 250,921   |   |      | 264,280  
|Core
      deposits                           |      |  |      | 698,125   |      |   | 679,437   |   |      | 632,248  
|Total
      deposits                          |      |  |      | 824,024   |      |   | 816,617   |   |      | 787,554  
|Equity                                        |      |  |      | 108,210   |      |   | 100,063   |   |      | 96,942   
|                                             
|SELECTED
      RATIOS                         |      |  |      |           |      |   |           |   |      |          
|                                             
|Return
      on average assets                |      |  |      | 1.00      | %    |   | .71       | % |      | .70      
|Return
      on average equity                |      |  |      | 9.75      | %    |   | 7.14      | % |      | 7.70     
|Average
      equity to average assets        |      |  |      | 10.26     | %    |   | 9.92      | % |      | 9.11     
|Dividend
      payout ratio                   |      |  |      | 45.05     | %    |   | 64.52     | % |      | 65.36    
|Price
      to earnings (x)                   |      |  |      | 12.50     | x    |   | 13.23     | x |      | 11.03    
|Price
      to book (x)                       |      |  |      | 1.18      | x    |   | .95       | x |      | .80      

|
|

|FINANCIAL HIGHLIGHTS
|--------------------

|(Dollars in Thousands, except per share) | 2002 |  | 2001 |           | PercentChange | Five-YearCompoundedGrowthRate
|---------------------------------------- | ---- |  | ---- | --------- | ------------- | -----------------------------
|                                        
|EARNINGS                                 |      |  |      |           |               |                              
|                                        
|Net interest income                      |      |  | $    | 38,171    |               | $                            
|Noninterest income                       |      |  |      | 14,088    |               |                              
|Noninterest expense                      |      |  |      | 33,394    |               |                              
|Net income                               |      |  |      | 10,235    |               |                              
|                                        
|AVERAGE BALANCES                         |      |  |      |           |               |                              
|                                        
|Assets                                   |      |  | $    | 1,023,046 |               | $                            
|Earning assets                           |      |  |      | 937,991   |               |                              
|Loans                                    |      |  |      | 663,503   |               |                              
|Deposits                                 |      |  |      | 816,630   |               |                              
|Shareholders equity                     |      |  |      | 104,954   |               |                              
|                                        
|YEAR END BALANCES                        |      |  |      |           |               |                              
|                                        
|Assets                                   |      |  | $    | 1,037,134 |               | $                            
|Earning assets                           |      |  |      | 935,166   |               |                              
|Loans                                    |      |  |      | 678,746   |               |                              
|Deposits                                 |      |  |      | 824,024   |               |                              
|Shareholders equity                     |      |  |      | 108,210   |               |                              
|                                        
|PER COMMON SHARE                         |      |  |      |           |               |                              
|                                        
|Net income (basic)                       |      |  | $    | 2.22      |               | $                            
|Book value                               |      |  |      | 23.59     |               |                              
|Cash dividends paid                      |      |  |      | 1.00      |               |                              
|Closing market price                     |      |  |      | 27.75     |               |                              
|                                        
|NONFINANCIAL DATA                        |      |  |      |           |               |                              
|                                        
|Shareholders                             |      |  |      | 2,443     |               |                              
|Employees                                |      |  |      | 416       |               |                              
|Financial service offices                |      |  |      | 40        |               |                              

|
|

|OTHER FINANCIAL DATA
|--------------------

|                                                  | Change
|------------------------------------------------- | ------
|
|
|COMPOSITION RATIOS                                |       
|                                                 
|Earning assets to assets                          |       
|Loans to earning assets                           |       
|Interest-bearing liabilities to earning assets    |       
|Loans to total deposits                           |       
|Noninterest-bearing deposits to total deposits    |       
|                                                 
|ALLOWANCE FOR LOAN LOSSES                         |       
|                                                 
|Beginning balance                                 |       
|Provision for loan losses                         |       
|Charge-offs                                       |       
|Recoveries                                        |       
|                                                  |       
|Net charge-offs                                   |       
|                                                  |       
|Ending balance                                    |       
|                                                 
|COMPOSITION OF RISK ASSETS                        |       
|                                                 
|Nonaccrual loans                                  |       
|Foreclosed property                               |       
|                                                  |       
|Nonperforming assets                              |       
|                                                  |       
|Accruing loans past due 90 days                   |       
|                                                 
|ASSET QUALITY RATIOS                              |       
|                                                 
|Net charge-offs to average loans                  |       
|Nonaccrual loans to total loans                   |       
|Nonperforming assets to:                          |       
|Loans and foreclosed property                     |       
|Total assets                                      |       
|Allowance for loan losses to total loans          |       
|Allowance for loan losses to nonaccrual loans (x) |       

|
|

|QUARTERLY FINANCIAL TRENDS
|--------------------------

|                          | 2002 | 
|------------------------- | ---- | 
|
|                         
|Interest income           |      | 
|Interest expense          |      | 
|                          |     
|Net interest income       |      | 
|Provision for loan losses |      | 
|Noninterest income        |      | 
|Noninterest expense       |      | 
|Income taxes              |      | 
|                          |     
|Net income                |      | 
|                         
|Per common share:         |      | 
|Net income (basic)        |      | 
|Net income (diluted)      |      | 
|                         
|Cash dividends            |      | 
|                         

|                          | 2001 | 
|------------------------- | ---- | 
|
|                         
|Interest income           |      | 
|Interest expense          |      | 
|                          |     
|Net interest income       |      | 
|Provision for loan losses |      | 
|Noninterest income        |      | 
|Noninterest expense       |      | 
|Income taxes              |      | 
|                          |     
|Net income                |      | 
|                         
|Per common share:         |      | 
|Net income (basic)        |      | 
|Net income (diluted)      |      | 
|                         
|Cash dividends            |      | 
|                         

|
|

|MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
AND RESULTS OF OPERATIONS
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


Net
income for 2002 was $10,234,949, or $2.22 per share as compared to $7,153,265,
or $1.55 per share in 2001. Net income for 2001 was up from net income in 2000
of $7,078,910, or $1.53 per share. Income tax expense increased by $1.073
million in 2002 as compared to 2001 due to higher pre-tax earnings and increased
by $1.5 million in 2001 as compared to 2000 due to lower earnings in 2000 and a
2000 tax credit of $847 thousand related to prior year acquisitions.


In
2002 the Company closed a small drive-in branch in Grenada and acquired an
insurance agency in Brandon. The Company also acquired land adjacent to a
shopping center in Rankin County in the third quarter, anticipating building a
full service branch in the third or fourth quarter of 2003. The Company also
acquired a former bank building in Tupelo with plans to remodel and open the
facility by the second quarter of 2003.


In
2001 the Company acquired the Madison County book of business from an
independent insurance agency. A new agent was hired and the new business
integrated into the Madison office of Tyler, King & Ryder, Inc., the
Banks insurance agency subsidiary. In 2000, two insurance agencies in
Tupelo were acquired. Insurance Services, Inc. was acquired in January, while
House of Insurance was acquired at the end of the first quarter. House of
Insurance was subsequently integrated into Insurance Services, Inc. This was a
continuation of a strategy to build a stream of insurance product revenues.


The
Bank opened a second location in Southaven in the third quarter of 2001. A much
enhanced internet web site, designed to provide corporate and individual
services, was introduced in 2000. Construction of a new headquarters building in
Kosciusko was begun in late 2000 and completed in the fall of 2001. A wide area
network was put into place in 2000, providing the infrastructure for customer
service enhancing technologies. A sales management tracking system was also
internally developed and integrated into the wide area network in the fourth
quarter of 2001.


Total
assets increased by 1.9% in 2002 to end the year at $1.038 billion. Total assets
fell by .2% in 2001 to end the year at $1.018 billion. Total assets fell by .3%
in 2000 to end the year at $1.020 billion. The compounded annual growth rate for
total assets for the last five (5) years was 10.8%, while the compounded growth
rate for deposits was 8.7%.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Earning Assets


The
average earning asset mix for 2002 was 70.7% in loans, 27.4% in investments, and
1.9% in short-term funds. The average earning asset mix for 2001 was 69.5% in
loans, 27.8% in investments, and 2.7% in short-term funds. The average earning
asset mix for 2000 was 68.0% in loans, 30.2% in investments, and 1.9% in
short-term funds. Loans grew by 2.6% in 2002 while deposits grew by .9%. Loan
growth was slightly less than deposit growth in 2001 while loan growth exceeded
deposit growth in 2000, with deposits actually decreasing in 2000. Noninterest
bearing deposits fell by 6.3% in 2002 and grew by 24.3% in 2001 after growing by
..2% in 2000. The following table shows the volume changes in loans and deposits
over the last four years, excluding the effect of the Community Federal
acquisition.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2002 |  | 2001 |        | 2000 |   | 1999   |  
|-------------------------------------- | ---- |  | ---- | ------ | ---- | - | ------ | -
|Net increase in loans                  |      |  | $    | 17,464 |      | $ | 28,073 |  
|Net increase in deposits               |      |  |      | 7,407  |      |   | 29,063 |  
|Ratio of loan growth to deposit growth |      |  |      | 235.8  | %    |   | 96.6   | %

|Deposit
growth in 2002 was dominated by growth in NOW and MMDA balances, which grew by
25.6%, while certificates of deposit decreased by 10.1%. Deposit growth in 2001
was primarily in demand, NOW and MMDA accounts, as customers moved funds out of
certificates of deposit due to the decrease in certificate of deposit rates
offered during 2001. Short-term Treasury rates fell by 422 basis points in 2001
and 51 basis points in 2002 after rising by 58 basis points in 1999. This
pressure, combined with a poor stock market in 2001 and 2002 caused funds to
move out of equity securities and time deposits into more liquid deposit
accounts. The weak growth in 2000 was due to a much more competitive environment
and to some disintermediation, as rates began to increase and deposits moved to
annuity products and mutual funds. Loan growth was weak in 2002, 2001 and 2000.
Loans grew by 2.6% in 2002, 4.4% in 2001 and by 4.0% in 2000. Consumer and
residential loan balances decreased throughout 2001 and 2002 while commercial
real estate-secured loans grew by over 13% in 2002. The Company introduced a
home equity line promotion in 2001 that resulted in an increase in those
balances of $12.8 million for the year. An additional $5.7 million in growth was
attained in 2002. The Companys strategy for loan growth has been twofold:
(1) continue steady growth at reasonable interest rates in current markets and
(2) enter into new markets to provide for additional growth opportunities. The
Company expanded in 2001 into a second location in Southaven, which was a
high-growth market in 2000 and 2001. The Company has plans for additional
expansion in 2002 in Rankin County and Tupelo. Although the short-term effect of
de novo expansion on earnings is negative, management believes that this
strategy creates long-term shareholder value.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Investment
Securities


The
Companys investment portfolio decreased by 5.9% in 2002, by 5.2% in 2001
and by 9.4% in 2000. The 2002 and 2001 decreases were primarily attributable to
the maturing of investments in a leverage portfolio from a 1999 bank
acquisition. The 2000 decrease was primarily used to pay out high costing
deposits and company debt, as well as to increase the loan portfolio. In 2002
the Company increased its investment in U.S. Government agency securities to use
some of the liquidity that was not needed to fund loan growth. Most of the
purchases were of securities with maturities of approximately 2 years. In 2001
the Company increased its percentage of investments in municipal bonds while
decreasing its percentage allocated to Government securities. This change was
primarily due to the attractiveness of municipals, given the changes in the
yield curve in 2001. In 1999 and 2000 the Company did not change its mix of
Government, municipal, and mortgage-backed securities. As of December 31, 2002,
municipal securities represented 25.5% of total debt securities as compared to
26.3% at December 31, 2001 and 24.4% at December 31, 2000.


Deposits and
Borrowings


Deposits
grew by .9% in 2002, 3.7% in 2001, and decreased by .3% in 2000. NOW and MMDA
deposits increased while certificates of deposit decreased in 2002, primarily
due to the low interest rate environment. The increase in 2001 occurred
primarily in demand and money market accounts as depositors sought liquidity in
the lower rate environment. The Company offered bonus-rate certificate of
deposit products for 36 and 60-month maturities during 2002 to try to extend the
average maturity life of the deposit base and reduce interest rate sensitivity.
The largest increase in 2000 was in the certificate of deposit category where
bonus-rate promotional programs were used to generate funds. Higher certificate
of deposit rates and an extremely competitive environment made it difficult to
maintain deposit growth in 2000.


