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First Farmers and Merchants Corporation Reports Improved Third Quarter Results

Net Income Rises 18% to $4.8 Million

Net Interest Income Increases 7.3% to a Record $12.5 Million

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 third quarter of 2022, compared with the prior year’s third quarter.

“First Farmers’ growth in net income for the third quarter benefited from higher net interest income, lower non-interest expense, growth in our net interest margin and continued organic loan growth,” stated Brian K. Williams, Chairman and Chief Executive Officer of First Farmers. “We are on pace to report record net income for 2022 based on our year-to-date performance and our expectations for continued growth in the fourth quarter.

“Our Board of Directors recently approved a 9.5% increase in our cash dividend to $0.23 per share, highlighting our strong financial performance in 2022 and our positive outlook for the future. We believe the increase in our cash dividend and recent increases in our stock repurchases demonstrate our Board’s focus on delivering long-term shareholder value,” continued Williams.

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

  • Net income rose 18.0% to $4.8 million in the third quarter of 2022 compared with $4.1 million in the third quarter of 2021. Net income per common share was $1.12 in the third quarter of 2022 compared with $0.94 in the third quarter of 2021. Net income rose 5.8% from $4.5 million, or $1.05 per common share, in the second quarter of 2022;
  • Adjusted net income, which excludes special items, rose 22.1% to a record $4.8 million, or $1.12 per common share, compared with $3.9 million, or $0.91 per common share, for the year-earlier quarter. Third quarter adjusted net income rose 7.9% from $4.5 million, or $1.03 per common share, reported in the second quarter of 2022 (see non-GAAP reconciliation);
  • Net interest income before provision increased 7.3% to $12.5 million from $11.6 million for the year-earlier quarter;
  • Net loans grew 1.1% from the second quarter of 2022 (4.2% annualized) and were up 5.4% from the third quarter of 2021 after excluding SBA Paycheck Protection (“SBA PPP”) loans; and
  • Total nonperforming assets dropped to $711,000, or 0.04% of total assets.

Williams continued, “First Farmers’ efficiency ratio continued to improve in the third quarter, reflecting growth in our revenue and discipline in our cost structure. During the quarter, we increased our investments in systems to support our future growth, including a new lending platform that will be rolled out over the next year. We expect the new platform to improve our service to customers, support our teams in enhancing the customer experience, and create more opportunities for future loan and deposit production.”

Robert E. Krimmel, Chief Financial Officer, added, “The majority of our year-to-date 2022 earnings were generated by our bank’s core operations and reflects the growth in our loan portfolio, higher net interest margin and lower non-interest expenses compared with last year. Our net interest margin improved to 2.61% in the third quarter and benefited from new loans added with higher interest rates. Our balance sheet remains asset sensitive, and we expect to benefit from future interest rate increases as the Federal Reserve strives to dampen inflation.

“Our asset quality is very strong and improved since last year based on the continued reduction in non-performing loans, our low loan losses and the high quality of new loans added this year. We have benefited from a strong economy in the markets we serve but remain focused on protecting our asset quality through careful underwriting of new loans, limiting our loans in higher risk segments and remaining close to our customer base as part of our early warning system to protect future earnings.”

Third Quarter 2022 Results of Operations

Net income was up $734,000 to $4.8 million, or 18.0%, from the year-earlier third quarter. The improvement in earnings was driven by growth in net interest income of $843,000 resulting from higher loan yields which contributed to expansion in our net interest margin of 15 basis points for the third quarter of 2022. The increase in interest and fees on loans was offset partially by a reduction in SBA PPP loan fees recognized during the third quarter of 2021 of $1.3 million. Non-interest expense declined by $322,000, or 3.1%, compared with the third quarter of 2021 driven by a reduction in salaries and employee benefits expense of $430,000, or 6.8%. Net income, adjusted for special items, excluded a $134,000 gain on the sale of securities (net of tax) recognized during the third quarter of 2021.

