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

|_|

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.

Class
Common stock ($5.00 par value)

Outstanding at January 31, 2003
4,620,436 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		Business
Item 2		Properties
Item 3		Legal Proceedings
Item 4		Submission of Matters to a Vote of Security Holders

PART II

Item 5		Market for the Registrant’s Common Equity and Related Stockholder Matters
Item 6		Selected Financial Data
Item 7		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A		Quantitative and Qualitative Disclosures About Market Risk
Item 8		Financial Statements and Supplementary Data
Item 9		Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

PART III

Item 10		Directors and Executive Officers of the Registrant
Item 11		Executive Compensation
Item 12		Security Ownership of Certain Beneficial Owners and Management
Item 13		Certain Relationships and Related Transactions
Item 14		Controls and Procedures

Part IV

Item 15		Exhibits, Financial Statement Schedules, and Reports on Form 8-K
		Signatures
		Certification
		Exhibit Index

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


	Average Balance	Interest	Yield/ Cost		Average Balance	Interest	Yield/ Cost		Average Balance	Interest	Yield/ Cost

Interest bearing bank balances	7,387	124	1.68	%	9,032	417	4.62	%	6,609	473	7.16	%
Federal funds sold	10,241	163	1.59	%	16,173	683	4.22	%	10,753	645	6.00	%
Taxable investments	194,120	9,998	5.15	%	190,275	11,418	6.00	%	220,177	13,717	6.23	%
Tax-exempt investments	56,567	4,104	7.26	%	59,441	4,454	7.49	%	59,187	4,519	7.64	%
Loans	660,529	49,125	7.44	%	645,541	55,152	8.54	%	630,485	55,854	8.86	%

Total earning assets	928,844	63,514	6.84	%	920,462	72,124	7.84	%	927,211	75,208	8.11	%
Nonearning assets	94,202				89,660				82,408

Total average assets	1,023,046				1,010,122				1,009,619

NOW, MMDA & Savings	362,415	5,986	1.65	%	291,891	8,443	2.89	%	275,496	9,044	3.28	%
Certificates of deposit	355,745	13,813	3.88	%	415,846	23,341	5.61	%	432,036	24,805	5.74	%
Short-term borrowings	20,512	695	3.39	%	17,301	756	4.37	%	3,800	250	6.58	%
Other borrowings	72,010	3,208	4.45	%	83,725	4,815	5.75	%	112,411	7,128	6.34	%

Total interest bearing liabilities	810,682	23,702	2.92	%	808,763	37,355	4.62	%	823,743	41,227	5.00	%
Noninterest bearing deposits	98,470				92,928				84,265
Noninterest bearing liabilities	8,940				8,234				9,625
Capital	104,954				100,197				91,986

Total average liabilities and equity	1,023,046				1,010,122				1,009,619

Net interest margin		39,812	4.29	%		34,769	3.78	%		33,981	3.66	%
Less tax equivalent adjustment
Investments		1,531				1,661				1,686
Loans		110				143				168

Reported net interest margin		38,171	4.11	%		32,965	3.58	%		32,127	3.46	%

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

TABLE 2 - RATE/VOLUME VARIANCES

	2002 Compared To 2001 Increase (Decrease) Due To									2001 Compared To 2000 Increase (Decrease) Due To
	Volume			Yield/ Cost			Net			Volume			Yield/ Cost			Net
Interest earned on:
Interest bearing bank balances		(52	)		(241	)		(293	)		143			(199	)		(56	)
Federal funds sold		(172	)		(348	)		(520	)		277			(239	)		38
Taxable investments		214			(1,634	)		(1,420	)		(1,829	)		(470	)		(2,299	)
Tax-exempt investments		(212	)		(138	)		(350	)		19			(84	)		(65	)
Loans		1,198			(7,225	)		(6,027	)		1,310			(2,012	)		(702	)

Total earning assets		615			(9,225	)		(8,610	)		(538	)		(2,546	)		(3,084	)

Interest paid on:
NOW, MMDA & Savings		1,602			(4,059	)		(2,457	)		506			(1,107	)		(601	)
Certificates of deposit		(2,854	)		(6,674	)		(9,528	)		(919	)		(545	)		(1,464	)
Short-term borrowings		125			(186	)		(61	)		739			(233	)		506
Other borrowings		(598	)		(1,009	)		(1,607	)		(1,734	)		(579	)		(2,313	)

Total interest bearing liabilities		72			(13,725	)		(13,653	)		(721	)		(3,151	)		(3,872	)

Change in net interest income
on a tax-equivalent basis		543			4,500			5,043			183			605			788

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 Securities December 31
	2002		2001		2000

*Securities Available For Sale*
U.S. Treasury		1,082		3,056		3,023
Government agencies		60,806		25,029		32,079
Mortgage-backed securities		107,868		150,619		151,874
Obligations of states and political subdivisions		59,642		64,986		62,041
Other securities		6,712		7,231		15,617

Total securities available for sale		236,110		250,921		264,634

*Securities Held To Maturity*
U.S. Treasury		0		0		0
Government agencies		0		0		0
Mortgage backed securities		0		0		0
Obligations of states and political subdivisions		0		0		0
Other securities		0		0		0

Total securities held to maturity		0		0		0

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



*Securities Available For Sale*
U.S. Treasury	500	2.77	%	0	0.00	%	537	4.60	%	0	0.00	%	1,037	3.72	%
Government agencies	7,513	5.25	%	50,099	4.23	%	513	5.38	%	0	0.00	%	58,125	4.37	%
Mortgage-backed securities	61,241	5.30	%	31,300	5.52	%	1,953	5.19	%	9,627	5.00	%	104,121	5.34	%
Obligations of states and
political subdivisions	12,024	7.32	%	25,683	7.18	%	19,248	6.88	%	0	0.00	%	56,955	7.11	%
Other debt securities	503	3.77	%	2,877	6.43	%	0	0.00	%	0	0.00	%	3,380	6.03	%

