First Farmers and Merchants Corporation Reports Second Quarter Net Income of $3.3 Million or $0.75 Per Common Share

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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 second quarter ended June 30, 2019. Key highlights of First Farmers’ results for the second quarter of 2019 include: Net income of $3.3 million or $0.75 per common share, down 15% from $3.9 million or $0.87 per common share for the year-earlier quarter and down 38% from $5.3 million or $1.20 per common share for the previous quarter; Adjusted net income, which excludes special items, totaled $3.4 million or $0.77 per common share, compared with $3.9 million or $0.86 per common share for the year-earlier quarter and $3.4 million or $0.75 per common share for the previous quarter (see non-GAAP reconciliation); Net interest margin improved 17 basis points from the year-earlier quarter and up three basis points from the previous quarter; and Administered trust assets surpassed $5 billion during the second quarter. Commenting on the results, T. Randy Stevens, Chairman and Chief Executive Officer of First Farmers, said, “We are pleased to report continued quarterly sequential adjusted earnings growth for the second quarter. This is the result of an increase in our net interest margin of three basis points for the prior quarter and 17 basis points year over year, as well as a 2% year-over-year increase in loan growth to $891 million. While our total deposits experienced a slight decrease, most of this was due to the sale of our White Bluff office during the first quarter. Our interest and fees on loans grew a strong 12% year over year, and we saw solid growth in our trust services fee income and mortgage banking activities, which combined to contribute 35% of our total fee-based lines of business, a testament to our diverse revenue streams. On another note, I am proud of all of our employees as we grew administered trust assets to over $5 billion, a corporate milestone. As we move into the second half of the year, we remain confident in our ability to execute on our long-term strategies and reward our shareholders for their continued optimism in our company.” Brian K. Williams, President, added, “I am pleased that our growth has not affected our strong credit metrics, which define our portfolio and our lending philosophy. Nonperforming assets for the current quarter declined nine basis points to just 0.12% of total assets from 0.21% for the same period last year and remained flat on a sequential quarter basis. In a year of increases in net interest margin, this is a result of prudent loan underwriting and emphasizes our strategy to build long-lasting relationships with our customers through a systematic approach to grow our business. Considering the solid fundamentals driving our business and the strategic opportunities we see ahead, we are confident in our future and are grateful to our shareholders for their long-term commitment to First Farmers.” Second Quarter 2019 Results of Operations The $567,000 decline in earnings for the second quarter of 2019 compared with the year-earlier quarter was driven by an increase of $1.1 million in non-interest expense offset by an increase in net interest income after provision of $361,000. The increase in net interest income reflected an improvement in margins and loan growth of $20.2 million for the second quarter of 2019 compared with the year-earlier quarter. The increase in non-interest expense resulted from increases of $556,000 in employee health insurance expense, $365,000 in salaries and other employee benefits expense and an increase of $180,000 in advertising and promotions. These increases, primarily salaries, advertising and promotions, reflect key investments in our team and our newer markets. The $2.0 million decrease in second quarter earnings compared with the previous quarter was driven by the one-time gain on sale of the Company’s White Bluff office totaling $2.0 million, net of tax. The increase in net interest income reflected an improvement in margins for the second quarter of 2019 compared with the previous quarter. The increase in non-interest expense primarily resulted from an increase of $429,000 in employee health insurance expense. For the second quarter of 2019, First Farmers experienced a decline in loan balances of $931,000 or less than 1% from the previous quarter but achieved loan growth of $20.2 million or 2% from the year-earlier quarter. Total deposits stood at $1.140 billion at the end of the second quarter of 2019, down $14 million from the previous quarter and down $51 million or 4% from the year-earlier quarter. The outstanding loan balances and total deposits were affected by the sale