First Farmers and Merchants Corporation Reports Second Quarter Net Income of $4.0 Million or $0.92 Per Common Share

COLUMBIA, Tenn.--()--First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced unaudited financial results for the second quarter ended June 30, 2020.

Key highlights of First Farmers’ results for the second quarter of 2020 include:

  • Net income of $4.0 million or $0.92 per common share, up 20% from $3.3 million or $0.75 per common share for the year-earlier quarter and up 26% from $3.2 million or $0.73 per common share for the previous quarter;
  • Adjusted net income, which excludes special items, totaled $3.4 million or $0.79 per common share, compared with $3.4 million or $0.77 per common share for the year-earlier quarter and $2.6 million or $0.59 per common share for the previous quarter (see non-GAAP reconciliation);
  • Total assets reached record $1.6 billion and total deposits reached record $1.4 billion;
  • Recorded $85 million in Small Business Administration Paycheck Protection Program (“SBA PPP”) loans;
  • Provision for loan and lease losses expense of $185,000 compared with a provision credit of $55,000 for the year-earlier quarter and provision expense of $515,000 from the previous quarter; and
  • Total nonperforming assets remained at a low level of $1.7 million or 0.11% of total assets.

Commenting on the results, T. Randy Stevens, Chairman and Chief Executive Officer of First Farmers, said, “During one of the most severe economic disruptions in our time, I am pleased to report increases in year-over-year and sequential quarter net income, adjusted net income and net interest income, as well as an increase in total non-interest income over the same period last year. Despite growth in our interest earnings assets, our net interest margin decreased from the prior quarter and same period last year due to the addition of SBA PPP loans, which carry yields much lower than our existing portfolio. Offsetting this decline in loan yields, we were able to lower our cost of funds quickly during the second quarter, relieving some pressure on our net interest margin. Further, I am particularly pleased to report growth in our balance sheet for both year-over-year and the sequential quarter, resulting in record total assets, total loans and total deposits – evidence of the strength of the underlying fundamentals driving our business.”

Stevens further commented, “We continue to assist the liquidity needs of our clients while focusing on the health and well-being of our employees and the communities in which we operate. In the second quarter, our team deployed significant resources in support of businesses throughout Middle Tennessee as First Farmers participated in the SBA PPP lending program. I am pleased that our team members have originated 817 loans in the program or $85 million in loan balances, assisting in the preservation of approximately 13,500 jobs in the communities we serve. Additionally, a number of SBA PPP customers have also decided to deepen their banking relationship with us through the opening of new accounts during the second quarter.”

Brian K. Williams, President, added, “Despite net recoveries in our loan portfolio, we have recorded a provision for credit losses based on the potential economic effects of the COVID-19 pandemic on our loan portfolio. Our allowance for loan and lease losses now represents 1.07% of total loans outstanding, excluding SBA PPP loans, an increase from 1.0% for the sequential quarter and an increase from 1.04% in the year-earlier period. These comparisons have been skewed by the level of SBA PPP loans recorded during the second quarter, and given their government guarantee, it is important to exclude their impact on our loan and lease loss allowance adequacy. We are pleased with the excellent credit quality that continues to define both our loan portfolio and our lending metrics. Total nonperforming assets declined to just 0.11% of total assets from 0.12% of total assets in the year-earlier quarter and were flat on a sequential-quarter basis, a testament to our efforts to maintain a conservative approach to the way we build our business. While we did not repurchase any shares during the second quarter, our Board remains committed to the Company’s quarterly cash dividend payment. Our solid balance sheet will serve our company and its shareholders well as we continue to prudently drive our business forward during uncertain economic times.”

Second Quarter 2020 Results of Operations

Net income increased to $4.0 million, up $679,000 or 20% from the year-earlier quarter. The improvement in earnings was primarily driven by a one-time gain on redemption of bank-owned life insurance of $397,000 coupled with a gain on equity securities of $242,000. Net income, adjusted for special items, was $3.4 million, up $18,000 from the year-earlier quarter. The increase in adjusted net income from the year-earlier quarter was the result of an increase in net-interest income of $248,000 coupled with a decrease in salaries and employee benefits of $286,000 offset by a reduction in service fees on deposit accounts of $295,000 and an increase in provision for loan and lease losses of $240,000.

