Net Income Rises 16% to a Record $18.1 Million

First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced double digit growth in net income for 2022, compared with 2021.

Commenting on the results, Brian K. Williams, Chairman and Chief Executive Officer of First Farmers, said, “I am incredibly proud of our entire team who helped us achieve record results in 2022. Throughout the year, we maintained a laser focus on our core business lines while attracting new customers and deepening relationships with our existing customer base. This was highlighted by our loan growth reaching 9.1% during 2022 despite the rapid rise in interest rates, which is the highest pace in six years.

“Technology enhancements in 2022 propelled our strategy for improving service levels for our customers and driving greater efficiency throughout the Company. Our focus on innovation will continue in 2023 with key initiatives including the introduction of a new loan origination system, new features for our digital banking platform, and enhancements to services provided to depositors and treasury management clients.

“Alongside the record performance of 2022, the Board of Directors rewarded our shareholders in September with a 9.5% increase in the quarterly cash dividend and extended the share repurchase program through 2023. The fundamentals, which powered our results in 2022, remain in place as we enter 2023, and we are confident in First Farmers’ consistent, sustainable long-term performance for our shareholders,” concluded Williams.

Key highlights of First Farmers’ results for 2022 include:

• Net income rose 15.6% to a record $18.1 million in 2022 compared with $15.6 million for 2021;
• Net income per common share increased 16.7% to a record $4.19 in 2022 from $3.59 in 2021;
• Adjusted net income, which excludes special items, rose 22.5% to $18.1 million in 2022, or $4.21 per common share, compared with $14.8 million, or $3.40 per common share, in 2021 (see “Non-GAAP Financial Measures” section);
• Net interest income after provision increased 6.6% to a record $48.0 million in 2022 from $45.3 million in 2021;
• Net loans grew 9.1% to $956.8 million from 2021; and
• Total non-interest expense fell 6.5% to $40.2 million from 2021 driving improved operating efficiency to 60.40% for the fourth quarter of 2022. 

Robert E. Krimmel, Chief Financial Officer, added, "Our record financial performance in 2022 was highlighted by continued progress in key metrics. We reported growth in our net interest margin, lower non-interest expenses, higher return on assets and an improved efficiency ratio.

“Adjusted non-interest income declined because of mortgage banking activities as higher interest rates reduced demand for home purchases and mortgage refinancing. This was partially offset by higher trust services fee income driven by growth in new client accounts offsetting the impact of weak financial markets during the year. We are very pleased with our trust business which continues to provide a steady level of fee income, as customers choose a more customized service for wealth management.

“We made progress during 2022 in reducing non-interest expense by 6.5% through disciplined cost controls. We also began to experience increased operating efficiencies resulting from our expanded digital and technology platforms, with continued progress expected in this area as we roll out the new digital loan platform in 2023.

“First Farmers’ growth in revenues combined with lower non-interest expenses contributed to our improved fourth quarter efficiency ratio of 60.4%, compared with 66.6% for the same period last year. We are very pleased that these improvements were made through core earnings as well as our programs to streamline operations as we enhance customer service and access to our suite of banking products,” concluded Krimmel.

Fourth Quarter 2022 Results of Operations

Net income was $5.0 million in the fourth quarter of 2022, up $2.0 million, or 63.7%, from the year-earlier quarter. The improvement in earnings was due to one-time executive retirement benefit expenses of $1.5 million ($1.1 million net of tax) recognized during the fourth quarter of 2021, and growth in net-interest income of $953,000 for the fourth quarter of 2022 coupled with a decline in salaries and employee benefits of $676,000 in the quarter. Adjusted net income, which excludes special items, rose 24.8% to $5.0 million, up $1.0 million from the year-earlier quarter. Net interest income improved by $953,000 propelled by net interest margin growth of seven basis points supported by net loan growth of $79 million.

Non-interest income decreased $368,000 and was driven primarily by a reduction in mortgage banking activities of $271,000 impacted by the Federal Reserve’s increase in interest rates, which rose 425 basis points during 2022. Non-interest expense was down by $2.0 million from the year-earlier quarter due primarily to lower salaries and employee benefits expense, including the $1.5 million one-time executive retirement benefit expenses from 2021.

Net income for the fourth quarter of 2022 was up from the sequential third quarter by $224,000, or 4.7%. The improvement in earnings was due primarily to growth in net interest income of $235,000 coupled with a decline in non-interest expense of $156,000, improving the operating efficiency ratio to 60.40%.

