Press Release

First Farmers and Merchants Corporation Reports a 20% Increase in Third Quarter Net Income to $3.6 Million or $0.80 Per Common Share

Company Release - 10/22/2018 7:00 AM ET

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 third quarter ended September 30, 2018.

Key highlights of First Farmers’ performance for the third quarter of 2018 include:

  • Net income of $3.6 million or $0.80 per common share, up 20% from $3.0 million or $0.66 per common share for the year-earlier quarter. On a sequential-quarter basis, net income declined 8% from $3.9 million or $0.87 per common share;
  • Net interest margin improved six basis points from the year-earlier quarter and three basis points from the previous quarter;
  • Non-interest income increased 7% from the year-earlier quarter and 3% from the previous quarter; and
  • The Company completed the previously announced purchase of a branch office in Nashville, Tennessee, its second location there, and it entered into a definitive agreement to sell its branch office in White Bluff, Tennessee, which is expected to close during the first quarter of 2019.

Commenting on the results, T. Randy Stevens, Chairman and Chief Executive Officer, said, “We are pleased to announce another solid operational performance by First Farmers in the third quarter, with earnings per share increasing 21% from the prior-year period. This progress reflects our continued successful execution of several long-term strategies, including those focused on sensible loan production that protects and expands our margins – coupled with strong credit quality. Also, key to our long-term vision for the Company is the ongoing alignment of our regional footprint, efforts to increase our fee-based income, and good expense control in areas not related directly to revenue growth. With so many of our diverse business lines contributing to First Farmers’ overall results through the first nine months of 2018, we remain confident in the Company’s earnings trajectory for the full year and are excited about the prospects we see ahead in 2019.”

Brian K. Williams, President, added, “These are indeed exciting times for First Farmers. Our top- and bottom-line growth potential – reflecting strong strategic underpinnings – continues to become more tangible and apparent. Additionally, with the recent purchase of a branch office in Nashville and the pending sale of a branch office in White Bluff, our footprint expansion and realignment efforts present us with attractive opportunities to introduce our style of community banking in high-growth markets. Customers clearly want more from their financial institutions, both in terms of capabilities and responsiveness, and with our core philosophy of relationship banking combined with a full range of financial services, we continue to believe that First Farmers remains the clear solution for many.”

Third Quarter 2018 Results of Operations

The increase in net interest income reflected improved margins and loan growth of $13 million for the third quarter of 2018 compared with the year-earlier quarter. The Company’s higher non-interest income compared with the year-earlier quarter resulted from increases of $104,000 in trust services fee income, $55,000 in investment services, and $31,000 in service fees on deposits. The increase in non-interest expense was due to higher salaries and employee benefits of $443,000 related to the hiring of several key team members for new banking offices opened since the year-earlier quarter.

The $314,000 decrease in third quarter earnings compared with the previous quarter was driven by an increase of $300,000 for employee health insurance expense and $263,000 for salaries and employee benefits, which together were offset in part by higher net interest income of $143,000 and non-interest income of $110,000. The increase in net interest income reflected an improvement in margins and loan growth, while the increase in non-interest income underscored higher trust services fee income, investment services fee income and mortgage banking activities for the third quarter of 2018 compared with the previous quarter.

For the third quarter of 2018, First Farmers achieved loan growth of $13 million or 2% from the year-earlier quarter and $1 million from the previous quarter. Interest income is expected to continue to improve due to the Federal Reserve’s intentions to increase market interest rates through 2019. Total deposits stood at $1.164 billion at the end of the third quarter of 2018, down $7 million or 1% from the year-earlier quarter and $27 million from the previous quarter.

Asset Quality

Total nonperforming assets were down to $2.8 million, or 0.21% of total assets, when compared with $2.9 million, or 0.22% of total assets, for the year-earlier quarter and remained essentially flat compared with the previous quarter. Net recoveries to average loans were 0.01% for the third quarter of 2018 compared with net charge-offs of 0.01% for the year-earlier quarter and net recoveries of 0.01% for the previous quarter. No provision for loan and lease losses expense was recorded during the third quarter of 2018, as was the case in the third quarter of last year and the second quarter of 2018. The allowance for loan and lease losses represented 1.06% of total loans outstanding at the end of the third quarter of 2018 compared with 1.08% for the year-earlier quarter and 1.06% for the previous quarter.

