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First Farmers and Merchants Corporation Reports First Quarter Results

Book Value Per Share Increases 16% to $29.92,

Growth in Net Interest Income for Sequential Quarter

First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced its results for the first quarter of 2024.

“First Farmers’ results for the first quarter were on track with our expectations,” stated Brian K. Williams, Chairman and Chief Executive Officer of First Farmers. “We are pleased to report that our growth in interest income accelerated and outpaced the growth in interest expense during the first quarter, contributing to our net interest margin improvement during the quarter. We also reported that non-interest income grew, and non-interest expenses were down for the ninth consecutive quarter-over-quarter reduction. We expect to report continued sequential quarterly improvement based upon growth in net interest margin and growth in earnings as we progress through the remainder of 2024. We maintain a positive outlook for 2024 given the strategic changes we have made to our balance sheet, continued loan demand and strong credit quality.”

Key highlights of First Farmers’ results for the first quarter of 2024 include:

  • Net income decreased 14.8% to $3.4 million from $4.0 million for the year-earlier quarter. Net income per common share decreased 12.6% to $0.82 from $0.94 in the first quarter of 2023. Net income decreased 6.5% from $3.7 million, or $0.88, per common share, reported in the fourth quarter of 2023;
  • Adjusted net income, which excludes special items, declined 23.9% to $3.4 million, or $0.80 per common share, compared with $4.4 million, or $1.03 per common share, for the year earlier quarter. First quarter adjusted net income improved 0.1% from $3.4 million, or $0.80 per common share, reported in the fourth quarter of 2023 (see “Non-GAAP Financial Measures” section);
  • Total loans decreased $1 million from the fourth quarter of 2023, but increased $46 million, or 4.7%, compared to the first quarter of 2023;
  • Net-interest income decreased 13.1% to $10.6 million from $12.2 million for the first quarter of 2023 but was up 5.7% from $10.0 million for the fourth quarter of 2023;
  • Provision for credit losses expense increased to $65,000 from $0 for the first quarter of 2023 and was up from a provision credit for credit losses of $230,000 for the fourth quarter of 2023;
  • Total non-performing assets declined 32.84% to $945,000 from the fourth quarter of 2023; and
  • Book value per share increased 16.3% to $29.92 from $25.72 in the first quarter of 2023 and increased 0.7% from $29.74 for the fourth quarter of 2023.

“Last year was very challenging for the banking industry, and we took steps to protect our deposit base, improve long-term earnings through changes in our balance sheet structure and maintain our strong capital levels,” continued Williams. “The repositioning of our balance sheet contributed to the expansion of our net interest margin during the first quarter. The increase in our net interest margin, which was the first in over four quarters, resulted from a more stable interest rate environment, the shift in the mix of assets, and strong discipline in managing loan pricing and funding costs. We see these positive trends accelerating through the remainder of 2024 and contributing to growth in earnings.

“The impact of higher interest rates remained evident in the first quarter with weaker loan demand as borrowers became more cautious. We see our loan pipelines building as we move into the second quarter supported by the healthy regional economy. Our earning assets composition is consistently improving as maturing investments are used to fund loans at higher market interest rates, and we have established substantial flexibility in our deposit and funding mix. These moves are foundational and will benefit the company’s financial performance beyond 2024,” concluded Williams.

Robert E. Krimmel, Chief Financial Officer, added, “Our programs to manage First Farmers’ balance sheet continued in the first quarter to improve our future profitability. Our investment portfolio is generating approximately $30 million per quarter in liquidity to fund new loan growth. We also elected to reduce municipal deposits and brokered certificates of deposit to further reduce interest expenses and focus on core deposits.

“We reinforced our balance sheet by utilizing the Federal Reserve’s Bank Term Funding Program (BTFP) to take advantage of the lower marginal borrowing costs. This accounted for a $168 million shift over the past two quarters and is expected to save First Farmers approximately $1 million in future interest expense in 2024. We expect this shift to improve our balance sheet flexibility because the BTFP borrowings are fixed for a one-year term that can be prepaid at any time without penalty.

