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First Farmers and Merchants Corporation Reports Improved First Quarter Results

Net Income Rises 9% to $4 Million

Adjusted Net Income Increases 15%

First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced high-single-digit growth in net income and double-digit growth in adjusted net income for the first quarter of 2023 compared with 2022.

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

  • Net income rose 9.0% to $4.0 million from $3.7 million for the year-earlier quarter. Net income per common share increased 10.6% to $0.94 from $0.85 in the first quarter of 2022. Net income decreased 20.2% from $5.0 million, or $1.17, per common share, reported in the fourth quarter of 2022;
  • Adjusted net income, which excludes special items, rose 14.9% to $4.4 million, or $1.03 per common share, compared with $3.9 million, or $0.89 per common share, for the year earlier quarter. First quarter adjusted income declined 12.4% from $5 million, or $1.17 per common share, reported in the fourth quarter of 2022 (see “Non-GAAP Financial Measures” section);
  • Net interest income increased 9.8% to $12.2 million from $11.1 million from the year-earlier quarter but was down 3.9% from $12.7 million for the fourth quarter of 2022;
  • Net loans grew by $7 million, or 2.8% annualized, for the quarter to $964 million;
  • Uninsured deposits not covered by FDIC insurance were $229 million, or 12.9% of total deposits;
  • Book value per share increased 13.9% to $25.72 from $22.59 for the fourth quarter of 2022; and
  • The Company adopted the current expected credit losses (“CECL”) methodology during the first quarter of 2023 and did not record any allowance for credit losses during the quarter compared to provision credit for loan and lease losses of $320,000 for the year earlier quarter.

Commenting on the results, Brian K. Williams, Chairman and Chief Executive Officer of First Farmers, said, “Our first quarter 2023 performance represents a solid start with year-over-year growth in earnings, loan growth in line with expectations, stability in deposit levels, and continued strength in our capital position. We reported positive momentum in our book value per share for the second consecutive quarter with the growth rate reaching 30.6% since the third quarter of 2022. The key driver in the improved book value per share is the reduction in our investment portfolio, which is paying down as expected, about $10 million per month for the next two years.

“Despite recent challenges to our industry, our outlook for First Farmers remains positive. We are positioned well for the current economic and banking environment. We are protecting our core deposit base, managing loan risks, maintaining excess liquidity and supporting our strong capital structure. Our deposit base is primarily from consumers and businesses in the markets we serve with about 87% of our total deposits fully insured by the FDIC.”

Robert E. Krimmel, Chief Financial Officer, added, “Our net interest income rose 9.8%, or $1.1 million, from the first quarter of last year on the strength of higher interest and fees on loans and income from investment securities that outpaced higher interest expense. Our asset quality also remained solid with no additional provision for credit losses. Non-interest income benefited from growth in trust services fee income that was offset by lower mortgage banking activities as higher interest weighed on mortgage banking activities. Service fees on deposits were down slightly due to our elimination of non-sufficient funds fees and lower consumer overdraft fees per item.

“Our expense controls were instrumental in reducing non-interest expenses for the fifth consecutive quarter-over-quarter comparison. The combination of higher revenues and lower expenses contributed to an almost 500-basis-point improvement in our efficiency ratio to 64.05%, compared with the first quarter of last year. We expect to gain further operating efficiencies as we continue to invest in our digital platforms and the roll-out of a new loan platform that will come online in the second half of this year.”

First Quarter 2023 Results of Operations

Net income increased to $4.0 million, up $331,000, or 9.0% from the year-earlier quarter. The improvement in earnings was due to growth in net-interest income of $1.1 million for the first quarter of 2023 coupled with a decline in noninterest expense of $366,000, offset in part by a reduction in non-interest income of $712,000 from the year-earlier quarter. During the first quarter of 2023, the Company recorded a loss on the sale of securities of $183,000 driven by a business decision to sell lower-yielding investments and improve net interest income. Equity securities, recorded at fair value, experienced a decline in value of $351,000 related to the significant increase in interest rates impacting the insurance and banking industry.

Adjusted net income, which excludes special items, rose 14.9% to $4.4 million, up $570,000 from the year-earlier quarter. The increase in adjusted net income was driven by an increase in interest and fees on loans of $2.9 million supported by growth in net loan balances of $81 million compared with the year-earlier quarter. Adjusted non-interest income dropped $182,000 driven by weakness in mortgage banking activities as a result of an increase in mortgage interest rates as the Federal Reserve increased market rates. Adjusted non-interest expense benefited from a decrease in data processing expense of $361,000 and salaries and employee benefits expense of $197,000, offset in part by an increase in software support and other computer expense of $191,000 due to investments in our new loan origination system with a planned rollout during the third quarter of 2023.

