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First Farmers and Merchants Corporation Reports Third Quarter Results

Record Loans, Annualized Loan Growth of 16%

First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced its results for the third quarter of 2023.

“First Farmers reported growth in loans during the third quarter based on continued demand from our customers and our favorable regional economy,” stated Brian K. Williams, Chairman and Chief Executive Officer of First Farmers. “We also experienced growth in deposits from the second quarter of this year as we faced strong competition from regional banks. We remained focused on protecting our deposit base as part of our long-term strategy to maintain an optimal balance sheet and strengthen our customer base.

“Our interest costs jumped in the third quarter due to the competition for deposits and to the substantially higher interest rate environment compared with last year. As a result, our net income was lower this quarter due primarily to the sharp rise in interest costs. Our net interest margin began to stabilize in September, and we remain positive about First Farmers’ outlook for the future. The result of this unprecedented spike in interest rates continues to cascade across the banking industry and certainly impacted our third quarter performance. However, we remain focused on optimizing our balance sheet to navigate the current challenges and more importantly, to propel the Company’s earnings performance as the interest rate environment stabilizes.

“Over the past year, we have repositioned our balance sheet to support our continued growth, our credit quality remains very strong, we are benefiting from solid growth from our trust services business line, and we continue to streamline our operations to enhance efficiency. We believe these fundamentals are critical to building long-term shareholder value.”

Key highlights of First Farmers’ results for the third quarter of 2023 include:

  • Net income decreased 30.5% to $3.3 million from $4.8 million for the third quarter of 2022. Net income per common share decreased 29.2% to $0.79 from $1.12 for the year-earlier quarter. Net income decreased 33.8% from $5.0 million, or $1.19, per common share, reported in the second quarter of 2023. The decline in net income was primarily due to higher interest costs;
  • Adjusted net income, which excludes special items, declined 30.5% to $3.3 million, or $0.79 per common share, compared with $4.8 million, or $1.12 per common share, for the third quarter of 2022. Third quarter adjusted net income decreased 35.1% from $5.1 million, or $1.21 per common share, reported in the second quarter of 2023 (see “Non-GAAP Financial Measures” section);
  • Interest income increased 14.7% to $15.2 million from $13.3 million for the third quarter of 2022 and was up 1.4% from $15.0 million for the second quarter of 2023;
  • Total interest expense increased 546.5% to $5.2 million compared with the third quarter of 2022. Net interest income decreased 19.8% to $10.0 million from $12.5 million for the third quarter of 2022 and was down 17.3% from $12.1 million for the second quarter of 2023 due to higher interest expense;
  • Total loans increased $39 million to a record $1.004 billion, or 16.3% annualized, from the second quarter of 2023, and increased $53 million, or 5.5%, compared to the third quarter of 2022;
  • Total deposits increased $17 million, or 4.1% annualized, from the second quarter of 2023; and
  • Total stock repurchased increased to 44,930 shares, up 5.6%, from the second quarter of 2023, and increased 232.1% from the third quarter of 2022.

“We increased our stock repurchases in the third quarter to the highest quarterly amount since 2016,” continued Williams. “We believe our stock repurchase program highlights our confidence in the future of First Farmers. We also continued to invest in upgrading our digital technology to streamline our operations and improve the delivery of services to our customers.”

Commenting on the results, Robert E. Krimmel, Chief Financial Officer of First Farmers, said, “The sharp increase in interest rates reduced our net interest margin early in the third quarter as expected, but began to stabilize by quarter’s end. We expect margins to improve in the fourth quarter with a substantial amount of the deposit repricing for our customers behind us. We believe our balance sheet is positioned well to grow future earnings in this interest rate environment that is expected to stay higher through the coming year.

“We also expect our credit quality discipline to be an important part of protecting our future earnings. Our lending and credit teams remain focused on generating high quality loans and believe our solid liquidity levels will allow us to continue funding new loan activity. We experienced a $2.3 million increase in nonperforming loans in the third quarter that was due to a single loan that was fully resolved at no loss early in the fourth quarter. Based on our ongoing stress tests of our loan portfolio, we believe our credit quality will remain strong despite the risks present in this higher interest rate environment.