Net income increased $817,000 or 26% from the sequential quarter. The increase in earnings was primarily driven by decreases in salaries and benefits of $888,000 and in provision for loan and lease losses of $330,000 offset in part by a reduction in service fees on deposit accounts of $175,000. The reduction in salaries and benefits was primarily driven by a reduction in health insurance expense of $495,000 as we experienced fewer claims for the quarter

For the second quarter of 2020, the outstanding loan balances increased $41 million or 4% from the previous quarter to a record $994 million and increased $103 million or 12% from the year-earlier quarter. Loan growth for the quarter was propelled by SBA PPP lending in the amount of $85 million. Total deposits increased $160 million or 13% from the previous quarter to a record $1.416 billion and increased $276 million or 24% from the year-earlier quarter.

Asset Quality

Total nonperforming assets increased slightly to $1.7 million, or 0.11% of total assets, up from $1.6 million or 0.11% from the previous quarter. Net recoveries to average loans were 0.01% for the second quarter of 2020 compared with net charge-offs of 0.00% for the previous quarter and the year-earlier quarter. A provision for loan and lease losses expense of $185,000 was recorded during the second quarter of 2020 primarily driven by a downgrade in our economic outlook and estimations for the impact of payment deferral loans offset by the decrease in loan balances, excluding SBA PPP loans. The allowance for loan and lease losses represented 0.98% of total loans outstanding for the second quarter of 2020 compared with 1.00% for the previous quarter and 1.04% for the year-earlier quarter. The allowance for loan and lease losses for the second quarter of 2020 represented 1.07% of total loans outstanding, excluding SBA PPP loans.

Capital Management Initiatives

First Farmers did not repurchase any shares during the second quarter under its stock repurchase program. Authorization to repurchase approximately 180,000 shares remains under the current program, which is set to expire in December 2020, 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 June 30, 2020, First Farmers reported total assets of approximately $1.6 billion, total shareholders’ equity of approximately $155 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 gains and losses, gain on sale of White Bluff office, gain on redemption of bank-owned life insurance, contingency accrual 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

 

Six Months Ended

 

 

June 30,

 

March 31,

 

June 30,

 

2020

 

2019

 

2020

 

2020

 

2019

Total non-interest income

$

3,735

 

 

$

3,410

 

$

3,904

 

 

$

7,639

 

 

$

9,197

 

Gain on sale of securities

 

-

 

 

 

-

 

 

(129

)

 

 

(129

)

 

 

-

 

Gain on equity securities

 

(242

)

 

 

-

 

 

-

 

 

 

(242

)

 

 

-

 

Gain on sale of White Bluff office

 

-

 

 

 

-

 

 

-

 

 

 

-

 

 

 

(2,700

)

Gain on sale of fixed assets

 

-

 

 

 

-

 

 

(102

)

 

 

(102

)

 

 

-

 

Gain on redemption of bank-owned life insurance

 

(397

)

 

 

-

 

 

(423

)

 

 

(820

)

 

 

-

 

Adjusted non-interest income

$

3,096

 

 

$

3,410

 

$

3,250

 

 

$

6,346

 

 

$

6,497

 

Contingency accrual

 

-

 

 

 

115

 

 

-

 

 

 

-

 

 

 

115

 

Net income as reported

$

4,017

 

 

$

3,338

 

$

3,200

 

 

$

7,217

 

 

$

8,684

 

Total adjustments, net of tax1

 

(576

)

 

 

85

 

 

(594

)

 

 

(1,170

)

 

 

(1,910

)

Adjusted net income

$

3,441

 

 

$

3,423

 

$

2,606

 

 

$

6,047

 

 

$

6,774

 

Basic earnings per share

$

0.92

 

 

$

0.75

 

$

0.73

 

 

$

1.65

 

 

$

1.95

 

Total adjustments, net of tax1

 

(0.13

)

 

 

0.02

 

 

(0.14

)

 

 

(0.27

)

 

 

(0.43

)

Adjusted basic earnings per share

$

0.79

 

 

$

0.77

 

$

0.59

 

 

$

1.38

 

 

$

1.52

 

 

(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)

 

 

 

 

 

June 30,

 

December 31,

(dollars in thousands, except per share data)

 

2020

 

2019(1)

ASSETS

Cash and due from banks

 

$

25,742

 

$

26,614

 

Interest-bearing deposits

 

107,544

 

6,712

 

Federal funds sold

 

204

 

819

 

Total cash and cash equivalents

 

133,490

 

34,145

 

Securities:

 

 

 

Available-for-sale

 

372,480

 

329,796

 

Held-to-maturity (fair market value $18,408 and $18,005 as of the periods presented)

 

17,583

 

17,606

 

 

Equity securities

 

2,242

 

 

2,000

 

Loans held-for-sale

 

3,137

 

2,540

 

Loans, net of deferred fees

 

993,710

 

934,770

 

