Market Overview

First Farmers and Merchants Corporation Reports Second Quarter Net Income up 38% to $3.9 Million or $0.87 Per Common Share

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First Farmers and Merchants Corporation (OTC:FFMH), the holding
company for First Farmers and Merchants Bank, today announced unaudited
financial results for the second quarter ended June 30, 2018.

Key highlights of First Farmers' results for the second quarter of 2018
include:

  • Net income of $3.9 million or $0.87 per common share, up 38% from $2.8
    million or $0.63 per common share for the year-earlier quarter and up
    25% from $3.1 million or $0.70 per common share for the previous
    quarter;
  • Net interest margin improved nine basis points from the year-earlier
    quarter and seven basis points from the previous quarter; and
  • Non-interest expense increased less than 1% from the year-earlier
    quarter and decreased $540,000 or 6% from the previous quarter.

Commenting on the results, T. Randy Stevens, Chairman and Chief
Executive Officer of First Farmers, said, "We are pleased to report
continued strong earnings growth for the second quarter, which extends
the success we witnessed in the first quarter and builds on the momentum
that has characterized our business for some time. This progress
reflects steadily higher margins as the rate environment has improved
and as we pursue prudent pricing for new lending opportunities. It also
underscores the increasing significance of our fee-based lines of
business, especially trust services. As we move into the second half of
the year, we do so confidently, knowing that the power for our future
growth will be driven by all lines of business, across all our markets,
and will be complemented by expansion opportunities as they arise."

Brian K. Williams, President, added, "I am excited to see the key
elements of our business continue to grow, improve and gain increasing
sustainability for the long-term. While this success reflects in part
the strategic choices we have made to shape a strong future for First
Farmers, I believe it also highlights the benefits derived from our
longstanding philosophy of relationship banking, where customers
become friends and family and time horizons move beyond loan terms to
encompass generations. With that philosophy, I think we continue to
remain relevant to customers, shareholders, and our team."

Second Quarter 2018 Results of Operations

The $1.1 million improvement in earnings for the second quarter of 2018
compared with the year-earlier quarter was driven by an increase of
$606,000 in net interest income and an increase of $371,000 in
non-interest income. The increase in net interest income reflected an
improvement in margins and loan growth of $12.1 million for the second
quarter of 2018 compared with the year-earlier quarter. The increase in
non-interest income resulted from an increase of $110,000 in trust
services fee income, $59,000 in mortgage banking activities, $56,000 in
investment services fee income and a $50,000 gain on bank-owned life
insurance. The $776,000 increase in second quarter earnings compared
with the previous quarter was driven by a $438,000 increase in net
interest income coupled with a $540,000 decrease in non-interest
expense. The increase in net interest income reflected an improvement in
margins and loan growth of $7.2 million for the second quarter of 2018
compared with the previous quarter. The decrease in non-interest expense
primarily resulted from a decrease of $429,000 in employee health
insurance expense.

For the second quarter of 2018, First Farmers achieved loan growth of
$7.2 million from the previous quarter and $12.1 million or 1% from the
year-earlier quarter. Interest income is expected to improve due to the
Federal Reserve's intentions to increase market interest rates through
2019. Total deposits stood at $1.192 billion at the end of the second
quarter of 2018, down $12 million from the previous quarter, but up $7
million or 1% from the year-earlier quarter.

Asset Quality

Total nonperforming assets increased to $2.8 million, or 0.21% of total
assets, compared with $2.7 million, or 0.20% of total assets, for the
previous quarter, but was down from $2.9 million, or 0.21% of total
assets, when compared with the year-earlier quarter. Net recoveries to
average loans were 0.01% for the second quarter of 2018 compared with
net recoveries of 0.02% for the previous quarter and net charge-offs of
0.02% for the year-earlier quarter. No provision for loan and lease
losses expense was recorded during the second quarter of 2018. The
allowance for loan and lease losses represented 1.06% of total loans
outstanding for the second quarter of 2018 compared with 1.06% for the
previous quarter and 1.08% for the year-earlier quarter.