“Our efficiency ratio declined in the third quarter primarily due to the sharp increase in deposit repricing. Without the decline in net interest income due to higher deposit costs, our operating efficiency continued to improve and benefited from our consistent growth in non-interest income over the past three quarters, including the excellent performance of trust services, and our seventh consecutive quarterly decline in noninterest expenses compared to the prior year due to our focus on expense management. We expect to leverage our continued investments in our digital platforms and operating software to improve our future operating efficiencies.”

Third Quarter 2023 Results of Operations

Net income decreased to $3.3 million, down $1.5 million, or 30.5% from the third quarter of 2022. The decline in earnings was due to a decrease in net interest income of $2.5 million offset in part by lower non-interest expense of $589,000 compared to the third quarter of 2022. The reduction in net-interest income was driven by deposit costs which were up $4.4 million, offset in part by an increase in interest and fees on loans of $2.3 million supported by net loan growth of $53 million compared to the third quarter of 2022. The reduction in non-interest expense was due primarily to lower salaries and employee benefits expense of $636,000 compared to the third quarter of 2022.

Net income for the third quarter of 2023 was down from the sequential second quarter by $1.7 million, or 33.7%. The decrease in earnings was due primarily to a reduction in net interest income after provision of $2.4 million compared to the second quarter of 2023. The decline in net-interest income after provision was driven by deposit costs which were up $1.7 million and a lower provision credit for credit losses of $260,000, offset in part by an increase in interest and fees on loans of $458,000 supported by net loan growth of $39 million compared to the second quarter of 2023.

For the third quarter of 2023, the balance of securities available-for-sale declined $48 million from the sequential second quarter. Securities available-for-sale amortized cost decreased $35 million and was used to fund loan growth while the unrealized loss adjustment for securities available-for-sale increased by $13 million for the quarter driven by higher long-term market interest rates compared to the sequential quarter. The balance of securities available-for-sale amortized cost decreased $134 million from the third quarter of 2022 with the decrease used to fund loan growth and liquidity needs of the Company.

For the third quarter of 2023, outstanding loan balances increased $39 million, or 4.1%, from the sequential quarter to a record $1.004 billion and increased $53 million, or 5.5%, from the third quarter of 2022. Total deposits increased $17 million, or 1.0%, from the sequential second quarter to $1.675 billion, but decreased $158 million, or 8.6%, from the third quarter of 2022. The decline in total deposits compared to 2022 was driven largely by one municipal customer that moved its banking relationship of $113 million to a regional bank during the second quarter of 2023. Total shareholders’ equity decreased $9 million from the sequential quarter due to a $10 million increase in the unrealized loss adjustment to the available-for-sale securities portfolio.

Nine Months Results

Net income available to common shareholders was $12.4 million for the first nine months of 2023, down 4.9% compared with $13.0 million in the first nine months of 2022. Net income per share declined 3.4% to $2.92 for the first nine months of 2023 compared with $3.02 for the same period in 2022. The decline in earnings was driven by decreases in non-interest income of $1.1 million and net interest income of $968,000, offset in part by a reduction in non-interest expense of $1.3 million compared to the same period in 2022. Adjusted net income was $12.9 million for the first nine months of 2023, down 1.6% compared with $13.1 million in the first nine months of 2022. Adjusted net income per share declined 0.3% to $3.03 for the first nine months of 2023 compared with $3.04 for the same period in 2022.

The decline in adjusted net income was driven by decreases in net interest income of $968,000 and non-interest income of $361,000 offset in part by a reduction in non-interest expense of $1.1 million compared to the same period in 2022. The reduction in net-interest income was driven by deposit costs which were up $7.6 million, other borrowings expense which was up $1.0 million, and interest on investment securities which declined $420,000, offset in part by an increase in interest and fees on loans of $8.1 million supported by net loan growth of $53 million compared to the third quarter of 2022. The decline in non-interest income was attributable to revenue from mortgage banking activities which was down $457,000 and service fees on deposit accounts which declined $279,000, offset in part by increases in other non-interest income of $220,000 and trust services fee income of $161,000 compared to the first nine months of 2022. The decrease in adjusted non-interest expense was due to lower salaries and employee benefits of $1.1 million compared to the first nine months of 2022.

