First Farmers and Merchants Corporation Reports Improved First Quarter Results

Net Income Rises 23% to $3.7 Million

Record Assets and Deposits

First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced double digit growth in net income for the first quarter of 2022, compared with 2021. The Company also reported record assets and deposits for the quarter ended March 31, 2022.

Key highlights of First Farmers’ results for the first quarter of 2022 include:

  • Net income rose 22.6% to $3.7 million from $3.0 million in the year-earlier quarter. Net income per common share increased 23.8% to $0.85 from $0.69 in the first quarter of 2021. Net income rose 19.9% from $3.1 million, or $0.71 per common share, in the fourth quarter of 2021;
  • Adjusted net income, which excludes special items, rose 31.6% to $3.8 million, or $0.89 per common share, compared with $2.9 million, or $0.67 per common share, for the year-earlier quarter (see “Non-GAAP Financial Measures” section);
  • Net interest income before provision increased 5.0% to $11.1 million from $10.6 million for the year-earlier quarter;
  • During the first quarter of 2022, the Company completed its conversion to an enhanced digital platform. First quarter 2022 noninterest expense included one-time fees of $207,000 related to the new platform;
  • Provision credit for loan and lease losses was $320,000 compared with provision credit for loan and lease losses of $150,000 for the year-earlier quarter and $0 for the previous quarter;
  • Total nonperforming assets dropped to $1.0 million, or 0.05% of total assets; and
  • Total assets reached a record $2.1 billion and total deposits reached a record $2.0 billion.

Commenting on the results, Brian K. Williams, Chairman and Chief Executive Officer of First Farmers, said, “We are pleased to report solid growth in net income, deposits and assets during the first quarter. We also reported a return to organic loan growth following the expiration of the Small Business Administration’s Paycheck Protection Program (PPP) last year. Our pipeline for new loans is also strong representing growth from across our markets.

“First Farmers’ loan quality continued to improve in the first quarter of 2022. We reported a decrease in nonperforming loans compared with the fourth quarter and the prior year’s first quarter. These improvements were reflected in this quarter’s provision credit for loan and lease losses that contributed to our double-digit growth in net income.

“Last year, we announced plans to significantly enhance our customers’ digital banking experience. The conversion was completed successfully during the first quarter, and our operations team did an excellent job. Our new digital banking platform is best-in-class and provides First Farmers’ customers with enhanced services and access to their retail and business accounts. We also expect to roll out additional services and upgrades in the future with the enhanced backbone of the new platform.”

Robert E. Krimmel, Chief Financial Officer, added, “We have a very strong balance sheet that is positioned well to fund new loan growth and grow interest income. Our balance sheet is favorably weighted towards assets, allowing First Farmers to benefit from rising interest rates in the coming year.

“Last year, our net interest income benefited from higher loan fees generated through First Farmers participation in the SBA’s PPP. We recorded $518,000 in SBA PPP loan fees during the fourth quarter of 2021 that boosted our net interest margin; however, this program expired last year and there was no comparable benefit in the first quarter of 2022. The Federal Reserve is expected to raise interest rates in 2022 to combat higher inflation, and we expect this will benefit our earnings through higher loan yields and growth in our net interest margin in 2022.

“We remain focused on building our sources of noninterest income and reported higher trust services fee income and service fees on deposits in the first quarter of 2022. This growth was offset partially by lower mortgage banking activities due to a reduction in mortgage loan refinancing activity as rates increased and reduced housing inventory weighed on purchase volume in many of our markets. We also remain focused on expense control and reported lower noninterest expenses in the first quarter of 2022. Our new digital banking platform provides a solid foundation to scale our digital banking services and improve our operating efficiency as we grow in the future.”

First Quarter 2022 Results of Operations

Net income rose 22.6% to $3.7 million, up $679,000 from the year-earlier first quarter. The improvement in earnings was driven by growth in net interest income of $525,000, a $265,000 decline in non-interest expense and a $170,000 increase in provision credit for loan and lease losses. Net income, adjusted for special items, was $3.8 million, up $921,000, or 31.6%, from the year earlier quarter. The increase in adjusted net income benefited from $1.1 million of growth in income on investment securities offset in part by a decline of $803,000 in SBA PPP loan fees, a $531,000 decline in salaries and employee benefits and a $170,000 increase in provision credit for loan and lease loss expense. The increase in provision credit was related to improving credit quality metrics for our loan portfolio and a $93,000 recovery for a loan charged off in the fourth quarter of 2021.

Net income increased $611,000, or 19.9%, from the sequential fourth quarter while adjusted net income decreased $196,000, or 4.9%. The decrease in adjusted earnings was due to a $518,000 decline in SBA PPP fees due to the expiration of the program, partially offset by a provision credit for allowance for loan and lease losses of $320,000.