Allowance for loan and lease losses

 

(9,695

)

(8,960

)

Net loans

 

984,015

 

925,810

 

Bank premises and equipment, net

 

35,528

 

35,762

 

Bank-owned life insurance

 

34,800

 

32,198

 

Goodwill

 

9,018

 

9,018

 

Other assets

 

16,366

 

14,795

 

 

TOTAL ASSETS

 

$

1,608,659

 

 

$

1,403,670

 

LIABILITIES

Deposits:

 

 

Noninterest-bearing

 

$

434,748

 

$

311,274

 

Interest-bearing

 

981,595

 

908,967

 

Total deposits

 

1,416,343

 

1,220,241

 

Securities sold under agreements to repurchase

 

12,501

 

11,742

 

 

Federal Home Loan Bank borrowings

 

-

 

 

5,500

 

 

Accounts payable and accrued liabilities

 

24,459

 

 

21,799

 

 

TOTAL LIABILITIES

 

1,453,303

 

 

1,259,282

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’

Common stock - $10 par value per share, 8,000,000 shares authorized; 4,359,738 and 4,379,871 shares issued and outstanding as of the periods presented

 

43,597

 

 

43,799

 

EQUITY

Retained earnings

 

103,615

 

98,945

 

Accumulated other comprehensive income

 

8,049

 

1,549

 

Total shareholders’ equity attributable to First Farmers and Merchants Corporation

 

155,261

 

144,293

 

Noncontrolling interest - preferred stock of subsidiary

 

95

 

95

 

TOTAL SHAREHOLDERS’ EQUITY

 

155,356

 

144,388

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,608,659

 

 

$

1,403,670

 

 

 

 

 

(1) Derived from audited financial statements as of December 31, 2019.

 
 
 
 
 

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

 

 

 

Three Months Ended

June 30,

 

Six Months Ended

June 30,

 

(dollars in thousands, except per share data)

2020

 

2019

 

2020

 

2019

INTEREST AND

Interest and fees on loans

$

10,026

 

$

10,218

 

 

$

20,242

 

$

20,152

 

DIVIDEND

Income on investment securities

 

 

 

 

INCOME

Taxable interest

1,207

 

1,244

 

 

2,477

 

2,512

 

Exempt from federal income tax

493

 

541

 

 

1,013

 

1,099

 

Interest from federal funds sold and other

35

 

56

 

 

104

 

134

 

 

Total interest income

11,761

 

12,059

 

 

23,836

 

23,897

 

INTEREST

Interest on deposits

827

 

1,199

 

 

2,102

 

2,405

 

EXPENSE

Interest on other borrowings

8

 

182

 

 

28

 

345

 

Total interest expense

835

 

1,381

 

 

2,130

 

2,750

 

Net interest income

10,926

 

10,678

 

 

21,706

 

21,147

 

Provision (provision credit) for loan and lease losses

185

 

(55

)

 

700

 

(55

)

 

Net interest income after provision

10,741

 

10,733

 

 

21,006

 

21,202

 

NON-INTEREST

Mortgage banking activities

312

 

257

 

 

594

 

449

 

INCOME

Trust services fee income

872

 

918

 

 

1,749

 

1,805

 

 

Service fees on deposit accounts

1,533

 

1,828

 

 

3,241

 

3,478

 

Investment services fee income

76

 

111

 

 

195

 

193

 

Earnings on bank-owned life insurance

154

 

115

 

 

267

 

230

 

Gain on sale of investments

-

 

-

 

 

129

 

-

 

 

Gain on redemption of bank-owned life insurance

397

 

-

 

 

820

 

-

 

 

Gain on sale of White Bluff office

-

 

-

 

 

-

 

2,700

 

Other non-interest income

391

 

181

 

 

644

 

342

 

 

Total non-interest income

3,735

 

3,410

 

 

7,639

 

9,197

 

NON-INTEREST

Salaries and employee benefits

5,633

 

5,919

 

 

12,154

 

11,461

 

EXPENSE

Net occupancy expense

650

 

623

 

 

1,284

 

1,252

 

Depreciation expense

519

 

514

 

 

1,043

 

1,020

 

Data processing expense

777

 

766

 

 

1,574

 

1,512

 

 

Software support and other computer expense

635

 

537

 

 

1,199

 

1,022

 

Legal and professional fees

239

 

257

 

 

473

 

521

 

Audits and exams expense

164

 

182

 

 

348

 

340

 

Advertising and promotions

169

 

358

 

 

394

 

752

 

FDIC insurance premium expense

102

 

90

 

 

127

 

173

 

