First Farmers and Merchants Corporation Reports First Quarter Net Income of $3.0 Million or $0.69 Per Common Share

Rhea-AI Summary

First Farmers and Merchants Corporation (OTC Pink: FFMH) reported unaudited financial results for Q1 2021, highlighting a net income of $3.0 million, down 6% year-over-year. Adjusted net income rose 12% to $2.9 million. Mortgage banking revenue surged 66% to $468,000, contributing to record total assets of $1.9 billion and deposits of $1.7 billion. However, elevated employee benefits and technology expenses impacted earnings. Nonperforming assets improved to 0.08% of total assets. The company also repurchased 930 shares, with ongoing buyback authorization for 199,000 shares.

Positive

• Adjusted net income increased 12% year-over-year to $2.9 million.
• Mortgage banking revenue rose 66% to $468,000.
• Total assets reached a record $1.9 billion.
• Total deposits hit a record $1.7 billion.
• Nonperforming assets improved to 0.08% of total assets.

Negative

• Net income declined 6% year-over-year to $3.0 million.
• Elevated employee benefits and technology expenses increased non-interest expense by $397,000.
• Outstanding loan balances decreased $38 million, or 4%, from the previous quarter.

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, 2021.

Key aspects of First Farmers’ results for the first quarter of 2021 include:

• Net income of $3.0 million or $0.69 per common share, down 6% from $3.2 million, or $0.73 per common share, for the year-earlier quarter and down 9% from $3.3 million, or $0.76 per common share, for the previous quarter;
• Adjusted net income, which excludes special items, totaled $2.9 million, or $0.67 per common share, up 12% from $2.6 million, or $0.59 per common share, for the year-earlier quarter but down 12% from $3.3 million, or $0.76 per common share, for the previous quarter (see non-GAAP reconciliation);
• Mortgage banking activities revenue reached $468,000, up 66% from $282,000 for the year-earlier quarter and up 12% from $419,000 for the previous quarter;
• Total assets reached a record $1.9 billion and total deposits reached a record $1.7 billion, while administered trust assets reached a record $6.0 billion; and
• Provision credit for loan and lease losses of $150,000 compared with provision expense for loan and lease losses of $515,000 for the year-earlier quarter and $0 for the previous quarter.

Commenting on the results, T. Randy Stevens, Chairman and Chief Executive Officer of First Farmers, said, “Despite a continued challenging operating environment, we are optimistic about the core operating results of the company as we posted a 12% year-over-year increase in adjusted net income. This came alongside strong balance sheet growth, achieving record total assets and total deposits. Additionally, total administered trust assets surpassed a record $6.0 billion. Net income decreased for both the sequential and year-over-year periods with most of the decrease from the prior quarter attributed to elevated employee benefits costs, including health insurance expense. We also saw increased expenses related to lending technology investments.

Stevens continued, “We are focused on improving our net interest income and net interest margin both of which decreased for the comparison periods, primarily due to low market interest rates, and the purchase of lower yielding investments. With an improving trend in our loan pipeline, we expect to see improvement in our net interest margin in 2021. Our teams’ focus on diversifying our revenue streams also resulted in non-interest income increasing from the sequential period and adjusted non-interest income increasing for both the year-over-year and sequential periods. Contributing to this improvement, we experienced strong growth of 66% in mortgage banking income and an 11% increase in trust services fee income, year-over-year, as well as solid growth from the sequential quarter. Looking ahead, First Farmers’ operating performance bolstered by the general health of the mid-state economy and improving trends related to the pandemic support the momentum we expect over the balance of the year.”

Brian K. Williams, President, added, “Soft loan pipelines at the close of 2020 pointed to the loan contraction experienced during the quarter, when coupled with payoff activity as customers took advantage of the low interest rate environment for refinancing. However, as we moved through the first quarter, loan pipelines were building and support our expectations for loan growth in the coming quarters. First Farmers has continued to assist customers with the second round of the SBA Paycheck Protection Program making just over $24 million of these loans during the first quarter.”