Net income increased $265,000, or 5.8%, from the sequential second quarter while adjusted net income grew $351,000, or 7.9%. The improvement in earnings was due to growth in net interest income after provision of $776,000 outpacing the growth in salaries and employee benefits expense of $298,000.

For the third quarter of 2022, securities available-for-sale declined $60 million from the sequential second quarter. Securities available-for-sale amortized cost decreased $22 million and was used to fund loan growth for the quarter while the unrealized loss adjustment for securities available-for-sale increased another $38 million for the quarter as bond prices were driven lower with higher interest rates as the Fed continued to raise short-term interest rates. Our outstanding loan balances increased $9.9 million, or 5.4% on an annualized basis, to $951 million as loan growth slowed compared with the second quarter of 2022. Total deposits decreased $48 million, or 2.5%, from the previous quarter to $1.8 billion, but increased $96 million, or 5.6%, from the year-earlier period. The decline in total deposits during the third quarter of 2022 was driven largely by the migration of certain client balances to the Company’s Trust department.

Total shareholders’ equity declined $24 million due to the unrealized loss adjustment to the available-for-sale securities portfolio that totaled $28 million, net of tax, for the third quarter. The decline is viewed as temporary by the Company since the intention is to hold these securities until maturity. Total unrealized losses related to the available-for-sale investment portfolio increased to $120 million compared to unrealized gains of $19 from the year-earlier quarter, and unrealized losses of $82 million for the second quarter of 2022. The fair market value of the Company’s available-for-sale securities portfolio is adjusted each quarter based on changes in interest rates.

Nine Months Results

Net income available to common shareholders was $13.0 million for the first nine months of 2022, up 3.8% compared with $12.5 million in the first nine months of 2021. Net income per share increased 4.9% to $3.02 for the first nine months of 2022 compared with $2.88 in the same period of 2021. The increase in earnings was driven by growth in net interest income after provision of $2.0 million, along with a decline in salaries and employee benefits of $1.2 million, offset partially by a one-time gain on the sale of Visa stock of $1.8 million recognized in the second quarter of 2021, increased software support and other computer expense of $584,000, and a reduction in mortgage banking activities of $557,000. Adjusted net income increased 21.6% to $13.1 million for the first nine months of 2022 while adjusted net income per share increased 23.1% compared to the same period in 2021.

The increase in adjusted net income benefited from a 6.1% increase in net interest income after provision for loan losses to $35.6 million supported by growth in income on investment securities of $2.8 million offset in part by a reduction in interest and fees on loans of $1.2 million. The reduction in interest and fees on loans was impacted by $3.1 million in recognized SBA PPP loan fees during the first nine months of 2021. Non-interest expenses declined 2.4% in the first nine months of 2022 to $30.3 million compared with the same period in 2021. The decrease in non-interest expenses was due mostly to lower salaries and employee benefits; offset by higher software support and other computer expense related to technology upgrades experienced during the first quarter of 2022.

Asset Quality

Nonperforming assets decreased to $711,000 at the end of the third quarter of 2022 and totaled 0.04% of total assets, down from $1.6 million, or 0.08%, in the previous quarter. Nonperforming assets were down $868,000, or 55.0% from the year-earlier third quarter. Net recoveries to average loans were 0.01% for the third quarter of 2022 compared with 0.02% for the previous quarter and net charge-offs of 0.00% for the year-earlier quarter. No adjustments were made to provision for loan and lease losses during the third quarter of 2022. The allowance for loan and lease losses represented 0.99% of total loans outstanding for the third quarter of 2022 compared with 1.00% for the previous quarter and 1.06% for the year-earlier quarter.