Asset Quality

Nonperforming assets rose to $3.1 million, or 0.17% of total assets, up from $803,000, or 0.04% of total assets, from the sequential quarter of 2023 and up from $711,000, or 0.04% of total assets, from the third quarter of 2022. The increase in nonperforming assets was related to one $2.3 million commercial real estate loan that was resolved at no loss during the fourth quarter of 2023. Net recoveries to average loans were 0.00% for the third quarter of 2023 compared with net recoveries of 0.00% for the sequential quarter and net recoveries of 0.01% for the third quarter of 2022. No provision expense was recorded to provision for credit losses during the third quarter of 2023. The allowance for credit losses represented 0.78% of total loans outstanding for the third quarter of 2023 compared with 0.85% for the sequential quarter and 0.99% for the third quarter of 2022. The allowance for credit losses for unfunded commitments represented 0.29% of total unfunded commitments for the second quarter of 2023 compared with 0.19% for the sequential quarter. The allowance for credit losses for held-to-maturity (“HTM”) securities represented 0.06% of total HTM securities for the third quarter of 2023 compared with 0.06% for the sequential quarter.

Capital Management Initiatives

During the third quarter of 2023, First Farmers repurchased 44,930 shares of the Company’s common stock in the open market or privately negotiated transactions at an average price of $30.28 per share with prices ranging from $26.37 to $31.83 per share in accordance with the Company’s stock repurchase program. Authorization to repurchase approximately 99,165 shares remains under the current program, which is set to expire in December 2023, 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, 2023, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $99 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 losses, 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,

 

2023

 

2022

 

2023

 

2023

 

2022

Total non-interest income

$

3,497

 

$

3,526

 

$

3,262

 

$

9,514

 

$

10,652

Loss on sale of securities

 

-

 

 

-

 

 

134

 

 

317

 

 

-

(Gain) loss on equity securities

 

-

 

 

-

 

 

-

 

 

351

 

 

(25)

Gain on sale of premises and equipment

 

(3)

 

 

-

 

 

-

 

 

(7)

 

 

(91)

Adjusted non-interest income

$

3,494

 

$

3,526

 

$

3,396

 

$

10,175

 

$

10,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-interest expense

$

9,487

 

$

10,076

 

$

9,361

 

$

28,908

 

$

30,256

One-time digital conversion fees

 

-

 

 

-

 

 

-

 

 

-

 

 

(207)

Adjusted non-interest expense

$

9,487

 

$

10,076

 

$

9,361

 

$

28,908

 

$

30,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income as reported

$

3,338

 

$

4,803

 

$

5,039

 

$

12,390

 

$

13,023

Total adjustments, net of tax1

 

(2)

 

 

-

 

 

99

 

 

488

 

 

67

Adjusted net income

$

3,336

 

$

4,803

 

$

5,138

 

$

12,878

 

$

13,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.79

 

$

1.12

 

$

1.19

 

$

2.92

 

$

3.02

Total adjustments, net of tax1

 

-

 

 

-

 

 

0.02

 

 

0.11

 

 

0.02

Adjusted basic earnings per share

$

0.79

 

$

1.12

 

$

1.21

 

$

3.03

 

$

3.04

 

(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)

 

2023

 

2022(1)

ASSETS

Cash and due from banks

 

$

25,693

$

27,193

Interest-bearing deposits

 

4,998

1,754

Federal funds sold

 

116

57

Total cash and cash equivalents

 

30,807

29,004

Securities:

 

 

 

Available-for-sale

 

696,505

810,591

Held-to-maturity (fair market value $13,202 and $14,162, net of allowance for credit losses of $9 and $0 for the periods presented)

 

15,048

15,087

 

Equity securities

 

2,154

 

2,505

Loans, net of deferred fees

 

1,004,066

966,167

Allowance for credit losses

 

(7,871)

(9,382)

Net loans

 

996,195

956,785

Bank premises and equipment, net

 