For the first quarter of 2022, securities available-for-sale increased $100 million driven by growth in deposits from the previous quarter. The growth in securities available-for-sale was offset partially by an unrealized loss adjustment of $50 million as bond prices were driven lower with higher interest rates as the Fed discontinued its quantitative easing program and raised short-term interest rates.

Our outstanding loan balances increased $4 million, or 1.9% on an annualized basis, to $891 million as we returned to organic loan growth for the quarter. Total deposits increased $207 million, or 11.6%, from the previous quarter to a record $2.0 billion and increased $292 million, or 17.1%, from the year-earlier period. Total shareholders’ equity declined $34 million due to the unrealized loss adjustment to our available-for-sale securities portfolio that totaled $37 million, net of tax, for the first quarter. The fair market value of our available-for-sale securities portfolio is adjusted each quarter based on changes in interest rates.

“We expect the rising interest rate environment predicted for 2022 to have a negative impact on the value of our available-for-sale securities portfolio,” continued Krimmel. “However, given the quality of our investments and the structure of its cashflow, we expect these unrealized loss adjustments to be temporary and reverse over time as the portfolio pays down.”

Asset Quality

Asset quality improved in the first quarter of 2022. Nonperforming assets declined to $1.0 million at the end of the first quarter of 2022 and totaled 0.05% of total assets, down from $1.2 million, or 0.06%, from the previous quarter. Nonperforming assets were down $544,000, or 0.08% of total assets, from the year-earlier first quarter. Net recoveries to average loans were 0.05% for the first quarter of 2022 compared with net charge-offs of 0.00% for the previous quarter and 0.00% for the year-earlier quarter. A provision credit in the amount of $320,000 was recorded during the first quarter of 2022. The allowance for loan and lease losses represented 1.05% of total loans outstanding for the first quarter of 2022 compared with 1.08% for the previous quarter and 1.03% for the year-earlier quarter.

Capital Management Initiatives

During the first quarter of 2022, First Farmers repurchased 466 shares of the Company’s common stock under a Rule 10b-18 plan of the Securities Exchange Act of 1934 at an average price of $34.66 per share in accordance with the Company’s stock repurchase program. Authorization to repurchase approximately 199,000 shares remains under the current program, which is set to expire in December 2022, unless extended or otherwise completed.

About First Farmers and Merchants Corporation and First Farmers and Merchants Bank

First Farmers and Merchants Corporation is the holding company for First Farmers and Merchants Bank, a community bank serving the Middle Tennessee area through 22 offices in seven Middle Tennessee counties. As of March 31, 2022, First Farmers reported total assets of approximately $2.1 billion, total shareholders’ equity of approximately $124 million, and administered trust assets of $5.9 billion. For more information about First Farmers, visit us on the Web at www.myfirstfarmers.com under “Investor Relations.”

Cautionary Note Regarding Forward Looking Statements

This news release may contain certain “forward-looking statements” that represent First Farmers’ expectations or beliefs concerning future events and often use words or phrases such as “opportunities,” “prospects,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “intends” or similar expressions. Such forward-looking statements contained herein represent the current expectations, plans or forecast of First Farmers’ and are about matters that are inherently subject to risks and uncertainties. These statements are not guarantees of future results or performance and readers are cautioned to not place undue reliance on them, whether included in this news release or made elsewhere from time to time by First Farmers or on its behalf. First Farmers disclaims any obligation to update such forward-looking statements.

Non-GAAP Financial Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. First Farmers management uses non-GAAP financial measures, including: (i) adjusted net income and (ii) adjusted basic earnings per share, in its analysis of the Company’s performance. These non-GAAP financial measures exclude the following from net income: securities gains, one-time executive retirement benefits, one-time digital conversion fees, and the income tax effect of adjustments. Management believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company.

 
 
 
 

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES

UNAUDITED RECONCILIATION OF NON-GAAP MEASURES PRESENTED IN EARNINGS RELEASE

(Dollars in thousands, except per share data)

 

 

Three Months Ended

 

March 31,

 

December 31,

2021

 

2022

 

2021

 

Total non-interest income

$

3,466

 

 

$

3,550

 

 

$

3,863

 

Gain on sale of securities

 

-

 

 

 

(121

)

 

 

(254

)

Adjusted non-interest income

$

3,466

 

 

$

3,429

 

 

$

3,609

 

 

 

 

 

 

 

 

 

 

Total non-interest expense

$

10,425

 

 

$

10,690

 

 

$

11,953

 

One-time employee benefit accrual adjustment

 

-

 

 

 

-

 

 

 

(1,553

)

One-time digital conversion fees

 

(207

)

 

 

-

 

 

 

-

 

Adjusted non-interest expense

$

10,218

 

 

$

10,690

 

 

$

10,400

 

 

 

 

 

 

 

 

 

 

Net income as reported

$

3,682

 

 

$

3,003

 

 

$

3,071

 

Total adjustments, net of tax1

 

153

 

 

 

(89

)

 

 

960

 

Adjusted net income

$

3,835

 

 

$

2,914

 

 

$

4,031

 

Basic earnings per share

$

0.85

 

 

$

0.69

 

 

$

0.71

 

Total adjustments, net of tax1

 

0.04

 

 

 

(0.02

)

 

 

0.22

 

Adjusted basic earnings per share

$

0.89

 

 

$

0.67

 

 

$

0.93

 

 

(1) The effective tax rate of 26.1% is used to determine net of tax amounts.