Net income for the first quarter of 2023 was down from the sequential fourth quarter by $1.0 million, or 20.2%. The decrease in earnings was driven by growth in deposit interest expense of $680,000 outpacing the growth in interest and fees and loans for the quarter. Service fees on deposits accounts decreased by $256,000 due to the Company’s decision to eliminate non-sufficient funds fees and reduce the consumer overdraft fee per item. Recorded losses on the sale of securities and the fair market value adjustment for equity securities reduced non-interest income by $529,000 for the quarter.

For the first quarter of 2023, the balance of securities available-for-sale declined $24 million from the sequential fourth quarter. Securities available-for-sale amortized cost decreased $38 million and was used to fund banking operations for the quarter. The unrealized loss adjustment for securities available-for-sale decreased by $14 million for the quarter as securities values improved due to lower market interest rates compared with the sequential quarter.

For the first quarter of 2023, outstanding loan balances increased $7 million, or 0.7%, from the previous quarter to $964 million and increased $81 million, or 9.1%, from the year-earlier quarter. Total deposits decreased $22 million, or 1.2%, from the sequential fourth quarter to $1.777 billion, and decreased $221 million, or 11%, from the year-earlier quarter. The decline in total deposits during the first quarter of 2023 was due to increased competition for deposit balances. The Company raised deposit interest rates during the first quarter of 2023 to protect deposit balances priced below the marginal funding cost.

Total shareholders’ equity increased $13 million due to improvement in the unrealized loss adjustment to the available-for-sale securities portfolio that totaled $10 million, net of tax, for the first quarter of 2023. The improvement in the value of the available-for-sale securities portfolio was driven by a reduction in market interest rates and the overall size of the securities portfolio. Total unrealized losses related to the available-for-sale investment portfolio increased to $94 million compared with unrealized losses of $57 million from the year-earlier quarter but decreased from $108 million from the fourth 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. Book value per share increased by 13.9% to $25.72 for the first quarter of 2023, which marked the second quarter in a row the Company recorded double-digit growth in the book value per share.

Asset Quality

Asset quality remained stable with a slight increase in nonperforming assets to $873,000 that totaled 0.05% of total assets, up from $705,000 or 0.04% from the previous quarter, but down $129,000, or 0.05% of total assets, from the year-earlier quarter. Net recoveries to average loans were 0.00% for the first quarter of 2023 compared with net recoveries of 0.01% for the previous quarter and net recoveries of 0.05% for the year-earlier quarter. No adjustments were made to provision for credit losses during the first quarter of 2023 as a result of stable asset quality. The allowance for credit losses represented 0.87% of total loans outstanding for the first quarter of 2023 compared with allowance for loan and lease losses of 0.97% of total loans for the previous quarter and 1.05% for the year-earlier quarter.

On January 1, 2023, the Company adopted Accounting Standards Update 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which introduced the CECL methodology. As part of the adoption of CECL, the Company recorded an opening adjustment to decrease allowance for credit losses for loans in the amount of $710,000 and establish a liability for allowance for credit losses for unfunded commitments in the amount of $410,000. The net of tax transitional adjustment increased 2023 opening retained earnings by $215,000.

Capital Management Initiatives

During the first quarter of 2023, First Farmers repurchased 13,365 shares of the Company’s common stock in the open market and using privately negotiated transactions at an average price of $28.76 per share with prices ranging from $21.04 to $31.00 per share in accordance with the Company’s stock repurchase program. Authorization to repurchase approximately 187,000 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 March 31, 2023, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $110 million, and administered trust assets of $5.8 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

 

March 31,

 

December 31,

2022

 

2023

 

2022

 

Total non-interest income

$

2,754

 

$

3,466

 

$

3,495

Loss on sale of securities

 

183

 

 

-

 

 

5

Loss on equity securities

 

351

 

 

-

 

 

-

Gain on sale of premises and equipment

 

(4)

 

 

-

 

 

-

Adjusted non-interest income

$

3,284

 

$

3,466

 

$

3,500

 

 

 

 

 

 

 

 

 

Total non-interest expense

$

10,059

 

$

10,425

 

$

9,912

One-time digital conversion fees

 

-

 

 

(207)

 

 

-

Adjusted non-interest expense

$

10,059

 

$

10,218

 

$

9,912

 

 

 

 

 

 

 

 

 

Net income as reported

$

4,013

 

$

3,682

 

$

5,027

Total adjustments, net of tax1

 

392

 

 

153

 

 

4

Adjusted net income

$

4,405

 

$

3,835

 

$

5,031

Basic earnings per share

$

0.94

 

$

0.85

 

$

1.17

Total adjustments, net of tax1

 

0.09

 

 

0.04

 

 

-

Adjusted basic earnings per share

$

1.03

 

$

0.89

 

$

1.17

(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)

 

 

2023

 

