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First Farmers and Merchants Corporation Reports Record 2022 Results

Net Income Rises 16% to a Record $18.1 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 2022, compared with 2021.

Commenting on the results, Brian K. Williams, Chairman and Chief Executive Officer of First Farmers, said, “I am incredibly proud of our entire team who helped us achieve record results in 2022. Throughout the year, we maintained a laser focus on our core business lines while attracting new customers and deepening relationships with our existing customer base. This was highlighted by our loan growth reaching 9.1% during 2022 despite the rapid rise in interest rates, which is the highest pace in six years.

“Technology enhancements in 2022 propelled our strategy for improving service levels for our customers and driving greater efficiency throughout the Company. Our focus on innovation will continue in 2023 with key initiatives including the introduction of a new loan origination system, new features for our digital banking platform, and enhancements to services provided to depositors and treasury management clients.

“Alongside the record performance of 2022, the Board of Directors rewarded our shareholders in September with a 9.5% increase in the quarterly cash dividend and extended the share repurchase program through 2023. The fundamentals, which powered our results in 2022, remain in place as we enter 2023, and we are confident in First Farmers’ consistent, sustainable long-term performance for our shareholders,” concluded Williams.

Key highlights of First Farmers’ results for 2022 include:

  • Net income rose 15.6% to a record $18.1 million in 2022 compared with $15.6 million for 2021;
  • Net income per common share increased 16.7% to a record $4.19 in 2022 from $3.59 in 2021;
  • Adjusted net income, which excludes special items, rose 22.5% to $18.1 million in 2022, or $4.21 per common share, compared with $14.8 million, or $3.40 per common share, in 2021 (see “Non-GAAP Financial Measures” section);
  • Net interest income after provision increased 6.6% to a record $48.0 million in 2022 from $45.3 million in 2021;
  • Net loans grew 9.1% to $956.8 million from 2021; and
  • Total non-interest expense fell 6.5% to $40.2 million from 2021 driving improved operating efficiency to 60.40% for the fourth quarter of 2022. 

Robert E. Krimmel, Chief Financial Officer, added, "Our record financial performance in 2022 was highlighted by continued progress in key metrics. We reported growth in our net interest margin, lower non-interest expenses, higher return on assets and an improved efficiency ratio.

“Adjusted non-interest income declined because of mortgage banking activities as higher interest rates reduced demand for home purchases and mortgage refinancing. This was partially offset by higher trust services fee income driven by growth in new client accounts offsetting the impact of weak financial markets during the year. We are very pleased with our trust business which continues to provide a steady level of fee income, as customers choose a more customized service for wealth management.

“We made progress during 2022 in reducing non-interest expense by 6.5% through disciplined cost controls. We also began to experience increased operating efficiencies resulting from our expanded digital and technology platforms, with continued progress expected in this area as we roll out the new digital loan platform in 2023.

“First Farmers’ growth in revenues combined with lower non-interest expenses contributed to our improved fourth quarter efficiency ratio of 60.4%, compared with 66.6% for the same period last year. We are very pleased that these improvements were made through core earnings as well as our programs to streamline operations as we enhance customer service and access to our suite of banking products,” concluded Krimmel.

Fourth Quarter 2022 Results of Operations

Net income was $5.0 million in the fourth quarter of 2022, up $2.0 million, or 63.7%, from the year-earlier quarter. The improvement in earnings was due to one-time executive retirement benefit expenses of $1.5 million ($1.1 million net of tax) recognized during the fourth quarter of 2021, and growth in net-interest income of $953,000 for the fourth quarter of 2022 coupled with a decline in salaries and employee benefits of $676,000 in the quarter. Adjusted net income, which excludes special items, rose 24.8% to $5.0 million, up $1.0 million from the year-earlier quarter. Net interest income improved by $953,000 propelled by net interest margin growth of seven basis points supported by net loan growth of $79 million.

Non-interest income decreased $368,000 and was driven primarily by a reduction in mortgage banking activities of $271,000 impacted by the Federal Reserve’s increase in interest rates, which rose 425 basis points during 2022. Non-interest expense was down by $2.0 million from the year-earlier quarter due primarily to lower salaries and employee benefits expense, including the $1.5 million one-time executive retirement benefit expenses from 2021.