For the fourth quarter of 2022, the balance of securities available-for-sale declined $15 million from the sequential third quarter. Securities available-for-sale amortized cost decreased $26 million and was used to fund loan growth for the quarter. The unrealized loss adjustment for securities available-for-sale decreased by $9 million for the quarter as bond prices improved due to lower long-term market interest rates compared to the sequential quarter.

For the fourth quarter of 2022, outstanding loan balances increased $15 million, or 1.6%, from the previous quarter to $957 million and increased $79 million, or 9.1%, from the year-earlier quarter. Loan growth for the quarter benefited from increases in commercial real estate of $9 million and commercial and industrial of $5 million. Total deposits declined by $34 million, or 1.9%, from the sequential third quarter to $1.799 billion, but rose by $7 million, or 0.4%, from the year-earlier quarter. The decline in total deposits during the fourth quarter of 2022 was driven largely by the continued migration of certain client balances to the Company’s Trust department, as customers selected an enhanced level of bank services.

Total shareholders’ equity increased $12 million due to improvement in the unrealized loss adjustment to the available-for-sale securities portfolio that totaled $9 million, net of tax, for the fourth quarter 2022. Tangible book value per share improved 16.3% for the fourth quarter of 2022 compared to the sequential quarter but declined 40.8% compared to the year-earlier quarter. The improvement in the value of the available-for-sale securities portfolio was driven by a decline in long-term market interest rates. Total unrealized losses related to the available-for-sale investment portfolio decreased to $108 million compared to unrealized losses of $120 million for the third quarter of 2022, but rose from unrealized losses of $7 million from the year-earlier quarter. The fair market value of the Company’s available-for-sale securities portfolio is adjusted each quarter based on changes in interest rates.

Twelve Months Results

Net income rose 15.6% to a record $18.1 million, or $4.19 per share, for 2022 compared with $15.6 million, or $3.59 per share, for 2021. The increase in net income benefited from a 6.6% increase in net interest income after provision for loan losses to $48.3 million and a 6.5% decrease in non-interest expense to $40.2 million but was offset in part by a 15.7% decline in non-interest income that included a $1.8 million gain on the sale of Visa stock in 2021.

Net interest income after provision for loan losses improved by $3.0 million propelled by growth in average interest earning assets of $146 million compared to 2021. During the year, asset quality improved leading to an increase in provision credit for loan and leases of $170,000.

Non-interest income declined by 15.7% due to the $1.8 million sale of Visa stock last year along with a reduction in mortgage banking activities of $828,000 that was offset partially by growth in service fees on deposit accounts and trust services fee income. Service fees on deposit accounts were up 7.9% to $7.7 million and trust services fee income were up 2.8% to $4.2 million with new client accounts offsetting the decline in administered assets driven by weakness in the stock and bond markets compared to 2021.

Non-interest expenses declined 6.5% in 2022 to $40.2 million compared with 2021. The decreases were due to lower salaries and employee benefits, including one-time executive retirement benefit expenses of $1.5 million recorded in 2021.

Asset Quality

Asset quality improved in 2022 as measured by a decline in nonperforming assets to $705,000. Nonperforming assets totaled 0.04% of total assets, down from $711,00 or 0.04% from the previous quarter and down from $1.2 million, or 0.06% of total assets, from the year-earlier quarter. Net recoveries to average loans were 0.01% for the fourth quarter of 2022 compared with net recoveries of 0.01% for the previous quarter and net recoveries of 0.00% for the year-earlier quarter. No provision for loan and lease losses was made during the fourth quarter of 2022. The allowance for loan and lease losses represented 0.97% of total loans outstanding for the fourth quarter of 2022 compared with 0.99% for the previous quarter and 1.08% for the year-earlier quarter.

Capital Management Initiatives

During the fourth quarter of 2022, First Farmers repurchased 21,033 shares of the Company’s common stock in the open market and privately negotiated transactions. The average price of the repurchased shares in the fourth quarter of 2022 was $30.49 per share. Stock repurchases increased 55% compared to the third quarter of 2022 and were up 107% compared to the year earlier quarter. First Farmers’ Board of Directors reauthorized the stock repurchase program of up to 200,000 shares through December 2023.

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 December 31, 2022, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $96.7 million, and administered trust assets of $5.7 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, gain on sale of Visa stock, gain on sale of premises and equipment, one-time executive retirement benefits, one-time digital conversion fees, 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.

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