Capital Management Initiatives

First Farmers repurchased 13,000 shares of common stock during the
second quarter at an average price of $41.50 per share under its stock
repurchase program. Authorization to repurchase 180,000 shares remains
under the current program, which is set to expire in December 2018,
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 eight Middle Tennessee counties. As
of June 30, 2018, First Farmers reported total assets of approximately
$1.4 billion, total shareholders' equity of approximately $124 million,
and administered trust assets of $4.8 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, losses and gains on the sales of foreclosed
property, gain on bank owned life insurance, deferred tax asset
revaluation 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, June 30,
2018 2018 2017 2018     2017
Total non-interest income $ 3,407 $ 3,377 $ 3,036 $ 6,784 $ 5,794
Gain on sale of securities (6 ) - (21 ) (6 ) (21 )
Gain on bank-owned life insurance   (50 )   -     -     (50 )   -  
Adjusted non-interest income $ 3,351   $ 3,377   $ 3,015   $ 6,728   $ 5,773  
Net income as reported $ 3,905 $ 3,129 $ 2,837 $ 7,034 $ 5,218
Total adjustments, net of tax1   (54 )   -     (13 )   (54 )   (13 )
Adjusted net income $ 3,851   $ 3,129   $ 2,824   $ 6,980   $ 5,205  
Basic earnings per share $ 0.87 $ 0.70 $ 0.63 $ 1.57 $ 1.15
Total adjustments, net of tax1   (0.01 )   -     -     (0.01 )   -  
Adjusted basic earnings per share $ 0.86   $ 0.70   $ 0.63   $ 1.56   $ 1.15  
 
     

(1)

  The effective tax rate of 26.1% is used to determine net of tax
amounts for 2018 periods presented. The effective tax rate of 38.5%
is used to determine net of tax amounts for 2017 periods presented.
 
 

FIRST FARMERS AND MERCHANTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 
        (unaudited)    
June 30, December 31,
(dollars in thousands, except per share data) 2018

2017(1)

 
ASSETS Cash and due from banks $ 23,565 $ 26,878
Interest-bearing deposits 6,655 26,371
Federal funds sold   281     1,915  
Total cash and cash equivalents   30,501     55,164  
Securities:
Available-for-sale 370,917 371,773

Held-to-maturity (fair market value $17,650 and $18,525 as of the
periods presented)

  18,660     18,675  
Total securities   389,577     390,448  
Loans, net of deferred fees 870,351 854,033
Allowance for loan and lease losses   (9,187 )   (9,122 )
Net loans 861,164 844,911
Bank premises and equipment, net 28,522 28,787
Bank-owned life insurance 32,338 32,091
Goodwill 9,018 9,018
Deferred tax assets 3,970 2,445
Other assets   10,955     12,955  
TOTAL ASSETS $ 1,366,045   $ 1,375,819  
LIABILITIES Deposits:
Noninterest-bearing $ 287,687 $ 292,502
Interest-bearing   904,141     914,047  
Total deposits   1,191,828     1,206,549  
Securities sold under agreements to repurchase 35,437 31,222
Accounts payable and accrued liabilities   15,183     14,668  
TOTAL LIABILITIES   1,242,448     1,252,439  

SHAREHOLDERS' EQUITY

Common stock - $10 par value per share, 8,000,000 shares
authorized; 4,474,069 and 4,493,855 shares issued and outstanding
as of the periods presented

44,741 44,939
Retained earnings 84,749 79,793
Accumulated other comprehensive loss   (5,988 )   (1,447 )
Total shareholders' equity before noncontrolling interest –
preferred stock of subsidiary
  123,502     123,285  
Noncontrolling interest - preferred stock of subsidiary   95     95  
TOTAL SHAREHOLDERS' EQUITY   123,597     123,380  
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,366,045   $ 1,375,819  
 

(1) Derived from audited financial statements as of
December 31, 2017.