Capital Management Initiatives

During the third quarter of 2022, First Farmers repurchased 13,529 shares of the Company’s common stock in the open market at an average price of $31.44 per share in accordance with the Company’s stock repurchase program which represents a 95% increase compared to the second quarter of 2022. Authorization to repurchase approximately 179,000 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 September 30, 2022, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $85 million, and administered trust assets of $5.4 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, gain on sale of Visa stock, gain on sale of premises and equipment, 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

 

Nine Months Ended

 

September 30,

 

June 30,

 

September 30,

 

2022

 

2021

 

2022

 

2022

 

2021

Total non-interest income

$

3,526

 

$

3,712

 

 

$

3,660

 

 

$

10,652

 

 

$

12,920

 

Gain on sale of securities

 

-

 

 

(181

)

 

 

-

 

 

 

-

 

 

 

(367

)

Gain on equity securities

 

-

 

 

-

 

 

 

(25

)

 

 

(25

)

 

 

(239

)

Gain on sale of premises and equipment

 

-

 

 

-

 

 

 

(91

)

 

 

(91

)

 

 

-

 

Gain on sale of Visa Stock

 

-

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,811

)

Adjusted non-interest income

$

3,526

 

$

3,531

 

 

$

3,544

 

 

$

10,536

 

 

$

10,503

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest expense

$

10,076

 

$

10,398

 

 

$

9,755

 

 

$

30,256

 

 

$

31,013

 

One-time digital conversion fees

 

-

 

 

-

 

 

 

-

 

 

 

(207

)

 

 

-

 

Adjusted non-interest expense

$

10,076

 

$

10,398

 

 

$

9,755

 

 

$

30,049

 

 

$

31,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income as reported

$

4,803

 

$

4,069

 

 

$

4,538

 

 

$

13,023

 

 

$

12,548

 

Total adjustments, net of tax1

 

-

 

 

(134

)

 

 

(86

)

 

 

67

 

 

 

(1,786

)

Adjusted net income

$

4,803

 

$

3,935

 

 

$

4,452

 

 

$

13,090

 

 

$

10,762

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

1.12

 

$

0.94

 

 

$

1.05

 

 

$

3.02

 

 

$

2.88

 

Total adjustments, net of tax1

 

-

 

 

(0.03

)

 

 

(0.02

)

 

 

0.02

 

 

 

(0.41

)

Adjusted basic earnings per share

$

1.12

 

$

0.91

 

 

$

1.03

 

 

$

3.04

 

 

$

2.47

 

(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)

 

 

 

September 30,

 

December 31,

 

(dollars in thousands, except per share data)

 

2022

 

2021(1)

ASSETS

Cash and due from banks

 

$

25,691

 

$

19,791

 

Interest-bearing deposits

 

5,121

 

75,065

 

Federal funds sold

 

133

 

8,374

 

Total cash and cash equivalents

 

30,945

 

103,230

 

Securities:

 

 

 

Available-for-sale

 

825,293

 

876,987

 

Held-to-maturity (fair market value $13,378 and $15,932

 

 

 

as of the periods presented)

 

15,098

 

15,128

 

 

Equity securities

 

2,505

 

 

2,481

 

Loans held-for-sale

 

1,153

 

2,197

 

Loans, net of deferred fees

 

951,279

 

886,891

 

Allowance for loan and lease losses

 

(9,383

)

(9,605

)

Net loans

 

941,896

 

877,286

 

Bank premises and equipment, net

 

32,747

 

32,627

 

Bank-owned life insurance

 

35,710

 

35,354

 

Goodwill

 

9,018

 

9,018

 

 

Deferred tax asset

 

33,674

 

 

4,085

 

Other assets

 

13,376

 

14,345

 

 

TOTAL ASSETS

 

$

1,941,415

 

 

$

1,972,738

 

LIABILITIES

Deposits:

 

 

Noninterest-bearing

 

$

547,934

 

$

522,725

 

Interest-bearing

 

1,285,107

 

1,268,481

 

Total deposits

 

1,833,041

 

1,791,206

 

 

Accounts payable and accrued liabilities

 

23,635

 

 

22,901

 

 

TOTAL LIABILITIES

 

1,856,676

 

 

1,814,107

 

SHAREHOLDERS’

Common stock - $10 par value per share, 8,000,000 shares

 

 

 

 

 

EQUITY

authorized; 4,296,361 and 4,317,306 shares issued

 

 

 

 

and outstanding as of the periods presented

 