 

 

2022(1)

ASSETS

Cash and due from banks

 

$

25,563

 

$

27,193

 

Interest-bearing deposits

 

 

2,789

 

 

1,754

 

Federal funds sold

 

 

123

 

 

57

 

Total cash and cash equivalents

 

 

28,475

 

 

29,004

 

Securities:

 

 

 

Available-for-sale

 

 

786,430

 

 

810,591

 

Held-to-maturity (fair market value $14,554 and $14,162, net of

 

 

 

allowance for credit losses of $9 and $0 for the periods presented)

 

 

15,068

 

 

15,087

 

 

Equity securities

 

 

2,154

 

 

 

2,505

 

Loans held-for-sale

 

 

-

 

 

-

 

Loans, net of deferred fees

 

 

972,093

 

 

966,167

 

Allowance for credit losses

 

 

(8,497

)

 

(9,382

)

Net loans

 

 

963,596

 

 

956,785

 

Bank premises and equipment, net

 

 

31,896

 

 

32,140

 

Bank-owned life insurance

 

 

35,945

 

 

35,829

 

Goodwill

 

 

9,018

 

 

9,018

 

 

Deferred tax asset

 

 

25,865

 

 

 

30,511

 

Other assets

 

 

15,034

 

 

20,819

 

 

TOTAL ASSETS

 

$

1,913,481

 

 

$

1,942,289

 

LIABILITIES

Deposits:

 

 

Noninterest-bearing

 

$

494,472

 

$

534,474

 

Interest-bearing

 

 

1,282,515

 

 

1,264,154

 

Total deposits

 

 

1,776,987

 

 

1,798,628

 

 

Accounts payable and other liabilities

 

 

21,799

 

 

 

21,996

 

 

FHLB borrowings

 

 

5,000

 

 

 

25,000

 

 

TOTAL LIABILITIES

 

 

1,803,786

 

 

 

1,845,624

 

SHAREHOLDERS’

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

 

 

 

 

 

EQUITY

authorized; 4,261,963 and 4,275,328 shares issued

 

 

 

 

and outstanding as of the periods presented

 

 

42,620

 

 

 

42,753

 

Retained earnings

 

 

135,902

 

 

132,905

 

Accumulated other comprehensive loss

 

 

(68,922

)

 

(79,088

)

Total shareholders’ equity attributable to First Farmers and Merchants Corporation

 

 

 

 

 

 

109,600

 

 

 

 

96,570

 

Noncontrolling interest - preferred stock of subsidiary

 

 

95

 

 

95

 

TOTAL SHAREHOLDERS’ EQUITY

 

 

109,695

 

 

96,665

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,913,481

 

 

$

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 March 31,

 

(dollars in thousands, except per share data)

 

2023

 

 

 

2022

 

INTEREST AND

Interest and fees on loans

$

11,450

 

 

$

8,587

 

DIVIDEND

Income on investment securities

 

INCOME

Taxable interest

 

2,440

 

 

 

2,364

 

Exempt from federal income tax

 

463

 

 

 

509

 

Interest from federal funds sold and other

 

48

 

 

 

30

 

 

Total interest income

 

14,401

 

 

 

11,490

 

INTEREST

Interest on deposits

 

1,822

 

 

 

372

 

EXPENSE

Interest on other borrowings

 

367

 

 

 

-

 

Total interest expense

 

2,189

 

 

 

372

 

Net interest income

 

12,212

 

 

 

11,118

 

Provision credit for loan losses

 

-

 

 

 

(320

)

 

Net interest income after provision

 

12,212

 

 

 

11,438

 

NON-INTEREST

Mortgage banking activities

 

40

 

 

 

267

 

INCOME

Trust services fee income

 

1,084

 

 

 

1,066

 

 

Service fees on deposit accounts

 

1,731

 

 

 

1,750

 

Investment services fee income

 

105

 

 

 

110

 

Earnings on bank-owned life insurance

 

116

 

 

 

116

 

 

Loss on sale of available-for-sale securities

 

(183

)

 

 

-

 

 

Loss on equity securities

 

(351

)

 

 

-

 

Other non-interest income

 

212

 

 

 

157

 

 

Total non-interest income

 

2,754

 

 

 

3,466

 

NON-INTEREST

Salaries and employee benefits

 

5,672

 

 

 

5,869

 

EXPENSE

Net occupancy expense

 

689

 

 

 

662

 

Depreciation expense

 

412

 

 

 

454

 

Data processing expense

 

490

 

 

 

1,058

 

 

Software support and other computer expense

 

1,038

 

 

 

847

 

Legal and professional fees

 

271

 

 

 

301

 

 

Audit and exam expenses

 

186

 

 

 

176

 

 

Advertising and promotions

 

245

 

 

 

203

 

FDIC insurance premium expense

 