Capital Management Initiatives

First Farmers repurchased 9,000 shares of common stock during the third quarter at an average price of $43.50 per share under its stock repurchase program. Authorization to repurchase 171,000 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 September 30, 2018, First Farmers reported total assets of approximately $1.4 billion, total shareholders’ equity of approximately $125 million, and administered trust assets of $4.9 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     Nine Months Ended
September 30,     June 30,     September 30, September 30,
2018 2018 2017 2018     2017
Total non-interest income

$

3,517

 

$ 3,407

$

3,291

 

$ 10,301 $ 9,085
Gain on sale of securities - (6 ) - (6 ) (21 )
Gain on bank-owned life insurance   -     (50 )   -     (50 )   -  
Adjusted non-interest income $ 3,517   $ 3,351   $ 3,291   $ 10,245   $ 9,064  
Net income as reported $ 3,591 $ 3,905 $ 2,983 $ 10,625 $ 8,201
Total adjustments, net of tax(1)   -     (54 )   -     (54 )   (13 )
Adjusted net income $ 3,591   $ 3,851   $ 2,983   $ 10,571   $ 8,188  
Basic earnings per share $ 0.80 $ 0.87 $ 0.66 $ 2.37 $ 1.81
Total adjustments, net of tax(1)   -     (0.01 )   -     (0.01 )  
Adjusted basic earnings per share $ 0.80   $ 0.86   $ 0.66   $ 2.36   $ 1.81  
 
(1)   The effective tax rate of 26.1% is used to determine net of tax amounts for 2018 periods presented. 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)    
September 30, December 31,
(dollars in thousands, except per share data) 2018

2017(1)

ASSETS Cash and due from banks $ 24,722 $ 26,878
Interest-bearing deposits 12,661 26,371
Federal funds sold   163     1,915  
Total cash and cash equivalents   37,546     55,164  
Securities:
Available-for-sale 355,698 371,773

Held-to-maturity (fair market value $17,295 and $18,057 as of the periods presented)

  18,652     18,675  
Total securities   374,350     390,448  
Loans, net of deferred fees 871,334 854,033
Allowance for loan and lease losses   (9,206 )   (9,122 )
Net loans 862,128 844,911
Bank premises and equipment, net 31,513 28,787
Bank-owned life insurance 32,463 32,091
Goodwill 9,018 9,018
Deferred tax assets 4,545 2,445
Other assets   11,444     12,955  
TOTAL ASSETS $ 1,363,007   $ 1,375,819  
LIABILITIES Deposits:
Noninterest-bearing $ 298,302 $ 292,502
Interest-bearing   866,130     914,047  
Total deposits   1,164,432     1,206,549  
Securities sold under agreements to repurchase 37,488 31,222
FHLB borrowings 20,000 -
Accounts payable and accrued liabilities   16,414     14,668  
TOTAL LIABILITIES   1,238,334     1,252,439  

SHAREHOLDERS’ EQUITY

Common stock - $10 par value per share, 8,000,000 shares authorized; 4,464,967 and 4,493,855 shares issued and outstanding as of the periods presented

44,650 44,939
Retained earnings 87,142 79,793
Accumulated other comprehensive loss   (7,214 )   (1,447 )
Total shareholders’ equity before noncontrolling interest – preferred stock of subsidiary   124,578     123,285  
Noncontrolling interest - preferred stock of subsidiary   95     95  
TOTAL SHAREHOLDERS’ EQUITY   124,673     123,380  
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 1,363,007   $ 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
September 30,

   