Total securities available
for sale	81,781	5.56	%	109,959	5.34	%	22,251	6.64	%	9,627	5.00	%	223,618	5.54	%
Equity securities													2,999

													226,617

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

	Amount		% Of Total			Amount		% Of Total			Amount		% Of Total			Amount		% Of Total			Amount		% Of Total

Commercial, financial and agricultural		94,169		13.87	%		86,040		13.01	%		75,942		12.01	%		68,521		11.25	%		55,177		13.32	%
Non-residential real estate		262,141		38.62	%		234,950		35.53	%		202,619		32.04	%		172,982		28.41	%		142,027		34.29	%
Residential real estate		244,032		35.95	%		247,384		37.41	%		249,745		39.50	%		250,875		41.20	%		121,885		29.43	%
Consumer loans		78,395		11.55	%		92,875		14.04	%		103,960		16.44	%		116,543		19.14	%		95,040		22.95	%
Lease financing		9		0.00	%		33		0.00	%		51		0.01	%		29		0.00	%		55		0.01	%

Total loans		678,746		100.00	%		661,282		100.00	%		632,317		100.00	%		608,950		100.00	%		414,184		100.00	%

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

Maturity distribution of loans at December 31, 2002



Commercial, financial and agricultural	56,433	36,194	1,551	94,178
Non-residential real estate	85,486	154,397	22,258	262,141
Residential real estate	58,020	139,608	46,404	244,032
Consumer loans	37,923	40,235	237	78,395

Total loans	237,862	370,434	70,450	678,746

Rate sensitivity of loans at December 31, 2002.



Fixed rate loans	305,104	40,942	346,046
Floating rate loans	65,330	29,508	94,838

	370,434	70,450	440,884

TABLE 7 - NONPERFORMING ASSETS AND PAST DUE LOANS

Combined

Nonaccrual loans	1,583	1,825	1,385	2,072	852
Restructured loans	0	0	0	0	0

Total nonperforming loans	1,583	1,825	1,385	2,072	852
Other real estate owned	950	1,077	965	1,150	1,123

Total nonperforming assets	2,533	2,902	2,350	3,222	1,975
Accruing loans past due 90 days or more	2,170	2,209	1,906	1,069	1,155

Total nonperforming assets and loans	4,703	5,111	4,256	4,291	3,130

TABLE 8 - ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES



Balance at beginning of year	8,426		8,510		7,629		5,835		5,315
Adjustment for purchase acquisition	0		0		0		866
Charge offs
Commercial, financial and agricultural	(650	)	(2,313	)	(1,897	)	(134	)	(188	)
Real estate - nonresidential	(332	)	(301	)	(176	)	(58	)	(321	)
Real estate - residential	(474	)	(507	)	(164	)	(289	)	(130	)
Consumer	(1,849	)	(2,167	)	(1,989	)	(1,612	)	(1,380	)

Total	(3,305	)	(5,288	)	(4,226	)	(2,093	)	(2,019	)
Recoveries
Commercial, financial and agricultural	82		74		70		46		52
Real estate - nonresidential	37		20		37		50		63
Real estate - residential	6		50		46		1		30
Consumer	517		645		655		540		429

Total	642		789		808		637		574

Net charge offs	(2,663	)	(4,499	)	(3,418	)	(1,456	)	(1,445	)
Provision for loan losses	4,495		4,415		4,299		2,384		1,965

Balance at end of year	10,258		8,426		8,510		7,629		5,835
Net Charge Offs To Average Loans	0.40	%	0.69	%	0.54	%	0.32	%	0.37	%

TABLE 9 - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

	December 31

	2002		2001		2000		1999		1998

Commercial, financial and agricultural		3,804		2,381		1,292		1,672		1,311
Non-residential real estate		322		411		487		383		189
Residential real estate		1,048		1,102		1,596		1,313		502
Consumer loans		5,084		4,532		5,135		4,261		3,833

Total loans		10,258		8,426		8,510		7,629		5,835

Allowance As A Percentage Of Loan Type

	December 31

	2002			2001			2000			1999			1998

Commercial, financial and agricultural		4.04	%		2.77	%		1.70	%		2.44	%		2.38	%
Non-residential real estate		0.12	%		0.18	%		0.24	%		0.22	%		0.13	%
Residential real estate		0.43	%		0.45	%		0.64	%		0.52	%		0.41	%
Consumer loans		6.48	%		4.88	%		4.94	%		3.66	%		4.03	%

Total loans		1.51	%		1.27	%		1.35	%		1.25	%		1.41	%

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

	December 31

	2002			2001			2000			1999			1998

Commercial, financial and agricultural		0.60	%		2.60	%		2.41	%		0.13	%		0.25	%
Non-residential real estate		0.11	%		0.12	%		0.07	%		0.00	%		0.18	%
Residential real estate		0.19	%		0.18	%		0.05	%		0.11	%		0.08	%
Consumer loans		1.70	%		1.64	%		1.28	%		0.92	%		1.00	%

Total loans		0.39	%		0.68	%		0.54	%		0.24	%		0.35	%

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	$	30,598
Over three months through six months		34,489
Over six months through twelve months		20,847
Over one year		39,965

Total		125,899

TABLE 11 - SELECTED RATIOS

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



Return on average assets	1.00	%	0.71	%	0.70	%
Return on average equity	9.75	%	7.14	%	7.70	%
Dividend payout ratio	45.05	%	64.52	%	65.36	%
Equity to assets ratio	10.26	%	9.92	%	9.11	%

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):



Outstanding at end of period	23,599		16,458		28,969
Maximum outstanding at any month-end
during the period	23,599		20,562		31,626
Average outstanding during the period	20,512		17,301		3,800
Interest paid	695		756		250
Weighted average rate during each period	3.39	%	4.37	%	6.58	%

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 STOCK
AND 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



52-Week range	$	20.50 - $28.04
Closing stock price	$	27.75
Earnings per share (basic)	$	2.22
Book value per share	$	23.59
Shares outstanding		4,587,046
Stock appreciation since 12/97		(7.1	%)