Williams continued, “Asset quality remains strong. Total nonperforming assets declined to 0.08% of total assets from 0.09% for the sequential quarter and 0.11% in the year-earlier and no net charge-offs were recorded for the period. We recorded a provision credit for loan and lease losses of $150,000 for the quarter resulting from decreased lending activity and the company’s healthy loan quality metrics, compared to a provision expense of $515,000 for the same period last year. Our allowance for loan and lease losses, excluding SBA Paycheck Protection Program loans, now represents 1.12% of total loans outstanding, an increase from 1.08% for the sequential quarter and 1.00% in the year-earlier period.”

First Quarter 2021 Results of Operations

Net income declined to $3.0 million, down $197,000, or 6%, from the year-earlier quarter. The reduction in earnings was primarily driven by the gain on redemption of bank owned life insurance of $423,000 recorded in the year-earlier quarter offset in part with a reduction in provision for loan and lease losses. Net income, adjusted for special items, was $2.9 million, up $308,000 or 12% from the year earlier quarter. The increase in adjusted net income from the year-earlier quarter was the result of a reduction in provision for loan and lease loss expense of $665,000 coupled with growth in mortgage banking activities revenue of $186,000 offset in part by lower net interest income of $187,000 and higher technology related expense of $160,000.

Net income declined $294,000, or 9%, from the sequential quarter. The decrease in earnings was primarily driven by elevated non-interest expense of $397,000 and a reduction in net interest income of $276,000 offset in part by improvement in non-interest income of $138,000. The increase in non-interest expense was attributable to salaries and employee benefits of $163,000 and an increase in net occupancy expense of $179,000.

For the first quarter of 2021, securities available-for-sale increased $215 million driven by a reduction in cash balances along with a solid quarter of deposit growth from the previous quarter, with the growth in investments contributing to downward pressure on our net interest margin for the quarter by 0.14%. Our outstanding loan balances decreased $38 million, or 4%, to $927 million from the previous quarter and decreased $25 million, or 3%, from the year-earlier quarter. Small Business Administration Paycheck Protection Program (“SBA PPM”) loans ended the first quarter of 2021 at $69 million, which includes $24 million in new loan originations offset by loan redemption during the quarter. Total deposits increased $98 million, or 6%, from the previous quarter to a record $1.706 billion and increased $450 million or 36% from the year-earlier period.

Asset Quality

Total nonperforming assets continued to improve, closing the quarter at $1.5 million, or 0.08% of total assets, down from $1.6 million, or 0.09% of total assets, for the previous quarter and decreased from 0.11% of total assets, in the year-earlier quarter. Net charge-offs to average loans were 0.00% for the first quarter of 2021 compared to net recoveries of 0.01% for the previous quarter and 0.00% for the year-earlier quarter. As a result of further stabilization in the current economic environment coupled with loan contraction and strong loan quality, a provision credit for loan and lease losses of $150,000 was recorded during the first quarter of 2021. The allowance for loan and lease losses, excluding SBA PPM loans, represented 1.12% of total loans outstanding for the first quarter of 2021, up from 1.08% for the previous quarter and 1.00% for the year-earlier quarter.