“Our focus remains on maintaining our strong capital position as part of our prudent management of the bank and to provide funding to build shareholder value through stock repurchases and our cash dividend program. Our investments in new technology have contributed to more efficient operations as evidenced by the continued decline in non-interest expense. We expect to report improvements in our efficiency ratio due to our lower cost structure and growing revenue streams from loans and non-interest income. We believe these changes will support our trajectory to report improvement in earnings for 2024.”

First Quarter 2024 Results of Operations

Net income decreased to $3.4 million, down $594,000, or 14.8% from the first quarter of 2023. Net income per share declined 12.6% to $0.82 for the first quarter of 2024 compared with $0.94 for the first quarter of 2023. The decline in earnings for the first quarter of 2024 was due to a decrease in net-interest income of $1.6 million driven by growth in total interest expense of $4.0 million, an increase of 181.8% that was offset in part by an increase in interest and fees on loans of $2.4 million. Non-interest income grew by $729,000, or 26.5%, for the first quarter of 2024 due to improvement in gain on securities of $625,000 and an increase in wealth management and trust fee income of $73,000 compared to the first quarter of 2023. Non-interest expense decreased $206,000 for the first quarter of 2024 driven most notably by a decline in net occupancy expense of $90,000 compared to the first quarter of 2023.

Net income for the first quarter of 2024 was down from the sequential fourth quarter by $240,000, or 6.6%. The decrease in earnings was due to an increase in provision for credit losses expense of $295,000, a decline in non-interest income of $202,000, and an increase in non-interest expense of $184,000 offset by an increase in net interest income of $569,000. Net interest income increased compared to the sequential quarter as the net interest margin grew by 18 basis points. Non-interest income decreased because of the redemption of bank owned life insurance of $331,000 recorded in the sequential quarter. Non-interest expense increased because salaries and employee benefits grew by $287,000 related to annual salary adjustments, offset in part by a reduction in other non-interest expense of $73,000 compared to the sequential quarter.

For the first quarter of 2024, available-for-sale securities decreased by $23 million from the sequential fourth quarter to $670 million, or 35.5% of total assets, and decreased $117 million from $786 million, or 41.1% of total assets, in the first quarter of 2023. Outstanding loan balances decreased $1 million, or 0.1% from the sequential fourth quarter to $1.018 billion but increased $46 million, or 4.7%, from the first quarter of 2023. Total deposits decreased $51 million, or 3.2%, from the sequential fourth quarter to $1.567 billion, and decreased $210 million, or 11.8%, from the first quarter of 2023. The decline in total deposits compared to the sequential quarter was related to a reduction in brokered deposits of $109 million offset in part by municipal deposit growth of $23 million, other commercial deposit growth of $19 million and core deposit growth of $16 million. The reduction in total deposits compared to the first quarter of 2023 was driven by decreases of $175 million in municipal deposits and of $63 million in brokered deposits. The Federal Reserve’s BTFP borrowings increased $64 million, or 61.5%, from the sequential fourth quarter to $168 million.

For the first quarter of 2024, total shareholders’ equity decreased by $16,000 from the sequential fourth quarter to $124 million but increased $14 million from the first quarter of 2023. The decrease in total shareholders’ equity from the sequential fourth quarter resulted from an increase in the unrealized loss adjustment to the available-for-sale securities portfolio that totaled $2 million, net of tax. The reduction in the value of the available-for-sale securities portfolio was driven by an increase in market interest rates compared to the sequential fourth quarter. The book value per share improved 0.6% from the sequential fourth quarter to $29.92 and increased 16.3% compared to the first quarter of 2023.