30,359

32,140

Bank-owned life insurance

 

37,870

35,829

Goodwill

 

9,018

9,018

 

Deferred tax asset

 

32,708

 

30,511

Other assets

 

17,876

20,819

 

TOTAL ASSETS

 

$

1,868,540

 

$

1,942,289

LIABILITIES

Deposits:

 

 

Noninterest-bearing

 

$

483,357

$

534,474

Interest-bearing

 

1,191,316

1,264,154

Total deposits

 

1,674,673

1,798,628

 

Accounts payable and accrued liabilities

 

24,203

 

21,996

 

FHLB borrowings

 

71,000

 

25,000

 

TOTAL LIABILITIES

 

1,769,876

 

1,845,624

SHAREHOLDERS’

EQUITY

Common stock - $10 par value per share, 8,000,000 shares authorized; 4,174,493 and 4,275,328 shares issued

and outstanding as of the periods presented

 

 

41,745

42,753

Retained earnings

 

140,595

132,905

Accumulated other comprehensive loss

 

(83,771)

(79,088)

Total shareholders’ equity attributable to First Farmers and Merchants Corporation

98,569

96,570

Noncontrolling interest - preferred stock of subsidiary

 

95

95

TOTAL SHAREHOLDERS’ EQUITY

 

98,664

96,665

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,868,540

 

$

1,942,289

 

 

 

 

 

(1) Derived from audited financial statements as of December 31, 2022.

 

 

 

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)

2023

 

2022

 

2023

 

2022

INTEREST AND

Interest and fees on loans

$

12,417

 

$

10,140

 

$

35,826

 

$

27,712

DIVIDEND

Income on investment securities

 

 

 

 

INCOME

Taxable interest

2,291

 

2,559

 

7,107

 

7,538

Exempt from federal income tax

442

 

504

 

1,353

 

1,525

Interest from federal funds sold and other

90

 

76

 

375

 

192

 

Total interest income

15,240

 

13,279

 

44,661

 

36,967

INTEREST

Interest on deposits

4,568

 

803

 

9,308

 

1,680

EXPENSE

Interest on other borrowings

669

 

7

 

1,041

 

7

Total interest expense

5,237

 

810

 

10,349

 

1,687

Net interest income

10,003

 

12,469

 

34,312

 

35,280

Provision credit for credit losses

-

 

-

 

(260)

 

(320)

 

Net interest income after provision

10,003

 

12,469

 

34,572

 

35,600

NON-INTEREST

Mortgage banking activities

26

 

118

 

101

 

558

INCOME

Trust services fee income

1,103

 

1,013

 

3,267

 

3,106

 

Service fees on deposit accounts

1,817

 

1,974

 

5,389

 

5,668

Investment services fee income

90

 

113

 

279

 

333

Earnings on bank-owned life insurance

158

 

119

 

402

 

356

Loss on sale of available-for-sale securities

-

 

-

 

(317)

 

-

 

Gain on sale of premises and equipment

3

 

-

 

7

 

91

 

(Loss) gain on equity securities

-

 

-

 

(351)

 

25

Other non-interest income

300

 

189

 

737

 

515

 

Total non-interest income

3,497

 

3,526

 

9,514

 

10,652

NON-INTEREST

Salaries and employee benefits

5,288

 

5,924

 

16,245

 

17,419

EXPENSE

Net occupancy expense

545

 

575

 

1,647

 

1,716

Depreciation expense

407

 

433

 

1,229

 

1,365

Data processing expense

536

 

459

 

1,535

 

2,003

 

Software support and other computer expense

1,086

 

980

 

3,156

 

2,792

Legal and professional fees

202

 

204

 

643

 

723

Audits and exams expense

158

 

157

 

525

 

519

Advertising and promotions

255

 

355

 

749

 

797

FDIC insurance premium expense

188

 

198

 

681

 

528

Other non-interest expense

822

 

791

 

2,498

 

2,394

Total non-interest expense

9,487

 

10,076

 

28,908

 

30,256

Income before provision for income taxes

4,013

 

5,919

 

15,178

 

15,996

 