Stock and Dividend Performance

	2002			2001			2000			1999			1998

Price/earnings ratio		12.50	x		13.23	x		11.03	x		13.89	x		16.67	x
Price/book value ratio		1.18	x		.95	x		.80	x		1.55	x		2.06	x
Book value/share	$	23.59		$	21.68		$	21.01		$	19.41		$	17.45
Dividend payout ratio		45.1	%		64.5	%		65.4	%		46.3	%		44.4	%
Historical dividend yield		4.9	%		5.9	%		3.3	%		2.8	%		2.4	%

Quarterly Closing Common Stock
Price Ranges and Dividends Paid

2002:	First		Second		Third		Fourth

High	$	24.50	$	26.50	$	27.00	$	28.04
Low		20.50		22.60		22.02		25.85
Close		23.50		25.00		26.20		27.75
Dividend		.25		.25		.25		.25

2001:

High	$	21.88	$	25.50	$	28.00	$	24.25
Low		16.63		19.00		21.60		19.60
Close		19.38		23.00		22.13		20.50
Dividend		.25		.25		.25		.25

SELECTED FINANCIAL DATA

(Thousands, except per share data)	2002			2001			2000			1999			1998

EARNINGS

Interest income	$	61,873		$	70,320		$	73,354		$	53,677		$	49,299
Interest expense		23,702			37,355			41,227			25,210			24,391

Net interest income		38,171			32,965			31,127			28,467			24,908
Provision for loan losses		4,495			4,415			4,299			2,384			1,965
Noninterest income		14,088			13,783			10,576			8,431			6,212
Noninterest expense		33,394			32,118			29,803			23,343			18,718
Income taxes		4,135			3,062			1,522			3,005			2,595

Net income	$	10,235		$	7,153		$	7,079		$	8,166		$	7,842

Net interest income, taxable equivalent	$	39,812		$	34,769		$	33,981		$	30,675		$	26,904

Cash dividends paid	$	4,610		$	4,615		$	4,626		$	3,920		$	3,259


PER COMMON SHARE

Net income	$	2.22		$	1.55		$	1.53		$	2.16		$	2.16
Cash dividends paid		1.00			1.00			1.00			1.00			.96
Book value		23.59			21.68			21.01			19.41			17.45
Closing stock price		27.75			20.50			16.88			30.00			36.00

SELECTED AVERAGE BALANCES

Assets	$	1,023,046		$	1,010,122		$	1,009,619		$	759,584		$	672,051
Earning assets		937,991			933,061			928,792			697,667			623,025
Loans		663,503			648,444			631,295			457,023			393,894
Investments		256,861			259,412			280,135			230,268			206,617
Total deposits		816,630			800,665			791,797			655,647			596,495
Equity		104,954			100,197			91,986			67,003			60,640

SELECTED YEAR-END BALANCES

Assets	$	1,037,134		$	1,018,309		$	1,020,416		$	1,023,037		$	702,006
Earning assets		935,166			917,328			926,415			918,640			650,165
Loans		678,746			661,282			633,209			608,950			414,184
Investments		236,110			250,921			264,280			292,179			210,646
Core deposits		698,125			679,437			632,248			659,178			561,003
Total deposits		824,024			816,617			787,554			789,941			625,398
Equity		108,210			100,063			96,942			90,677			63,511

SELECTED RATIOS

Return on average assets		1.00	%		.71	%		.70	%		1.08	%		1.17	%
Return on average equity		9.75	%		7.14	%		7.70	%		12.19	%		12.93	%
Average equity to average assets		10.26	%		9.92	%		9.11	%		8.82	%		9.02	%
Dividend payout ratio		45.05	%		64.52	%		65.36	%		46.30	%		44.44	%
Price to earnings (x)		12.50	x		13.23	x		11.03	x		13.89	x		16.67	x
Price to book (x)		1.18	x		.95	x		.80	x		1.55	x		2.06	x

FINANCIAL HIGHLIGHTS

(Dollars in Thousands, except per share)	2002		2001

EARNINGS

Net interest income	$	38,171	$	32,965	15.8	%	9.5	%
Noninterest income		14,088		13,783	2.2		20.0
Noninterest expense		33,394		32,118	4.0		15.3
Net income		10,235		7,153	43.1		4.7

AVERAGE BALANCES

Assets	$	1,023,046	$	1,010,122	1.3	%	11.1	%
Earning assets		937,991		926,643	1.2		10.9
Loans		663,503		648,444	2.3		12.7
Deposits		816,630		800,665	2.0		8.9
Shareholders’ equity		104,954		100,197	4.8		13.8

YEAR END BALANCES

Assets	$	1,037,134	$	1,018,309	1.9	%	10.8	%
Earning assets		935,166		917,891	1.9		10.2
Loans		678,746		661,282	2.6		12.5
Deposits		824,024		816,617	.9		8.7
Shareholders’ equity		108,210		100,063	8.1		13.4

PER COMMON SHARE

Net income (basic)	$	2.22	$	1.55	43.2	%	(.2	%)
Book value		23.59		21.68	8.8		8.3
Cash dividends paid		1.00		1.00	—		2.6
Closing market price		27.75		20.50	35.4		(7.1	)

NONFINANCIAL DATA

Shareholders		2,443		2,405
Employees		416		423
Financial service offices		40		40

OTHER FINANCIAL DATA

										Change
(Dollars in thousands)	2002			2001			2000			2002 Vs 2001			2001 Vs 2000

COMPOSITION RATIOS

Earning assets to assets		90.17	%		90.09	%		90.79	%		8	bp		(70	)bp
Loans to earning assets		72.58			72.08			68.35			54			373
Interest-bearing liabilities to earning assets		87.35			86.93			88.51			42			(158	)
Loans to total deposits		82.37			80.98			80.21			139			77
Noninterest-bearing deposits to total deposits		12.37			13.32			11.20			(95	)		212