Net income for the fourth quarter of 2022 was up from the sequential third quarter by $224,000, or 4.7%. The improvement in earnings was due primarily to growth in net interest income of $235,000 coupled with a decline in non-interest expense of $156,000, improving the operating efficiency ratio to 60.40%.

For the fourth quarter of 2022, the balance of securities available-for-sale declined $15 million from the sequential third quarter. Securities available-for-sale amortized cost decreased $26 million and was used to fund loan growth for the quarter. The unrealized loss adjustment for securities available-for-sale decreased by $9 million for the quarter as bond prices improved due to lower long-term market interest rates compared to the sequential quarter.

For the fourth quarter of 2022, outstanding loan balances increased $15 million, or 1.6%, from the previous quarter to $957 million and increased $79 million, or 9.1%, from the year-earlier quarter. Loan growth for the quarter benefited from increases in commercial real estate of $9 million and commercial and industrial of $5 million. Total deposits declined by $34 million, or 1.9%, from the sequential third quarter to $1.799 billion, but rose by $7 million, or 0.4%, from the year-earlier quarter. The decline in total deposits during the fourth quarter of 2022 was driven largely by the continued migration of certain client balances to the Company’s Trust department, as customers selected an enhanced level of bank services.

Total shareholders’ equity increased $12 million due to improvement in the unrealized loss adjustment to the available-for-sale securities portfolio that totaled $9 million, net of tax, for the fourth quarter 2022. Tangible book value per share improved 16.3% for the fourth quarter of 2022 compared to the sequential quarter but declined 40.8% compared to the year-earlier quarter. The improvement in the value of the available-for-sale securities portfolio was driven by a decline in long-term market interest rates. Total unrealized losses related to the available-for-sale investment portfolio decreased to $108 million compared to unrealized losses of $120 million for the third quarter of 2022, but rose from unrealized losses of $7 million from the year-earlier quarter. The fair market value of the Company’s available-for-sale securities portfolio is adjusted each quarter based on changes in interest rates.

Twelve Months Results

Net income rose 15.6% to a record $18.1 million, or $4.19 per share, for 2022 compared with $15.6 million, or $3.59 per share, for 2021. The increase in net income benefited from a 6.6% increase in net interest income after provision for loan losses to $48.3 million and a 6.5% decrease in non-interest expense to $40.2 million but was offset in part by a 15.7% decline in non-interest income that included a $1.8 million gain on the sale of Visa stock in 2021.

Net interest income after provision for loan losses improved by $3.0 million propelled by growth in average interest earning assets of $146 million compared to 2021. During the year, asset quality improved leading to an increase in provision credit for loan and leases of $170,000.

Non-interest income declined by 15.7% due to the $1.8 million sale of Visa stock last year along with a reduction in mortgage banking activities of $828,000 that was offset partially by growth in service fees on deposit accounts and trust services fee income. Service fees on deposit accounts were up 7.9% to $7.7 million and trust services fee income were up 2.8% to $4.2 million with new client accounts offsetting the decline in administered assets driven by weakness in the stock and bond markets compared to 2021.

Non-interest expenses declined 6.5% in 2022 to $40.2 million compared with 2021. The decreases were due to lower salaries and employee benefits, including one-time executive retirement benefit expenses of $1.5 million recorded in 2021.

Asset Quality

Asset quality improved in 2022 as measured by a decline in nonperforming assets to $705,000. Nonperforming assets totaled 0.04% of total assets, down from $711,00 or 0.04% from the previous quarter and down from $1.2 million, or 0.06% of total assets, from the year-earlier quarter. Net recoveries to average loans were 0.01% for the fourth quarter of 2022 compared with net recoveries of 0.01% for the previous quarter and net recoveries of 0.00% for the year-earlier quarter. No provision for loan and lease losses was made during the fourth quarter of 2022. The allowance for loan and lease losses represented 0.97% of total loans outstanding for the fourth quarter of 2022 compared with 0.99% for the previous quarter and 1.08% for the year-earlier quarter.