Provision for income taxes

675

 

1,116

 

2,780

 

2,965

Net income

3,338

 

4,803

 

12,398

 

13,031

Noncontrolling interest - dividends on preferred stock subsidiary

-

 

-

 

8

 

8

 

Net income available to common shareholders

$

3,338

 

$

4,803

 

$

12,390

 

$

13,023

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

4,206,805

 

4,301,056

 

4,246,412

 

4,310,501

 

Earnings per share

$

0.79

 

$

1.12

 

$

2.92

 

$

3.02

 

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,

2023

 

June 30,

2023

 

March 31,

2023

 

December 31,

2022

 

September 30,

2022

Results of Operations:

 

 

 

 

 

 

 

 

 

Interest income

$

15,240

 

$

15,020

 

$

14,401

 

$

14,256

 

$

13,279

Interest expense

5,237

 

2,923

 

2,189

 

1,552

 

810

Net interest income

10,003

 

12,097

 

12,212

 

12,704

 

12,469

Provision credit for credit losses

-

 

(260)

 

-

 

-

 

-

Non-interest income

3,497

 

3,262

 

2,754

 

3,495

 

3,526

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

9,487

 

9,369

 

10,059

 

9,920

 

10,076

Income before income taxes

4,013

 

6,250

 

4,907

 

6,279

 

5,919

Income taxes

675

 

1,211

 

894

 

1,252

 

1,116

Net income for common shareholders

$

3,338

 

$

5,039

 

$

4,013

 

$

5,027

 

$

4,803

Per Share Data:

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.79

 

$

1.19

 

$

0.94

 

$

1.17

 

$

1.12

Book value per share

$

23.61

 

$

25.54

 

$

25.72

 

$

22.59

 

$

19.70

Weighted average shares outstanding per quarter

4,206,805

 

4,244,359

 

4,273,571

 

4,290,886

 

4,301,056

Financial Condition Data and Ratios:

 

 

 

 

 

 

 

 

 

Total securities

$

713,707

 

$

762,175

 

$

803,652

 

$

828,183

 

$

842,896

Available-for-sale securities, fair market value

$

696,505

 

$

744,963

 

$

786,430

 

$

810,591

 

$

825,293

Available-for-sale securities, amortized cost

$

810,959

 

$

845,712

 

$

880,890

 

$

918,936

 

$

944,987

Loans, net of deferred fees

$

1,004,066

 

$

964,822

 

$

972,093

 

$

966,167

 

$

951,279

Allowance for credit losses(1)

$

(7,871)

 

$

(8,200)

 

$

(8,497)

 

$

(9,382)

 

$

(9,383)

Total assets

$

1,868,540

 

$

1,878,675

 

$

1,913,481

 

$

1,942,289

 

$

1,941,415

Total deposits

$

1,674,673

 

$

1,657,587

 

$

1,776,987

 

$

1,798,628

 

$

1,833,041

Net interest income, on a fully taxable-equivalent basis

$

10,223

 

$

12,298

 

$

12,456

 

$

12,943

 

$

12,726

Net interest margin

2.22%

 

2.64%

 

2.67%

 

2.69%

 

2.61%

Efficiency

69.17%

 

58.04%

 

64.05%

 

60.40%

 

62.15%

 

 

 

 

 

 

 

 

 

 

Asset Quality Data and Ratios:

 

 

 

 

 

 

 

 

 

Total nonperforming assets

$

3,109

 

$

803

 

$

873

 

$

705

 

$

711

Nonperforming assets to total assets

0.17%

 

0.04%

 

0.05%

 

0.04%

 

0.04%

Allowance for credit losses to total loans(1)

0.78%

 

0.85%

 

0.87%

 

0.97%

 

0.99%

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

0.00%

 

0.00%

 

0.00%

 

(0.01%)

 

(0.01%)

 

 

 

 

 

 

 

 

 

 

(1) Prior-quarter data presents allowance for loan and lease losses prior to the adoption of the CECL accounting standard on January 1, 2023.

 

 

Contacts

Robert E. Krimmel

Chief Financial Officer

(931) 380-8257

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