ALLOWANCE FOR LOAN LOSSES

Beginning balance	$	8,426		$	8,510		$	7,629			(1.0	%)		11.6	%
Provision for loan losses		4,495			4,415			4,299			1.8			2.7
Charge-offs		(3,305	)		(5,288	)		(4,226	)		(37.5	)		25.1
Recoveries		642			789			808			(18.6	)		(2.4	)

Net charge-offs		(2,663	)		(4,499	)		(3,418	)		(40.8	)		31.6

Ending balance	$	10,258		$	8,426		$	8,510			21.7	%		(1.0	%)

COMPOSITION OF RISK ASSETS

Nonaccrual loans	$	1,583		$	1,825		$	1,385			13.3	%		31.8	%
Foreclosed property		950			1,077			965			(11.8	)		11.6

Nonperforming assets	$	2,533		$	2,902		$	2,350			(12.7	%)		23.5	%

Accruing loans past due 90 days	$	2,170		$	2,209		$	1,906			(1.8	%)		15.9	%

ASSET QUALITY RATIOS

Net charge-offs to average loans		.40	%		.69	%		.54	%		15	bp		15	bp
Nonaccrual loans to total loans		.23			.28			.22			6			6
Nonperforming assets to:
Loans and foreclosed property		.37			.44			.37			7			7
Total assets		.24			.28			.23			5			5
Allowance for loan losses to total loans		1.51			1.27			1.35			(8	)		(8	)
Allowance for loan losses to nonaccrual loans (x)		6.48	x		4.62	x		6.14	x		(152	)		(152	)

QUARTERLY FINANCIAL TRENDS

	2002
(Dollars in Thousands)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		4th Qtr ’02 Vs 4th Qtr ’01

Interest income	$	15,679	$	15,443	$	15,752	$	14,999		(10.4	%)
Interest expense		6,619		6,174		5,620		5,289		(32.5	)

Net interest income		9,060		9,269		10,132		9,710		9.1
Provision for loan losses		1,200		1,280		1,004		1,011		(15.8	)
Noninterest income		3,273		3,315		3,791		3,709		7.2
Noninterest expense		7,928		8,078		8,846		8,542		4.8
Income taxes		896		897		1,206		1,136		19.7

Net income	$	2,309	$	2,329	$	2,867	$	2,730		32.5	%

Per common share:
Net income (basic)	$	.50	$	.51	$	.62	$	.59		31.1	%
Net income (diluted)	$	.50	$	.51	$	.62	$	.59		31.1	%

Cash dividends		.25		.25		.25		.25		—

	2001
(Dollars in Thousands)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		4th Qtr ’01 Vs 4th Qtr ’00

Interest income	$	18,226	$	17,875	$	17,484	$	16,735		(11.1	%)
Interest expense		10,495		9,792		9,232		7,836		(36.8	)

Net interest income		7,731		8,083		8,252		8,899		9.9
Provision for loan losses		900		1,115		1,200		1,200		(27.2	)
Noninterest income		3,716		3,272		3,336		3,459		113.5
Noninterest expense		7,737		8,055		8,177		8,149		5.3
Income taxes		870		617		626		949		—

Net income	$	1,940	$	1,568	$	1,585	$	2,060		67.3	%

Per common share:
Net income (basic)	$	.42	$	.34	$	.34	$	.45		66.7	%
Net income (diluted)	$	.42	$	.34	$	.34	$	.45		66.7	%

Cash dividends		.25		.25		.25		.25		—

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION 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		$	24,259		$	52,299
Net increase in deposits		7,407			29,063			(2,387	)		22,832
Ratio of loan growth to deposit growth		235.8	%		96.6	%		—			229.1	%

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
	Balances		Allowance Allocated		Balances		Allowance Allocated
Doubtful		2,085		1,042		1,306		653
Substandard		7,117		1,423		9,131		1,826
Bankruptcy		3,930		590		3,128		469
Special mention		8,856		886		9,319		932
Other past due loans		4,054		203		4,855		243
General allowance				6,114				4,303
				10,258				8,426

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.



Short-term funds	7,700		12,610						20,310
Investments			81,201		100,456		54,453		236,110
Loans	96,414		221,532		307,929		52,871		678,746

Total earning assets	104,114		315,343		408,385		107,324		935,166
NOW, MMDA & savings	59,805		19,935		255,154				334,894
Time deposits			271,944		115,271				387,215
Short-term borrowings			23,599						23,599
Other borrowings			26,304		44,838				71,142

Total int. bearing liabilities	59,805		341,782		415,263		0		816,850
Rate sensitive gap	44,309		(26,439	)	(6,878	)	107,324		118,316
Cumulative gap	44,309		17,870		10,992		118,316		236,632
Cumulative % of assets	4.27	%	1.72	%	1.06	%	11.41	%	22.82	%

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 Accountants
605 Renaissance Way
Ridgeland, MS 39157

FIRST M & F CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION
December 31, 2002 and 2001
(In Thousands, Except Share Data)

	2002			2001
ASSETS

Cash and due from banks	$	43,329		$	40,945
Interest bearing bank balances		12,610			3,088
Federal funds sold		7,700			2,600
Securities available for sale, amortized
cost of $226,617 and $247,382		236,110			250,358

Loans, net of unearned income		678,746			661,282
Allowance for loan losses		(10,258	)		(8,426	)

Net loans		668,488			652,856


Bank premises and equipment		21,508			21,651
Accrued interest receivable		7,125			7,863
Other assets		40,264			38,948


	$	1,037,134		$	1,018,309


LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES:
Deposits	$	824,024		$	816,617
Short-term borrowings		23,599			16,458
Other borrowings		71,142			73,635
Accrued interest payable		1,920			2,960
Other liabilities		7,583			7,719

Total liabilities		928,268			917,389


Noncontrolling joint venture interest		656			857


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			23,074
Additional paid-in capital		33,260			33,876
Retained earnings		47,585			41,960
Accumulated other comprehensive income		4,430			1,153