Capital Management Initiatives

During the fourth quarter of 2022, First Farmers repurchased 21,033 shares of the Company’s common stock in the open market and privately negotiated transactions. The average price of the repurchased shares in the fourth quarter of 2022 was $30.49 per share. Stock repurchases increased 55% compared to the third quarter of 2022 and were up 107% compared to the year earlier quarter. First Farmers’ Board of Directors reauthorized the stock repurchase program of up to 200,000 shares through December 2023.

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 December 31, 2022, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $96.7 million, and administered trust assets of $5.7 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 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

 

Twelve Months Ended

 

December 31,

 

September 30,

 

December 31,

 

2022

 

2021

 

2022

 

2022

 

2021

Total non-interest income

$

3,495

 

$

3,863

 

 

$

3,526

 

$

14,147

 

 

$

16,783

 

Loss (gain) on sale of securities

 

5

 

 

(254

)

 

 

-

 

 

5

 

 

 

(621

)

Gain on equity securities

 

-

 

 

-

 

 

 

-

 

 

(25

)

 

 

(239

)

Gain on sale of Visa stock

 

-

 

 

-

 

 

 

-

 

 

-

 

 

 

(1,811

)

Gain on sale of premises and equipment

 

-

 

 

-

 

 

 

-

 

 

(91

)

 

 

-

 

Adjusted non-interest income

$

3,500

 

$

3,609

 

 

$

3,526

 

$

14,036

 

 

$

14,112

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest expense

$

9,912

 

$

11,953

 

 

$

10,076

 

$

40,168

 

 

$

42,966

 

One-time executive retirement benefits

 

-

 

 

(1,553

)

 

 

 

 

 

-

 

 

 

(1,553

)

One-time digital conversion fees

 

-

 

 

-

 

 

 

-

 

 

(207

)

 

 

-

 

Adjusted non-interest expense

$

9,912

 

$

10,400

 

 

$

10,076

 

$

39,961

 

 

$

41,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income as reported

$

5,027

 

$

3,071

 

 

$

4,803

 

$

18,050

 

 

$

15,619

 

Total adjustments, net of tax1

 

4

 

 

960

 

 

 

-

 

 

71

 

 

 

(826

)

Adjusted net income

$

5,031

 

$

4,031

 

 

$

4,803

 

$

18,121

 

 

$

14,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

1.17

 

$

0.71

 

 

$

1.12

 

$

4.19

 

 

$

3.59

 

Total adjustments, net of tax1

 

-

 

 

0.22

 

 

 

-

 

 

0.02

 

 

 

(0.19

)

Adjusted basic earnings per share

$

1.17

 

$

0.93

 

 

$

1.12

 

$

4.21

 

 

$

3.40

 

 

(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)

 

 

 

December 31,

December 31,

 

(dollars in thousands, except per share data)

 

2022

 

2021(1)

ASSETS

Cash and due from banks

 

$

27,193

 

$

19,791

 

Interest-bearing deposits

 

1,754

 

75,065

 

Federal funds sold

 

57

 

8,374

 

Total cash and cash equivalents

 

29,004

 

103,230

 

Securities:

 

 

 

Available-for-sale

 

810,591

 

876,987

 

Held-to-maturity (fair market value $14,162 and $15,932

 

 

 

as of the periods presented)

 

15,087

 

15,128

 

 

Equity securities

 

2,505

 

 

2,481

 

Loans held-for-sale

 

-

 

2,197

 

Loans, net of deferred fees

 

966,167

 

886,891

 

Allowance for loan and lease losses

 

(9,382

)

(9,605

)

Net loans

 

956,785

 

877,286

 

Bank premises and equipment, net

 

32,140

 

32,627

 

Bank-owned life insurance

 

35,829

 

35,354

 

Goodwill

 

9,018

 

9,018

 

 

Deferred tax asset

 

30,511

 

 

4,085

 

Other assets

 

20,819

 

14,345

 

 

TOTAL ASSETS

 

$

1,942,289

 

 

$

1,972,738

 

LIABILITIES

Deposits:

 

 

Noninterest-bearing

 

$

534,474

 

$

522,725

 

Interest-bearing

 

1,264,154

 

1,268,481

 

Total deposits

 

1,798,628

 

1,791,206

 

 

Accounts payable and accrued liabilities

 

21,996

 

 

22,901

 

 

FHLB borrowings

 