 
 
 
 
 

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

 

(unaudited)

 

 

 

 

 

March 31,

 

December 31,

 

(dollars in thousands, except per share data)

 

2022

 

2021(1)

ASSETS

Cash and due from banks

 

$

28,534

 

$

19,791

 

Interest-bearing deposits

 

178,790

 

75,065

 

Federal funds sold

 

745

 

8,374

 

Total cash and cash equivalents

 

208,069

 

103,230

 

Securities:

 

 

 

Available-for-sale

 

926,944

 

876,987

 

Held-to-maturity (fair market value $15,013 and $15,932 as of the periods presented)

 

15,118

 

15,128

 

 

Equity securities

 

2,481

 

 

2,481

 

Loans held-for-sale

 

931

 

2,197

 

Loans, net of deferred fees

 

891,108

 

886,891

 

Allowance for loan and lease losses

 

(9,388

)

(9,605

)

Net loans

 

881,720

 

877,286

 

Bank premises and equipment, net

 

32,554

 

32,627

 

Bank-owned life insurance

 

35,471

 

35,354

 

Goodwill

 

9,018

 

9,018

 

Other assets

 

31,900

 

18,430

 

 

TOTAL ASSETS

 

$

2,144,206

 

 

$

1,972,738

 

LIABILITIES

Deposits:

 

 

Noninterest-bearing

 

$

666,854

 

$

522,725

 

Interest-bearing

 

1,331,321

 

1,268,481

 

Total deposits

 

1,998,175

 

1,791,206

 

Securities sold under agreements to repurchase

 

-

 

-

 

 

Accounts payable and accrued liabilities

 

21,729

 

 

22,901

 

 

TOTAL LIABILITIES

 

2,019,904

 

 

1,814,107

SHAREHOLDERS’ EQUITY

Common stock - $10 par value per share, 8,000,000 shares authorized; 4,316,840 and 4,317,306 shares issued and outstanding as of the periods presented

43,168

43,173

 

 

Retained earnings

 

122,272

 

119,507

 

Accumulated other comprehensive (loss) income

 

(41,233

)

(4,144

)

Total shareholders’ equity attributable to First Farmers and Merchants Corporation

 

124,207

 

158,536

 

Noncontrolling interest - preferred stock of subsidiary

 

95

 

95

 

TOTAL SHAREHOLDERS’ EQUITY

 

124,302

 

158,631

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

2,144,206

 

 

$

1,972,738

 

 

 

 

 

(1) Derived from audited financial statements as of December 31, 2021.

 
 
 
 

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

 

 

Three Months Ended March 31,

 

(dollars in thousands, except per share data)

2022

 

2021

INTEREST AND

Interest and fees on loans

$

8,587

 

 

$

9,611

 

DIVIDEND

Income on investment securities

 

INCOME

Taxable interest

2,364

 

 

1,241

 

Exempt from federal income tax

509

 

 

493

 

Interest from federal funds sold and other

30

 

 

26

 

 

Total interest income

11,490

 

 

11,371

 

INTEREST

Interest on deposits

372

 

 

778

 

EXPENSE

Interest on other borrowings

-

 

 

-

 

Total interest expense

372

 

 

778

 

Net interest income

11,118

 

 

10,593

 

Provision credit for loan and lease losses

(320

)

 

(150

)

 

Net interest income after provision

11,438

 

 

10,743

 

NON-INTEREST

Mortgage banking activities

267

 

 

468

 

INCOME

Trust services fee income

1,066

 

 

975

 

 

Service fees on deposit accounts

1,750

 

 

1,649

 

Investment services fee income

110

 

 

82

 

Earnings on bank owned life insurance

116

 

 

99

 

 

Gain on sale of available-for-sale securities

-

 

 

121

 

Other non-interest income

157

 

 

156

 

 

Total non-interest income

3,466

 

 

3,550

 

NON-INTEREST

Salaries and employee benefits

5,869

 

 

6,400

 

EXPENSE

Net occupancy expense

662

 

 

751

 

Depreciation expense

454

 

 

509

 

Data processing expense

1,058

 

 

783

 