Capital Management Initiatives

During the first quarter, First Farmers repurchased 930 shares of common stock under a Rule 10b-18 plan under the Securities Exchange Act of 1934 at an average price of $33.93 per share under its stock repurchase program. Authorization to repurchase approximately 199,000 shares remains under the current program, which is set to expire in December 2021, 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, 2021, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $152 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, sale of other fixed assets included in other non-interest income, gain on redemption of bank owned life insurance, 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, 2020
		2021				2020
Total non-interest income		$	3,550			$	3,904			$	3,412
Gain on sale of securities			(121	)			(129	)			-
Gain on sale of fixed assets			-				(102	)			-
Gain on redemption of bank owned life insurance			-				(423	)			-
Adjusted non-interest income		$	3,429			$	3,250			$	3,412
Net income as reported		$	3,003			$	3,200			$	3,297
Total adjustments, net of tax1			(89	)			(594	)			-
Adjusted net income		$	2,914			$	2,606			$	3,297
Basic earnings per share		$	0.69			$	0.73			$	0.76
Total adjustments, net of tax1			(0.02	)			(0.14	)			-
Adjusted basic earnings per share		$	0.67			$	0.59			$	0.76
(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)		2021				2020(1)
ASSETS		Cash and due from banks		$	24,228			$	29,126
		Interest-bearing deposits		11,947				105,470
		Federal funds sold		414				3,774
		Total cash and cash equivalents		36,589				138,370
		Securities:
		Available-for-sale		809,640				594,649
		Held-to-maturity (fair market value $17,335 and $18,195
		as of the periods presented)		16,584				17,259
		Equity securities		2,242				2,242
		Loans held-for-sale		2,735				3,679
		Loans, net of deferred fees		927,232				964,695
		Allowance for loan and lease losses		(9,575		)		(9,715		)
		Net loans		917,657				954,980
		Bank premises and equipment, net		34,256				34,421
		Bank-owned life insurance		34,115				34,016
		Goodwill		9,018				9,018
		Other assets		16,182				13,511
		TOTAL ASSETS		$	1,879,018			$	1,802,145
LIABILITIES		Deposits:
		Noninterest-bearing		$	458,307			$	427,073
		Interest-bearing		1,247,870				1,181,101
		Total deposits		1,706,177				1,608,174
		Securities sold under agreements to repurchase		-				11,691
		Federal Home Loan Bank borrowings		-				-
		Accounts payable and accrued liabilities		20,608				22,286
		TOTAL LIABILITIES		1,726,785				1,642,151
SHAREHOLDERS’		Common stock - $10 par value per share, 8,000,000 shares
EQUITY		authorized; 4,358,808 and 4,359,738 shares issued
		and outstanding as of the periods presented		43,588				43,597
		Retained earnings		110,826				108,761
		Accumulated other comprehensive (loss) income		(2,277		)		7,541
		Total shareholders’ equity attributable to First Farmers and Merchants Corporation		152,138				159,899
		Non-controlling interest - preferred stock of subsidiary		95				95
		TOTAL SHAREHOLDERS’ EQUITY		152,233				159,994
		TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,879,018			$	1,802,145
(1) Derived from audited financial statements as of December 31, 2020.

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
				Three Months Ended March 31,
		(dollars in thousands, except per share data)		2021				2020
INTEREST AND		Interest and fees on loans		$	9,611			$	10,216
DIVIDEND		Income on investment securities
INCOME		Taxable interest		1,241				1,270
		Exempt from federal income tax		493				520
		Interest from federal funds sold and other		26				69
		Total interest income		11,371				12,075
INTEREST		Interest on deposits		778				1,275
EXPENSE		Interest on other borrowings		-				20
		Total interest expense		778				1,295
		Net interest income		10,593				10,780
		Provision (credit) for loan and lease losses		(150		)		515
		Net interest income after provision		10,743				10,265
NON-INTEREST		Mortgage banking activities		468				282
INCOME		Trust services fee income		975				877
		Service fees on deposit accounts		1,649				1,

FAQ

What were First Farmers and Merchants Corporation's net income results for Q1 2021?

First Farmers reported a net income of $3.0 million for Q1 2021, which is a 6% decrease compared to the previous year.

How did First Farmers' adjusted net income perform in Q1 2021?

Adjusted net income for Q1 2021 was $2.9 million, reflecting a 12% increase from the prior year.

What was the revenue from mortgage banking activities for First Farmers in Q1 2021?

First Farmers' mortgage banking activities revenue reached $468,000 in Q1 2021, a 66% increase from the year-earlier quarter.

How did total deposits change for First Farmers in Q1 2021?

Total deposits increased by $98 million, or 6%, reaching a record $1.7 billion in Q1 2021.

What was the condition of asset quality for First Farmers in Q1 2021?

Total nonperforming assets improved to 0.08% of total assets in Q1 2021, down from 0.09% the previous quarter.