First Farmers and Merchants : Annual Meeting

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A n n u a l

R e p o r t

Serving the Place

We Call Home.

F i r s t F a r m e r s & M e r c h a n t s C o r p o r a t i o n 2 0 2 1 A n n u a l R e p o r t

Celebrating A Century of Bu siness and Partnership

First Farmers and Merchants Bank congratulates the Tennessee Farm Bureau Federation on a century of growth.

I am pleased to state that First Farmers and Merchants Bank was blessed with another record year. In his letter, President Brian K. Williams will discuss in detail our outstanding performance during 2021.

It is entirely appropriate to recognize our long-term friends, the Tennessee Farm Bureau and its service companies, in their celebration of 100 years (1921 - 2021) of outstanding success. The leadership of President Jeff Aiken along with the past Presidents, board of directors, officers, and employees have continuously earned the recognition of being the number one Farm Bureau in the nation. Congratulations to everyone, both today and in the past. And, please accept a never-ending thank you and appreciation for allowing First Farmers to be one of your partners and friends.

Sincerely,

T. Randy Stevens

Chairman & CEO

For over 100 years, Tennessee Farm Bureau Federation has served the people of Tennessee. We're proud to be long-term partners with this amazing organization.

As we congratulate Tennessee Farm Bureau Federation on its century milestone, we'd like to take this opportunity to reflect on our partnership and how it has evolved.

Our real connection started in 1949 when Joe Frank Porter became President of the Bank. Porter was the retired President of Tennessee Farm Bureau and his reputation as a strong leader was known by Clarence Whelchel of First Farmers. Porter's connections in the community benefited growth of the Bank and cemented our long-standing relationship with the Tennessee Farm Bureau Federation.

Whelchel and Porter worked together to lead the Bank until Porter's passing in 1951. Porter's leadership at First Farmers and his strong

ties with Tennessee Farm Bureau Federation were the catalysts for our continued relationship over the next half-century.

From its humble origins in Maury County, Tennessee Farm Bureau Federation has grown into the largest state Farm Bureau in the nation with upwards of 680,000 members. The founding agricultural leaders of the Tennessee Farm Bureau had a mission to provide a better way of life for residents in the rural part of the state, and 100 years later, it is clear that they have accomplished this goal and much more throughout all 95 counties of our great state.

While it remains the voice for agriculture, Tennessee Farm Bureau reaches deeply into the lives of Tennesseans through the services and trusted advocacy it provides for its members.

First Farmers and Tennessee Farm Bureau Federation have embraced the same core values over the years that have

aligned our organizations closely due to our shared business principles and commitment to the people that we serve.

We both strive to provide excellent service in a caring

and knowledgeable way, and we have both focused on maintaining a personal connection with those that look to us as trusted advisors.

Our organizations share affinities with the agricultural community, and we strongly believe that is what has helped our partnership flourish. On a grand scale, agriculture is considered the backbone of our nation, and it has been our privilege to play a part in serving that community throughout Tennessee.

Tennessee Farm Bureau Federation has been giving a voice to the populations they serve since 1921. As our partner for the past 71 years, it is our hope to continue standing with them today, tomorrow, and for what we can foresee as another prosperous century of service.

It is evident that the partnership has strengthened the communities we call home, and it has been an honor to grow alongside Tennessee Farm Bureau Federation. We hope you join us in celebrating their 100 years of quality service to the people of Tennessee.

T. Randy Stevens and Jeffery L. Aiken stand together in front of a portrait of Joe Frank Porter,

Tennessee Farm Bureau Federation's first President, at the home office of the Tennessee Farm

Bureau Federation.

'20 First Farmers and

Merchants Bank operated 22

'05 The First Farmers' charter

locations across seven counties

changed from a national bank

'96 First Farmers

charter to a state bank charter

'21 First Farmers and

'09 First Farmers

'63 First Farmers and

'69 First Farmers

'85 First Farmers and

and Merchants Bank

Merchants Bank reaches $2.0

and Merchants Bank

Merchants Bank operated

and Merchants Bank

Merchants Bank operated

reached $500 million

'09 First Farmers

billion in total consolidated

founded in Mt.

four locations across

established Trust

seven locations across

in total consolidated

and Merchants Bank

assets and $6.3 billion in

Pleasant, TN

Maury County

Services

two counties

assets

celebrates its centennial

administered trust assets

1909

19

50

20

00

'21Tennessee

'44 Tennessee Farm

'48 Farm Bureau

'54 Scott County

'73 Farm Bureau

'90 The Tennessee

'10 The Farm Animal Care

'21 Farm Bureau

Farm Bureau

Bureau board of directors

Insurance began

completed the 100%

Insurance's life company

Foundation for Agriculture

Coalition of Tennessee

celebrates 100

founded

took action to form

selling property

goal of establishing a

was launched

in the Classroom was

began to serve as a

years of service

the Tennessee Farmers

and casualty

county organization

'69 Tennessee Farm

established

proactive, factual voice

Cooperative

policies in

in all 95 Tennessee

and provide resources

Bureau reached the

Tennessee

counties

regarding humane care,

100,000-membership

wellbeing issues and best

milestone

management practices.