Total stockholders’ equity		108,210			100,063

	$	1,037,134		$	1,018,309

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

FIRST M & F CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2002, 2001 and 2000
(In Thousands, Except Share Data)

	2002		2001		2000
INTEREST INCOME:
Interest and fees on loans	$	49,015	$	55,009	$	55,686
Taxable investments		9,998		11,418		13,717
Tax-exempt investments		2,573		2,793		2,833
Federal funds sold		163		683		645
Interest bearing bank balances		124		417		473

Total interest income		61,873		70,320		73,354


INTEREST EXPENSE:
Deposits		19,799		31,784		33,849
Short-term borrowings		695		756		250
Other borrowings		3,208		4,815		7,128

Total interest expense		23,702		37,355		41,227


Net interest income		38,171		32,965		32,127
Provision for loan losses		4,495		4,415		4,299

Net interest income after
provision for loan losses		33,676		28,550		27,828


NONINTEREST INCOME:
Service charges on deposit accounts		7,514		7,083		6,530
Mortgage banking income		1,073		1,095		474
Agency commission income		3,263		2,867		2,669
Other fee income		741		1,060		918
Life insurance income		772		656		569
Gain (loss) on securities available for sale		30		426		(1,381	)
Other income		695		596		797

Total noninterest income		14,088		13,783		10,576


NONINTEREST EXPENSES:
Salaries and employee benefits		17,809		16,844		15,441
Net occupancy expenses		2,010		1,850		1,748
Equipment and data processing expenses		3,579		3,363		3,354
Other		9,996		10,061		9,260

Total noninterest expenses		33,394		32,118		29,803


Income before income taxes		14,370		10,215		8,601

Income taxes		4,135		3,062		1,522


NET INCOME	$	10,235	$	7,153	$	7,079


EARNINGS PER SHARE:
Basic	$	2.22	$	1.55	$	1.53
Diluted		2.22		1.55		1.53

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

FIRST M & F CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2002, 2001 and 2000
(In Thousands)

	2002			2001			2000
Net income	$	10,235		$	7,153		$	7,079

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			1,563			4,205
Reclassification adjustment for (gains) losses
on securities available for sale included in
net income, net of tax of $11,$159 and $515		(19	)		(267	)		866
Minimum pension liability adjustment,
net of tax of $484 and $424		(812	)		(714	)		—


Other comprehensive income		3,277			582			5,071


Total comprehensive income	$	13,512		$	7,735		$	12,150

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

FIRST M & F CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years Ended December 31, 2002, 2001 and 2000
(In Thousands, Except Share Data)

	Common Stock			Additional Paid-in Capital			Retained Earnings						Total
January 1, 2000	$	23,363		$	34,845		$	36,969		$	(4,500	)	$	90,677

Net income		—			—			7,079			—			7,079
Cash dividends ($1.00 per share)		—			—			(4,626	)		—			(4,626	)
35,359 common shares issued in
acquisition		177			774			—			—			951
93,237 common shares repurchased		(466	)		(1,743	)		—			—			(2,209	)
Net change		—			—			—			5,071			5,071


December 31, 2000		23,074			33,876			39,422			571			96,943


Net income		—			—			7,153			—			7,153
Cash dividends ($1.00 per share)		—			—			(4,615	)		—			(4,615	)
Net change		—			—			—			582			582


December 31, 2001		23,074			33,876			41,960			1,153			100,063


Net income		—			—			10,235			—			10,235
Cash dividends ($1.00 per share)		—			—			(4,610	)		—			(4,610	)
27,738 common shares repurchased		(139	)		(616	)		—			—			(755	)
Net change		—			—			—			3,277			3,277


December 31, 2002	$	22,935		$	33,260		$	47,585		$	4,430		$	108,210

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

FIRST M & F CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002, 2001 and 2000
(In Thousands)

	2002			2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,235		$	7,153		$	7,079
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization		2,035			3,128			3,191
Provision for loan losses		4,495			4,415			4,299
Federal Home Loan Bank stock dividends		(156	)		(215	)		(591	)
Net investment amortization		729			377			207
(Gain) loss on securities available for sale		(30	)		(426	)		1,381
Earnings of noncontrolling joint venture interest		299			368			239
Deferred income taxes		(850	)		(3,544	)		(530	)
(Increase) decrease in:
Accrued interest receivable		738			937			(945	)
Cash surrender value of bank owned life insurance		(630	)		(656	)		(569	)
Income taxes receivable		(603	)		988			1,129
Increase (decrease) in:
Accrued interest payable		(1,040	)		(1,030	)		34
Income taxes payable		(3,274	)		3,274			—
Other, net		583			301			545


Net cash provided by operating activities		12,531			15,070			15,469


CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available for sale		(56,844	)		(57,689	)		(10,212	)
Sales of securities available for sale		8,936			11,888			8,111
Maturities of securities available for sale		67,974			61,634			36,014
Net (increase) decrease in:
Interest bearing bank balances		(9,522	)		23,437			(12,914	)
Federal funds sold		(5,100	)		(200	)		1,500
Loans		(21,354	)		(34,298	)		(29,608	)
Bank premises and equipment		(1,770	)		(4,121	)		(2,329	)
Sales of Federal Home Loan Bank stock		—			4,116			—
Proceeds from sales of other real estate
and other repossessed assets		1,417			1,658			1,886
Net cash used for current and prior year acquisitions		(74	)		(123	)		(2,691	)


Net cash provided by (used in)
investing activities		(16,337	)		6,302			(10,243	)

(Continued)

FIRST M & F CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years 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	)	$	21,234		$	133
Money market, NOW and savings deposits		52,150			64,426			(23,979	)
Certificates of deposit		(37,913	)		(56,597	)		21,459
Short-term borrowings		7,141			(12,511	)		16,671
Proceeds from other borrowings		26,500			8,449			31,656
Repayments of other borrowings		(28,993	)		(32,447	)		(55,444	)
Noncontrolling investment in joint venture		—			—			250
Distributions to noncontrolling joint
venture interest		(500	)		—			—
Cash dividends		(4,610	)		(4,615	)		(4,626	)
Common shares repurchased		(755	)		—			(2,209	)