25,000

 

 

-

 

 

TOTAL LIABILITIES

 

1,845,624

 

 

1,814,107

 

SHAREHOLDERS’

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

 

EQUITY

authorized; 4,275,328 and 4,317,306 shares issued

 

 

 

 

and outstanding as of the periods presented

 

42,753

 

 

43,173

 

Retained earnings

 

132,905

 

119,507

 

Accumulated other comprehensive loss

 

(79,088

)

(4,144

)

Total shareholders’ equity attributable to First Farmers and Merchants Corporation

 

96,570

 

 

158,536

 

Noncontrolling interest - preferred stock of subsidiary

 

95

 

95

 

TOTAL SHAREHOLDERS’ EQUITY

 

96,665

 

158,631

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,942,289

 

 

$

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

December 31,

 

Twelve Months Ended

December 31,

 

(dollars in thousands, except per share data)

2022

 

2021

 

2022

 

2021

INTEREST AND

Interest and fees on loans

$

11,250

 

 

$

9,600

 

$

38,962

 

 

$

38,491

 

DIVIDEND

Income on investment securities

 

 

 

 

INCOME

Taxable interest

2,466

 

 

2,016

 

10,004

 

 

6,789

 

Exempt from federal income tax

500

 

 

521

 

2,025

 

 

2,169

 

Interest from federal funds sold and other

40

 

 

14

 

232

 

 

88

 

 

Total interest income

14,256

 

 

12,151

 

51,223

 

 

47,537

 

INTEREST

Interest on deposits

1,142

 

 

400

 

2,829

 

 

2,380

 

EXPENSE

Interest on other borrowings

410

 

 

-

 

410

 

 

1

 

Total interest expense

1,552

 

 

400

 

3,239

 

 

2,381

 

Net interest income

12,704

 

 

11,751

 

47,984

 

 

45,156

 

Provision credit for loan and lease losses

-

 

 

-

 

(320

)

 

(150

)

 

Net interest income after provision

12,704

 

 

11,751

 

48,304

 

 

45,306

 

NON-INTEREST

Mortgage banking activities

56

 

 

327

 

614

 

 

1,442

 

INCOME

Trust services fee income

1,054

 

 

1,029

 

4,160

 

 

4,045

 

 

Service fees on deposit accounts

1,987

 

 

1,840

 

7,655

 

 

7,093

 

Investment services fee income

73

 

 

85

 

406

 

 

341

 

Earnings on bank-owned life insurance

119

 

 

165

 

475

 

 

554

 

(Loss) gain on sale of investments

(5

)

 

254

 

(5

)

 

621

 

 

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

211

 

 

163

 

726

 

 

876

 

 

Total non-interest income

3,495

 

 

3,863

 

14,147

 

 

16,783

 

NON-INTEREST

Salaries and employee benefits

5,696

 

 

7,925

 

23,115

 

 

26,499

 

EXPENSE

Net occupancy expense

486

 

 

623

 

2,202

 

 

2,699

 

Depreciation expense

421

 

 

526

 

1,786

 

 

2,033

 

Data processing expense

525

 

 

786

 

2,528

 

 

3,034

 

 

Software support and other computer expense

1,029

 

 

667

 

3,821

 

 

2,875

 

Legal and professional fees

284

 

 

220

 

1,007

 

 

794

 

Audits and exams expense

211

 

 

116

 

730

 

 

637

 

Advertising and promotions

277

 

 

244

 

1,074

 

 

1,004

 

FDIC insurance premium expense

149

 

 

171

 

677

 

 

636

 

Other non-interest expense

834

 

 

675

 

3,228

 

 

2,755

 

Total non-interest expense

9,912

 

 

11,953

 

40,168

 

 

42,966

 

Income before provision for income taxes

6,287

 

 

3,661

 

22,283

 

 

19,123

 

 

Provision for income taxes

1,252

 

 

582

 

4,217

 

 

3,488

 

Net income

5,035

 

 

3,079

 

18,066

 

 

15,635

 

Noncontrolling interest - dividends on preferred stock subsidiary

8

 

 

8

 

16

 

 

16

 

 

Net income available to common shareholders

$

5,027

 

 

$

3,071

 

