First Farmers and Merchants Corporation Reports Record First Quarter Net Income of $3.1 Million or $0.70 Per Common Share

COLUMBIA, Tenn.--(BUSINESS WIRE)--First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced unaudited financial results for the quarter ending March 31, 2018.

Key highlights of First Farmers’ results for the first quarter of 2018 include:

• Net income of $3.1 million or $0.70 per common share, up 45% from $2.2 million or $0.48 per common share for the previous quarter and up 31% from $2.4 million or $0.52 per common share for the year-earlier quarter;
• Adjusted net income, which excludes special items, of $3.1 million or $0.70 per common share, compared to adjusted net income of $3.2 million or $0.71 per common share for the previous quarter and $2.4 million or $0.52 per common share for the year-earlier quarter (see non-GAAP reconciliation);
• Loan growth of $9 million or 1% from the previous quarter and $22 million or 3% compared with the year-earlier quarter;
• Net interest margin of 3.31%, down from net interest margin of 3.38% for the previous quarter but up from 3.28% for the year-earlier quarter; and
• Non-interest income of $3.4 million up 7% from $3.2 million for the previous quarter and up 22% from $2.8 million for the year-earlier quarter.

Commenting on the results, T. Randy Stevens, Chairman and Chief Executive Officer of First Farmers, said, “We are pleased to begin 2018 with record quarterly earnings and significant improvement in our results compared to the same period in 2017. Propelling our record earnings was our strategic focus to improve revenue with pricing discipline and grow non-interest income while limiting additional non-interest expense.” Stevens continued, “We remain focused on growing our non-interest income lines of business in 2018 while also looking for strategic opportunities within the Middle Tennessee market to expand our franchise by hiring talented bankers.”

First Quarter 2018 Results of Operations

The improvement in first quarter of 2018 earnings of $968,000 compared with the previous quarter was driven by a decrease in provision for income taxes and an increase in non-interest income offset by an increase in non-interest expense. The $1.6 million decrease in provision for income taxes includes the deferred tax assets revaluation which resulted in a $1.0 million expense recorded in the fourth quarter of 2017, in addition to a decrease in income taxes provision expense due to a reduced corporate tax rate effective under the new Tax Cuts and Jobs Act legislation. The increase of $222,000 in non-interest income was primarily driven by an increase in trust services fee income of $167,000 and mortgage banking activities of $40,000. The increase of $579,000 in non-interest expense for the quarter includes an increase of $446,000 in other non-interest expenses driven by audit and examinations expense and other loan related expenses. The $748,000 increase in reported quarterly earnings for the first quarter of 2018 compared with the year-earlier quarter resulted from increases in net interest income after provision for loan and lease losses expense of $475,000 and non-interest income of $572,000, which were offset by an increase in non-interest expense of $283,000.

For the first quarter of 2018, outstanding loan balances increased $9 million from the previous quarter and increased $22 million or 3% from the year-earlier quarter. Net interest margin declined to 3.31% compared to 3.38% for the previous quarter but improved from 3.28% for the year-earlier quarter. The primary reason for the decline in the net interest margin from the prior quarter was the tax equivalent adjustment for tax-free investments and loans using the new, lower corporate tax rate. Adjusting for the impact of the new lower corporate tax rate, net interest margin continued to expand during the first quarter when compared to the previous quarter and the year-earlier quarter. Total deposits stood at $1.203 billion at the end of the first quarter of 2018, down $3 million from the previous quarter and $11 million or 1% from the year-earlier quarter.

Asset Quality

Total nonperforming assets decreased to $2.7 million, or 0.20% of total assets, compared to $2.8 million, or 0.20% of total assets, for the previous quarter and declined from $3.3 million, or 0.24% of total assets, when compared to the year-earlier quarter. Net recoveries to average loans were 0.02% for the first quarter of 2018 compared to net charge-offs of 0.02% for the previous quarter and net recoveries of 0.01% for the year-earlier quarter. As a result of the improvement in the quality of the loan portfolio coupled with an increase in net recoveries, no provision for loan and lease losses expense was recorded during the first quarter of 2018. The allowance for loan and lease losses represented 1.06% of total loans outstanding for the first quarter of 2018 compared to 1.07% for the previous quarter and 1.11% for the year-earlier quarter.

Capital Management Initiatives

First Farmers repurchased 7,000 shares of common stock, during the first quarter, at an average price of $41.50 per share under its stock repurchase program. Authorization to repurchase approximately 193,000 shares remains under the current program, which is set to expire in December 2018, 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 eight Middle Tennessee counties. As of March 31, 2018, First Farmers reported total assets of approximately $1.4 billion, total shareholders’ equity of approximately $122 million, and administered trust assets of $4.7 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 and losses, losses and gains on the sales of foreclosed property, gain on bank owned life insurance, deferred tax asset revaluation 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,
	2018		2017		2017
Total adjusted non-interest income	$	3,377	$	2,758	$	3,155
Net income as reported	$	3,129	$	2,381	$	2,161
Deferred tax asset revaluation		-		-		1,026
Total adjustments, net of tax^1		-		-		3
Adjusted net income	$	3,129	$	2,381	$	3,190
Basic earnings per share	$	0.70	$	0.52	$	0.48
Total adjustments, net of tax^1		-		-		0.23
Adjusted basic earnings per share	$	0.70	$	0.52	$	0.71

(1)	The effective tax rate of 26.1% is used to determine net of tax amounts for period ended March 31, 2018. The effective tax rate of 38.5% is used to determine net of tax amounts for 2017 periods presented.