Long-term
debt decreased by $2.5 million in 2002 and by $24.0 million from 2000 to 2001
and by $23.6 million from 1999 to 2000 as debt related to an investment leverage
program was reduced as investments matured. Borrowings were used in 2002 as an
alternative to deposits to fund some longer-term new loan production. Funding
for loan growth in 2001 was provided primarily through deposit funding while
loan growth in 2000 was provided through investment maturities, short-term funds
and the use of excess cash balances. The Company uses wholesale funding sources
such as the Federal Home Loan Bank to provide the liquidity needed for loan
growth. However, the long-term strategy of the Company is to primarily fund loan
growth through deposit growth first, with borrowings used when deposit funding
is uneconomical. During 2002 the Company took advantage of occasions when
borrowing rates were lower than comparable certificate of deposit rates.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Liquidity and
Interest Rate Sensitivity 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 day-to-day cash flow requirements of customers, whether they
wish to withdraw funds or to borrow funds to meet their capital needs. The
Company was sufficiently liquid in 2000 and 2001 to fund loan growth without
additional borrowings. Historically, deposit growth has been sufficient to
provide for the Companys liquidity needs. In 2002 the Company used
borrowings as well as deposits due to lower demand by customers for time deposit
products and to the availability of low-cost funds in the Federal Home Loan Bank
lines. The Company has sufficient lines available through the Federal Home Loan
Bank and correspondent banks to meet all anticipated liquidity needs.


The
Company announced a stock repurchase plan in August of 2002 targeting the
repurchase of 184,590 shares of stock from September of 2002 through September
of 2004. Through December 31, 2002, the Company had repurchased 27,738 shares at
an average price of $27.21 per share. The total cost of the 2002 purchases was
$755 thousand. The Company instituted a stock repurchase program for up to 482
thousand shares in the third quarter of 1999 related to the Community Federal
acquisition. As of December 31, 2000, the Company had repurchased 367 thousand
shares at an average price of $29.23 per share. The Company used borrowings of
approximately $9.5 million against its lines of credit at other commercial
banks. The resulting debt from the program is expected to be paid off through
dividends received by the Company from Merchants and Farmers Bank. The total
repurchase debt for both programs was down to $7.6 million at the end of 2002.
The repurchase program has not had any negative effect on liquidity.


Interest
rate sensitivity is a function of the repricing characteristics of the
Companys portfolio of assets and liabilities. Interest rate sensitivity
management focuses on repricing relationships of these assets and liabilities
during periods of changing market interest rates. Management seeks to minimize
the effect of interest rate movements on net interest income. The
asset-liability management committee monitors the interest-sensitivity gap on a
monthly basis. At the end of 2002 the one-year repricing gap stood at +7%. The
Company embarked on a strategy to increase the rate sensitivity of assets while
reducing the sensitivity of liabilities. This was done by reducing the maturity
terms of loans made in 2002 as well as by purchasing shorter-maturity
securities. The Company also used long-term CD promotions and FHLB borrowings to
increase the average maturity of the liability portfolio. These initiatives were
taken with the anticipation of a rising interest rate environment at the end of
the current soft economic cycle. At the end of 2002 the one-year repricing gap
stood at +1% as compared to -7% at the end of 2001 and -6% at the end of 2000. The Company
targets its one year repricing gap at between + 7.5% and - 7.5%.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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. The Company has continued to increase its dividend payout ratio,
ending 2002 with a 45.05% ratio and ending 2001 with a ratio of 64.5%. The high
payout percentage was due to the lower earnings per share, as the Company
maintained a $1.00 annual dividend rate for 1999 through 2002. The ratio of
capital to assets stood at 10.4% at December 31, 2002, 9.8% at December 31, 2001
and 9.5% at December 31, 2000, with risk-based capital ratios well in excess of
the regulatory requirements. The lack of growth in 2000 through 2002 was a
contributing factor to the improvement of the capital ratio from 8.9% at
December 31, 1999. The Company issued approximately 1.2 million shares along
with the $37.7 million in cash for Community Federal Bancorp in November, 1999.
The use of the equity securities allowed the Company to maintain a strong
capital position even while recording $15 million in intangible assets from the
acquisition. The Company also has sufficient lines of credit at commercial banks
to raise additional funds if needed. The Companys stock is publicly traded
on NASDAQ, also providing an avenue for additional capital if it is needed.


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 was $38.2 million in 2002 as compared to $33.0
million in 2001 and $32.1 million in 2000. The improvement in 2002 was due to
the ability of the Company to take advantage of the trend of decreasing interest
rates. Earning asset yields decreased by 100 basis points in 2002 while
liability costs decreased by 170 basis points. Therefore, while interest and
fees on loans decreased by $6.0 million in 2002, interest on deposits decreased
by $12.0 million. The low growth in 2001 was due mainly to slow loan growth. The
12.6% growth in 2000 was due to the volumes brought about by the late 1999
merger. Loan yields decreased in 2000, 2001 and 2002 due to competitive
pressures in 2000 and 2001 as well as the lower rate environment in 2002 and
2001. During 2001 and 1999 liability costs decreased more than earning asset
yields.


During
1999 the Company experienced a change in earning asset mix with loans becoming a
larger percentage of total earning assets. Due to the 1999 merger, mortgages
became a large component of the loan portfolio, as approximately $130 million of
mortgages were acquired. These mortgages paid down at a rate of approximately $1
million per month in 2000 and $2 million per month in 2002 and 2001. Management
will continue to try to grow the commercial and consumer loan components of
earning assets as long as prudent opportunities are available.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|

|Provision for Loan
Losses


During
2002 the Companys provision increased to $4.5 million from $4.4 million in
2001 and $4.3 million in 2000. The 2001 provision included an additional accrual
of $800 thousand that was needed to replenish the allowance following a single
customer charge-off in May of $2 million. The 2000 increase of $1.9 million over
1999 was due primarily to additional accruals that were needed for a $1 million
charge-off in September. The remaining increase in the allowance in 2002 and 2001 was
due to the increased size of the portfolio. Net charge-offs were $2.7 million in
2002 as compared to $4.5 million in 2001 and $3.4 million in 2000. Net
charge-offs as a percentage of average loans were .40% in 2002, .69% in 2001,
and .54% in 2000. Nonaccrual loans as a percentage of total loans were .23% at
the end of 2002, .28% at the end of 2001, and .22% at the end of 2000.
Management has a conservative approach to classifying loans internally for
purposes of determining needed reserves. The percentage of the allowance to total
loans was 1.51% at December 31, 2002, 1.27% at December 31, 2001, and 1.35% at
December 31, 2000.


Management
reviews loan quality on a monthly basis, and makes determinations as to the
adequacy of the allowance for loan losses on a quarterly basis. Classified and
past due loans are monitored to determine if deterioration is occurring, and if
corrective actions need to be taken. The following table shows the calculation
of the allowance for 2002 and 2001 based upon classified loans.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     | 2002 |  | 2001 |      
|-------------------- | ---- |  | ---- | -----
|
|Doubtful             |      |  |      | 2,085
|Substandard          |      |  |      | 7,117
|Bankruptcy           |      |  |      | 3,930
|Special mention      |      |  |      | 8,856
|Other past due loans |      |  |      | 4,054
|General allowance    |      |  |      |      
|                     |      |  |      |      

|Noninterest Income


Noninterest
income for 2002 was $14.1 million as compared to $13.8 million in 2001 and $10.6
million in 2000. Deposit income improved by 6.1% in 2002 while insurance agency
commissions increased by 13.8%. The insurance revenues were driven by increased
pricing throughout the industry in late 2001 and continuing into 2002.
Commissions on annuity sales doubled in 2002 as customers sought alternatives to
deposit products to achieve better returns. The largest increase in 2001 was in
the mortgage banking revenues, which were driven by new loan and refinancing
activity. Deposit revenues, driven by volume increases, grew by 8.5%. Insurance
agency commissions grew by 7.4%, also due to increased new account activity and
referral efforts. The Company also recognized approximately $300 thousand in
security gains as it disposed of certain mortgage-backed securities and invested
in other securities that could collateralize a $10 million repurchase agreement.
This transaction was executed to reduce the Companys costs of borrowing.
Another $125 thousand in gains were taken in Treasury, municipal and corporate
securities in order to reallocate those funds into investments with more
attractive durations. The increase in 2000 was due to increased deposit revenues
and increased insurance agency revenues. The increased deposit revenues were due
mainly to increased transactions. The agency revenue increases were due to
agency acquisitions in December, 1999 and January, 2000. The Company purchased
two (2) independent insurance agencies in 2000 and three (3) agencies in 1999.
The acquired agencies sell personal and commercial property, casualty, life and
health insurance products. Included in other noninterest income for 2002 is
approximately $772 thousand, for 2001 is approximately $656 thousand, and for
2000 is approximately $569 thousand in increases in cash surrender value of
insurance policies purchased by the Company in 1998. The 2002 amount includes
approximately $65 thousand from a claim. The Company recognized $1.4 million in
losses in 2000 on equity securities that were marked to market at the end of the
year.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Noninterest Expense


Noninterest
expense increased to $33.4 million in 2002 from $32.1 million in 2001 and $29.8
million in 2000. Salary expenses increased by approximately 3.4% in 2002 after
increasing by approximately 6.2% in 2001. The Company embarked on an efficiency
and productivity study in 2002 which resulted in a reduction of 29
full-time-equivalent employees by April 30. The Company opened additional
lending positions in the second half of 2002 that resulted in a net decrease in
employees of 12 by December 31. The Company also made an additional $465,000 in
contributions to the pension plan in 2002 over and above the required
contributions. This caused pension expenses to increase by $321 thousand over
the 2001 expense. Legal expenses increased by approximately $400 thousand in
2002 due to litigation expenses on various cases as well as continuing expenses
related to prior-year loan losses. Amortization of intangible assets decreased
by $1.2 million in 2002 as goodwill amortization was discontinued following the
implementation of a new accounting standard. Under the new standard, goodwill is
tested for impairment annually. The Company completed its impairment test in the
first quarter of 2002, with no impairment charge required. The largest increase
in 2001 was in the salary and benefit category, with salaries increasing by
approximately $700 thousand and health plan costs increasing by approximately
$300 thousand. Other expense increases in 2001 were marketing expenses, which
were up by $204 thousand and foreclosed asset expenses, which were up by $173
thousand. The 2000 increase was due mainly to the acquisition of Community
Federal in November, 1999. The 2000 expenses included an increase of $1 million
in goodwill amortization. The addition of commercial lenders and business
development personnel in the more urban markets and the expansion of
technological and internet banking capabilities put pressure on noninterest
expenses in 1999 and again in 2001. The Company also invested in additional
mainframe computer equipment in 2000 and again in the fourth quarter of 2002 as
systems were evaluated and upgraded to allow for greater processing speed and
capacity. The 2002 reviews resulted in technology changes that will occur in the
first half of 2003.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Noninterest
expenses as a percentage of average assets were 3.3% in 2003, 3.2% in 2001, and
2.9% in 2000. The Companys efficiency ratio was 62.0% in 2002, 66.2% in
2001 and 66.9% in 2000.


Income Taxes


The
Companys effective tax rate was 28.8% in 2002, 30.0% in 2001, and 17.7% in
2000. The 2001 increase and 2000 decrease were due to an $850 thousand tax
refund in 2000 resulting from the filing of the final tax returns for Community
Federal. Another factor in the 2001 and 2002 increase over historical rates was
an increased percentage of pre-tax earnings being derived from taxable sources.
The Company primarily uses tax-exempt securities and loans to provide tax
benefits and does not use any exotic tax-shelter vehicles.




QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Market
risk comes in the form of risk to the net interest income of the Company as well
as to the market values of the financial assets and liabilities on the balance
sheet and the values of off-balance sheet activities such as commitments. The
Company monitors interest rate risk on a monthly basis with quarterly
sensitivity analyses. The following table shows the gap position of the Company
at December 31, 2002, placing variable-rate instruments in the earliest
repricing category. The cash flows for deposits without maturities are estimated
based upon historical decay rates, averaged over increasing and decreasing rate
periods.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Floating | 1-12 months | 1-5 years | Over 5 years | Total
|------------------------------ | -------- | ----------- | --------- | ------------ | -----
|                               |         
|Short-term funds               |          |             |           | 7,700        |      
|Investments                    |          |             |           |              |      
|Loans                          |          |             |           | 96,414       |      
|                               |         
|Total earning assets           |          |             |           | 104,114      |      
|NOW, MMDA & savings            |          |             |           | 59,805       |      
|Time deposits                  |          |             |           |              |      
|Short-term borrowings          |          |             |           |              |      
|Other borrowings               |          |             |           |              |      
|                               |         
|Total int. bearing liabilities |          |             |           | 59,805       |      
|Rate sensitive gap             |          |             |           | 44,309       |      
|Cumulative gap                 |          |             |           | 44,309       |      
|Cumulative % of assets         |          |             |           | 4.27         | %    

|Interest
rate shock analysis shows that the Company will experience a 14 basis point
decrease over 12 months in its net interest margin with an immediate and
sustained 100 basis point decrease in interest rates. An immediate and sustained
increase in interest rates of 100 basis points will result in an 11 basis point
increase in net interest margins. The sensitivity of loan prices and the lack of
sustainable deposit cost decreases are the primary drivers behind these
simulation results.


An
analysis of the change in market value of equity shows how an interest rate
shock will affect the difference between the market value of assets and the
market value of liabilities. With all financial instruments being stated at
market value, the ratio of the market value of equity to the market value of
assets will fall by 7 basis points with an immediate and sustained increase in
interest rates of 100 basis points. The ratio of the market value of equity to
the market value of assets will increase by 4 basis points with an immediate and
sustained decrease in interest rates of 100 basis points.


The
Company has no hedging instruments or other derivative contracts in place at
December 31, 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|SHEARER,TAYLOR& CO.A Professional Association


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


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, 2002 and 2001, and the related
consolidated  statements of income, comprehensive income, stockholders equity and
cash  flows  for each of the years in the three-year period ended December 31, 2002.
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 auditing standardsgenerally accepted in  the
United States of  America. 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, 2002 and 2001, the results of  their
consolidated  operations and their consolidated cash flows for each of the  years in the
three-year  period ended December 31, 2002, in conformity with  accounting
principlesgenerally  accepted in the United States of America.

/s/ Shearer, Taylor & Co., P.A.Ridgeland, Mississippi
February 14, 2003


Certified Public
Accountants605 Renaissance WayRidgeland, MS 39157
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F CORPORATION AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF CONDITIONDecember 31, 2002 and 2001(In Thousands, Except Share Data)
|----------------------------------------------------------------------------------------------------------------------------------------

|                                            | 2002 |  | 2001 |          
|------------------------------------------- | ---- |  | ---- | ---------
|ASSETS                                      |      |  |      |          
|                                           
|Cash and due from banks                     |      |  | $    | 43,329   
|Interest bearing bank balances              |      |  |      | 12,610   
|Federal funds sold                          |      |  |      | 7,700    
|Securities available for sale, amortized    |      | 
|cost of $226,617 and $247,382               |      |  |      | 236,110  
|                                           
|Loans, net of unearned income               |      |  |      | 678,746  
|Allowance for loan losses                   |      |  |      | (10,258  
|                                            |      |  |      |          
|Net loans                                   |      |  |      | 668,488  
|                                            |      |  |      |          
|                                           
|Bank premises and equipment                 |      |  |      | 21,508   
|Accrued interest receivable                 |      |  |      | 7,125    
|Other assets                                |      |  |      | 40,264   
|                                            |      |  |      |          
|                                           
|                                            |      |  | $    | 1,037,134
|                                            |      |  |      |          
|                                           
|LIABILITIES AND STOCKHOLDERS EQUITY        |      |  |      |          
|                                           
|LIABILITIES:                                |      |  |      |          
|Deposits                                    |      |  | $    | 824,024  
|Short-term borrowings                       |      |  |      | 23,599   
|Other borrowings                            |      |  |      | 71,142   
|Accrued interest payable                    |      |  |      | 1,920    
|Other liabilities                           |      |  |      | 7,583    
|                                            |      |  |      |          
|Total liabilities                           |      |  |      | 928,268  
|                                            |      |  |      |          
|                                           
|Noncontrolling joint venture interest       |      |  |      | 656      
|                                            |      |  |      |          
|                                           
|STOCKHOLDERS EQUITY:                       |      |  |      |          
|Preferred stock:                            |      |  |      |          
|Class A; 1,000,000 shares authorized        |      |  |      |         
|Class B; 1,000,000 shares authorized        |      |  |      |         
|Common stock of $5.00 par value. 15,000,000 |      |  |      |          
|shares authorized; 4,587,046 and 4,614,784  |      |  |      |          
|shares issued                               |      |  |      | 22,935   
|Additional paid-in capital                  |      |  |      | 33,260   
|Retained earnings                           |      |  |      | 47,585   
|Accumulated other comprehensive income      |      |  |      | 4,430    
|                                            |      |  |      |          
|Total stockholders equity                  |      |  |      | 108,210  
|                                            |      |  |      |          
|                                            |      |  | $    | 1,037,134
|                                            |      |  |      |          

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

|FIRST M & F
CORPORATION AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF INCOMEYears Ended December 31, 2002, 2001 and 2000
(In Thousands, Except Share Data)
|--------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             | 2002 |  | 2001 |        | 2000 |  
|-------------------------------------------- | ---- |  | ---- | ------ | ---- | -
|INTEREST INCOME:                             |      |  |      |        |      |  
|Interest and fees on loans                   |      |  | $    | 49,015 |      | $
|Taxable investments                          |      |  |      | 9,998  |      |  
|Tax-exempt investments                       |      |  |      | 2,573  |      |  
|Federal funds sold                           |      |  |      | 163    |      |  
|Interest bearing bank balances               |      |  |      | 124    |      |  
|                                             |      |  |      |        |      |  
|Total interest income                        |      |  |      | 61,873 |      |  
|                                             |      |  |      |        |      |  
|                                            
|INTEREST EXPENSE:                            |      |  |      |        |      |  
|Deposits                                     |      |  |      | 19,799 |      |  
|Short-term borrowings                        |      |  |      | 695    |      |  
|Other borrowings                             |      |  |      | 3,208  |      |  
|                                             |      |  |      |        |      |  
|Total interest expense                       |      |  |      | 23,702 |      |  
|                                             |      |  |      |        |      |  
|                                            
|Net interest income                          |      |  |      | 38,171 |      |  
|Provision for loan losses                    |      |  |      | 4,495  |      |  
|                                             |      |  |      |        |      |  
|Net interest income after                    |      | 
|provision for loan losses                    |      |  |      | 33,676 |      |  
|                                             |      |  |      |        |      |  
|                                            
|NONINTEREST INCOME:                          |      |  |      |        |      |  
|Service charges on deposit accounts          |      |  |      | 7,514  |      |  
|Mortgage banking income                      |      |  |      | 1,073  |      |  
|Agency commission income                     |      |  |      | 3,263  |      |  
|Other fee income                             |      |  |      | 741    |      |  
|Life insurance income                        |      |  |      | 772    |      |  
|Gain (loss) on securities available for sale |      |  |      | 30     |      |  
|Other income                                 |      |  |      | 695    |      |  
|                                             |      |  |      |        |      |  
|Total noninterest income                     |      |  |      | 14,088 |      |  
|                                             |      |  |      |        |      |  
|                                            
|NONINTEREST EXPENSES:                        |      |  |      |        |      |  
|Salaries and employee benefits               |      |  |      | 17,809 |      |  
|Net occupancy expenses                       |      |  |      | 2,010  |      |  
|Equipment and data processing expenses       |      |  |      | 3,579  |      |  
|Other                                        |      |  |      | 9,996  |      |  
|                                             |      |  |      |        |      |  
|Total noninterest expenses                   |      |  |      | 33,394 |      |  
|                                             |      |  |      |        |      |  
|                                            
|Income before income taxes                   |      |  |      | 14,370 |      |  
|                                            
|Income taxes                                 |      |  |      | 4,135  |      |  
|                                             |      |  |      |        |      |  
|                                            
|NET INCOME                                   |      |  | $    | 10,235 |      | $
|                                             |      |  |      |        |      |  
|                                            
|EARNINGS PER SHARE:                          |      |  |      |        |      |  
|Basic                                        |      |  | $    | 2.22   |      | $
|Diluted                                      |      |  |      | 2.22   |      |  
|                                             |      |  |      |        |      |  

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

|FIRST M & F
CORPORATION AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEYears Ended December 31, 2002, 2001 and 2000
(In Thousands)
|---------------------------------------------------------------------------------------------------------------------------------------------------

|                                               | 2002 |  | 2001 |        | 2000 |  
|---------------------------------------------- | ---- |  | ---- | ------ | ---- | -
|Net income                                     |      |  | $    | 10,235 |      | $
|                                               |      |  |      |        |      |  
|Other comprehensive income:                    |      |  |      |        |      |  
|Change in unrealized gains (losses)            |      |  |      |        |      |  
|on securities available for sale,              |      |  |      |        |      |  
|net of tax of $2,439, $934 and $2,502          |      |  |      | 4,108  |      |  
|Reclassification adjustment for (gains) losses |      |  |      |        |      |  
|on securities available for sale included in   |      |  |      |        |      |  
|net income, net of tax of $11,$159 and $515    |      |  |      | (19    | )    |  
|Minimum pension liability adjustment,          |      |  |      |        |      |  
|net of tax of $484 and $424                    |      |  |      | (812   | )    |  
|                                               |      |  |      |        |      |  
|                                              
|Other comprehensive income                     |      |  |      | 3,277  |      |  
|                                               |      |  |      |        |      |  
|                                              
|Total comprehensive income                     |      |  | $    | 13,512 |      | $
|                                               |      |  |      |        |      |  

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

|FIRST M & F
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITYYears Ended December 31, 2002, 2001 and
2000(In Thousands, Except Share Data)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | CommonStock |  | AdditionalPaid-inCapital |        | RetainedEarnings |   | AccumulatedOtherComprehensiveIncome |   | Total |       
|-------------------------------- | ----------- |  | ------------------------ | ------ | ---------------- | - | ----------------------------------- | - | ----- | ------
|January 1, 2000                  |             |  | $                        | 23,363 |                  | $ | 34,845                              |   | $     | 36,969
|                                
|Net income                       |             |  |                          |       |                  |   |                                    |   |       | 7,079 
|Cash dividends ($1.00 per share) |             |  |                          |       |                  |   |                                    |   |       | (4,626
|35,359 common shares issued in   |             | 
|acquisition                      |             |  |                          | 177    |                  |   | 774                                 |   |       |      
|93,237 common shares repurchased |             |  |                          | (466   | )                |   | (1,743                              | ) |       |      
|Net change                       |             |  |                          |       |                  |   |                                    |   |       |      
|                                 |             |  |                          |        |                  |   |                                     |   |       |       
|                                
|December 31, 2000                |             |  |                          | 23,074 |                  |   | 33,876                              |   |       | 39,422
|                                 |             |  |                          |        |                  |   |                                     |   |       |       
|                                
|Net income                       |             |  |                          |       |                  |   |                                    |   |       | 7,153 
|Cash dividends ($1.00 per share) |             |  |                          |       |                  |   |                                    |   |       | (4,615
|Net change                       |             |  |                          |       |                  |   |                                    |   |       |      
|                                 |             |  |                          |        |                  |   |                                     |   |       |       
|                                
|December 31, 2001                |             |  |                          | 23,074 |                  |   | 33,876                              |   |       | 41,960
|                                 |             |  |                          |        |                  |   |                                     |   |       |       
|                                
|Net income                       |             |  |                          |       |                  |   |                                    |   |       | 10,235
|Cash dividends ($1.00 per share) |             |  |                          |       |                  |   |                                    |   |       | (4,610
|27,738 common shares repurchased |             |  |                          | (139   | )                |   | (616                                | ) |       |      
|Net change                       |             |  |                          |       |                  |   |                                    |   |       |      
|                                 |             |  |                          |        |                  |   |                                     |   |       |       
|                                
|December 31, 2002                |             |  | $                        | 22,935 |                  | $ | 33,260                              |   | $     | 47,585
|                                 |             |  |                          |        |                  |   |                                     |   |       |       