Nine Months Ended
September 30,

(dollars in thousands, except per share data) 2018     2017 2018     2017
INTEREST AND Interest and fees on loans $ 9,591 $ 8,786 $ 27,545 $ 25,578
DIVIDEND Income on investment securities
INCOME Taxable interest 1,362 1,169 4,029 3,690
Exempt from federal income tax 620 652 1,906 1,923
Interest from federal funds sold and other   40   109   187   277
Total interest income   11,613   10,716   33,667   31,468
INTEREST Interest on deposits 965 742 2,593 2,111
EXPENSE Interest on other borrowings   133   61   253   172
Total interest expense   1,098   803   2,846   2,283
Net interest income 10,515 9,913 30,821 29,185
Provision for loan and lease losses   -   -   -   -
Net interest income after provision   10,515   9,913   30,821   29,185
NON-INTEREST Mortgage banking activities 204 220 621 382
INCOME Trust services fee income 922 818 2,762 2,329
Service fees on deposit accounts 1,861 1,830 5,487 5,310
Investment services fee income 227 172 472 336
Earnings on bank-owned life insurance 125 128 372 376
Gain on sale of investments - - 6 21
Gain on bank-owned life insurance - - 50 -
Other non-interest income   178   123   531   331
Total non-interest income   3,517   3,291   10,301   9,085
NON-INTEREST Salaries and employee benefits 5,723 5,280 16,263 15,369
EXPENSE Net occupancy expense 720 701 2,147 2,134
Depreciation expense 372 342 1,135 1,087
Data processing expense 745 709 2,076 2,068
Software support and other computer expense 561 501 1,689 1,437
Legal and professional fees 310 270 855 1,002
Audits and exams expense 170 185 521 566
Advertising and promotions 225 239 797 824
FDIC insurance premium expense 130 175 357 489
Other non-interest expense   777   833   2,567   2,573
Total non-interest expense   9,733   9,235   28,407   27,549
Income before provision for income taxes 4,299 3,969 12,715 10,721
Provision for income taxes   708   986   2,082   2,512
Net income   3,591   2,983   10,633   8,209
Noncontrolling interest - dividends on preferred stock subsidiary   -   -   8   8
Net income available to common shareholders $ 3,591 $ 2,983 $ 10,625 $ 8,201
 
Weighted average shares outstanding 4,472,684 4,519,030 4,483,392 4,529,179
Earnings per share $ 0.80 $ 0.66 $ 2.37 $ 1.81
 
 

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,
2018

   

June 30,
2018

   

March 31,
2018

   

December 31,
2017

   

September 30,
2017

Results of Operations:
Interest income $ 11,613 $ 11,280 $ 10,774 $ 10,854 $ 10,716
Interest expense   1,098     908     840     818     803  
Net interest income 10,515 10,372 9,934 10,036 9,913
Credit for loan and lease losses, net - - - (225 ) -
Non-interest income 3,517 3,407 3,377 3,160 3,291
Non-interest expense   9,733     9,071     9,611     9,040     9,235  
Income before income taxes 4,299 4,708 3,700 4,381 3,969
Income taxes   708     803     571     2,215     986  
Net income for common shareholders $ 3,591   $ 3,905   $ 3,129   $ 2,166   $ 2,983  
Per Share Data:
Basic earnings per share $ 0.80 $ 0.87 $ 0.70 $ 0.48 $ 0.66
Weighted average shares outstanding per quarter 4,472,684 4,484,717 4,493,000 4,507,351 4,519,030
Financial Condition Data and Ratios:
Total securities $ 374,350 $ 389,577 $ 401,556 $ 390,448 $ 384,280
Loans, net of deferred fees $ 871,334 $ 870,351 $ 863,150 $ 854,033 $ 858,170
Allowance for loan and lease losses $ (9,206 ) $ (9,187 ) $ (9,171 ) $ (9,122 ) $ (9,286 )
Total assets $ 1,363,007 $ 1,366,045 $ 1,372,253 $ 1,375,819 $ 1,352,235
Total deposits $ 1,164,432 $ 1,191,828 $ 1,203,432 $ 1,206,549 $ 1,171,426
 
Net interest margin 3.41 % 3.38 % 3.31 % 3.38 % 3.35 %
 
Asset Quality Data and Ratios:
Total nonperforming assets $ 2,831 $ 2,836 $ 2,735 $ 2,775 $ 2,926
Nonperforming assets to total assets 0.21 % 0.21 % 0.20 % 0.20 % 0.22 %
Allowance for loan and lease losses to total loans 1.06 % 1.06 % 1.06 % 1.07 % 1.08 %
Net (recoveries) charge-offs to average loans (annualized) (0.01 %) (0.01 %) (0.02 %) 0.00 % 0.01 %
 

First Farmers and Merchants Corporation
Robert E. Krimmel, 931-380-8257
Chief Financial Officer

Source: First Farmers and Merchants Corporation

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