CONTACT:
John G. Copeland
EVP & Chief Financial Officer
(662) 289-8594

July 19, 2005

FOR IMMEDIATE RELEASE

First M&F Corp. reports second quarter 2005 earnings

KOSCIUSKO, Miss. - First M&F Corp. (NASDAQ: FMFC) reported today that net income for the quarter ended June 30, 2005 was $3.045 million, or $.68 basic and $.67 diluted earnings per share, compared to $2.753 million, or $.60 basic and diluted earnings per share for the second quarter of 2004.

Net income for the first six months of 2005 was $6.243 million, or $1.39 basic and $1.38 diluted per share, compared to $5.354 million, or $1.17 basic and diluted per share for the first half of 2004.

For the second quarter of 2005 the annualized return on assets was 1.02%, while return on equity was 10.60%. Comparatively, the return on assets for the second quarter of 2004 was 1.01%, with a return on equity of 9.87%. The return on assets for the first half of 2005 was 1.05% while the return on equity was 10.90%.

"I am pleased to report significant earnings per share improvement in the second quarter over the same period last year," said Hugh S. Potts, Jr., Chairman and CEO. "Quarterly EPS improved year over year by more than 13% and by almost 19% on a year-to-date basis. This despite continued pressure on the net interest margin due to rising short-term rates and a very competitive deposit market. Asset quality has continued to improve and reflects our disciplined approach to credit risk. Planned expansions into DeSoto and Madison Counties are proceeding on schedule and we are optimistic about growth prospects in those markets.”

Net interest income was up by 9.19% compared to the second quarter of 2004, with the net interest margin decreasing to 4.17% in the second quarter of 2005 from 4.19% in the second quarter of 2004. The net interest margin for the first quarter of 2005 was 4.13% as compared to 4.25% for the fourth quarter of 2004 and 4.24% for the third quarter of 2004. Loan yields increased to 6.55% in the second quarter of 2005 from 6.22% in the second quarter of 2004 while deposit costs increased to 2.10% from 1.57% for the same periods. Loans outstanding increased by 12.25% and deposits increased by 12.22% from June 30, 2004 to June 30, 2005. The primary factors in the improvement in net interest income were (1) strong loan demand resulting in growth in loans outstanding year-over-year, which improved interest revenues and (2) the growth in non-interest bearing deposits, which reduced the Company’s dependence on interest-bearing sources of funding. Earning asset yields were 6.18% for the second quarter of 2005, 5.97% for the first quarter of 2005 and 5.86% for the second quarter of 2004. Liability costs for the same periods were 2.33%, 2.13% and 1.94%. Management believes that yields and costs will increase as the Federal Reserve continues to raise short-term rates. Short-term Treasury rates increased by 175 basis points during the twelve months ending on June 30, 2005 while the prime rate increased from 4.00% at June 30, 2004 to 6.25% at June 30, 2005. However, loans still grew by 3.10% during the second quarter and 2.05% during the first quarter of 2005 as compared to growth of 1.46% in the second quarter and a decrease of .01% for the first quarter of 2004. Management has focused and will continue to focus on core deposit growth for 2005 to offset the influence that rising rates and a flattening yield curve will have on the cost of funds. The spread between the 10-year Treasury yield and the 90-day Treasury yield has narrowed from 344 basis points (a basis point equals .01%) in June 2004 to 96 basis points in June 2005. Loans as a percentage of assets were 72.52% at June 30, 2005 as compared to 72.85% at December 31, 2004 and 71.33% at June 30, 2004.

