Net Income Rises 10.6% to $4.1 Million Adjusted Net Income Increases 6.9% to $3.9 Million
COLUMBIA, Tenn. (October 25, 2021) – First Farmers and Merchants Corporation (OTC Pink: FFMH), the holding company for First Farmers and Merchants Bank, today announced growth in net interest income and net income for the third quarter ended September 30, 2021, compared with the prior year’s third quarter. The Company also reported record assets and deposits for the third quarter ended September 30, 2021.
Key highlights of First Farmers’ results for the third quarter of 2021 include:
- Net income rose 10.6% to $4.1 million from $3.7 million for the year-earlier quarter. Net income per common share increased 11.1% to $0.94 from $0.84 in the third quarter of 2020. Net income declined 25.7% from $5.5 million, or $1.26 per common share, reported in the second quarter of 2021 that included a one-time gain of $1.3 million, net of tax, on the sale of the Company’s Visa Class B common stock;
- Adjusted net income, which excludes special items, rose 6.9% to $3.9 million, or $0.91 per common share, compared with $3.7 million, or $0.84 per common share, for the year-earlier quarter. Third quarter adjusted income rose 0.6% from $3.9 million, or $0.90 per common share, reported in the second quarter of 2021 (see non-GAAP reconciliation);
- Net interest income increased 6.1% to $11.6 million from $11.0 million for the year-earlier quarter and was up 3.9% from $11.2 million for the second quarter of 2021;
- Loan growth, excluding SBA Paycheck Protection (“SBA PPP”) loans, was up 2.7% for the quarter; and
- Total assets reached a record $1.9 billion and total deposits reached a record $1.7 billion.
Commenting on the results, T. Randy Stevens, Chairman and Chief Executive Officer of First Farmers, said, “We are pleased to report continued growth in the third quarter with record deposits and assets as well as a solid increase in net income compared with last year’s third quarter. These strong results allowed us to increase our stock repurchases during the quarter, which were up 87.9% to 20,477 shares compared with 10,900 shares repurchased in the second quarter, and a significant increase over our first quarter purchases of 930 shares. This marked our third consecutive quarterly increase in stock repurchases and an increase in the return of a portion of our earnings to First Farmers’ shareholders.”
Brian K. Williams, President, added, “Our excellent third quarter results were driven by the outstanding performance of our First Farmers team, which continues to serve our customers at a high level, as well as our strong local economy. This was our second consecutive quarter of organic loan growth coming at the same time we are winding down our SBA PPP loan redemptions. The growth in loans and investments during the third quarter contributed to higher net interest income, our largest source of earnings. We also reported growth in non-interest income that was driven by continued strength in trust services fee income and improved service fees on deposit accounts as deposits rose to a record $1.7 billion.”
“First Farmers earnings growth has benefited from the longstanding quality of our loan portfolio. We recorded no provision for loans losses for the last two quarters due to our low level of charge-offs, past due loans and classified loans. We expect the high quality of our loan portfolio combined with momentum in interest income and non-interest income to continue into the fourth quarter. We are optimistic about the way 2021 performance is shaping up as we enter the final quarter of the year.”
Third Quarter 2021 Results of Operations
Net income increased to $4.1 million, up $389,000, or 10.6%, from the year-earlier quarter. The improvement in earnings was driven by solid growth in operating leverage. Net interest income improved $672,000 with growth in the net interest margin of three basis points supported by an increase in interest on investments of $568,000 along with a reduction in interest expense of $292,000. Non-interest income increased $316,000 driven by the gain on sale of available-for-sale securities of $181,000 coupled with an increase in service fees on deposit accounts of $129,000 and continued momentum in trust services fee income. The improvement in revenue was in part offset by growth in salaries and employee benefits of $516,000 to support our continued growth.
Net income, adjusted for special items, was $3.9 million, up $255,000 from the year-earlier quarter. The increase in adjusted net income from the year-earlier quarter was due to increases in net interest income of $672,000 and non-interest income of $135,000. Non-interest expense was up by $556,000 from the year-earlier quarter due primarily to an increase in salaries and employee benefits expense.
Net income decreased $1.4 million, or 25.7% from the sequential second quarter. The decrease in earnings was due primarily to the gain on the sale of Visa class B stock in the amount $1.3 million, net of tax, recognized during the second quarter. Net income, adjusted for special items, was slightly higher at $3.9 million, compared with the previous quarter.
For the third quarter of 2021, the outstanding loan balances decreased $5 million, or 0.6%, from the previous quarter to $903 million and decreased $90 million, or 9.1%, from the year-earlier quarter. Loan contraction for the quarter was driven by SBA PPP loan forgiveness of $29 million. Loan balances, excluding SBA PPP loans, increased $24 million, or 2.7%, for the quarter. Total deposits increased $41 million, or 2.4%, from the previous quarter to a record $1.736 billion, and increased $210 million, or 13.8%, from the year-earlier quarter.
Nine Months Results
Net income available to common shareholders rose 15.2% to $12.5 million, or $2.88 per share, for the first nine months of 2021 compared with $10.9 million, or $2.50 per share, in the first nine months of 2020. The increase in net income benefited from a 5.0% increase in net interest income after provision for loan losses to $33.6 million and a 17.1% increase in non-interest income to $12.9 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 6.8% to $5.3 million, trust services fee income increased 11.2% to $3.0 million and revenue from mortgage banking activities was up 18.2% to $1.1 million compared with the first nine months of 2020.
Non-interest expenses rose 3.4% in the first nine months of 2021 to $31.0 million compared with the same period in 2020. The increases were due mostly to higher salaries and employee benefits, net occupancy expense, software support, and advertising and promotions; offset by lower expenses for data processing expense, legal and professional fees, and other non-interest expenses.
Asset Quality
Total nonperforming assets remained at a historically low level increasing slightly to $1.6 million, or 0.08% of total assets, up from $1.3 million or 0.07% from the previous quarter. Net charge-offs to average loans were 0.00% for the third quarter of 2021 compared with net charge-offs of 0.00% for the previous quarter and net recoveries of 0.01% for the year-earlier quarter. No provision for loan and lease losses expense was recorded during the third quarter of 2021. The allowance for loan and lease losses represented 1.06% of total loans outstanding for the third quarter of 2021 compared with 1.05% for the previous quarter and 0.98% for the year-earlier quarter. The allowance for loan and lease losses for the third quarter of 2021 represented 1.07% of total loans outstanding, excluding SBA PPP loans.
Capital Management Initiatives
During the third quarter, First Farmers repurchased 20,477 shares of the Company’s common stock. Of this amount, 10,477 shares were repurchased under a Rule 10b-18 plan of the Securities Exchange Act of 1934 at an average price of $35.04 per share in accordance with the Company’s stock repurchase program. The Company also repurchased 10,000 shares through privately negotiated transactions at an average price of $42.75 per share. Authorization to repurchase approximately 168,000 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 September 30, 2021, First Farmers reported total assets of approximately $1.9 billion, total shareholders’ equity of approximately $161 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.”