42,964

 

 

43,173

 

Retained earnings

 

129,292

 

119,507

 

Accumulated other comprehensive loss

 

(87,611

)

(4,144

)

Total shareholders’ equity attributable to First Farmers and Merchants Corporation

 

84,645

 

158,536

 

Noncontrolling interest - preferred stock of subsidiary

 

95

 

95

 

TOTAL SHAREHOLDERS’ EQUITY

 

84,740

 

158,631

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,941,415

 

 

$

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

September 30,

 

Nine Months Ended

September 30,

 

(dollars in thousands, except per share data)

2022

 

2021

 

2022

 

2021

INTEREST AND

Interest and fees on loans

$

10,140

 

$

9,800

 

$

27,712

 

 

$

28,891

 

DIVIDEND

Income on investment securities

 

 

 

 

INCOME

Taxable interest

2,559

 

1,752

 

7,538

 

 

4,773

 

Exempt from federal income tax

504

 

553

 

1,525

 

 

1,648

 

Interest from federal funds sold and other

76

 

38

 

192

 

 

74

 

 

Total interest income

13,279

 

12,143

 

36,967

 

 

35,386

 

INTEREST

Interest on deposits

810

 

517

 

1,687

 

 

1,980

 

EXPENSE

Interest on other borrowings

-

 

-

 

-

 

 

1

 

Total interest expense

810

 

517

 

1,687

 

 

1,981

 

Net interest income

12,469

 

11,626

 

35,280

 

 

33,405

 

(Provision credit) for loan and lease losses

-

 

-

 

(320

)

 

(150

)

 

Net interest income after provision

12,469

 

11,626

 

35,600

 

 

33,555

 

NON-INTEREST

Mortgage banking activities

118

 

280

 

558

 

 

1,115

 

INCOME

Trust services fee income

1,013

 

1,024

 

3,106

 

 

3,016

 

 

Service fees on deposit accounts

1,974

 

1,809

 

5,668

 

 

5,253

 

Investment services fee income

113

 

85

 

333

 

 

256

 

Earnings on bank-owned life insurance

119

 

166

 

356

 

 

389

 

Gain on sale of investments

-

 

181

 

-

 

 

367

 

 

Gain on equity securities

-

 

-

 

25

 

 

-

 

 

Gain on sale of premises and equipment

-

 

-

 

91

 

 

-

 

 

Gain on sale of Visa stock

-

 

-

 

-

 

 

1,811

 

Other non-interest income

189

 

167

 

515

 

 

713

 

 

Total non-interest income

3,526

 

3,712

 

10,652

 

 

12,920

 

NON-INTEREST

Salaries and employee benefits

5,924

 

6,354

 

17,419

 

 

18,574

 

EXPENSE

Net occupancy expense

575

 

540

 

1,716

 

 

1,702

 

Depreciation expense

433

 

497

 

1,365

 

 

1,507

 

Data processing expense

459

 

784

 

2,003

 

 

2,248

 

 

Software support and other computer expense

980

 

655

 

2,792

 

 

2,208

 

Legal and professional fees

204

 

157

 

723

 

 

574

 

Audits and exams expense

157

 

174

 

519

 

 

521

 

Advertising and promotions

355

 

272

 

797

 

 

760

 

FDIC insurance premium expense

198

 

152

 

528

 

 

465

 

Other non-interest expense

791

 

813

 

2,394

 

 

2,454

 

Total non-interest expense

10,076

 

10,398

 

30,256

 

 

31,013

 

Income before provision for income taxes

5,919

 

4,940

 

15,996

 

 

15,462

 

 

Provision for income taxes

1,116

 

871

 

2,965

 

 

2,906

 

Net income

4,803

 

4,069

 

13,031

 

 

12,556

 

Noncontrolling interest - dividends on preferred stock subsidiary

-

 

-

 

8

 

 

8

 

 

Net income available to common shareholders

$

4,803

 

$

4,069

 

$

13,023

 

 

$

12,548

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

4,301,056

 

4,340,048

 