267

 

 

 

169

 

Other non-interest expense

 

789

 

 

 

686

 

Total non-interest expense

 

10,059

 

 

 

10,425

 

Income before provision for income taxes

 

4,907

 

 

 

4,479

 

 

Provision for income taxes

 

894

 

 

 

797

 

Net income before non-controlling interest -

dividends on preferred stock of subsidiary

 

4,013

 

 

 

3,682

 

Non-controlling interest - dividends on

preferred stock subsidiary

 

-

 

 

 

 

 

-

 

 

 

Net income for common shareholders

$

4,013

 

 

$

3,682

 

 

 

 

 

 

Weighted average shares outstanding

 

4,273,571

 

 

 

4,317,169

 

 

Earnings per share

$

0.94

 

 

$

0.85

 

 

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,

2023

 

December 31,

2022

 

September 30,

2022

 

June 30,

2022

 

March 31,

2022

Results of Operations:

 

 

 

 

 

 

 

 

 

Interest income

$

14,401

 

 

$

14,256

 

 

$

13,279

 

 

$

12,198

 

 

$

11,490

 

Interest expense

2,189

 

 

1,552

 

 

810

 

 

505

 

 

372

 

Net interest income

12,212

 

 

12,704

 

 

12,469

 

 

11,693

 

 

11,118

 

Provision credit for loan losses

-

 

 

-

 

 

-

 

 

-

 

 

(320

)

Non-interest income

2,754

 

 

3,495

 

 

3,526

 

 

3,660

 

 

3,466

 

Non-interest expense and non-controlling

interest – preferred stock of subsidiary

 

10,059

 

 

 

9,920

 

 

10,076

 

 

9,763

 

 

10,425

 

Income before income taxes

4,907

 

 

6,279

 

 

5,919

 

 

5,590

 

 

4,479

 

Income taxes

894

 

 

1,252

 

 

1,116

 

 

1,052

 

 

797

 

Net income for common shareholders

$

4,013

 

 

$

5,027

 

 

$

4,803

 

 

$

4,538

 

 

$

3,682

 

Per Share Data:

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.94

 

 

$

1.17

 

 

$

1.12

 

 

$

1.05

 

 

$

0.85

 

Book value per share

$

25.72

 

 

$

22.59

 

 

$

19.70

 

 

$

25.30

 

 

$

28.77

 

Weighted average shares outstanding per quarter

4,273,571

 

 

4,290,886

 

 

4,301,056

 

 

4,313,455

 

 

4,317,169

 

Financial Condition Data and Ratios:

 

 

 

 

 

 

 

 

 

Total securities

$

803,652

 

 

$

828,183

 

 

$

842,896

 

 

$

902,742

 

 

$

944,543

 

Available-for-sale securities, fair market value

$

786,430

 

 

$

810,591

 

 

$

825,293

 

 

$

885,129

 

 

$

926,944

 

Available-for-sale securities, amortized cost

$

880,890

 

 

$

918,936

 

 

$

944,987

 

 

$

967,235

 

 

$

983,958

 

Loans, net of deferred fees

$

972,093

 

 

$

966,167

 

 

$

951,279

 

 

$

941,357

 

 

$

891,108

 

Allowance for credit losses(1)

$

(8,497

)

 

$

(9,382

)

 

$

(9,383

)

 

$

(9,386

)

 

$

(9,388

)

Total assets

$

1,913,481

 

 

$

1,942,289

 

 

$

1,941,415

 

 

$

2,012,409

 

 

$

2,144,206

 

Total deposits

$

1,776,987

 

 

$

1,798,628

 

 

$

1,833,041

 

 

$

1,880,612

 

 

$

1,998,175

 

Net interest income, on a fully taxable-

equivalent basis

$

12,456

 

 

$

12,943

 

 

$

12,726

 

 

$

11,956

 

 

$

11,379

 

Net interest margin

2.67

%

 

2.69

%

 

2.61

%

 

2.46

%

 

2.43

%

Efficiency

64.05

%

 

60.40

%

 

62.15

%

 

62.94

%

 

68.83

%

 

 

 

 

 

 

 

 

 

 

Asset Quality Data and Ratios:

 

 

 

 

 

 

 

 

 

Total nonperforming assets

$

873

 

 

$

705

 

 

$

711

 

 

$

1,635

 

 

$

1,002

 

Nonperforming assets to total assets

0.05

%

 

0.04

%

 

0.04

%

 

0.08

%

 

0.05

%

Allowance for credit losses to total loans(1)

0.87

%

 

0.97

%

 

0.99

%

 

1.00

%

 

1.05

%

Net recoveries to average loans (annualized)

0.00

%

 

(0.01

)%

 

(0.01

)%

 

(0.02

)%

 

(0.05

)%

(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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