Net Income Rises 36.3% to $5.5 Million
Adjusted Net Income Increases 13.7% to $3.9 Million
COLUMBIA, Tenn. (July 26, 2021) – First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced record net income for the second quarter ended June 30, 2021.
Key highlights of First Farmers’ results for the second quarter of 2021 include:
- Net income rose 36.3% to $5.5 million from $4.0 million for the year-earlier quarter. Net income per common share increased 37.0% to $1.26 from $0.92 in the second quarter of 2020. Net income rose 82% from $3.0 million, or $0.69 per common share, reported in the first quarter of 2021;
- Adjusted net income, which excludes special items, rose 13.7% to $3.9 million, or $0.90 per common share, compared with $3.4 million, or $0.79 per common share, for the year-earlier quarter. Second quarter adjusted income rose 3.3% from $2.9 million, or $0.67 per common share, reported in the first quarter of 2021 (see non-GAAP reconciliation);
- Recorded a one-time gain of $1.3 million, net of tax, on the sale of the Company’s Visa Class B common stock (“Visa stock”);
- Net interest income increased 2.4% to $11.2 million from $10.9 million for the year-earlier quarter and was up 5.6% from $10.6 million for the first quarter of 2021;
- Total nonperforming assets remained at a low level of $1.3 million, or 0.07% of total assets; and
- Total deposits rose 5.5% to $1.7 billion from $1.6 billion at December 31, 2020.
Commenting on the results, T. Randy Stevens, Chairman and Chief Executive Officer of First Farmers, said, “We are very pleased to report record net income and earnings per share for the second quarter and first six months of 2021. Our team at First Farmers has done an outstanding job in growing and supporting our customer base.”
“We continue to use our earnings and strong capital position to build shareholder returns through repurchases of First Farmers’ stock. During the second quarter, we increased our stock repurchases to 10,900 shares, a significant increase over our first quarter purchases of 930 shares. We remain optimistic about our continued growth in 2021 based on improved economic trends, growth in our loan pipeline, improvements in our net interest margin and the continuation of good credit trends,” concluded Stevens.
Brian K. Williams, President, added, “Our excellent second quarter results benefited from organic growth in banking services, trust services and mortgage banking activities. We reported growth in net interest income and non-interest income, higher fee income from the redemption of SBA PPP loans, low loan losses and focused management of operating expenses. The combination of organic growth and the gain from the sale of our Visa stock investment resulted in record quarterly net income.”
“Our second quarter also was a positive turning point for organic loan growth,” continued Williams. “We had loan growth of 2% in the second quarter, excluding SBA PPP loans, with net loans rising to $899 million compared with the first quarter of this year. We experienced increased demand for construction loans as the economy improved, and the outlook of our customers turned more positive as they transitioned out of COVID restrictions. We also believe that our attractive credit metrics reflect the strength of our markets and our continued focus on sound underwriting.”
Second Quarter 2021 Results of Operations
Net income increased to $5.5 million, up $1.5 million, or 36%, from the year-earlier quarter. The improvement in earnings was primarily driven by a one-time gain on the sale of Visa stock of $1.8 million. Net income, adjusted for special items, was $3.9 million, up $472,000 from the year-earlier quarter. The increase in adjusted net income from the year-earlier quarter was the result of increases in net interest income of $260,000 and non-interest income of $447,000, primarily driven by improvement in service fees on deposit accounts of $262,000, trust services fee income of $145,000, and mortgage banking activities of $55,000. The provision for loan losses was down by $185,000 from the second quarter of last year, reflecting improved credit metrics. Non-interest expense was up by $297,000 from the year-earlier quarter due primarily to an increase in software related expense of $194,000 and in salaries and employee benefits of $187,000. Software related expenses increased due to investments made to increase the efficiency to record and to forgive Small Business Administration Paycheck Protection Program (“SBA PPP”) loans.
Net income increased $2.5 million, or 82%, from the sequential quarter. The increase in earnings was driven primarily by an improvement in non-interest income of $2.1 million and a decrease in non-interest expense of $765,000. The increase in non-interest income from the sequential quarter benefitted from the sale of Visa stock in the amount of $1.8 million and increases in gain on equity securities of $239,000 and in service fees on deposit accounts of $146,000. The decrease in non-interest expense from the sequential quarter was driven by a decline in salaries and employee benefits expense of $580,000 and lower net occupancy expense of $103,000. The decrease in salaries and employee benefits expense was due to a decline of $806,000 in employee health insurance offset by an increase in other employee benefits of $226,000.
For the second quarter of 2021, the outstanding loan balances decreased $19 million, or 2%, from the previous quarter to $909 million and decreased $85 million, or 9%, from the year-earlier quarter. Loan contraction for the quarter was driven by SBA PPP loan forgiveness of $36 million, offset in part by SBA PPP loan growth of $4 million. Loan balances, excluding SBA PPP loans, increased $13 million, or 2%, for the quarter. Total deposits decreased $10 million, or 1%, from the previous quarter to $1.696 billion, but increased $280 million, or 20%, from the year-earlier quarter.
Six Months Results
Net income available to common shareholders rose 17.5% to $8.5 million for the first six months of 2021 compared with $7.2 million in the first six months of 2020. Net income per share rose 18.2% to $1.95 for the first six months of 2021 compared with $1.65 in the same period of 2020. The higher growth rate in earnings per share benefited from fewer shares outstanding due to the Company’s stock repurchases.
The increase in net income benefited from a 4.4% increase in net interest income after provision for loan losses to $21.9 million and a 20.5% increase in non-interest income to $9.2 million, including the $1.8 million gain on sale of the Visa stock. First Farmers reported organic growth from banking services, trust services and mortgage banking activities. Service fees on deposits rose 6.3% to $3.4 million, trust services fee income increased 13.9% to $2.0 million and revenue from mortgage banking activities was up 40.6% to $835,000 compared with the first six months of 2020.
Non-interest expenses rose 2.3% in the first six months of 2021 to $20.6 million compared with the same period in 2020. The increases were due mostly to higher salaries and employee benefits, net occupancy expense and software support; offset by lower expenses primarily for depreciation, data processing expense, legal and professional fees, and other non-interest expenses.
Asset Quality
Total nonperforming assets decreased to $1.3 million, or 0.07% of total assets, down from $1.5 million, or 0.08%, from the previous quarter. Net charge-offs to average loans were 0.00% for the second quarter of 2021 compared with net charge-offs of 0.00% for the previous quarter and net recoveries of 0.01% in the year-earlier quarter. Provision for loan and lease losses expense was not recorded during the second quarter of 2021 primarily driven by an upgrade in our economic outlook and improvement in our credit metrics. The allowance for loan and lease losses represented 1.05% of total loans outstanding for the second quarter of 2021 compared with 1.03% for the previous quarter and 0.98% for the year-earlier quarter. The allowance for loan and lease losses for the second quarter of 2021 represented 1.10% of total loans outstanding, excluding SBA PPP loans.
Capital Management Initiatives
During the second quarter, First Farmers repurchased 10,900 shares of the Company’s common stock. Of this amount, 900 shares were repurchased under a Rule 10b-18 plan of the Securities Exchange Act of 1934 at an average price of $33.82 per share under the Company’s stock repurchase program. The Company also repurchased 10,000 shares through privately negotiated transactions at an average price of $39.19 per share. Authorization to repurchase approximately 188,000 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 June 30, 2021, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $162 million, and administered trust assets of $6.2 billion. For more information about First Farmers, visit us on the Web at www.myfirstfarmers.com under “Investor Relations.”