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES   CONDENSED CONSOLIDATED BALANCE SHEETS
		(unaudited)
		March 31,			December 31,
	(dollars in thousands, except per share data)	2018			2017^(1)
ASSETS	Cash and due from banks	$	18,075		$	26,878
	Interest-bearing deposits	11,632			26,371
	Federal funds sold	2,465			1,915
	Total cash and cash equivalents	32,172			55,164
	Securities:
	Available-for-sale	382,889			371,773
	Held-to-maturity (fair market value $17,785 and $18,525 as of the periods presented)	18,667			18,675
	Total securities	401,556			390,448
	Loans, net of deferred fees	863,150			854,033
	Allowance for loan and lease losses	(9,171		)	(9,122		)
	Net loans	853,979			844,911
	Bank premises and equipment, net	28,752			28,787
	Bank-owned life insurance	32,213			32,091
	Goodwill	9,018			9,018
	Deferred tax assets	3,324			2,445
	Other assets	11,239			12,955
	TOTAL ASSETS	$	1,372,253		$	1,375,819
LIABILITIES	Deposits:
	Noninterest-bearing	$	279,164		$	292,502
	Interest-bearing	924,268			914,047
	Total deposits	1,203,432			1,206,549
	Securities sold under agreements to repurchase	32,082			31,222
	Accounts payable and accrued liabilities	14,635			14,668
	TOTAL LIABILITIES	1,250,149			1,252,439
SHAREHOLDERS’ EQUITY	Common stock - $10 par value per share, 8,000,000 shares authorized; 4,486,906 and 4,493,855 shares issued and outstanding as of the periods presented	44,869			44,939
	Retained earnings	82,142			79,793
	Accumulated other comprehensive loss	(5,002		)	(1,447		)
	Total shareholders’ equity attributable to First Farmers and Merchants Corporation	122,009			123,285
	Noncontrolling interest - preferred stock of subsidiary	95			95
	TOTAL SHAREHOLDERS’ EQUITY	122,104			123,380
	TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,372,253		$	1,375,819
^(1) Derived from audited financial statements as of December 31, 2017.

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
		Three Months Ended March 31,
	(dollars in thousands, except per share data)	2018		2017
INTEREST AND	Interest and fees on loans	$	8,804	$	8,260
DIVIDEND	Income on investment securities
INCOME	Taxable interest	1,240		1,234
	Exempt from federal income tax	655		623
	Interest from federal funds sold and other	75		42
	Total interest income	10,774		10,159
INTEREST	Interest on deposits	792		666
EXPENSE	Interest on other borrowings	48		34
	Total interest expense	840		700
	Net interest income	9,934		9,459
	Provision for loan and lease losses	-		-
	Net interest income after provision	9,934		9,459
NON-INTEREST	Mortgage banking activities	241		46
INCOME	Trust services fee income	960		741
	Service fees on deposit accounts	1,776		1,653
	Investment services fee income	100		76
	Earnings on bank owned life insurance	122		122
	Other non-interest income	178		167
	Total non-interest income	3,377		2,805
NON-INTEREST	Salaries and employee benefits	5,447		5,244
EXPENSE	Net occupancy expense	610		645
	Depreciation expense	384		375
	Data processing expense	689		655
	Software support and other computer expense	541		464
	Legal and professional fees	280		396
	Audit and exam expenses	175		187
	Advertising and promotions	305		196
	FDIC insurance premium expense	129		161
	Other non-interest expense	1,051		1,005
	Total non-interest expense	9,611		9,328
	Income before provision for income taxes	3,700		2,936
	Provision for income taxes	571		555
	Net income before noncontrolling interest - dividends on preferred stock of subsidiary	3,129		2,381
	Noncontrolling interest - dividends on preferred stock subsidiary	-		-
	Net income for common shareholders	$	3,129	$	2,381
	Weighted average shares outstanding	4,493,000		4,541,043
	Earnings per share	$	0.70	$	0.52

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, 2018			December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017
Results of Operations:
Interest income	$	10,774		$	10,854		$	10,716		$	10,546		$	10,206
Interest expense	840			818			803			780			700
Net interest income	9,934			10,036			9,913			9,766			9,506
Provision credit for loan and lease losses, net	-			(225		)	-			-			-
Non-interest income	3,377			3,155			3,291			3,036			2,758
Non-interest expense	9,611			9,040			9,235			8,994			9,328
Income before income taxes	3,700			4,376			3,969			3,808			2,936
Income taxes	571			2,215			986			971			555
Net income for common shareholders	$	3,129		$	2,161		$	2,983		$	2,837		$	2,381
Per Share Data:
Basic earnings per share	$	0.70		$	0.48		$	0.66		$	0.63		$	0.52
Weighted average shares outstanding per quarter	4,493,000			4,507,351			4,519,030			4,521,045			4,541,043
Financial Condition and Performance Data:
Total securities	$	401,556		$	390,448		$	384,280		$	397,124		$	421,230
Loans, net of deferred fees	$	863,150		$	854,033		$	858,170		$	858,280		$	841,254
Allowance for loan and lease losses	$	(9,171	)	$	(9,122	)	$	(9,286	)	$	(9,259	)	$	(9,364	)
Total assets	$	1,372,253		$	1,375,819		$	1,352,235		$	1,370,782		$	1,374,911
Total deposits	$	1,203,432		$	1,206,549		$	1,171,426		$	1,185,240		$	1,214,638
Net interest margin	3.31		%	3.38		%	3.35		%	3.29		%	3.28		%
Asset Quality Data and Ratios:
Total nonperforming assets	$	2,735		$	2,775		$	2,926		$	2,881		$	3,331
Nonperforming assets to total assets	0.20		%	0.20		%	0.22		%	0.21		%	0.24		%
Allowance for loan and lease losses to total loans	1.06		%	1.07		%	1.08		%	1.08		%	1.11		%
Net (recoveries) charge-offs to average annualized loans	(0.02		%)	0.00		%	0.01		%	0.02		%	(0.01		%)