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

|FIRST M & F
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWSYears Ended December 31, 2002, 2001 and 2000(In
Thousands)
|----------------------------------------------------------------------------------------------------------------------------------------

|                                                      | 2002 |  | 2001 |         | 2000 |  
|----------------------------------------------------- | ---- |  | ---- | ------- | ---- | -
|CASH FLOWS FROM OPERATING ACTIVITIES:                 |      |  |      |         |      |  
|Net income                                            |      |  | $    | 10,235  |      | $
|Adjustments to reconcile net income                   |      | 
|to net cash provided by operating activities:         |      | 
|Depreciation and amortization                         |      |  |      | 2,035   |      |  
|Provision for loan losses                             |      |  |      | 4,495   |      |  
|Federal Home Loan Bank stock dividends                |      |  |      | (156    | )    |  
|Net investment amortization                           |      |  |      | 729     |      |  
|(Gain) loss on securities available for sale          |      |  |      | (30     | )    |  
|Earnings of noncontrolling joint venture interest     |      |  |      | 299     |      |  
|Deferred income taxes                                 |      |  |      | (850    | )    |  
|(Increase) decrease in:                               |      | 
|Accrued interest receivable                           |      |  |      | 738     |      |  
|Cash surrender value of bank owned life insurance     |      |  |      | (630    | )    |  
|Income taxes receivable                               |      |  |      | (603    | )    |  
|Increase (decrease) in:                               |      | 
|Accrued interest payable                              |      |  |      | (1,040  | )    |  
|Income taxes payable                                  |      |  |      | (3,274  | )    |  
|Other, net                                            |      |  |      | 583     |      |  
|                                                      |      |  |      |         |      |  
|                                                     
|Net cash provided by operating activities             |      |  |      | 12,531  |      |  
|                                                      |      |  |      |         |      |  
|                                                     
|CASH FLOWS FROM INVESTING ACTIVITIES:                 |      | 
|Purchases of securities available for sale            |      |  |      | (56,844 | )    |  
|Sales of securities available for sale                |      |  |      | 8,936   |      |  
|Maturities of securities available for sale           |      |  |      | 67,974  |      |  
|Net (increase) decrease in:                           |      | 
|Interest bearing bank balances                        |      |  |      | (9,522  | )    |  
|Federal funds sold                                    |      |  |      | (5,100  | )    |  
|Loans                                                 |      |  |      | (21,354 | )    |  
|Bank premises and equipment                           |      |  |      | (1,770  | )    |  
|Sales of Federal Home Loan Bank stock                 |      |  |      |        |      |  
|Proceeds from sales of other real estate              |      | 
|and other repossessed assets                          |      |  |      | 1,417   |      |  
|Net cash used for current and prior year acquisitions |      |  |      | (74     | )    |  
|                                                      |      |  |      |         |      |  
|                                                     
|Net cash provided by (used in)                        |      | 
|investing activities                                  |      |  |      | (16,337 | )    |  
|                                                      |      |  |      |         |      |  

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


CONSOLIDATED
STATEMENTS OF CASH FLOWSYears Ended December 31, 2002, 2001 and 2000(In
Thousands)
|----------------------------------------------------------------------------------------------------------------------------------------

|                                           | 2002 |  | 2001 |         | 2000 |  
|------------------------------------------ | ---- |  | ---- | ------- | ---- | -
|CASH FLOWS FROM FINANCING ACTIVITIES:      |      |  |      |         |      |  
|Net increase (decrease) in:                |      |  |      |         |      |  
|Non-interest bearing deposits              |      |  | $    | (6,830  | )    | $
|Money market, NOW and savings deposits     |      |  |      | 52,150  |      |  
|Certificates of deposit                    |      |  |      | (37,913 | )    |  
|Short-term borrowings                      |      |  |      | 7,141   |      |  
|Proceeds from other borrowings             |      |  |      | 26,500  |      |  
|Repayments of other borrowings             |      |  |      | (28,993 | )    |  
|Noncontrolling investment in joint venture |      |  |      |        |      |  
|Distributions to noncontrolling joint      |      |  |      |         |      |  
|venture interest                           |      |  |      | (500    | )    |  
|Cash dividends                             |      |  |      | (4,610  | )    |  
|Common shares repurchased                  |      |  |      | (755    | )    |  
|                                           |      |  |      |         |      |  
|Net cash provided by (used in)             |      |  |      |         |      |  
|financing activities                       |      |  |      | 6,190   |      |  
|                                           |      |  |      |         |      |  
|Net increase (decrease) in cash            |      |  |      |         |      |  
|and due from banks                         |      |  |      | 2,384   |      |  
|                                          
|Cash and due from banks at January 1       |      |  |      | 40,945  |      |  
|                                           |      |  |      |         |      |  
|                                          
|Cash and due from banks at December 31     |      |  | $    | 43,329  |      | $
|                                           |      |  |      |         |      |  

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

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


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 accounting principles generally accepted in the United States of America 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 Mississippi. As a state
chartered commercial bank, the Bank is subject to the regulations of certain  Federal and
state agencies 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, general insurance agency subsidiaries, real estate subsidiary and  51% owned
accounts receivable financing joint venture. All significant  intercompany balances and
transactions have been eliminated in consolidation.


Use  of Estimates


The
preparation of  financial statements in conformity with accounting principles generally
accepted  in the United States of America requires management to make estimates and
assumptions 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.


Comprehensive
Income


Comprehensive
income  includes net income reported in the statements of income and changes in
unrealized gain (loss) on securities available for sale and minimum pension  liability
reported as a component of stockholders equity. Unrealized gain  (loss) on
securities available for sale and minimum pension liability, net of  deferred income
taxes, are the only components of accumulated other  comprehensive income for the Company.


(Continued)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 1:
(Continued)


Securities
Available for Sale


Securities,
which are available to be sold prior to maturity are classified as securities available
for sale and are recorded at market value. Unrealized holding gains and losses are
reported net of deferred income taxes as a separate component of stockholders
equity.


Premiums
and discounts are amortized or accreted over the life of the related security using the
interest method. Interest income is recognized when earned. Realized gains and losses on
securities available for sale are included in earnings and are determined using the
specific amortized cost of the securities sold.


Loans


Loans
are stated at the principal amount outstanding, net of unearned income and an allowance
for loan losses. 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. Loan
origination fees and direct loan origination costs are deferred and recognized over the
life of the related loans as adjustments to interest income.


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. Nonaccrual loans, and the related effect on income, are not
material.


A
loan is considered impaired when, based on current information and events, it is probable
that the Bank will be unable to collect all amounts due according to the contractual terms
of the loan agreement. The Bank measures impaired and restructured loans at the present
value of expected future cash flows, discounted at the loans effective interest
rate, or the fair value of collateral if the loan is collateral dependent. The balance of
impaired loans was not material at December 31, 2002 and 2001.


Allowance for Loan
Losses


The
allowance for loan losses is established through provisions for loan losses charged
against earnings. Loans deemed to be uncollectible are charged against the allowance for
loan losses, and subsequent recoveries, if any, are credited to the allowance.


(Continued)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 1: (Continued)


The
allowance for loan losses is maintained at a level believed to be adequate by management
to absorb estimated probable loan losses. Managements periodic evaluation of the
adequacy of the allowance for loan losses is based on estimated credit losses for
specifically identified loans as well as estimated probable credit losses inherent in the
remainder of the loan portfolio. Management considers a number of factors in estimating
probable credit losses inherent in the loan portfolio, including: historical loan loss
experience for various types of loans; composition of the loan portfolio; past due trends
in the loan portfolio; current trends; current economic conditions; industry exposure and
allowance allocation percentages for various grades of loans, with such grades being
assigned to loans based on internal and external loan reviews, loan risk, loan
performance, the estimated value of underlying collateral, evaluation of a borrowers
financial condition and other factors considered relevant in grading loans.


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


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.


Intangible
Assets


The
Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) 142, Goodwill and Other Intangible Assets on July 20, 2001.
SFAS 142 is effective for fiscal years beginning after December 15, 2001. Under SFAS 142,
goodwill and intangible assets that have indefinite lives are not amortized, but are
tested for impairment annually and when there is an impairment indicator. Goodwill
impairment losses are reported in a companys income statement. The Company adopted
SFAS 142 effective January 1, 2002.


(Continued)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 1: (Continued)


The
Company has no intangible assets having indefinite lives other than goodwill. Prior to
adoption of SFAS 142 on January 1, 2002, goodwill was being amortized on a straight-line
basis over 40 years and 15 years.


Intangible
assets, such as core deposit intangibles, customer renewal lists and noncompete
agreements with determinable useful lives are amortized over their respective useful
lives.


Stock Based
Compensation


The
Company has elected not to adopt the recognition provisions of SFAS 123, Accounting
for Stock-Based Compensation which requires a fair-value based method of accounting
for stock options and similar equity awards. The Company elected to continue applying
Accounting Principles Board Opinion 25, (APB 25) Accounting for Stock Issued to
Employees and related interpretations in accounting for its stock compensation plans
and, accordingly, does not recognize compensation cost. See Note 12 for a summary of the
pro forma effect if the accounting provisions of SFAS 123 had been elected.


Income
Taxes


The
Company, the Bank and the Banks finance, general insurance agency 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.


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:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | 2002 |  | 2001 |        | 2000 |  
|------------------------------------ | ---- |  | ---- | ------ | ---- | -
|Interest paid                        |      |  | $    | 24,242 |      | $
|Federal and state income taxes paid  |      |  |      | 8,862  |      |  
|Federal and state income tax refunds |      |  |      |       |      |  
|Other real estate and repossessions  |      | 
|acquired in noncash foreclosures     |      |  |      | 1,352  |      |  
|Common stock used in acquisitions    |      |  |      |       |      |  
|                                     |      |  |      |        |      |  

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 1: (Continued)


Reclassifications


Certain
reclassifications have been made to the 2001 and 2000 financial statements to be
consistent with 2002 presentation.


NOTE 2: ACQUISITIONS


The
Company has acquired various general insurance agencies in Mississippi in transactions
that were immaterial to the Company. The following table provides information concerning
these insurance agency acquisitions completed during the three years ended December 31,
2002:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Acquisition                   | Location | Date | CommonSharesIssued | MethodofAccounting
|----------------------------- | -------- | ---- | ------------------ | ------------------
|                             
|Insurance Services, Inc.      |          |      |                    | Tupelo            
|House of Insurance, Inc.      |          |      |                    | Tupelo            
|Madison Insurance Co.         |          |      |                    | Madison           
|Smith Insurance Agency, Inc.  |          |      |                    | Madison           
|Thomas Insurance Agency, Inc. |          |      |                    | Brandon           

|NOTE 3: SECURITIES AVAILABLE FOR
SALE


The
following is a summary of the amortized cost and market value (book value) of  securities
available for sale at December 31, 2002 and 2001:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | Amortized |  | Gross Unrealized |         | Market |  
|------------------------------------------------ | --------- |  | ---------------- | ------- | ------ | -
|
|December 31, 2002:                               |           |  |                  |         |        |  
|U. S. Treasury securities                        |           |  | $                | 1,037   |        | $
|U. S. Government agencies and corporations       |           |  |                  | 58,125  |        |  
|Mortgage-backed investments                      |           |  |                  | 104,121 |        |  
|Obligations of states and political subdivisions |           |  |                  | 56,955  |        |  
|Other                                            |           |  |                  | 3,380   |        |  
|Equity securities                                |           |  |                  | 2,999   |        |  
|                                                 |           |  |                  |         |        |  
|                                                
|                                                 |           |  | $                | 226,617 |        | $
|                                                 |           |  |                  |         |        |  

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 3: (Continued)
|-------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | Amortized |  | Gross Unrealized |         | Market |  
|------------------------------------------------ | --------- |  | ---------------- | ------- | ------ | -
|
|December 31, 2001:                               |           | 
|U. S. Treasury securities                        |           |  | $                | 3,045   |        | $
|U. S. Government agencies and corporations       |           |  |                  | 24,487  |        |  
|Mortgage-backed investments                      |           |  |                  | 149,035 |        |  
|Obligations of states and political subdivisions |           |  |                  | 64,353  |        |  
|Other                                            |           |  |                  | 3,417   |        |  
|Equity securities                                |           |  |                  | 3,045   |        |  
|                                                 |           |  |                  |         |        |  
|                                                
|                                                 |           |  | $                | 247,382 |        | $
|                                                 |           |  |                  |         |        |  

|The
amortized cost and market values of debt securities available for sale at December 31,
2002, 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. Equity securities are not
included since they have no stated maturity.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | AmortizedCost |  | MarketValue |        
|---------------------------- | ------------- |  | ----------- | -------
|One year or less             |               |  | $           | 20,540 
|After one through five years |               |  |             | 78,659 
|After five through ten years |               |  |             | 20,298 
|After ten years              |               |  |             |       
|                             |               |  |             |        
|                             |               |  |             | 119,497
|Mortgage-backed investments  |               |  |             | 104,121
|                             |               |  |             |        
|                            
|                             |               |  | $           | 223,618
|                             |               |  |             |        

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

|                  | AmortizedCost |  | MarketValue |        
|----------------- | ------------- |  | ----------- | -------
|                 
|December 31, 2002 |               |  | $           | 151,672
|                  |               |  |             |        
|                 
|December 31, 2001 |               |  | $           | 160,194
|                  |               |  |             |        

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 3: (Continued)


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

|                      | 2002 |  | 2001 |    | 2000 |  
|--------------------- | ---- |  | ---- | -- | ---- | -
|Gross realized gains  |      |  | $    | 34 |      | $
|Gross realized losses |      |  |      | (4 | )    |  
|                      |      |  |      |    |      |  
|                      |      |  |      | 30 |      |  
|Writedowns            |      |  |      |   |      |  
|                      |      |  |      |    |      |  
|                      |      |  | $    | 30 |      | $
|                      |      |  |      |    |      |  

|The
Bank entered into a hedge collar transaction related to FNMA stock and FHLMC stock in
2000. This stock was written down to the collar value at December 31, 2000.