'47 Tennessee Rural Health was founded

- TRH now goes by Farm Bureau Health

At First Farmers, we take pride in serving our communities alongside our neighbors.

Plans and is the largest private health

coverage group in Tennessee

Pictured on the outside cover (clockwise): Lenny and Tammy Magill, Glockstore.com; Joshua Brown,	1
Joshua Brown Family Pharmacy; Dr. Christa S. Martin and Casey Weber, Tallgrass Meat Company.

Tim Pettus stands in front of the Southern Tennessee Higher Education Center

in Lawrence County. The facility was designed to create unprecedented educational opportunities and celebrate academic collaboration, allowing students the opportunity to take classes from Columbia State Community College, Martin Methodist College, Tennessee Technological University, and the University of Tennessee.

F i r s t F a r m e r s & M e r c h a n t s C o r p o r a t i o n 2 0 2 1 A n n u a l R e p o r t

FirstFarmers celebrated 112 years in business during 2021 andwe set new records for assets, deposits and trust assets under management.

Our commitmentto establishingand cultivating deeprelationships with

our customers contributed to our favorable results in 2021.

BrianK. Williams

It has been an	After nearly 50 years of dedication to the banking industry in Middle Tennessee,
honor serving the	Timothy E. Pettus retired as Vice Chairman of First Farmers and Merchants Bank
communities of	on December 31, 2021. During his nearly 20-year career with First Farmers, he
Middle Tennessee. I	led many of the efforts tied to restructuring the Bank's credit administration and
am grateful for the	directed the expansion of our footprint by developing several new branch locations
life-long relationships	across the mid-state. His unwavering leadership and dedication to mentoring the
I built along the way,	next generation of bankers will leave a lasting impact at First Farmers.
and I look forward
to continuing to be a	Tim has demonstrated a lifelong passion for empowering young people through
strong advocate for	education. The entire Pettus family has tirelessly dedicated their time and resources
this community.	to support numerous educational projects in Southern Middle Tennessee.
Timothy E. Pettus	Tim will continue his service as a member of First Farmers' Board of Directors
through the April 2022 Shareholders' Meeting. We are thankful for the indelible
	mark Tim has left upon First Farmers, and we will continue to benefit from his
	advice and strong advocacy for years to come.

Dear Fellow Shareholders,

We are pleased to report that First Farmers achieved record assets, deposits and trust assets under administration in 2021.

Ten percent growth in net income to $15.6 million, or $3.59 per common share, in 2021 represented the second-best earnings level in our 112-year history. Our commitment to establishing and cultivating deep relationships with our customers contributed to our favorable results in 2021.

Our team did an outstanding job capitalizing on the strong Middle Tennessee economy, as we gained market share across the First Farmers footprint. We also benefited from our focus on diversifying our revenue stream and growing non-interest income. As a result, our strong financial results were broad based - driven by improvements across our business. Net interest income after provision for loan losses, our largest source of earnings, increased 5.8% to $45.3 million. Non- interest income grew 16.2% driven by growth in mortgage banking activities, trust services fee income, and service fees on deposit accounts.

The company's 2021 results were also highlighted by our unwavering focus on the safety and soundness of First Farmers as demonstrated by our continued improvement in loan quality. We also returned $5.3 million to First Farmers' shareholders in cash dividends

and stock repurchases as part of our program to build long-term shareholder value. We repurchased 42,432 shares of First Farmers' stock in 2021, up 111% from 20,133 shares repurchased in the prior year.

I am very proud our team was able to deliver such positive results while navigating the continued uncertainty and disruption of the ongoing pandemic. This speaks volumes about their commitment to our customers and our communities. We remain dedicated to investing in our team and supporting their ability to deliver a premier customer experience.

Celebrating 112 Years of Growth

in Middle Tennessee

First Farmers has proudly served Middle Tennessee for 112 years. As our marketplace has grown and times have changed,

so have we. We have held true to our community banking roots while evolving to meet the needs of our customers.

At the end of 2021, we took another step in our corporate evolution when Randy Stevens announced his planned retirement as Chairman and Chief Executive Officer of First Farmers and Merchants Bank.