Noninterest revenues, excluding securities transactions, increased by 8.45% for the second quarter of 2005 over the second quarter of 2004. Deposit-related income was up by 14.60%, mortgage income was down by 8.11%, and insurance agency commissions were up by 10.09%. Deposit revenues increased in all categories, with overdraft charges reversing their downward trend with a 39.98% increase in the second quarter over the first quarter of 2005. The decrease in mortgage revenues was expected as rising interest rates during the first quarter and early in the second quarter slowed origination volumes. However, mortgage rates decreased during May and June, increasing the pace of originations and improving the quarterly revenues by 60.81% as compared to the first quarter of 2005. Agency commission growth for the second quarter was the result of a 10.60% increase in property and casualty revenues over the second quarter of 2004. Annuity commissions decreased by 11.16% from the second quarter of 2004 after increasing by 55.65% for the first quarter of 2005 over the same period in 2004. The year-over-year growth in other noninterest revenues was due primarily to a 65.00% increase in profit-sharing revenues received by the insurance agencies. Other income for the second quarter of 2005 included $264 thousand in losses on disposals of foreclosed real estate, $141 thousand in gains on sales of student loans and $19 thousand in additional revenues from the acquisition of the Pulse ATM network by the Discover Network. Approximately $109 thousand in revenues related to the Pulse transaction were received during the first quarter of 2005.

Noninterest expenses increased by 8.41% for the second quarter of 2005 as compared to the same period in 2004. Salaries and benefits were up by 11.37%, due primarily to the expansion efforts, beginning with the opening of a new branch in Flowood, a city in Rankin County, in February of 2004. The Company opened a new branch in Jackson in a rented location in September of 2004. The Olive Branch office was moved out of a rented location into a newly constructed facility in November of 2004. The Company also opened a loan production office in Germantown, Tennessee in December of 2004 with an initial staff of three associates. A new location is planned to be opened in Southaven in DeSoto County during the third quarter of 2005 with future expansion planned for Madison County also.

The negative noncontrolling interests in 2004, which increase consolidated earnings, primarily represent a minority owner’s share of net losses incurred in Merchants Financial Services Group (MFS), an accounts receivable factoring company that is 51% owned by the Company. The balance sheet and income statement of MFS are included in the consolidated financial statements of the Company. The losses at MFS were primarily incurred through loan loss expenses of $ 2.030 million in the first quarter of 2004 and $369 thousand in the second quarter of 2004 needed to cover loan charge-offs. MFS has been mostly liquidated and is currently servicing a small portfolio. The Company is managing its remaining accounts receivable factoring operations in its asset-based lending subsidiary in Memphis.

Annualized net loan charge-offs as a percent of average loans for the second quarter of 2005 were .15% as compared to .09% for the comparable period in 2004. Annualized net loan charge-offs as a percent of average loans were .24% for the first six months of 2005 as compared to .67% for the same period in 2004. Non-accrual and 90-day past due loans as a percent of total loans were .29% at June 30, 2005 as compared to .47% at the end of 2004. The allowance for loan losses as a percentage of loans was 1.40% at June 30, 2005 as compared to 1.40% at December 31, 2004 and 1.51% at June 30, 2004.

Total assets at June 30, 2005 were $1.208 billion as compared to $1.143 billion at the end of 2004 and $1.094 billion at June 30, 2004. Total loans were $875.886 million compared to $832.486 million at the end of 2004 and $780.327 million at June 30, 2004. Deposits were $954.347 million compared to $877.264 million at the end of 2004 and $850.416 million at June 30, 2004. Total capital was $114.939 million or $ 25.60 in book value per share at June 30, 2005.

The Company repurchased 10,000 shares of its common stock during the second quarter of 2005 at an average price of $34.74 and purchased 10,000 shares during the first quarter of 2005 at an average price of $33.23 per share. Capital was increased in the second quarter of 2005 by stock option exercises of 1,500 shares at an average price of $26.45 per share and in the first quarter of 2005 by stock option exercises of 2,500 shares at an average price of $26.60 per share. The current repurchase program allows purchases of up to 10,000 shares per month through May 2006.

First M&F Corp., the parent of M&F Bank, is committed to proceed with its mission of making the mid-south better by exceeding expectations everyday in 22 communities in Mississippi and Tennessee.

Caution Concerning Forward Looking Statements

This document includes certain "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market and regulatory factors. More detailed information about those factors is contained in First M&F Corporation's filings with the Securities and Exchange Commission.

• First M&F Corporation Consolidated Statements of Condition

[back to top]