Net cash provided by (used in)
financing activities		6,190			(12,061	)		(16,089	)

Net increase (decrease) in cash
and due from banks		2,384			9,311			(10,863	)

Cash and due from banks at January 1		40,945			31,634			42,497


Cash and due from banks at December 31	$	43,329		$	40,945		$	31,634

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	$	38,385	$	41,193
Federal and state income taxes paid		8,862		2,344		3,466
Federal and state income tax refunds		—		—		2,543
Other real estate and repossessions
acquired in noncash foreclosures		1,352		1,726		1,931
Common stock used in acquisitions		—		—		951

(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

Insurance Services, Inc.	Tupelo	01/14/00	35,359	Purchase
House of Insurance, Inc.	Tupelo	04/01/00	—	Purchase
Madison Insurance Co.	Madison	01/01/01	—	Purchase
Smith Insurance Agency, Inc.	Madison	01/01/01	—	Purchase
Thomas Insurance Agency, Inc.	Brandon	07/01/02	—	Purchase

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
	Cost		Gain		Loss		Value
December 31, 2002:
U. S. Treasury securities	$	1,037	$	45	$	—	$	1,082
U. S. Government agencies and corporations		58,125		2,688		7		60,806
Mortgage-backed investments		104,121		3,782		35		107,868
Obligations of states and political subdivisions		56,955		2,825		138		59,642
Other		3,380		258		—		3,638
Equity securities		2,999		75		—		3,074


	$	226,617	$	9,673	$	180	$	236,110

(Continued)

FIRST M & F CORPORATION AND SUBSIDIARY

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

NOTE 3: (Continued)

	Amortized		Gross Unrealized				Market
	Cost		Gain		Loss		Value
December 31, 2001:
U. S. Treasury securities	$	3,045	$	31	$	20	$	3,056
U. S. Government agencies and corporations		24,487		613		71		25,029
Mortgage-backed investments		149,035		1,865		281		150,619
Obligations of states and political subdivisions		64,353		1,115		482		64,986
Other		3,417		119		—		3,536
Equity securities		3,045		87		—		3,132


	$	247,382	$	3,830	$	854	$	250,358

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.

	Amortized Cost		Market Value
One year or less	$	20,540	$	21,272
After one through five years		78,659		82,751
After five through ten years		20,298		21,145
After ten years		—		—

		119,497		125,168
Mortgage-backed investments		104,121		107,868


	$	223,618	$	233,036

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.

	Amortized Cost		Market Value

December 31, 2002	$	151,672	$	159,074


December 31, 2001	$	160,194	$	161,873

(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		$	436		$	54
Gross realized losses		(4	)		(10	)		(55	)

		30			426			(1	)
Writedowns		—			—			(1,380	)

	$	30		$	426		$	(1,381	)

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	$	247,384
Construction and land development		70,198		55,534
Farmland		30,078		29,739
Nonfarm nonresidential real estate		161,865		149,677
Commercial, financial and agricultural		94,178		86,073
Consumer		78,395		92,875

	$	678,746	$	661,282

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		$	1,901
New loans		10,186			4,104
Repayments		(6,915	)		(3,664	)


Loans outstanding at December 31	$	5,612		$	2,341

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		$	8,510		$	7,629

Loans charged-off		(3,305	)		(5,288	)		(4,226	)
Recoveries		642			789			808

Net charge-offs		(2,663	)		(4,499	)		(3,418	)


Provision for loan losses		4,495			4,415			4,299


Balance at December 31	$	10,258		$	8,426		$	8,510

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	$	4,780
Buildings		19,616		19,191
Furniture, fixtures and equipment		15,519		14,633
Leasehold improvements		396		396

		40,631		39,000
Less accumulated depreciation and amortization		19,123		17,349


	$	21,508	$	21,651

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	$	16,348
Amortized intangible assets, less accumulated amortization of $1,093 and $970		603		652
Cash surrender value of bank owned life insurance		12,737		12,107
Federal Home Loan Bank stock		4,332		4,176
Other real estate, net		950		1,077
Deferred income tax		728		1,822
Other		4,566		2,766

	$	40,264	$	38,948

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	$	7,153	$	7,079
Goodwill amortization		—		1,199		1,203


Adjusted net income	$	10,235	$	8,352	$	8,282


Earnings per share as reported	$	2.22	$	1.55	$	1.53
Goodwill amortization		—		0.26		0.26


Adjusted earnings per share	$	2.22	$	1.81	$	1.79

(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:

	Gross Carrying Amount					Net Carrying Amount
Core deposit intangibles	$	941	$	(860	)	$	81
Customer renewal lists		466		(150	)		316
Noncompete agreements		289		(83	)		206

	$	1,696	$	(1,093	)	$	603

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	$	108,745
Interest bearing:
Money market, NOW and savings accounts		377,930		325,780
Certificates of deposit of $100,000 or more		125,899		137,180
Other certificates of deposit		218,280		244,912

Total interest bearing		722,109		707,872

Total deposits	$	824,024	$	816,617

(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							Weighted Average Rate
	Maximum Month End			Average Daily		At Year End		During Year			At Year End
2002:
Federal funds purchased		$	—	$	102	$	—		2.09	%		—
Securities sold
under agreements to repurchase			23,599		20,411		23,599		3.40	%		2.95	%


		$	23,599	$	20,513	$	23,599


2001:
Federal funds purchased		$	—	$	90	$	—		6.34	%		—
Securities sold
under agreements to repurchase			20,562		17,211		16,458		4.38	%		3.82	%


		$	20,562	$	17,301	$	16,458


2000:
Federal funds purchased		$	25,000	$	720	$	25,000		6.91	%		6.80	%
Securities sold
under agreements to repurchase			6,626		3,080		3,969		6.19	%		6.12	%