Other non-interest expense

740

 

940

 

 

1,550

 

1,722

 

Total non-interest expense

9,628

 

10,186

 

 

20,146

 

19,775

 

Income before provision for income taxes

4,848

 

3,957

 

 

8,499

 

10,624

 

 

Provision for income taxes

823

 

611

 

 

1,274

 

1,931

 

Net income

4,025

 

3,346

 

 

7,225

 

8,693

 

Noncontrolling interest - dividends on preferred stock subsidiary

8

 

8

 

 

8

 

8

 

 

Net income available to common shareholders

$

4,017

 

$

3,338

 

 

$

7,217

 

$

8,685

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding

4,359,738

 

4,442,627

 

 

4,367,382

 

4,446,741

 

 

Earnings per share

$

0.92

 

$

0.75

 

 

$

1.65

 

$

1.95

 

 
 
 
 
 

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL HIGHLIGHTS
(unaudited)

 

 

For the Three Months Ended

(dollars in thousands, except per share data)

June 30,

2020

 

March 31,

2020

 

December 31,

2019

 

September 30,

2019

 

June 30,

2019

Results of Operations:

 

 

 

 

 

 

 

 

 

Interest income

$

11,761

 

 

$

12,075

 

 

$

12,091

 

 

$

12,205

 

 

$

12,059

 

Interest expense

835

 

 

1,295

 

 

1,447

 

 

1,546

 

 

1,381

 

Net interest income

10,926

 

 

10,780

 

 

10,644

 

 

10,659

 

 

10,678

 

Provision (provision credit) for loan and lease losses

185

 

 

515

 

 

-

 

 

(305

)

 

(55

)

Non-interest income

3,735

 

 

3,904

 

 

3,457

 

 

3,553

 

 

3,410

 

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

9,636

 

 

10,518

 

 

9,928

 

 

9,902

 

 

10,194

 

Income before income taxes

4,840

 

 

3,651

 

 

4,173

 

 

4,615

 

 

3,949

 

Income taxes

823

 

 

451

 

 

696

 

 

720

 

 

611

 

Net income for common shareholders

$

4,017

 

 

$

3,200

 

 

$

3,477

 

 

$

3,895

 

 

$

3,338

 

Per Share Data:

 

 

 

 

 

 

 

 

 

Basic earnings per share

$

0.92

 

 

$

0.73

 

 

$

0.79

 

 

$

0.88

 

 

$

0.75

 

Weighted average shares outstanding per quarter

4,359,738

 

 

4,375,025

 

 

4,400,940

 

 

4,426,166

 

 

4,442,627

 

Financial Condition Data and Ratios:

 

 

 

 

 

 

 

 

 

Total securities

$

392,305

 

 

$

343,360

 

 

$

347,402

 

 

$

347,373

 

 

$

341,956

 

Loans, net of deferred fees

$

993,710

 

 

$

952,491

 

 

$

937,310

 

 

$

901,560

 

 

$

890,556

 

Allowance for loan and lease losses

$

(9,695

)

 

$

(9,485

)

 

$

(8,960

)

 

$

(8,937

)

 

$

(9,227

)

Total assets

$

1,608,659

 

 

$

1,437,929

 

 

$

1,403,670

 

 

$

1,368,606

 

 

$

1,369,290

 

Total deposits

$

1,416,343

 

 

$

1,256,319

 

 

$

1,220,241

 

 

$

1,178,308

 

 

$

1,140,513

 

Net interest income, on a fully taxable-equivalent basis

$

11,187

 

 

$

11,059

 

 

$

10,926

 

 

$

10,945

 

 

$

10,974

 

Net interest margin

3.08

%

 

3.42

%

 

3.41

%

 

3.48

%

 

3.55

%

 

 

 

 

 

 

 

 

 

 

Asset Quality Data and Ratios:

 

 

 

 

 

 

 

 

 

Total nonperforming assets

$

1,698

 

 

$

1,610

 

 

$

1,665

 

 

$

2,593

 

 

$

1,616

 

Nonperforming assets to total assets

0.11

%

 

0.11

%

 

0.12

%

 

0.19

%

 

0.12

%

Allowance for loan and lease losses to total loans

0.98

%

 

1.00

%

 

0.96

%

 

0.99

%

 

1.04

%

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

(0.01

%)

 

0.00

%

 

0.00

%

 

0.00

%

 

0.00

%

 
 
 

 

Contacts

Robert E. Krimmel
Chief Financial Officer
(931) 380-8257

$Cashtags

Contacts

Robert E. Krimmel
Chief Financial Officer
(931) 380-8257