of $4 million of loans and $29 million of deposits in connection with the sale of the White Bluff office during the first quarter of 2019. Asset Quality Total nonperforming assets remained flat at $1.6 million, or 0.12% of total assets, when compared to the previous quarter, but was down from $2.8 million, or 0.21% of total assets, when compared with the year-earlier quarter. Net charge-offs to average loans were 0.00% for the second quarter of 2019 compared with net charge-offs of 0.00% for the previous quarter and net recoveries of 0.01% for the year-earlier quarter. A credit to provision for loan and lease losses expense of $55,000 was recorded during the second quarter of 2019 as a result of improving credit metrics compared to the prior quarter. The allowance for loan and lease losses represented 1.04% of total loans outstanding for the second quarter of 2019 compared with 1.04% for the previous quarter and 1.06% for the year-earlier quarter. Capital Management Initiatives First Farmers repurchased 17,000 shares of common stock during the second quarter at an average price of $42.75 per share under its stock repurchase program. Authorization to repurchase 177,000 shares remains under the current program, which is set to expire in December 2019, 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, 2019, First Farmers reported total assets of approximately $1.4 billion, total shareholders’ equity of approximately $141 million, and administered trust assets of $5.2 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 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,   2019   2018   2019   2019   2018 Total non-interest income $ 3,410   $ 3,407   $ 5,787   $ 9,197   $ 6,784 Gain on sale of securities   -     (6)     -     -     (6) Gain on sale of White Bluff office   -     -     (2,700)     (2,700)     - Gain on bank-owned life insurance   -     (50)     -     -     (50) Adjusted non-interest income $ 3,410   $ 3,351   $ 3,087   $ 6,497   $ 6,728 Contingency accrual   115     -     -     115     - Net income as reported $ 3,338   $ 3,905   $ 5,346   $ 8,684   $ 7,034 Total adjustments, net of tax1   85     (54)     (1,995)     (1,910)     (54) Adjusted net income $ 3,423   $ 3,851   $ 3,351   $ 6,774   $ 6,980 Basic earnings per share $ 0.75   $ 0.87   $ 1.20   $ 1.95   $ 1.57 Total adjustments, net of tax1   0.02     (0.01)     (0.45)     (0.43)     (0.01) Adjusted basic earnings per share $ 0.77   $ 0.86   $ 0.75   $ 1.52   $ 1.56   (1) The effective tax rate of 26.1% is used to determine net of tax amounts. FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS         (unaudited)       June 30,   December 31,   (dollars in thousands, except per share data)   2019   2018(1)   ASSETS Cash and due from banks   $ 22,228 $ 36,100 Interest-bearing deposits   33,095 4,173 Federal funds sold   94 246 Total cash and cash equivalents   55,417 40,519 Securities:       Available-for-sale   323,369 332,237 Held-to-maturity (fair market value $18,753 and $17,615       as of the periods presented)   18,587 18,644 Total securities   341,956 350,881 Loans, net of deferred fees   890,556 895,191 Allowance for loan and lease losses   (9,227) (9,282) Net loans   881,329 885,909 Bank premises and equipment, net   36,343 31,605 Bank-owned life insurance   32,191 31,960 Goodwill   9,018 9,018 Other assets   13,036 15,225   TOTAL ASSETS   $ 1,369,290   $ 1,365,117 LIABILITIES Deposits:   Noninterest-bearing   $ 313,659 $ 302,345 Interest-bearing   826,854 872,325 Total deposits   1,140,513 1,174,670 Securities sold under agreements to repurchase   36,992 40,579   Federal Home Loan Bank borrowings   30,000   4,000   Accounts payable and accrued liabilities   21,047   15,885   TOTAL LIABILITIES   1,228,552   1,235,134 SHAREHOLDERS’ Common stock - $10 par value per share, 8,000,000 shares       EQUITY authorized; 4,428,908 and 4,451,447 shares issued         and outstanding as of the periods presented   44,289   44,514 Retained earnings   95,125 89,299 Accumulated other comprehensive income (loss)   1,229 (3,925) Total shareholders’ equity before noncontrolling interest – preferred stock of subsidiary   140,643 129,888 Noncontrolling interest - preferred stock of subsidiary   95 95 TOTAL SHAREHOLDERS’ EQUITY   140,738 129,983       TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY   $ 1,369,290   $ 1,365,117   (1) Derived from audited financial statements as of December 31, 2018. FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)       Three Months Ended June 30,   Six Months Ended June 30,   (dollars in thousands, except per share data) 2019   2018   2019   2018 INTEREST AND Interest and fees on loans $ 10,218   $ 9,150   $ 20,152   $ 17,954 DIVIDEND Income on investment