NOTE 4: 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 following is a summary of the Banks loan portfolio, net of
unearned  income of $1,319 and $2,101 at December 31, 2002 and 2001:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | 2002 |  | 2001 |        
|-------------------------------------- | ---- |  | ---- | -------
|Real estate loans:                     |      |  |      |        
|Residential                            |      |  | $    | 244,032
|Construction and land development      |      |  |      | 70,198 
|Farmland                               |      |  |      | 30,078 
|Nonfarm nonresidential real estate     |      |  |      | 161,865
|Commercial, financial and agricultural |      |  |      | 94,178 
|Consumer                               |      |  |      | 78,395 
|                                       |      |  |      |        
|                                       |      |  | $    | 678,746
|                                       |      |  |      |        

|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. A summary of such
outstanding  loans follows:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | 2002 |  | 2001 |       
|-------------------------------- | ---- |  | ---- | ------
|Loans outstanding at January 1   |      |  | $    | 2,341 
|New loans                        |      |  |      | 10,186
|Repayments                       |      |  |      | (6,915
|                                 |      |  |      |       
|                                
|Loans outstanding at December 31 |      |  | $    | 5,612 
|                                 |      |  |      |       

|
|

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 5: ALLOWANCE FOR LOAN LOSSES


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

|                          | 2002 |  | 2001 |        | 2000 |  
|------------------------- | ---- |  | ---- | ------ | ---- | -
|Balance at January 1      |      |  | $    | 8,426  |      | $
|                         
|Loans charged-off         |      |  |      | (3,305 | )    |  
|Recoveries                |      |  |      | 642    |      |  
|                          |      |  |      |        |      |  
|Net charge-offs           |      |  |      | (2,663 | )    |  
|                          |      |  |      |        |      |  
|                         
|Provision for loan losses |      |  |      | 4,495  |      |  
|                          |      |  |      |        |      |  
|                         
|Balance at December 31    |      |  | $    | 10,258 |      | $
|                          |      |  |      |        |      |  

|NOTE 6: BANK PREMISES AND EQUIPMENT


The
following is a summary of bank premises and equipment at December 31, 2002 and 2001:
|------------------------------------------------------------------------------------------------------------------------------

|                                               | 2002 |  | 2001 |       
|---------------------------------------------- | ---- |  | ---- | ------
|Land                                           |      |  | $    | 5,100 
|Buildings                                      |      |  |      | 19,616
|Furniture, fixtures and equipment              |      |  |      | 15,519
|Leasehold improvements                         |      |  |      | 396   
|                                               |      |  |      |       
|                                               |      |  |      | 40,631
|Less accumulated depreciation and amortization |      |  |      | 19,123
|                                               |      |  |      |       
|                                              
|                                               |      |  | $    | 21,508
|                                               |      |  |      |       

|Amounts
charged to operating expenses for depreciation and amortization of bank premises  and
equipment were $1,913 in 2002, $1,757 in 2001 and $1,823 in 2000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 7: OTHER ASSETS


The
following is a summary of other assets at December 31, 2002 and 2001:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                              | 2002 |  | 2001 |       
|----------------------------------------------------------------------------- | ---- |  | ---- | ------
|Goodwill                                                                      |      |  | $    | 16,348
|Amortized intangible assets, less accumulated amortization of $1,093 and $970 |      |  |      | 603   
|Cash surrender value of bank owned life insurance                             |      |  |      | 12,737
|Federal Home Loan Bank stock                                                  |      |  |      | 4,332 
|Other real estate, net                                                        |      |  |      | 950   
|Deferred income tax                                                           |      |  |      | 728   
|Other                                                                         |      |  |      | 4,566 
|                                                                              |      |  |      |       
|                                                                              |      |  | $    | 40,264
|                                                                              |      |  |      |       

|As a
condition to borrowing funds from the Federal Home Loan Bank of Dallas (FHLB), the  Bank
is required to purchase stock in the FHLB. No ready market exists for the stock, and  it
has no quoted market value. The investment in FHLB stock can only be redeemed by the
FHLB at face value.


The
Company adopted SFAS 142 effective on January 1, 2002. With the adoption of SFAS 142,
goodwill and indefinite lived intangible assets are no longer amortized. Instead they are
reviewed for impairment at least annually or when certain indicators are encountered to
determine if they should be written down with an accompanying charge to earnings. The
Company had no indefinite lived intangible assets other than goodwill.


The
following table summarizes the effect of the application of SFAS 142 on current  earnings
as compared to prior years earnings.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | 2002 |  | 2001 |        | 2000 |  
|------------------------------ | ---- |  | ---- | ------ | ---- | -
|Net income, as reported        |      |  | $    | 10,235 |      | $
|Goodwill amortization          |      |  |      |       |      |  
|                               |      |  |      |        |      |  
|                              
|Adjusted net income            |      |  | $    | 10,235 |      | $
|                               |      |  |      |        |      |  
|                              
|Earnings per share as reported |      |  | $    | 2.22   |      | $
|Goodwill amortization          |      |  |      |       |      |  
|                               |      |  |      |        |      |  
|                              
|Adjusted earnings per share    |      |  | $    | 2.22   |      | $
|                               |      |  |      |        |      |  

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 7: (Continued)


Intangible
assets, such as core deposit intangibles, customer renewal lists and noncompete
agreements with a determinable useful life continue to be amortized over their respective
useful lives. Core deposit intangibles have lives ranging from five to ten years with a
remaining average life of 1.3 years at December 31, 2002. Renewal list intangibles have
15  year lives with a remaining average life of 12.4 years at December 31, 2002.
Noncompete  agreement intangibles have 10.5 year lives with a remaining average life of
7.5 years at  December 31, 2002.


The
following is a summary of intangible assets at December 31, 2002:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         | GrossCarryingAmount |  | AccumulatedAmortization |       | NetCarryingAmount | 
|------------------------ | ------------------- |  | ----------------------- | ----- | ----------------- | 
|Core deposit intangibles |                     |  | $                       | 941   |                   | 
|Customer renewal lists   |                     |  |                         | 466   |                   | 
|Noncompete agreements    |                     |  |                         | 289   |                   | 
|                         |                     |  |                         |       |                   | 
|                         |                     |  | $                       | 1,696 |                   | 
|                         |                     |  |                         |       |                   | 

|Amortization
expense for intangible assets having determinable useful lives amounted to $122 in 2002,
$172 in 2001 and $165 in 2000. Estimated amortization expense for the five succeeding
years at December 31, 2002 is as follows:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2003 |  |  | $ | 130 | 
|---- |  |  | - | --- | 
|2004 |  |  |   | 76  | 
|2005 |  |  |   | 55  | 
|2006 |  |  |   | 55  | 
|2007 |  |  |   | 55  | 
|     |  | 

|NOTE 8: DEPOSITS


The
following is a summary of deposits at December 31, 2002 and 2001:
|----------------------------------------------------------------------------------------

|                                            | 2002 |  | 2001 |        
|------------------------------------------- | ---- |  | ---- | -------
|Non-interest bearing                        |      |  | $    | 101,915
|Interest bearing:                           |      | 
|Money market, NOW and savings accounts      |      |  |      | 377,930
|Certificates of deposit of $100,000 or more |      |  |      | 125,899
|Other certificates of deposit               |      |  |      | 218,280
|                                            |      |  |      |        
|Total interest bearing                      |      |  |      | 722,109
|                                            |      |  |      |        
|Total deposits                              |      |  | $    | 824,024
|                                            |      |  |      |        

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 8: (Continued)


Interest
expense on certificates of deposit of $100,000 or more amounted to $4,288 in  2002,
$8,178 in 2001 and $8,472 in 2000.


At
December 31, 2002, the scheduled maturities of certificates of deposit are as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2003       |  |  | $ | 250,214 | 
|---------- |  |  | - | ------- | 
|2004       |  |  |   | 48,150  | 
|2005       |  |  |   | 21,351  | 
|2006       |  |  |   | 11,879  | 
|2007       |  |  |   | 12,575  | 
|After 2007 |  |  |   | 10      | 
|           |  | 
|           |  |  | $ | 344,179 | 
|           |  | 

|NOTE 9: SHORT-TERM BORROWINGS


The
following is a summary of information related to short-term borrowings:
|-----------------------------------------------------------------------------------------------------------

|                               | Balance Outstanding |  | WeightedAverage Rate
|------------------------------ | ------------------- |  | --------------------
|
|2002:                          |                     |  |                     
|Federal funds purchased        |                     |  |                     
|Securities sold                |                     | 
|under agreements to repurchase |                     |  |                     
|                               |                     |  |                     
|                              
|                               |                     |  |                     
|                               |                     |  |                     
|                              
|2001:                          |                     | 
|Federal funds purchased        |                     |  |                     
|Securities sold                |                     | 
|under agreements to repurchase |                     |  |                     
|                               |                     |  |                     
|                              
|                               |                     |  |                     
|                               |                     |  |                     
|                              
|2000:                          |                     | 
|Federal funds purchased        |                     |  |                     
|Securities sold                |                     | 
|under agreements to repurchase |                     |  |                     
|                               |                     |  |                     
|                               |                     |  |                     
|                               |                     |  |                     

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 9: (Continued)


Federal
funds purchased represent primarily overnight borrowings through relationships  with
correspondent banks. Securities sold under agreements to repurchase generally have
maturities of less than 30 days and are secured by U. S. Treasury securities and U. S.
Government agency securities.