Asset Quality

Nonperforming assets declined to $945,000, or 0.05% of total assets, down from $1.4 million, or 0.08% of total assets, from the sequential fourth quarter and were up from $873,000, or 0.05% of total assets, from the first quarter of 2023. Net charge-offs to average loans were 0.00% for the first quarter of 2024 compared with net charge-offs of 0.00% for the sequential quarter and net charge-offs of 0.00% for the first quarter of 2023. A provision expense of $65,000 was recorded to the allowance for credit losses during the first quarter of 2024. The increase in provision expense reflected a more cautious stance to protect asset quality as interest rates remained at elevated levels. The allowance for credit losses represented 0.77% of total loans outstanding for the first quarter of 2024 compared with 0.75% for the sequential fourth quarter and 0.87% for the first quarter of 2023. The allowance for credit losses for unfunded commitments declined to $810,000, or 0.26% of total unfunded commitments, for the first quarter of 2024 compared with 0.28% for the sequential fourth quarter and 0.19% for the first quarter of 2023. The allowance for credit losses for held-to-maturity (“HTM”) securities represented 0.06% of total HTM securities for the first quarter of 2024 compared with 0.06% for the sequential fourth quarter and 0.06% for the first quarter of 2023.

Capital Management Initiatives

During the first quarter of 2024, First Farmers repurchased 25,040 shares of the Company’s common stock in the open market and using privately negotiated transactions at an average price of $28.46 with prices ranging from $24.00 to $30.03 per share in accordance with the Company’s stock repurchase program. First quarter 2024 stock repurchases represented a 7,034% increase compared to the sequential fourth quarter and an 87.4% increase compared to the year earlier quarter. Authorization to repurchase approximately 174,960 shares remains under the current program, which is set to expire in December 2024, 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, 2024, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $124 million, and administered trust assets of $6.0 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 and losses, gain on redemption of bank-owned life insurance, gain on sale of premises and equipment, 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,

2023

 

2024

 

2023

 

Total non-interest income

$

3,483

 

 

$

2,754

 

 

$

3,685

 

Loss on sale of securities

 

-

 

 

 

183

 

 

 

-

 

(Gain) loss on equity securities

 

(91

)

 

 

351

 

 

 

31

 

Gain on redemption of bank-owned life insurance

 

-

 

 

 

-

 

 

 

(331

)

Gain on sale of premises and equipment

 

-

 

 

 

(4

)

 

 

(1

)

Adjusted non-interest income

$

3,392

 

 

$

3,284

 

 

$

3,384

 

 

 

 

 

 

 

Total non-interest expense

$

9,853

 

 

$

10,059

 

 

$

9,669

 

 

 

 

 

 

 

Net income as reported

$

3,419

 

 

$

4,013

 

 

$

3,659

 

Total adjustments, net of tax1

 

(67

)

 

 

392

 

 

 

(309

)

Adjusted net income

$

3,352

 

 

$

4,405

 

 

$

3,350

 

Basic earnings per share

$

0.82

 

 

$

0.94

 

 

$

0.88

 

Total adjustments, net of tax1

 

(0.02

)

 

 

0.09

 

 

 

(0.08

)

Adjusted basic earnings per share

$

0.80

 

 

$

1.03

 

 

$

0.80

(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)

 

2024

 

2023(1)

ASSETS

 

Cash and due from banks

 

$

17,525

 

$

22,654

 

Interest-bearing deposits

 

 

53,550

 

 

2,689

 

Federal funds sold

 

 

42

 

 

117

 

Total cash and cash equivalents

 

 

71,117

 

 

25,460

 

Securities:

 

 

 

Available-for-sale

 

 

669,552

 

 

692,763

 

Held-to-maturity (fair market value $14,229 and $14,394)

 

 

15,029

 

 

15,038

 

 

 

Equity securities

 

 

2,214

 

 

 

2,123

 

Loans held-for-sale

 

 

-

 

 

470

 

Loans, net of deferred fees

 

 

1,017,677

 

 

1,018,866

 

Allowance for credit losses

 

 

(7,803

)

 

(7,666

)

Net loans

 

 

1,009,874

 

 

1,011,200

 

Bank premises and equipment, net

 

 

29,840

 

 

30,208

 

Bank-owned life insurance

 

 

34,761

 

 

34,602

 

Goodwill

 

 

9,018

 

 

9,018

 

 

 

Deferred tax asset

 

 

25,472

 

 

 

24,862

 

Other assets

 

 

17,249

 

 

25,859

 

 

 

TOTAL ASSETS

 

$

1,884,126

 

 

$

1,871,603

 

LIABILITIES

 

Deposits:

 

 

Noninterest-bearing

 

$

499,975

 