securities         INCOME Taxable interest 1,244   1,425   2,512   2,665 Exempt from federal income tax 541   632   1,099   1,287 Interest from federal funds sold and other 56   73   134   148   Total interest income 12,059   11,280   23,897   22,054 INTEREST Interest on deposits 1,199   836   2,405   1,628 EXPENSE Interest on other borrowings 182   72   345   120 Total interest expense 1,381   908   2,750   1,748 Net interest income 10,678   10,372   21,147   20,306 Provision credit for loan and lease losses (55)   -   (55)   -   Net interest income after provision 10,733   10,372   21,202   20,306 NON-INTEREST Mortgage banking activities 257   175   449   416 INCOME Trust services fee income 918   880   1,805   1,840   Service fees on deposit accounts 1,828   1,851   3,478   3,627 Investment services fee income 111   144   193   244 Earnings on bank-owned life insurance 115   125   230   247 Gain on sale of investments -   6   -   6   Gain on bank-owned life insurance -   50   -   50   Gain on sale of White Bluff office -   -   2,700   - Other non-interest income 181   176   342   354   Total non-interest income 3,410   3,407   9,197   6,784 NON-INTEREST Salaries and employee benefits 5,919   5,093   11,461   10,540 EXPENSE Net occupancy expense 623   817   1,252   1,427 Depreciation expense 514   379   1,020   763 Data processing expense 766   642   1,512   1,331   Software support and other computer expense 537   587   1,022   1,128 Legal and professional fees 257   265   521   545 Audits and exams expense 182   176   340   351 Advertising and promotions 358   267   752   572 FDIC insurance premium expense 90   98   173   227 Other non-interest expense 940   739   1,722   1,790 Total non-interest expense 10,186   9,063   19,775   18,674 Income before provision for income taxes 3,957   4,716   10,624   8,416   Provision for income taxes 611   803   1,931   1,374 Net income 3,346   3,913   8,693   7,042 Noncontrolling interest - dividends on preferred stock subsidiary 8   8   8   8   Net income available to common shareholders $ 3,338   $ 3,905   $ 8,685   $ 7,034                   Weighted average shares outstanding 4,442,627   4,484,717   4,446,741   4,488,835   Earnings per share $ 0.75   $ 0.87   $ 1.95   $ 1.57 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, 2019   March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018 Results of Operations:                   Interest income $ 12,059     $ 11,838     $ 12,226     $ 11,613     $ 11,280   Interest expense 1,381     1,369     1,326     1,098     908   Net interest income 10,678     10,469     10,900     10,515     10,372   (Provision credit) provision for loan and lease losses (55 )   -     50     -     -   Non-interest income 3,410     5,787     3,740     3,517     3,407   Non-interest expense and non-controlling interest – preferred stock of subsidiary 10,194     9,590     10,507     9,733     9,071   Income before income taxes 3,949     6,666     4,083     4,299     4,708   Income taxes 611     1,320     511     708     803   Net income for common shareholders $ 3,338     $ 5,346     $ 3,572     $ 3,591     $ 3,905   Per Share Data:                   Basic earnings per share $ 0.75     $ 1.20     $ 0.80     $ 0.80     $ 0.87   Weighted average shares outstanding per quarter 4,442,627     4,450,901     4,461,790     4,472,684     4,484,717   Financial Condition Data and Ratios:                   Total securities $ 341,956     $ 341,241     $ 350,881     $ 374,350     $ 389,577   Loans, net of deferred fees $ 890,556     $ 891,487     $ 895,191     $ 871,334     $ 870,351   Allowance for loan and lease losses $ (9,227 )   $ (9,278 )   $ (9,282 )   $ (9,206 )   $ (9,187 ) Total assets $ 1,369,290     $ 1,346,492     $ 1,365,117     $ 1,363,007     $ 1,366,045   Total deposits $ 1,140,513     $ 1,154,809     $ 1,174,670     $ 1,164,432     $ 1,191,828   Net interest income, on a fully taxable-equivalent basis $ 12,354     $ 12,144     $ 12,544     $ 11,941     $ 11,641   Net interest margin 3.55 %   3.52 %   3.54 %   3.41 %   3.38 %                     Asset Quality Data and Ratios:                   Total nonperforming assets $ 1,616     $ 1,610     $ 1,674     $ 2,831     $ 2,836   Nonperforming assets to total assets 0.12 %   0.12 %   0.12 %   0.21 %   0.21 % Allowance for loan and lease losses to total loans 1.04 %   1.04 %   1.04 %   1.06 %   1.06 % Net charge-offs (recoveries) to average loans (annualized) 0.00 %   0.00 %   (0.01 %)   (0.01 %)   (0.01 %)   View source version on businesswire.com: https://www.businesswire.com/news/home/20190722005049/en/ Robert E. Krimmel Chief Financial Officer (931) 380-8257 Source: First Farmers and Merchants Corporation

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