NOTE 10: OTHER BORROWINGS


The
following is a summary of other borrowings at December 31, 2002 and 2001:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                 | 2002 |  | 2001 |       
|-------------------------------------------------------------------------------- | ---- |  | ---- | ------
|Companys
      line of credit in the amount of $10,000,000, renewable annually; |      |  |      |       
|secured
      by approximately 29% of the Banks common stock; interest payable  |      | 
|quarterly
      at the lenders base rate                                        |      |  | $    | 7,592 
|Banks
      advances from Federal Home Loan Bank of Dallas, net of unamortized  |      | 
|purchase
      accounting adjustments of $842 and $1,056                         |      |  |      | 63,550
|Other
      borrowings by Insurance Agencies                                     |      |  |      |      
|                                                                                 |      |  |      |       
|                                                                                 |      |  | $    | 71,142
|                                                                                 |      |  |      |       

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 10: (Continued)


The
Bank has advances from the Federal Home Loan Bank of Dallas (FHLB) under Blanket
Agreements for Advances and Security Agreements. These agreements allow the Bank to
borrow  funds from the FHLB to fund mortgage loan programs and to satisfy certain other
funding  needs. The value of mortgage-backed securities and mortgage loans pledged under
these  agreements must be maintained at not less than 115% and 150%, respectively, of the
advances outstanding. The following is a summary of these advances, exclusive of purchase
accounting adjustments, at December 31, 2002 and 2001:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               | 2002 |  | 2001 |            
|-------------------------------------------------------------- | ---- |  | ---- | -----------
|Single payment advances maturing within 12 months of year end: |      |  |      |            
|Balance                                                        |      |  |      | $ 12,382   
|Range of rates                                                 |      |  |      | 1.49%-8.16%
|                                                              
|Single payment advances maturing after 12 months of year end:  |      | 
|Balance                                                        |      |  |      | $ 20,186   
|Range of rates                                                 |      |  |      | 3.89%-8.48%
|Range of maturities                                            |      |  |      | 2004-2010  
|                                                              
|Monthly payment advances:                                      |      | 
|Balance                                                        |      |  |      | $ 31,824   
|Monthly payment amount                                         |      |  |      | 688        
|Range of rates                                                 |      |  |      | 2.94%-7.83%
|Range of maturities                                            |      |  |      | 2003-2020  

|Scheduled
principal payments on FHLB advances, exclusive of purchase accounting  adjustments, at
December 31, 2002, are as follows:
|-----------------------------------------------------------------------------------------------------------------------------------

|2003       |  |  | $ | 19,097 | 
|---------- |  |  | - | ------ | 
|2004       |  |  |   | 5,399  | 
|2005       |  |  |   | 10,353 | 
|2006       |  |  |   | 5,562  | 
|2007       |  |  |   | 3,789  | 
|After 2007 |  |  |   | 20,192 | 
|           |  | 
|           |  |  | $ | 64,392 | 
|           |  | 

|NOTE 11: 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 froze benefit accruals under this plan effective September 30,
2001.


(Continued)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 11: (Continued)


Net
pension cost (benefit) included the following components:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | 2002 |  | 2001 |      | 2000 |  
|---------------------------------- | ---- |  | ---- | ---- | ---- | -
|Service cost                       |      |  | $    |     |      | $
|Interest cost                      |      |  |      | 481  |      |  
|Expected return on plan assets     |      |  |      | (447 | )    |  
|Amortization of transition asset   |      |  |      | (9   | )    |  
|Amortization of prior service cost |      |  |      | (37  | )    |  
|Amortization of (gain) loss        |      |  |      | 73   |      |  
|                                   |      |  |      |      |      |  
|                                  
|Net pension cost                   |      |  | $    | 61   |      | $
|                                   |      |  |      |      |      |  

|Total expense recorded in the
accompanying consolidated statements of income related to the pension plan included the
following components:
|-------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | 2002 |  | 2001 |     | 2000 |  
|------------------------------------------------ | ---- |  | ---- | --- | ---- | -
|Net pension cost                                 |      |  | $    | 61  |      | $
|                                                 |      | 
|Additional pension expense accrual               |      |  |      | 465 |      |  
|Payments for expenses made on behalf of the plan |      |  |      | 71  |      |  
|                                                 |      |  |      |     |      |  
|                                                 |      |  | $    | 597 |      | $
|                                                 |      |  |      |     |      |  

|The
following is a summary of the plans funded status:
|-------------------------------------------------------

|                                                  | 2002 |  | 2001 |       
|------------------------------------------------- | ---- |  | ---- | ------
|Change in benefit obligation:                     |      |  |      |       
|Projected benefit obligation at beginning of year |      |  | $    | 6,582 
|Service cost                                      |      |  |      |      
|Interest cost                                     |      |  |      | 481   
|Actuarial (gain) loss                             |      |  |      | 792   
|Benefit payments                                  |      |  |      | (421  
|Curtailment                                       |      |  |      |      
|                                                  |      |  |      |       
|Projected benefit obligation at end of year       |      |  |      | 7,434 
|                                                  |      |  |      |       
|                                                 
|Change in plan assets:                            |      | 
|Fair value of plan assets at beginning of year    |      |  |      | 5,521 
|Actual return on plan assets                      |      |  |      | (529  
|Employer contributions                            |      |  |      | 400   
|Benefit payments                                  |      |  |      | (421  
|Expenses                                          |      |  |      | (20   
|                                                  |      |  |      |       
|Fair value of plan assets at end of year          |      |  |      | 4,951 
|                                                  |      |  |      |       
|                                                 
|Funded status at measurement date                 |      |  |      | (2,483
|Contributions after measurement date              |      |  |      | 765   
|                                                  |      |  |      |       
|Funded status at end of year                      |      |  |      | (1,718
|Unrecognized net actuarial loss                   |      |  |      | 3,293 
|Unrecognized transition asset                     |      |  |      | (64   
|Unrecognized prior service cost                   |      |  |      | (330  
|                                                  |      |  |      |       
|                                                 
|Prepaid pension asset                             |      |  |      | 1,181 
|Additional pension accrual recognized             |      |  |      | (465  
|                                                  |      |  |      |       
|Net amount recognized                             |      |  | $    | 716   
|                                                  |      |  |      |       

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 11: (Continued)


The
following is a summary of amounts recorded in the consolidated statements of  condition:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                            | 2002 |  | 2001 |       
|----------------------------------------------------------- | ---- |  | ---- | ------
|Prepaid benefit cost                                        |      |  | $    | 1,181 
|Accrued benefit liability                                   |      |  |      | (2,899
|Accumulated other comprehensive income, before income taxes |      |  |      | 2,434 
|                                                            |      |  |      |       
|                                                           
|Net amount recognized                                       |      |  | $    | 716   
|                                                            |      |  |      |       

|The
following is a summary of weighted average assumptions:
|-----------------------------------------------------------

|                               | 2002 |  | 2001 |      | 2000 | 
|------------------------------ | ---- |  | ---- | ---- | ---- | 
|Discount rate                  |      |  |      | 7.50 | %    | 
|Expected return on plan assets |      |  |      | 7.75 | %    | 
|Rate of compensation increase  |      |  |      | 4.00 | %    | 
|                               |      |  |      |      |      | 

|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. The Bank matches
employee 401(k) contributions equal to 50% of an employees first 5% of salary
deferral.  Total matching contributions accrued for this plan were $160 in 2002, $133 in
2001 and  $116 in 2000. Additional contributions to the plan are at the discretion of the
Board of  Directors. Discretionary contributions accrued for this plan were $60 in 2002,
$40 in 2001  and $25 in 2000.


At
December 31, 2002, the profit and savings plan owned 102,076 shares of the Companys
common stock and the pension plan owned 9,034 shares of the Companys common stock.


NOTE 12: STOCK OPTION PLAN


The
Company implemented a stockholder approved Stock Option Plan, effective January 1,  1999,
authorizing the grant of incentive stock options (ISOs) to key employees and
nonstatutory stock options (NSOs) to members of the Board. The stated purpose of
the plan  is to provide incentives to key officers and directors by permitting them to
purchase  stock in the Company under the provisions of this plan. The maximum number of
shares of  stock that may be optioned or sold under the plan is 500,000 shares. Under the
provisions  of the plan, the Company and the participating employees and directors will
execute  agreements, upon the grant of options, providing each participant with an option
to  purchase stock within ten years of the date of the grant.


(Continued)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 12: (Continued)


The
following is a summary of stock option activity:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                  | OutstandingOptions |  | WeightedAverageExercisePrice |        
|----------------- | ------------------ |  | ---------------------------- | -------
|January 1, 2000   |                    |  |                              | 349,302
|Options granted   |                    |  |                              | 2,500  
|                  |                    |  |                              |        
|December 31, 2000 |                    |  |                              | 351,802
|                  |                    |  |                              |        
|Options granted   |                    |  |                              | 2,500  
|Options forfeited |                    |  |                              | (6,500 
|                  |                    |  |                              |        
|December 31, 2001 |                    |  |                              | 347,802
|                  |                    |  |                              |        
|Options granted   |                    |  |                              | 3,000  
|Options forfeited |                    |  |                              | (31,050
|                  |                    |  |                              |        
|December 31, 2002 |                    |  |                              | 319,752
|                  |                    |  |                              |        

|The
following is a summary of stock options outstanding at December 31, 2002:
|-----------------------------------------------------------------------------

|Exercise
      Price Range |  | Options
      Outstanding | Weighted
      Average
      Remaining
      Contractual
      Life
      (Years) | Weighted
      Average
      Exercise
      Price-
      Options
      Outstanding | Options
      Exercisable | Weighted
      Average
      Exercise
      Price-
      Options
      Exercisable
|-------------------------- |  | ------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------------------------- | ----------------------------------------------------------------------------------
|                          
|$ 20.00
      - $ 20.25    |  |                           |                                                                                   | 5,000                                                                              |                           |                                                                                   
|25.39
      -    28.68     |  |                           |                                                                                   | 238,752                                                                            |                           |                                                                                   
|31.75
      -    35.75     |  |                           |                                                                                   | 76,000                                                                             |                           |                                                                                   
|                           |  |                           |                                                                                   |                                                                                    |                           |                                                                                   

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 12: (Continued)


The
Company accounts for stock plans under APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related interpretations, under which no compensation cost
has been recognized. Had compensation cost for the Companys stock option plan been
determined based upon the fair value at the grant date for awards under the methodology
prescribed under SFAS No. 123, Accounting for Stock-Based Compensation, the
Companys net income and earnings per share would have been reduced as shown in the
table below. The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions in 2002, 2001 and
2000: expected dividend yield of 5.00%; expected volatility of 22.57%, 23.85% and 24.11%;
risk-free interest rate of 6.50%; and an expected life of 10 years.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                    | 2002 |  | 2001 |        | 2000 |  
|--------------------------------------------------- | ---- |  | ---- | ------ | ---- | -
|Net income, as reported                             |      |  | $    | 10,235 |      | $
|Net income, proforma                                |      |  |      | 10,171 |      |  
|                                                    |      |  |      |        |      |  
|                                                   
|Stock based compensation cost, net of income taxes: |      | 
|As reported                                         |      |  | $    |       |      | $
|Pro forma                                           |      |  |      | 64     |      |  
|                                                    |      |  |      |        |      |  
|                                                   
|Earnings per share, as reported:                    |      | 
|Basic                                               |      |  | $    | 2.22   |      | $
|Diluted                                             |      |  |      | 2.22   |      |  
|                                                    |      |  |      |        |      |  
|                                                   
|Earnings per share, proforma:                       |      | 
|Basic                                               |      |  | $    | 2.21   |      | $
|Diluted                                             |      |  |      | 2.21   |      |  
|                                                    |      |  |      |        |      |  

|NOTE 13: OTHER EXPENSES


Significant
components of other expenses are summarized as follows:
|---------------------------------------------------------------------------------------------

|                          | 2002 |  | 2001 |       | 2000 |  
|------------------------- | ---- |  | ---- | ----- | ---- | -
|Advertising and promotion |      |  | $    | 1,007 |      | $
|Communications            |      |  |      | 795   |      |  
|Postage and shipping      |      |  |      | 624   |      |  
|Professional fees         |      |  |      | 1,758 |      |  
|Stationery and supplies   |      |  |      | 762   |      |  
|Amortization              |      |  |      | 122   |      |  
|Other                     |      |  |      | 4,928 |      |  
|                          |      |  |      |       |      |  
|                         
|                          |      |  | $    | 9,996 |      | $
|                          |      |  |      |       |      |  

|
|

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 14: INCOME TAXES


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

|         | Federal |  | State |        | Total |  
|-------- | ------- |  | ----- | ------ | ----- | -
|2002:    |         |  |       |        |       |  
|Current  |         |  | $     | 4,396  |       | $
|Deferred |         |  |       | (724   | )     |  
|         |         |  |       |        |       |  
|        
|Total    |         |  | $     | 3,672  |       | $
|         |         |  |       |        |       |  
|        
|2001:    |         | 
|Current  |         |  | $     | 5,784  |       | $
|Deferred |         |  |       | (3,070 | )     |  
|         |         |  |       |        |       |  
|        
|Total    |         |  | $     | 2,714  |       | $
|         |         |  |       |        |       |  
|        
|2000:    |         | 
|Current  |         |  | $     | 1,878  |       | $
|Deferred |         |  |       | (458   | )     |  
|         |         |  |       |        |       |  
|        
|Total    |         |  | $     | 1,420  |       | $
|         |         |  |       |        |       |  

|The
differences between actual income tax expense and expected income tax expense are
summarized as follows:
|------------------------------------------------------------------------------------------------------------

|                                                        | 2002 |  | 2001 |       | 2000 |  
|------------------------------------------------------- | ---- |  | ---- | ----- | ---- | -
|Amount computed using the                               |      |  |      |       |      |  
|Federal statutory rates on income before income taxes   |      |  | $    | 4,886 |      | $
|Increase (decrease) resulting from:                     |      | 
|Tax exempt income, net of disallowed interest deduction |      |  |      | (836  | )    |  
|State income tax expense, net of Federal effect         |      |  |      | 306   |      |  
|Life insurance income                                   |      |  |      | (263  | )    |  
|Nondeductible amortization                              |      |  |      |      |      |  
|Prior year amended returns                              |      |  |      |      |      |  
|Other, net                                              |      |  |      | 42    |      |  
|                                                        |      |  |      |       |      |  
|                                                        |      |  | $    | 4,135 |      | $
|                                                        |      |  |      |       |      |  