		$	31,626	$	3,800	$	28,969

(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	$	8,592
Bank’s advances from Federal Home Loan Bank of Dallas, net of unamortized
purchase accounting adjustments of $842 and $1,056		63,550		64,862
Other borrowings by Insurance Agencies		—		181

	$	71,142	$	73,635

(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:


Single payment advances maturing within 12 months of year end:
Balance	$ 12,382	$ 36,943
Range of rates	1.49%-8.16%	1.85%-8.16%

Single payment advances maturing after 12 months of year end:
Balance	$ 20,186	$ 15,232
Range of rates	3.89%-8.48%	5.16%-8.48%
Range of maturities	2004-2010	2003-2010

Monthly payment advances:
Balance	$ 31,824	$ 13,743
Monthly payment amount	688	295
Range of rates	2.94%-7.83%	4.65%-7.83%
Range of maturities	2003-2020	2002-2020

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	$	—		$	236		$	215
Interest cost		481			518			458
Expected return on plan assets		(447	)		(493	)		(482	)
Amortization of transition asset		(9	)		(44	)		(44	)
Amortization of prior service cost		(37	)		(37	)		(37	)
Amortization of (gain) loss		73			30			4


Net pension cost	$	61		$	210		$	114

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	$	210	$	114

Additional pension expense accrual		465		—		—
Payments for expenses made on behalf of the plan		71		66		65

	$	597	$	276	$	179

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		$	6,653
Service cost		—			236
Interest cost		481			518
Actuarial (gain) loss		792			429
Benefit payments		(421	)		(318	)
Curtailment		—			(936	)

Projected benefit obligation at end of year		7,434			6,582


Change in plan assets:
Fair value of plan assets at beginning of year		5,521			6,319
Actual return on plan assets		(529	)		(569	)
Employer contributions		400			100
Benefit payments		(421	)		(318	)
Expenses		(20	)		(11	)

Fair value of plan assets at end of year		4,951			5,521


Funded status at measurement date		(2,483	)		(1,061	)
Contributions after measurement date		765			300

Funded status at end of year		(1,718	)		(761	)
Unrecognized net actuarial loss		3,293			1,578
Unrecognized transition asset		(64	)		(73	)
Unrecognized prior service cost		(330	)		(367	)


Prepaid pension asset		1,181			377
Additional pension accrual recognized		(465	)		—

Net amount recognized	$	716		$	377

(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		$	377
Accrued benefit liability		(2,899	)		(1,138	)
Accumulated other comprehensive income, before income taxes		2,434			1,138


Net amount recognized	$	716		$	377

The following is a summary of weighted average assumptions:


Discount rate	7.50	%	8.00	%	8.00	%
Expected return on plan assets	7.75	%	8.00	%	8.00	%
Rate of compensation increase	4.00	%	4.00	%	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:

			Weighted Average Exercise Price
January 1, 2000	349,302		$	28.41
Options granted	2,500			20.25

December 31, 2000	351,802			28.36

Options granted	2,500			20.00
Options forfeited	(6,500	)		32.50

December 31, 2001	347,802			28.22

Options granted	3,000			25.25
Options forfeited	(31,050	)		27.08

December 31, 2002	319,752		$	28.30

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

Exercise Price Range

$ 20.00 - $ 20.25	5,000	7.83	$ 20.13	1,500	$ 20.17
25.39 - 28.68	238,752	4.37	27.01	235,752	27.03
31.75 - 35.75	76,000	5.59	32.90	45,600	32.90

(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	$	7,153	$	7,079
Net income, proforma		10,171		7,047		6,887


Stock based compensation cost, net of income taxes:
As reported	$	—	$	—	$	—
Pro forma		64		106		192


Earnings per share, as reported:
Basic	$	2.22	$	1.55	$	1.53
Diluted		2.22		1.55		1.53


Earnings per share, proforma:
Basic	$	2.21	$	1.54	$	1.49
Diluted		2.21		1.54		1.49

NOTE 13: OTHER EXPENSES

Significant components of other expenses are summarized as follows:

	2002		2001		2000
Advertising and promotion	$	1,007	$	875	$	670
Communications		795		796		825
Postage and shipping		624		607		522
Professional fees		1,758		1,254		1,075
Stationery and supplies		762		816		774
Amortization		122		1,371		1,368
Other		4,928		4,342		4,026


	$	9,996	$	10,061	$	9,260

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		$	589		$	4,985
Deferred		(724	)		(126	)		(850	)


Total	$	3,672		$	463		$	4,135


2001:
Current	$	5,784		$	822		$	6,606
Deferred		(3,070	)		(474	)		(3,544	)


Total	$	2,714		$	348		$	3,062


2000:
Current	$	1,878		$	174		$	2,052
Deferred		(458	)		(72	)		(530	)


Total	$	1,420		$	102		$	1,522

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		$	3,473		$	2,924
Increase (decrease) resulting from:
Tax exempt income, net of disallowed interest deduction		(836	)		(864	)		(886	)
State income tax expense, net of Federal effect		306			230			67
Life insurance income		(263	)		(223	)		(193	)
Nondeductible amortization		—			426			427
Prior year amended returns		—			—			(847	)
Other, net		42			20			30

	$	4,135		$	3,062		$	1,522

(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		$	3,116
Loan fees		276			169
Purchase accounting adjustments		192			238
Minimum pension liability		908			424
Other		444			361

Total deferred tax assets		5,643			4,308

Fixed assets and depreciation		(553	)		(534	)
Federal Home Loan Bank stock dividends		(467	)		(423	)
Pension expense		(269	)		(141	)
Unrealized gain on securities available for sale		(3,537	)		(1,109	)
Other		(89	)		(279	)

Total deferred tax liabilities		(4,915	)		(2,486	)

	$	728		$	1,822

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	$	7,153	$	7,079


Weighted average shares outstanding		4,611,926		4,614,784		4,634,297


Basic earnings per share	$	2.22	$	1.55	$	1.53


Diluted earnings per share:
Net income	$	10,235	$	7,153	$	7,079


Weighted average shares outstanding		4,611,926		4,614,784		4,634,297
Dilutive effect of stock options		—		—		—