$

463,858

 

Interest-bearing

 

 

1,067,108

 

 

1,154,706

 

Total deposits

 

 

1,567,083

 

 

1,618,564

 

 

 

Accounts payable and accrued liabilities

 

 

24,818

 

 

 

24,798

 

 

 

FRB Bank Term Funding Program borrowings

 

 

168,000

 

 

 

104,000

 

 

 

TOTAL LIABILITIES

 

 

1,759,901

 

 

 

1,747,362

 

 

 

 

 

 

 

 

SHAREHOLDERS’

EQUITY

 

Common stock - $10 par value per share, 8,000,000 shares authorized; 4,149,102 and 4,174,142 shares issued and outstanding as of the periods presented

 

 

41,491

 

 

 

41,741

 

Retained earnings

 

 

145,210

 

 

143,249

 

Accumulated other comprehensive loss

 

 

(62,571

)

 

(60,844

)

 

Total shareholders’ equity attributable to First Farmers and Merchants Corporation

 

 

 

 

124,130

 

124,146

 

Noncontrolling interest - preferred stock of subsidiary

 

 

95

 

 

95

 

TOTAL SHAREHOLDERS’ EQUITY

 

 

124,225

 

 

124,241

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,884,126

 

 

$

1,871,603

 

(1)

Derived from audited financial statements as of December 31, 2023.

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

Three Months Ended March 31,

 

(dollars in thousands, except per share data)

2024

 

2023

INTEREST AND

Interest and fees on loans

$

13,890

 

$

11,450

 

DIVIDEND

Income on investment securities

 

INCOME

Taxable interest

 

2,167

 

 

2,440

 

Exempt from federal income tax

 

433

 

 

463

 

Interest from federal funds sold and other

 

291

 

 

48

 

 

Total interest income

 

16,781

 

 

14,401

 

INTEREST

Interest on deposits

 

4,324

 

 

1,822

 

EXPENSE

Interest on other borrowings

 

1,845

 

 

367

 

Total interest expense

 

6,169

 

 

2,189

 

Net interest income

 

10,612

 

 

12,212

 

Provision for credit losses

 

65

 

 

-

 

 

Net interest income after provision

 

10,547

 

 

12,212

 

NON-INTEREST

Mortgage banking activities

 

59

 

 

40

 

INCOME

Wealth management and trust fee income

 

1,157

 

 

1,084

 

 

Service fees on deposit accounts

 

1,684

 

 

1,731

 

Investment services fee income

 

101

 

 

105

 

Earnings on bank owned life insurance

 

158

 

 

116

 

 

Loss on sale of AFS securities

 

-

 

 

(183

)

 

Gain (loss) on equity securities

 

91

 

 

(351

)

Other non-interest income

 

233

 

 

212

 

 

Total non-interest income

 

3,483

 

 

2,754

 

NON-INTEREST

Salaries and employee benefits

 

5,623

 

 

5,672

 

EXPENSE

Net occupancy expense

 

599

 

 

689

 

Depreciation expense

 

406

 

 

412

 

Data processing expense

 

563

 

 

490

 

 

Software support and other computer expense

 

1,095

 

 

1,038

 

Legal and professional fees

 

220

 

 

271

 

 

Audit and exam expenses

 

187

 

 

186

 

 

Advertising and promotions

 

200

 

 

245

 

FDIC insurance premium expense

 

218

 

 

267

 

Other non-interest expense

 

742

 

 

789

 

Total non-interest expense

 

9,853

 

 

10,059

 

Income before provision for income taxes

 

4,177

 

 

4,907

 

 

Provision for income taxes

 

758

 

 

894

 

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

 

3,419

 

 

4,013

 

Non-controlling interest - dividends on preferred stock subsidiary

-

 

 

-

 

 

Net income for common shareholders

$

3,419

 

$

4,013

 

 

 

 

 

 

Weighted average shares outstanding

 

4,166,834

 

 

4,273,571

 

 

Earnings per share

$

0.82

 

$

0.94

 

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,

2024

 

December 31,

2023

 

September 30,

2023

 

June 30,

2023

 

March 31,

2023

Results of Operations:

 

 

 

 

 

 

 

 

 

Interest income

$

16,781

 

 

$

16,091

 

 

$

15,240

 

 

$

15,020

 

 

$

14,401

 

Interest expense

 

6,169

 

 

 

6,048

 

 

 

5,237

 

 

 

2,923

 

 

 

2,189

 

Net interest income

 

10,612

 

 

 

10,043

 

 

 

10,003

 

 

 

12,097

 

 

 

12,212

 

Provision (credit) for credit losses

 

65

 

 

 

(230

)

 

 

-

 

 

 

(260

)

 

 

-

 

Non-interest income

 

3,483

 

 

 

3,685

 

 

 

3,497

 

 

 

3,262

 

 

 

2,754

 

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

 

 

 

9,861

 

 

 

 

 

 

9,677

 

 

 

 

 

 

9,487

 

 

 

 

 

 

9,369

 

 

 

 

 

 

10,059

 

 

Income before income taxes

 

4,169

 

 

 

4,281

 

 

 

4,013

 

 

 

6,250

 

 

 

4,907

 

Income taxes

 

758

 

 

 

622

 

 

 

675

 

 

 

1,211

 

 

 

894

 

Net income for common shareholders

$

3,411

 

 

$

3,659

 

 

$

3,338

 

 

$

5,039

 

 

$

4,013

 

Per Share Data:

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.82

 

 

$

0.88

 

 

$

0.79

 

 

$

1.19

 

 

$

0.94

 

Book value per share

$

29.92

 

 

$

29.74

 

 

$

23.61

 

 

$

25.54

 

 

$

25.72

 

Weighted average shares outstanding per quarter

 

4,166,834

 

 

 

4,174,283

 

 

 

4,206,805

 

 

 

4,244,359

 

 

 

4,273,571

 

Financial Condition Data and Ratios:

 

 

 

 

 

 

 

 

 

Total securities

$

686,795

 

 

$

709,924

 

 

$

713,707

 

 

$

762,175

 

 

$

803,652

 

Available-for-sale securities, fair market value

$

669,552

 

 

$

692,763

 

 

$

696,505

 

 

$

744,963

 

 

$

786,430

 

Available-for-sale securities, amortized cost

$

755,162

 

 

$

776,078

 

 

$

810,959

 

 

$

845,712

 

 

$

880,890

 

Loans, net of deferred fees

$

1,017,677

 

 

$

1,018,866

 

 

$

1,004,066

 

 

$

964,822

 

 

$

972,093

 

Allowance for credit losses

$

(7,803

)

 

$

(7,666

)

 

$

(7,871

)

 

$

(8,200

)

 

$

(8,497

)

Total assets

$

1,884,126

 

 

$

1,871,603

 

 

$

1,868,540

 

 

$

1,878,675

 

 

$

1,913,481

 

Total deposits

$

1,567,083

 

 

$

1,618,564

 

 

$

1,674,673

 

 

$

1,657,587

 

 

$

1,776,987

 

Net interest income, on a fully taxable-equivalent basis

$

10,834

 

 

$

10,268

 

 

$

10,223

 

 

$

12,298

 

 

$

12,456

 

Net interest margin

 

2.39

%

 

 

2.21

%

 

 

2.22

%

 

 

2.64

%

 

 

2.67

%

Efficiency

 

69.72

%

 

 

62.84

%

 

 

69.17

%

 

 

58.04

%

 

 

64.05

%

 

 

 

 

 

 

 

 

 

 

Asset Quality Data and Ratios:

 

 

 

 

 

 

 

 

 

Total nonperforming assets

$

945

 

 

$

1,407

 

 

$

3,109

 

 

$

803

 

 

$

873

 

Nonperforming assets to total assets

 

0.05

%

 

 

0.08

%

 

 

0.17

%

 

 

0.04

%

 

 

0.05

%

Allowance for credit losses to total loans(1)

 

0.77

%

 

 

0.75

%

 

 

0.78

%

 

 

0.85

%

 

 

0.87

%

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

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

 

Contacts

Robert E. Krimmel

Chief Financial Officer

(931) 380-8257

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