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 14: (Continued)


The
change in the net deferred taxes is a result of current period deferred tax expense
(benefit), and changes in accumulated other comprehensive income. The components of net
deferred tax asset (liability) at December 31, 2002 and 2001, consist of the following:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                 | 2002 |  | 2001 |       
|------------------------------------------------ | ---- |  | ---- | ------
|Allowance for loan losses                        |      |  | $    | 3,823 
|Loan fees                                        |      |  |      | 276   
|Purchase accounting adjustments                  |      |  |      | 192   
|Minimum pension liability                        |      |  |      | 908   
|Other                                            |      |  |      | 444   
|                                                 |      |  |      |       
|Total deferred tax assets                        |      |  |      | 5,643 
|                                                 |      |  |      |       
|Fixed assets and depreciation                    |      |  |      | (553  
|Federal Home Loan Bank stock dividends           |      |  |      | (467  
|Pension expense                                  |      |  |      | (269  
|Unrealized gain on securities available for sale |      |  |      | (3,537
|Other                                            |      |  |      | (89   
|                                                 |      |  |      |       
|Total deferred tax liabilities                   |      |  |      | (4,915
|                                                 |      |  |      |       
|                                                 |      |  | $    | 728   
|                                                 |      |  |      |       

|
|

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 15: EARNINGS PER SHARE


The
following table shows a reconciliation of earnings per share to diluted earnings per
share:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | 2002 |  | 2001 |           | 2000 |  
|----------------------------------- | ---- |  | ---- | --------- | ---- | -
|Basic earnings per share:           |      |  |      |           |      |  
|Net income                          |      |  | $    | 10,235    |      | $
|                                    |      |  |      |           |      |  
|                                   
|Weighted average shares outstanding |      |  |      | 4,611,926 |      |  
|                                    |      |  |      |           |      |  
|                                   
|Basic earnings per share            |      |  | $    | 2.22      |      | $
|                                    |      |  |      |           |      |  
|                                   
|Diluted earnings per share:         |      | 
|Net income                          |      |  | $    | 10,235    |      | $
|                                    |      |  |      |           |      |  
|                                   
|Weighted average shares outstanding |      |  |      | 4,611,926 |      |  
|Dilutive effect of stock options    |      |  |      |          |      |  
|                                    |      |  |      |           |      |  
|                                   
|                                    |      |  |      | 4,611,926 |      |  
|                                    |      |  |      |           |      |  
|                                   
|Diluted earnings per share          |      |  | $    | 2.22      |      | $
|                                    |      |  |      |           |      |  

|NOTE 16: STOCKHOLDERS EQUITY


Preferred Stock


The
Company is authorized to issue 1,000,000 shares of cumulative Class A voting preferred
stock of no par value and 1,000,000 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.


Dividend
Reinvestment and Stock Purchase Plan


The
Dividend Reinvestment and Stock Purchase Plan authorizes the sale of up to 100,000
shares of the Companys common stock from authorized, but unissued, share or from
shares  acquired on the open market to shareholders who choose to invest all or a portion
of their  cash dividends and make optional cash payments of $50.00 to $5,000.00 per
quarter. All  shares for this plan have been purchased on the open market. The price of
shares purchased  on the open market is the average price paid for all shares purchased
for all  participants.




Common Stock Repurchase
Program


The
Companys Board of Directors approved a common stock repurchase program on August 14,
2002, authorizing the repurchase of up to 184,590 shares of the Companys outstanding
common stock beginning in September, 2002.  The authorization specifies that up to 92,295
shares may be repurchased in the first twelve months with an additional 92,295 shares
authorized for repurchase during the second twelve month period.  The timing and extent
of any repurchases are subject to managements discretion and will depend on market
considerations.  The Board will review the repurchase program after the first twelve
months to allow for any needed adjustments. The reacquired shares will be held as
authorized but unissued shares to be used for general corporate purposes.


(Continued)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 16: (Continued)


Accumulated Other
Comprehensive Income


The
following is a summary of the gross amounts of accumulated other comprehensive income
and the related income tax effects:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                     | Gross |  | Tax |        | Net |  
|---------------------------------------------------- | ----- |  | --- | ------ | --- | -
|December 31, 2002:                                   |       |  |     |        |     |  
|Net unrealized gain on securities available for sale |       |  | $   | 9,493  |     | $
|                                                    
|Minimum pension liability                            |       |  |     | (2,434 | )   |  
|                                                     |       |  |     |        |     |  
|                                                    
|                                                     |       |  | $   | 7,059  |     | $
|                                                     |       |  |     |        |     |  
|                                                    
|December 31, 2001:                                   |       | 
|Net unrealized gain on securities available for sale |       |  | $   | 2,976  |     | $
|                                                    
|Minimum pension liability                            |       |  |     | (1,138 | )   |  
|                                                     |       |  |     |        |     |  
|                                                    
|                                                     |       |  | $   | 1,838  |     | $
|                                                     |       |  |     |        |     |  
|                                                    
|December 31, 2000:                                   |       | 
|Net unrealized gain on securities available for sale |       |  | $   | 905    |     | $
|                                                     |       |  |     |        |     |  

|NOTE 17: COMMITMENTS AND
CONTINGENCIES



Legal Proceedings


The Company, the Bank and the Banks
subsidiaries are parties to lawsuits and other claims that arise in the ordinary course
of business.  Some of the lawsuits allege substantial claims for damages.  The cases are
being vigorously contested.  In the regular course of business, management evaluates the
estimated loss or costs related to litigation, and provision is made for anticipated
losses whenever management believes that such losses are probable and can be reasonably
estimated.  At the present time, based upon present information, management cannot
predict what effect, if any, the final resolution of pending legal  proceedings will have
on the Companys consolidated financial position or results of operations.


Lending Commitments


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.
(Continued)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 17: (Continued)


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. 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 customers credit worthiness.


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 customers
credit  worthiness.


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


A
summary of commitments and contingent liabilities at December 31, 2002, is as follows:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | 
|---------------------------- | 
|Commitments to extend credit | 
|Standby letters of credit    | 
|                             | 
|                             | 
|                             | 

|NOTE 18: REGULATORY MATTERS


Federal
banking regulations require that the Bank maintain certain cash reserves based on  a
percent of deposits. This requirement was $7,676 at December 31, 2002.


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.
(Continued)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 18: (Continued)


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, 2002, that all capital adequacy requirements have been met.


As
of December 31, 2002, the most recent notification by the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier I risk-based, 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.


The
Companys and Banks actual capital amounts and ratios as of December 31, 2002
and  2001, are also presented in the table:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | Actual | For CapitalAdequacy Purposes | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions
|---------------------------- | ------ | ---------------------------- | -------------------------------------------------------------
|
|
|
|December 31, 2002 (Company): |        |                              |                                                              
|Total capital                |        |                              |                                                              
|(to risk weighted assets)    |        |                              | $                                                            
|                            
|Tier I capital               |        |                              |                                                              
|(to risk weighted assets)    |        |                              |                                                              
|                            
|Tier I capital               |        |                              |                                                              
|(to average assets)          |        |                              |                                                              
|                             |        |                              |                                                              

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 18: (Continued)
|--------------------------------------------------------------------------------------------------------------------------------------------

|                             | Actual | For CapitalAdequacy Purposes | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions
|---------------------------- | ------ | ---------------------------- | -------------------------------------------------------------
|
|
|
|December 31, 2002 (Bank):    |        |                              |                                                              
|Total capital                |        |                              |                                                              
|(to risk weighted assets)    |        |                              | $                                                            
|                            
|Tier I capital               |        |                              |                                                              
|(to risk weighted assets)    |        |                              |                                                              
|                            
|Tier I capital               |        |                              |                                                              
|(to average assets)          |        |                              |                                                              
|                             |        |                              |                                                              
|                            
|December 31, 2001 (Company): |        |                              |                                                              
|Total capital                |        |                              |                                                              
|(to risk weighted assets)    |        |                              | $                                                            
|                            
|Tier I capital               |        |                              |                                                              
|(to risk weighted assets)    |        |                              |                                                              
|                            
|Tier I capital               |        |                              |                                                              
|(to average assets)          |        |                              |                                                              
|                             |        |                              |                                                              

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 18: (Continued)
|-------------------------------------------------------------------------------------------------------------------------------------------

|                          | Actual | For CapitalAdequacy Purposes | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions
|------------------------- | ------ | ---------------------------- | -------------------------------------------------------------
|
|
|
|December 31, 2001 (Bank): |        |                              |                                                              
|Total capital             |        |                              |                                                              
|(to risk weighted assets) |        |                              | $                                                            
|                         
|Tier I capital            |        |                              |                                                              
|(to risk weighted assets) |        |                              |                                                              
|                         
|Tier I capital            |        |                              |                                                              
|(to average assets)       |        |                              |                                                              
|                          |        |                              |                                                              

|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.


NOTE 19: FAIR VALUE OF FINANCIAL
INSTRUMENTS


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.


Because
no market exists for a significant portion of the Companys and Banks
financial  instruments, fair value estimates are based on judgments regarding future
expected loss  experience, current economic conditions and other factors. These estimates
are subjective  in nature and involve uncertainties and matters of significant judgment
and therefore,  cannot be determined with precision. Changes in assumptions significantly
affect the  estimates and, as such, the derived fair value may not be indicative of the
value  negotiated in an actual sale and may not be comparable to that reported by other
financial  institutions.
(Continued)
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 19: (Continued)


In
addition, the fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated business and the value of assets and
liabilities that are not considered financial instruments. In addition, the tax
ramifications related to the realization of unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the estimates.
Fair value estimates, methods and assumptions for significant financial instruments are
set forth below:


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.


Securities
Available for Sale  Fair value of these financial instruments is considered to  be their
quoted market value as disclosed in note 3.


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 allowance for loan losses, is
$668,488 and $652,856 and the estimated net fair value of loans is $678,041 and $652,048
at December 31, 2002 and 2001.


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  $824,024 and
$816,617 and the estimated net fair value of deposits is $826,841 and  $818,276 at
December 31, 2002 and 2001.


Short-term
and other borrowings  The net book value of the majority 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. The fair values of long term  Federal
Home Loan Bank (FHLB) advances in estimated by discounting the future cash flows,  using
current market rates for borrowings of similar terms and maturities. The carrying  value
of FHLB advances is $63,550 and $64,862 and the estimated fair value of FHLB  advances is
$65,021 and $64,775 at December 31, 2002 and 2001. The fair value of  short-term and
other borrowings is not materially different from their recorded book value  at December
31, 2002 and 2001 as disclosed in note 9 and note 10.