		4,611,926		4,614,784		4,634,297


Diluted earnings per share	$	2.22	$	1.55	$	1.53

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		$	3,537		$	5,956

Minimum pension liability		(2,434	)		(908	)		(1,526	)


	$	7,059		$	2,629		$	4,430


December 31, 2001:
Net unrealized gain on securities available for sale	$	2,976		$	1,109		$	1,867

Minimum pension liability		(1,138	)		(424	)		(714	)


	$	1,838		$	685		$	1,153


December 31, 2000:
Net unrealized gain on securities available for sale	$	905		$	334		$	571

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	$	87,013
Standby letters of credit		3,957

	$	90,970

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 Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions

	Amount		Ratio			Amount		Ratio			Amount		Ratio

December 31, 2002 (Company):
Total capital
(to risk weighted assets)	$	94,646		13.7	%	$	55,270		8.0	%		Not applicable

Tier I capital
(to risk weighted assets)		85,958		12.4	%		27,635		4.0	%		Not applicable

Tier I capital
(to average assets)		85,958		8.6	%		40,073		4.0	%		Not applicable

(Continued)

FIRST M & F CORPORATION AND SUBSIDIARY

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

NOTE 18: (Continued)

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions

	Amount		Ratio			Amount		Ratio			Amount		Ratio

December 31, 2002 (Bank):
Total capital
(to risk weighted assets)	$	100,900		14.7	%	$	54,993		8.0	%	$	68,741		10.0	%

Tier I capital
(to risk weighted assets)		92,254		13.4	%		27,497		4.0	%		41,245		6.0	%

Tier I capital
(to average assets)		92,254		9.2	%		40,018		4.0	%		50,023		5.0	%


December 31, 2001 (Company):
Total capital
(to risk weighted assets)	$	90,518		13.2	%	$	54,713		8.0	%		Not applicable

Tier I capital
(to risk weighted assets)		82,053		12.0	%		27,356		4.0	%		Not applicable

Tier I capital
(to average assets)		82,053		8.3	%		39,694		4.0	%		Not applicable

(Continued)

FIRST M & F CORPORATION AND SUBSIDIARY

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

NOTE 18: (Continued)

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions

	Amount		Ratio			Amount		Ratio			Amount		Ratio

December 31, 2001 (Bank):
Total capital
(to risk weighted assets)	$	97,723		14.3	%	$	54,622		8.0	%	$	68,277		10.0	%

Tier I capital
(to risk weighted assets)		89,258		13.1	%		27,311		4.0	%		40,966		6.0	%

Tier I capital
(to average assets)		89,258		9.0	%		39,694		4.0	%		49,618		5.0	%

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	$	267
Investment in subsidiary		114,505		107,268
Other assets		1,195		1,507


	$	116,221	$	109,042


Liabilities and Stockholders’ Equity

Notes payable	$	7,592	$	8,592
Other liabilities		419		387
Stockholders’ equity		108,210		100,063

	$	116,221	$	109,042

STATEMENTS OF INCOME

	2002		2001		2000
Income:
Dividends received from subsidiary	$	6,550	$	5,400	$	5,800
Equity in undistributed earnings of subsidiary		3,961		2,352		2,101
Other income		18		26		33

Total income		10,529		7,778		7,934

Expenses:
Interest		327		577		812
Other expenses		129		327		448

Total expenses		456		904		1,260

Income before income taxes		10,073		6,874		6,674
Income tax benefit		162		279		405

Net income	$	10,235	$	7,153	$	7,079

(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		$	7,153		$	7,079
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiary		(3,961	)		(2,352	)		(2,101	)
Other, net		145			136			(85	)

Net cash provided by operating activities		6,419			4,937			4,893


Cash flows from investing activities:
Sale of land		200			—			—
Cash paid related to prior year acquisitions		—			(63	)		(2,226	)

Net cash provided by (used in) investing activities		200			(63	)		(2,226	)


Cash flows from financing activities:
Increase (decrease) in notes payable		(1,000	)		(1,000	)		250
Cash dividends		(4,610	)		(4,615	)		(4,626	)
Common shares repurchased		(755	)		—			(2,209	)

Net cash used in financing activities		(6,365	)		(5,615	)		(6,585	)


Net increase (decrease) in cash		254			(741	)		(3,918	)

Cash at January 1		267			1,008			4,926


Cash at December 31	$	521		$	267		$	1,008

(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 SCHEDULES
AND 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.

Subsidiaries of the Company

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 and
Chief 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;

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;

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

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.

Subsidiaries of the Company

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

FORM 10-K

Commission file number 0-09424

CROSS REFERENCE INDEX

BUSINESS

Forward-Looking Statements

General

Competition

Supervision and Regulation

STATISTICAL DISCLOSURE

PROPERTIES

LEGAL PROCEEDING

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

MARKET FOR THE REGISTRANT’S COMMON STOCKAND RELATED STOCKHOLDER MATTERS

STOCK AND DIVIDEND PERFORMANCE

Investment Data

Stock and Dividend Performance

Quarterly Closing Common StockPrice Ranges and Dividends Paid

SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

OTHER FINANCIAL DATA

QUARTERLY FINANCIAL TRENDS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS First M & F Corporation and Subsidiary

Financial Condition

Results of Operations

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE COMPENSATION

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CONTROLS AND PROCEDURES

FIRST M & F CORPORATION AND SUBSIDIARY

EXHIBITS, FINANCIAL STATEMENT SCHEDULESAND REPORTS ON FORM 8-K

Financial Statements and Exhibits

Reports on Form 8-K

SIGNATURES

SIGNATURES

CERTIFICATIONS

CERTIFICATIONS

EXHIBIT INDEX

MARKET FOR THE REGISTRANT’S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS

Quarterly Closing Common Stock
Price Ranges and Dividends Paid

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
First M & F Corporation and Subsidiary

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE

EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K