COLUMBIA, Tenn. (July 27, 2020) – 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, 2020.
Key highlights of First Farmers’ results for the second quarter of 2020 include:
- Net income of $4.0 million or $0.92 per common share, up 20% from $3.3 million or $0.75 per common share for the year-earlier quarter and up 26% from $3.2 million or $0.73 per common share for the previous quarter;
- Adjusted net income, which excludes special items, totaled $3.4 million or $0.79 per common share, compared with $3.4 million or $0.77 per common share for the year-earlier quarter and $2.6 million or $0.59 per common share for the previous quarter (see non-GAAP reconciliation);
- Total assets reached record $1.6 billion and total deposits reached record $1.4 billion;
- Recorded $85 million in Small Business Administration Paycheck Protection Program (“SBA PPP”) loans;
- Provision for loan and lease losses expense of $185,000 compared with a provision credit of $55,000 for the year-earlier quarter and provision expense of $515,000 from the previous quarter; and
- Total nonperforming assets remained at a low level of $1.7 million or 0.11% of total assets.
Commenting on the results, T. Randy Stevens, Chairman and Chief Executive Officer of First Farmers, said, “During one of the most severe economic disruptions in our time, I am pleased to report increases in year-over-year and sequential quarter net income, adjusted net income and net interest income, as well as an increase in total non‑interest income over the same period last year. Despite growth in our interest earnings assets, our net interest margin decreased from the prior quarter and same period last year due to the addition of SBA PPP loans, which carry yields much lower than our existing portfolio. Offsetting this decline in loan yields, we were able to lower our cost of funds quickly during the second quarter, relieving some pressure on our net interest margin. Further, I am particularly pleased to report growth in our balance sheet for both year‑over-year and the sequential quarter, resulting in record total assets, total loans and total deposits – evidence of the strength of the underlying fundamentals driving our business.”
Stevens further commented, “We continue to assist the liquidity needs of our clients while focusing on the health and well-being of our employees and the communities in which we operate. In the second quarter, our team deployed significant resources in support of businesses throughout Middle Tennessee as First Farmers participated in the SBA PPP lending program. I am pleased that our team members have originated 817 loans in the program or $85 million in loan balances, assisting in the preservation of approximately 13,500 jobs in the communities we serve. Additionally, a number of SBA PPP customers have also decided to deepen their banking relationship with us through the opening of new accounts during the second quarter.”
Brian K. Williams, President, added, “Despite net recoveries in our loan portfolio, we have recorded a provision for credit losses based on the potential economic effects of the COVID‑19 pandemic on our loan portfolio. Our allowance for loan and lease losses now represents 1.07% of total loans outstanding, excluding SBA PPP loans, an increase from 1.0% for the sequential quarter and an increase from 1.04% in the year‑earlier period. These comparisons have been skewed by the level of SBA PPP loans recorded during the second quarter, and given their government guarantee, it is important to exclude their impact on our loan and lease loss allowance adequacy. We are pleased with the excellent credit quality that continues to define both our loan portfolio and our lending metrics. Total nonperforming assets declined to just 0.11% of total assets from 0.12% of total assets in the year-earlier quarter and were flat on a sequential-quarter basis, a testament to our efforts to maintain a conservative approach to the way we build our business. While we did not repurchase any shares during the second quarter, our Board remains committed to the Company’s quarterly cash dividend payment. Our solid balance sheet will serve our company and its shareholders well as we continue to prudently drive our business forward during uncertain economic times.”
Second Quarter 2020 Results of Operations
Net income increased to $4.0 million, up $679,000 or 20% from the year-earlier quarter. The improvement in earnings was primarily driven by a one-time gain on redemption of bank-owned life insurance of $397,000 coupled with a gain on equity securities of $242,000. Net income, adjusted for special items, was $3.4 million, up $18,000 from the year-earlier quarter. The increase in adjusted net income from the year-earlier quarter was the result of an increase in net-interest income of $248,000 coupled with a decrease in salaries and employee benefits of $286,000 offset by a reduction in service fees on deposit accounts of $295,000 and an increase in provision for loan and lease losses of $240,000.
Net income increased $817,000 or 26% from the sequential quarter. The increase in earnings was primarily driven by decreases in salaries and benefits of $888,000 and in provision for loan and lease losses of $330,000 offset in part by a reduction in service fees on deposit accounts of $175,000. The reduction in salaries and benefits was primarily driven by a reduction in health insurance expense of $495,000 as we experienced fewer claims for the quarter.
For the second quarter of 2020, the outstanding loan balances increased $41 million or 4% from the previous quarter to a record $994 million and increased $103 million or 12% from the year-earlier quarter. Loan growth for the quarter was propelled by SBA PPP lending in the amount of $85 million. Total deposits increased $160 million or 13% from the previous quarter to a record $1.416 billion and increased $276 million or 24% from the year-earlier quarter.
Asset Quality
Total nonperforming assets increased slightly to $1.7 million, or 0.11% of total assets, up from $1.6 million or 0.11% from the previous quarter. Net recoveries to average loans were 0.01% for the second quarter of 2020 compared with net charge-offs of 0.00% for the previous quarter and the year-earlier quarter. A provision for loan and lease losses expense of $185,000 was recorded during the second quarter of 2020 primarily driven by a downgrade in our economic outlook and estimations for the impact of payment deferral loans offset by the decrease in loan balances, excluding SBA PPP loans. The allowance for loan and lease losses represented 0.98% of total loans outstanding for the second quarter of 2020 compared with 1.00% for the previous quarter and 1.04% for the year-earlier quarter. The allowance for loan and lease losses for the second quarter of 2020 represented 1.07% of total loans outstanding, excluding SBA PPP loans.
Capital Management Initiatives
First Farmers did not repurchase any shares during the second quarter under its stock repurchase program. Authorization to repurchase approximately 180,000 shares remains under the current program, which is set to expire in December 2020, 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, 2020, First Farmers reported total assets of approximately $1.6 billion, total shareholders’ equity of approximately $155 million, and administered trust assets of $5.4 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.