Commitments
to extend credit  Fair values for such commitments are typically based on  fees
currently charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the parties credit standing. The fair value of
commitments to  extend credit is not material.
(Continued)
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 20: 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
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | 2002 |  | 2001 |        
|------------------------------------ | ---- |  | ---- | -------
|Assets                               |      |  |      |        
|                                    
|Cash                                 |      |  | $    | 521    
|Investment in subsidiary             |      |  |      | 114,505
|Other assets                         |      |  |      | 1,195  
|                                     |      |  |      |        
|                                    
|                                     |      |  | $    | 116,221
|                                     |      |  |      |        
|                                    
|Liabilities and Stockholders Equity |      | 
|                                    
|Notes payable                        |      |  | $    | 7,592  
|Other liabilities                    |      |  |      | 419    
|Stockholders equity                 |      |  |      | 108,210
|                                     |      |  |      |        
|                                     |      |  | $    | 116,221
|                                     |      |  |      |        

|STATEMENTS OF INCOME
|--------------------

|                                               | 2002 |  | 2001 |        | 2000 |  
|---------------------------------------------- | ---- |  | ---- | ------ | ---- | -
|Income:                                        |      |  |      |        |      |  
|Dividends received from subsidiary             |      |  | $    | 6,550  |      | $
|Equity in undistributed earnings of subsidiary |      |  |      | 3,961  |      |  
|Other income                                   |      |  |      | 18     |      |  
|                                               |      |  |      |        |      |  
|Total income                                   |      |  |      | 10,529 |      |  
|                                               |      |  |      |        |      |  
|Expenses:                                      |      | 
|Interest                                       |      |  |      | 327    |      |  
|Other expenses                                 |      |  |      | 129    |      |  
|                                               |      |  |      |        |      |  
|Total expenses                                 |      |  |      | 456    |      |  
|                                               |      |  |      |        |      |  
|Income before income taxes                     |      |  |      | 10,073 |      |  
|Income tax benefit                             |      |  |      | 162    |      |  
|                                               |      |  |      |        |      |  
|Net income                                     |      |  | $    | 10,235 |      | $
|                                               |      |  |      |        |      |  

|(Continued)
|-----------

|FIRST M & F
CORPORATION AND SUBSIDIARY




NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS(In Thousands, Except Share Data)


NOTE 20: (Continued)


STATEMENTS OF CASH FLOWS
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                               | 2002 |  | 2001 |        | 2000 |  
|-------------------------------------------------------------- | ---- |  | ---- | ------ | ---- | -
|Cash
      flows from operating activities:                    |      |  |      |        |      |  
|Net
      income                                               |      |  | $    | 10,235 |      | $
|Adjustments
      to reconcile net income to net cash provided |      | 
|by
      operating activities:                                 |      | 
|Equity
      in undistributed earnings of subsidiary           |      |  |      | (3,961 | )    |  
|Other,
      net                                               |      |  |      | 145    |      |  
|                                                               |      |  |      |        |      |  
|Net
      cash provided by operating activities                |      |  |      | 6,419  |      |  
|                                                               |      |  |      |        |      |  
|                                                              
|Cash
      flows from investing activities:                    |      | 
|Sale
      of land                                             |      |  |      | 200    |      |  
|Cash
      paid related to prior year acquisitions             |      |  |      |       |      |  
|                                                               |      |  |      |        |      |  
|Net
      cash provided by (used in) investing activities      |      |  |      | 200    |      |  
|                                                               |      |  |      |        |      |  
|                                                              
|Cash
      flows from financing activities:                    |      | 
|Increase
      (decrease) in notes payable                     |      |  |      | (1,000 | )    |  
|Cash
      dividends                                           |      |  |      | (4,610 | )    |  
|Common
      shares repurchased                                |      |  |      | (755   | )    |  
|                                                               |      |  |      |        |      |  
|Net
      cash used in financing activities                    |      |  |      | (6,365 | )    |  
|                                                               |      |  |      |        |      |  
|                                                              
|Net
      increase (decrease) in cash                          |      |  |      | 254    |      |  
|                                                              
|Cash
      at January 1                                        |      |  |      | 267    |      |  
|                                                               |      |  |      |        |      |  
|                                                              
|Cash
      at December 31                                      |      |  | $    | 521    |      | $
|                                                               |      |  |      |        |      |  

|(Continued)
|-----------

|CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None


DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT


Information
concerning directors and executive officers of the registrant is incorporated by
reference and contained in the Proxy material on Page 1 and following.


EXECUTIVE COMPENSATION


Information
concerning executive compensation is incorporated by reference and contained in the Proxy
material on Page 7.


SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


Information
concerning security ownership of owners and management is incorporated by reference and
contained in the Proxy material on Page 2 and following.


CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS


Information
concerning certain relationships and related transactions is incorporated by reference
and contained in the Proxy material on Page 12.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|CONTROLS AND
PROCEDURES


The term disclosure controls and
procedures (defined in SEC Rule 13a-14(c)) refers to the controls and
other procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files under the
Securities Exchange Act of 1934 (the Exchange Act) is recorded,
processed, summarized and reported within required time periods.
Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the companys management,
including its principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure. The
Companys Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Companys disclosure controls and
procedures as of a date within 90 days before the filing of this annual report
(the Evaluation Date), and they have concluded that, as of the
Evaluation Date, such controls and procedures were effective.


The were no significant changes to
the Companys internal controls or in other factors that could significantly affect these
controls subsequent to the Evaluation Date.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|FIRST M & F
CORPORATION AND SUBSIDIARY


EXHIBITS, FINANCIAL STATEMENT SCHEDULESAND REPORTS ON FORM 8-K


Financial Statements and Exhibits


The
following  financial statements included under the heading Financial Statements and
Supplementary Data are included in this report:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) |  | Independent
Auditors Report
| | --- |  | ----------------------------

| | (b) |  | Consolidated
      Statements of Condition  December 31, 2002 and 2001
| | --- |  | -----------------------------------------------------------------------

| | (c) |  | Consolidated
      Statements of Income  Years Ended December 31, 2002, 2001 and 2000
| | --- |  | --------------------------------------------------------------------------------------

| | (d) |  | Consolidated
      Statements of Comprehensive Income  Years Ended December 31, 2002,
      2001 and 2000
| | --- |  | ----------------------------------------------------------------------------------------------------------

| | (e) |  | Consolidated
      Statements of Stockholders Equity  Years Ended December 31,
      2002, 2001, and 2000
| | --- |  | -----------------------------------------------------------------------------------------------------------

| | (f) |  | Consolidated
      Statements of Cash Flows  Years Ended December 31, 2002, 2001 and
      2000
| | --- |  | ------------------------------------------------------------------------------------------------

| | (g) |  | Notes
to  Consolidated Financial Statements
| | --- |  | -------------------------------------------

|The
following  exhibits have been filed with the Securities and Exchange Commission and are
available  upon written request:
|----------------------------------------------------------------------------------------------------------------------------

| | 3(A) |  | Articles
of Incorporation, as amended.  Filed as Exhibit 3 to the Companys Form S-1 (File
No.  33-08751) September 15, 1986, incorporated herein by reference.
| | ---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3(B) |  | Bylaws,
as amended.  Filed as Exhibit 3-b to the Companys Form S-1 (File No. 33-08751)
September  15, 1986, incorporated herein by reference.
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

| | 21 |  | Subsidiaries
      of the Company
| | -- |  | ---------------------------------

| | 23 |  | Consent
      of Independent Auditors
| | -- |  | -------------------------------------

| | 99.1 |  | Chief
      Executive Officer Certification Under Section 906 of Sarbanes-Oxley Act
      of 2002
| | ---- |  | -------------------------------------------------------------------------------------------------

| | 99.2 |  | Chief
      Financial Officer Certification Under Section 906 of Sarbanes-Oxley Act
      of 2002
| | ---- |  | -------------------------------------------------------------------------------------------------

|Reports on Form 8-K


      There
        were no reports on Form 8-K filed during the fourth quarter of 2002.
|--------------------------------------------------------------------------------------------------------------

|SIGNATURES


Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


FIRST M & F CORPORATION
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|BY: | /s/ Hugh S. Potts, Jr.
Hugh S. Potts, Jr.
Chairman of the Board andChief Executive Officer | BY: | /s/ Robert C. Thompson, III
Robert C. Thompson, III
Executive Vice President and  Chief Financial Officer
|--- | ------------------------------------------------------------------------------------------ | --- | ---------------------------------------------------------------------------------------------------------

|
|

|SIGNATURES


Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|DATE: |  | Hugh S. Potts, Jr., Director    
|----- |  | --------------------------------
|     
|DATE: |  | Scott M. Wiggers, Director      
|     
|DATE: |  | Fred A. Bell, Jr., Director     
|     
|DATE: |  | Jon A. Crocker, Director        
|     
|DATE: |  | Charles T. England, Director    
|     
|DATE: |  | Toxey Hall, III, Director       
|     
|DATE: |  | Barbara K. Hammond, Director    
|     
|DATE: |  | Charles V. Imbler, Sr., Director
|     
|DATE: |  | James F. Ingram, Director       

|
|

|DATE: |  | J. Marlin Ivey, Director        
|----- |  | --------------------------------
|     
|DATE: |  | R. Dale McBride, Director       
|     
|DATE: |  | Susan P. McCaffery, Director    
|     
|DATE: |  | Otho E. Pettit, Jr., Director   
|     
|DATE: |  | Charles W. Ritter, Jr., Director
|     
|DATE: |  | L. F. Sams, Jr., Director       
|     
|DATE: |  | Michael W. Sanders, Director    
|     
|DATE: |  | W. C. Shoemaker, Director       
|     
|DATE: |  | James I. Tims, Director         
|     
|DATE: |  | Edward G. Woodard, Director     

|
|

|CERTIFICATIONS


I,
Hugh S. Potts, Jr., Chairman and Chief Executive Officer, certify that:


1.
I have reviewed this annual report on Form 10-K of First M & F Corporation;


2.
Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;


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


4.
The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:


a)
designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this annual
report is being prepared;


b)
evaluated the effectiveness of the registrants disclosure controls and procedures as of
a date within 90 days prior to the filing date of this annual report (the Evaluation
Date); and


c)
presented in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;


5.
The registrants other certifying officers and I have disclosed, based on our most recent
evaluation, to the registants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):


a)
all significant deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weadnesses
in internal controls; and


b)
any fraud, whether or not material, that involves management or other employees who have
a signifcant role in the registrants internal controls; and


6.
The registrants other certifying officers and I have indicated in this annual report
whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date | February 28, 2003                                                             
|---- | ----------------------------------------------------------------------------------------------
|    
|     | /s/ Hugh S. Potts, Jr.
Hugh S. Potts, Jr.
Chairman and Chief Executive Officer

|
|

|CERTIFICATIONS


I,
Robert C. Thompson, III, Executive Vice President and Chief Financial Officer, certify
that:



1.
I have reviewed this annual report on Form 10-K of First M & F Corporation;


2.
Based on my knowledge, this annual report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this annual report;


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


4.
The registrants other certifying officers and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14
and 15d-14) for the registrant and have:


a)
designed such disclosure controls and procedures to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this annual
report is being prepared;


b)
evaluated the effectiveness of the registrants disclosure controls and procedures as of
a date within 90 days prior to the filing date of this annual report (the Evaluation
Date); and


c)
presented in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;


5.
The registrants other certifying officers and I have disclosed, based on our most recent
evaluation, to the registants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent functions):


a)
all significant deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors any material weadnesses
in internal controls; and


b)
any fraud, whether or not material, that involves management or other employees who have
a signifcant role in the registrants internal controls; and


6.
The registrants other certifying officers and I have indicated in this annual report
whether there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date | February 28, 2003                                                                                       
|---- | ------------------------------------------------------------------------------------------------------------------------
|    
|     | /s/ Robert C. Thompson, III
Robert C. Thompson, III,Executive Vice President and Chief Financial Officer

|
|

|EXHIBIT INDEX
|-------------

|3(A) |  | Articles
of Incorporation, as amended.  Filed as Exhibit 3 to the Companys Form S-1 (File
No. 33-08751)  September 15, 1986, incorporated herein by reference.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|3(B) |  | Bylaws,
as amended.  Filed as Exhibit 3-b to the Companys Form S-1 (File No. 33-08751)
September 15, 1986,  incorporated herein by reference.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

|21 |  | Subsidiaries of the Company
|-- |  | ---------------------------

|23 |  | Consent of Independent Auditors
|-- |  | -------------------------------

|99.1 |  | Chief Executive Officer Certification Under Section 906 of Sarbanes-Oxley
Act of 2002
|---- |  | -------------------------------------------------------------------------------------

|99.2 |  | Chief Financial Officer Certification Under Section 906 of Sarbanes-Oxley
Act of 2002
|---- |  | -------------------------------------------------------------------------------------

|
|