 

Software support and other computer expense

847

 

 

724

 

Legal and professional fees

301

 

 

226

 

 

Audit and exam expenses

176

 

 

176

 

 

Advertising and promotions

203

 

 

256

 

FDIC insurance premium expense

169

 

 

153

 

Other non-interest expense

686

 

 

712

 

Total non-interest expense

10,425

 

 

10,690

 

Income before provision for income taxes

4,479

 

 

3,603

 

 

Provision for income taxes

797

 

 

600

 

Net income before non-controlling interest - dividends on preferred stock of subsidiary

3,682

 

 

3,003

 

Non-controlling interest - dividends on preferred stock subsidiary

-

 

 

-

 

 

Net income for common shareholders

$

3,682

 

 

$

3,003

 

 

 

 

 

 

Weighted average shares outstanding

4,317,169

 

 

4,359,405

 

 

Earnings per share

$

0.85

 

 

$

0.69

 

 
 
 
 
 

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited)

 

 

For the Three Months Ended

(dollars in thousands, except per share data)

March 31,

2022

 

December 31,

2021

 

September 30,

2021

 

June 30,

2021

 

March 31,

2021

Results of Operations:

 

 

 

 

 

 

 

 

 

Interest income

$

11,490

 

 

$

12,151

 

 

$

12,143

 

 

$

11,872

 

 

$

11,371

 

Interest expense

372

 

 

400

 

 

517

 

 

686

 

 

778

 

Net interest income

11,118

 

 

11,751

 

 

11,626

 

 

11,186

 

 

10,593

 

Provision credit for loan and lease losses

(320

)

 

-

 

 

-

 

 

-

 

 

(150

)

Non-interest income

3,466

 

 

3,863

 

 

3,712

 

 

5,658

 

 

3,550

 

Non-interest expense and non-controlling interest – preferred stock of subsidiary

10,425

 

 

11,961

 

 

10,398

 

 

9,933

 

 

10,690

 

Income before income taxes

4,479

 

 

3,653

 

 

4,940

 

 

6,911

 

 

3,603

 

Income taxes

797

 

 

582

 

 

871

 

 

1,435

 

 

600

 

Net income for common shareholders

$

3,682

 

 

$

3,071

 

 

$

4,069

 

 

$

5,476

 

 

$

3,003

 

Per Share Data:

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.85

 

 

$

0.71

 

 

$

0.94

 

 

$

1.26

 

 

$

0.69

 

Weighted average shares outstanding per quarter

4,317,169

 

 

4,326,090

 

 

4,340,048

 

 

4,357,546

 

 

4,359,405

 

Financial Condition Data and Ratios:

 

 

 

 

 

 

 

 

 

Total securities

$

944,543

 

 

$

894,596

 

 

$

848,223

 

 

$

785,606

 

 

$

828,466

 

Available-for-sale securities, fair market value

$

926,944

 

 

$

876,987

 

 

$

829,180

 

 

$

766,552

 

 

$

809,640

 

Available-for-sale securities, amortized cost

$

983,958

 

 

$

883,853

 

 

$

828,465

 

 

$

763,750

 

 

$

813,993

 

Loans, net of deferred fees

$

891,108

 

 

$

886,891

 

 

$

829,895

 

 

$

908,510

 

 

$

927,232

 

Allowance for loan and lease losses

$

(9,388

)

 

$

(9,605

)

 

$

(9,590

)

 

$

(9,581

)

 

$

(9,575

)

Total assets

$

2,144,206

 

 

$

1,972,738

 

 

$

1,920,554

 

 

$

1,878,942

 

 

$

1,879,018

 

Total deposits

$

1,998,175

 

 

$

1,791,206

 

 

$

1,736,614

 

 

$

1,695,990

 

 

$

1,706,177

 

Net interest income, on a fully taxable-equivalent basis

$

11,379

 

 

$

12,013

 

 

$

11,899

 

 

$

11,484

 

 

$

10,841

 

Net interest margin

2.43

%

 

2.62

%

 

2.63

%

 

2.60

%

 

2.55

%

 

 

 

 

 

 

 

 

 

 

Asset Quality Data and Ratios:

 

 

 

 

 

 

 

 

 

Total nonperforming assets

$

1,002

 

 

$

1,217

 

 

$

1,579

 

 

$

1,347

 

 

$

1,546

 

Nonperforming assets to total assets

0.05

%

 

0.06

%

 

0.08

%

 

0.07

%

 

0.08

%

Allowance for loan and lease losses to total loans

1.05

%

 

1.08

%

 

1.06

%

 

1.05

%

 

1.03

%

Net (recoveries) charge-offs to average loans (annualized)

(0.05

%)

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 
 

 

Contacts

Robert E. Krimmel

Chief Financial Officer

(931) 380-8257

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