4,310,501

 

 

4,352,262

 

 

Earnings per share

$

1.12

 

$

0.94

 

$

3.02

 

 

$

2.88

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited)

 

For the Three Months Ended

(dollars in thousands, except per share data)

September 30,

2022

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

 

September 30,

2021

Results of Operations:

 

 

 

 

 

 

 

 

 

Interest income

$

13,279

 

 

$

12,198

 

 

$

11,490

 

 

$

12,151

 

 

$

12,143

 

Interest expense

810

 

 

505

 

 

372

 

 

400

 

 

517

 

Net interest income

12,469

 

 

11,693

 

 

11,118

 

 

11,751

 

 

11,626

 

Provision credit for loan and lease losses

-

 

 

-

 

 

(320

)

 

-

 

 

-

 

Non-interest income

3,526

 

 

3,660

 

 

3,466

 

 

3,863

 

 

3,712

 

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

10,076

 

 

9,763

 

 

10,425

 

 

11,961

 

 

10,398

 

Income before income taxes

5,919

 

 

5,590

 

 

4,479

 

 

3,653

 

 

4,940

 

Income taxes

1,116

 

 

1,052

 

 

797

 

 

582

 

 

871

 

Net income for common shareholders

$

4,803

 

 

$

4,538

 

 

$

3,682

 

 

$

3,071

 

 

$

4,069

 

Per Share Data:

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

1.12

 

 

$

1.05

 

 

$

0.85

 

 

$

.71

 

 

$

0.94

 

Weighted average shares outstanding per quarter

4,301,056

 

 

4,313,455

 

 

4,317,169

 

 

4,326,090

 

 

4,340,048

 

Financial Condition Data and Ratios:

 

 

 

 

 

 

 

 

 

Total securities

$

842,896

 

 

$

902,742

 

 

$

944,543

 

 

$

894,596

 

 

$

848,223

 

Available-for-sale securities, fair market value

$

825,293

 

 

$

885,129

 

 

$

926,944

 

 

$

876,987

 

 

$

829,180

 

Available-for-sale securities, amortized cost

$

944,987

 

 

$

967,235

 

 

$

983,958

 

 

$

883,853

 

 

$

828,465

 

Loans, net of deferred fees

$

951,279

 

 

$

941,357

 

 

$

891,108

 

 

$

886,891

 

 

$

902,234

 

Allowance for loan and lease losses

$

(9,383

)

 

$

(9,386

)

 

$

(9,388

)

 

$

(9,605

)

 

$

(9,590

)

Total assets

$

1,941,415

 

 

$

2,012,409

 

 

$

2,144,206

 

 

$

1,972,738

 

 

$

1,920,554

 

Total deposits

$

1,833,041

 

 

$

1,880,612

 

 

$

1,998,175

 

 

$

1,791,206

 

 

$

1,736,614

 

Net interest income, on a fully taxable-equivalent basis

$

12,726

 

 

$

11,956

 

 

$

11,379

 

 

$

12,013

 

 

$

11,899

 

Net interest margin

2.61

%

 

2.46

%

 

2.43

%

 

2.62

%

 

2.63

%

Efficiency

62.15

%

 

62.94

%

 

68.83

%

 

66.57

%

 

 

67.39

 

%

 

 

 

 

 

 

 

 

 

 

Asset Quality Data and Ratios:

 

 

 

 

 

 

 

 

 

Total nonperforming assets

$

711

 

 

$

1,635

 

 

$

1,002

 

 

$

1,217

 

 

$

1,579

 

Nonperforming assets to total assets

0.04

%

 

0.08

%

 

0.05

%

 

0.06

%

 

0.08

%

Allowance for loan and lease losses to total loans

0.99

%

 

1.00

%

 

1.05

%

 

1.08

%

 

1.06

%

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

(0.01

%)

 

(0.02

%)

 

(0.05

)%

 

0.00

%

 

0.00

%

 

Contacts

Robert E. Krimmel

Chief Financial Officer

(931) 380-8257

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