 
 

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) 2018     2017 2018     2017
 
INTEREST AND Interest and fees on loans $ 9,150 $ 8,532 $ 17,954 $ 16,792
DIVIDEND Income on investment securities
INCOME Taxable interest 1,425 1,287 2,665 2,521
Exempt from federal income tax 632 648 1,287 1,271
Interest from federal funds sold and other   73   79   148   168
Total interest income   11,280   10,546   22,054   20,752
INTEREST Interest on deposits 836 703 1,628 1,369
EXPENSE Interest on other borrowings   72   77   120   111
Total interest expense   908   780   1,748   1,480
Net interest income 10,372 9,766 20,306 19,272
Provision for loan and lease losses   -   -   -   -
Net interest income after provision   10,372   9,766   20,306   19,272
NON-INTEREST Mortgage banking activities 175 116 416 162
INCOME Trust services fee income 880 770 1,840 1,511
Service fees on deposit accounts 1,851 1,826 3,627 3,479
Investment services fee income 144 88 244 164
Earnings on bank-owned life insurance 125 126 247 248
Gain on sale of investments 6 21 6 21
Gain on bank-owned life insurance 50 - 50 -
Other non-interest income   176   89   354   209
Total non-interest income   3,407   3,036   6,784   5,794
NON-INTEREST Salaries and employee benefits 5,093 4,845 10,540 10,089
EXPENSE Net occupancy expense 817 723 1,427 1,519
Depreciation expense 379 368 763 743
Data processing expense 642 704 1,331 1,359
Software support and other computer expense 587 474 1,128 938
Legal and professional fees 265 322 545 718
Audits and exams expense 176 194 351 381
Advertising and promotions 267 389 572 585
FDIC insurance premium expense 98 153 227 314
Other non-interest expense   739   814   1,790   1,668
Total non-interest expense   9,063   8,986   18,674   18,314
Income before provision for income taxes 4,716 3,816 8,416 6,752
Provision for income taxes   803   971   1,374   1,526
Net income   3,913   2,845   7,042   5,226
Noncontrolling interest - dividends on preferred stock subsidiary   8   8   8   8
Net income available to common shareholders $ 3,905 $ 2,837 $ 7,034 $ 5,218
 
Weighted average shares outstanding 4,484,717 4,521,045 4,488,835 4,530,944
Earnings per share $ 0.87 $ 0.63 $ 1.57 $ 1.15
 
 

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,
2018

   

March 31,
2018

   

December 31,
2017

   

September 30,
2017

   

June 30,
2017

 
Results of Operations:
Interest income $ 11,280 $ 10,774 $ 10,854 $ 10,716 $ 10,546
Interest expense   908     840     818     803     780  
Net interest income 10,372 9,934 10,036 9,913 9,766
Credit for loan and lease losses, net - - (225 ) - -
Non-interest income 3,407 3,377 3,155 3,291 3,036
Non-interest expense   9,071     9,611     9,040     9,235     8,994  
Income before income taxes 4,708 3,700 4,376 3,969 3,808
Income taxes   803     571     2,215     986     971  
Net income for common shareholders $ 3,905   $ 3,129   $ 2,161   $ 2,983   $ 2,837  
Per Share Data:
Basic earnings per share $ 0.87 $ 0.70 $ 0.48 $ 0.66 $ 0.63
Weighted average shares outstanding per quarter 4,484,717 4,493,000 4,507,351 4,519,030 4,521,045
Financial Condition Data and Ratios:
Total securities $ 389,577 $ 401,556 $ 390,448 $ 384,280 $ 397,124
Loans, net of deferred fees $ 870,351 $ 863,150 $ 854,033 $ 858,170 $ 858,280
Allowance for loan and lease losses $ (9,187 ) $ (9,171 ) $ (9,122 ) $ (9,286 ) $ (9,259 )
Total assets $ 1,366,045 $ 1,372,253 $ 1,375,819 $ 1,352,235 $ 1,370,782
Total deposits $ 1,191,828 $ 1,203,432 $ 1,206,549 $ 1,171,426 $ 1,185,240
 
Net interest margin 3.38 % 3.31 % 3.38 % 3.35 % 3.29 %
 
Asset Quality Data and Ratios:
Total nonperforming assets $ 2,836 $ 2,735 $ 2,775 $ 2,926 $ 2,881
Nonperforming assets to total assets 0.21 % 0.20 % 0.20 % 0.22 % 0.21 %
Allowance for loan and lease losses to total loans 1.06 % 1.06 % 1.07 % 1.08 % 1.08 %
Net (recoveries) charge-offs to average loans (annualized) (0.01 %) (0.02 %) 0.00 % 0.01 % 0.02 %

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