$

18,050

 

 

$

15,619

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

4,290,886

 

 

4,326,090

 

4,305,557

 

 

4,345,665

 

 

Earnings per share

$

1.17

 

$

0.71

 

$

4.19

 

 

$

3.59 

   

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited)

   

For the Three Months Ended

(dollars in thousands, except per share data)

December 31,

2022

 

September 30,

2022
 

 

June 30,

2022

 

March 31,

2022

 

December 31,

2021

Results of Operations:

 

 

 

 

 

 

 

 

 

Interest income

$

14,256

 

 

$

13,279

 

 

$

12,198

 

 

$

11,490

 

 

$

12,151

 

Interest expense

1,552

 

 

810

 

 

505

 

 

372

 

 

400

 

Net interest income

12,704

 

 

12,469

 

 

11,693

 

 

11,118

 

 

11,751

 

Provision credit for loan and lease losses

-

 

 

-

 

 

-

 

 

(320

)

 

-

 

Non-interest income

3,495

 

 

3,526

 

 

3,660

 

 

3,466

 

 

3,863

 

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

9,920

 

 

10,076

 

 

9,763

 

 

10,425

 

 

11,961

 

Income before income taxes

6,279

 

 

5,919

 

 

5,590

 

 

4,479

 

 

3,653

 

Income taxes

1,252

 

 

1,116

 

 

1,052

 

 

797

 

 

582

 

Net income for common shareholders

$

5,027

 

 

$

4,803

 

 

$

4,538

 

 

$

3,682

 

 

$

3,071

 

Per Share Data:

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

1.17

 

 

$

1.12

 

 

$

1.05

 

 

$

0.85

 

 

$

0.71

 

Weighted average shares outstanding per quarter

4,290,886

 

 

4,301,056

 

 

4,313,455

 

 

4,317,169

 

 

4,326,090

 

Financial Condition Data and Ratios:

 

 

 

 

 

 

 

 

 

Total securities

$

828,183

 

 

$

842,896

 

 

$

902,742

 

 

$

944,543

 

 

$

894,596

 

Available-for-sale securities, fair market value

$

810,591

 

 

$

825,293

 

 

$

885,129

 

 

$

926,944

 

 

$

876,987

 

Available-for-sale securities, amortized cost

$

918,936

 

 

$

944,987

 

 

$

967,235

 

 

$

983,958

 

 

$

883,853

 

Loans, net of deferred fees

$

966,167

 

 

$

951,279

 

 

$

941,357

 

 

$

891,108

 

 

$

886,891

 

Allowance for loan and lease losses

$

(9,382

)

 

$

(9,383

)

 

$

(9,386

)

 

$

(9,388

)

 

$

(9,605

)

Total assets

$

1,942,289

 

 

$

1,941,415

 

 

$

2,012,409

 

 

$

2,144,206

 

 

$

1,972,738

 

Total deposits

$

1,798,628

 

 

$

1,833,041

 

 

$

1,880,612

 

 

$

1,998,175

 

 

$

1,791,206

 

Net interest income, on a fully taxable-equivalent basis

$

12,943

 

 

$

12,726

 

 

$

11,956

 

 

$

11,379

 

 

$

12,013

 

Net interest margin

2.69

%

 

2.61

%

 

2.46

%

 

2.43

%

 

2.62

%

Efficiency

60.40

%

 

62.15

%

 

62.94

%

 

68.83

%

 

66.57

%

 

 

 

 

 

 

 

 

 

 

Asset Quality Data and Ratios:

 

 

 

 

 

 

 

 

 

Total nonperforming assets

$

705

 

 

$

711

 

 

$

1,635

 

 

$

1,002

 

 

$

1,217

 

Nonperforming assets to total assets

0.04

%

 

0.04

%

 

0.08

%

 

0.05

%

 

0.06

%

Allowance for loan and lease losses to total loans

0.97

%

 

0.99

%

 

1.00

%

 

1.05

%

 

1.08

%

Net recoveries to average loans (annualized)

(0.01

%)

 

(0.01

%)

 

(0.02

%)

 

(0.05

)%

 

0.00

%

 

 

Contacts

Robert E. Krimmel

Chief Financial Officer

(931) 380-8257

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