We are grateful for his almost 50-years of service and guidance in making First Farmers the banking partner our region's families and businesses value and trust. This transition is part of our management succession plan and is designed to ensure the bank is growing and evolving in a sustainable, forward-looking manner allowing First Farmers to remain our communities' banking partner of choice for the next hundred years and beyond.

Focus on the Future

We have exciting plans for 2022 with new services and new products, including plans to elevate the capabilities of

the bank's digital banking platform. During the first half of 2022, we will complete the first phase of a series of significant projects expanding our digital platform with best-in-class services and capabilities, enhancing our customer contact center, and expanding other products and services.

Our entire team will remain focused on every aspect of the relationships with our customers. Alongside the trusted, personal touch of our bankers throughout the First Farmers footprint, we believe the expansion of our digital capabilities will further strengthen service capabilities and the overall experience of our customers. Well-executed investments in technology are a must as innovation in the financial services industry and customer preferences continue to evolve.

To our shareholders, thank you for your continued investment in our company and the trust you place in us each day. With your support, we will continue to keep First Farmers a strong, independent community bank committed to unmatched service to our customers while enhancing shareholder value.

Sincerely,

Brian K. Williams

President

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F i r s t F a r m e r s & M e r c h a n t s C o r p o r a t i o n 2 0 2 1 A n n u a l R e p o r t

Consolidated Balance Sheets

		December 31,		December 31,
Dollars in thousands		2021		2020
ASSETS
Cash and due from banks	$	19,791	$	29,126
Interest-bearing deposits		75,065		105,470
Federal funds sold		8,374		3,774
Total cash and cash equivalents		103,230		138,370
Securities available-for-sale		876,987		594,649
Securities held-to-maturity (fair market value $15,932
and $18,195 as of the periods presented)		15,128		17,259
Equity securities		2,481		2,242
Loans held-for-sale		2,197		3,679
Loans, net of deferred fees		886,891		964,695
Allowance for loan and lease losses		(9,605)		(9,715)
Net loans		877,286		954,980
Bank premises and equipment, net		32,627		34,421
Bank-owned life insurance		35,354		34,016
Goodwill		9,018		9,018
Other assets		18,430		13,511
TOTAL ASSETS	$	1,972,738	$	1,802,145
LIABILITIES
Deposits:
Non-interest-bearing	$	522,725	$	427,073
Interest-bearing		1,268,481		1,181,101
Total deposits		1,791,206		1,608,174
Securities sold under agreements to repurchase		-		11,691
Accounts payable and other liabilities		22,901		22,286
TOTAL LIABILITIES	$	1,814,107	$	1,642,151
SHAREHOLDERS' EQUITY
Common stock - $10 par value per share, 8,000,000 shares authorized; 4,317,306
and 4,359,738 shares issued and outstanding as of the periods presented		43,173		43,597
Retained earnings		119,507		108,761
Accumulated other comprehensive (loss) income		(4,144)		7,541
Total shareholders' equity attributable to First Farmers and Merchants Corporation		158,536		159,899
Non-controlling interest - preferred stock of subsidiary		95		95
TOTAL SHAREHOLDERS' EQUITY		158,631		159,994
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,972,738	$	1,802,145

Consolidated Statement of Income

		Years ended December 31,
Dollars in throusands, except per share data		2021		2020		2019
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	38,491	$	40,316	$	40,772
Income on investment securities
Taxable interest		6,789		4,852		5,042
Exempt from federal income tax		2,169		1,985		2,143
Interest from federal funds sold and other		88		170		236
Total interest income		47,537		47,323		48,193
INTEREST EXPENSE
Interest on deposits		2,380		3,750		5,220
Interest on other borrowings		1		44		523
Total interest expense		2,381		3,794		5,743
Net interest income		45,156		43,529		42,450
(Provision credit) provision for loan and lease losses		(150)		700		(360)
Net interest income after provision		45,306		42,829		42,810
NON-INTEREST EXPENSE
Mortgage banking activities		1,442		1,362		1,114
Trust service fees		4,045		3,643		3,598
Service fees on deposit accounts		7,093		6,617		7,077
Investment services fee income		341		371		404
Earnings on bank-owned life insurance		554		551		461
Gain on sales of securities		621		129		27
Gain on redemption of bank-owned life insurance		-		820		150
Gain on sale of White Bluff office		-		-		2,700
Gain on sale of Visa class B stock		1,811		-		-
Other non-interest income		876		954		676
Total non-interest income		16,783		14,447		16,207
NON-INTEREST EXPENSE
Salaries and employee benefits		26,499		24,229		23,710
Net occupancy expense		2,699		2,478		2,518
Depreciation expense		2,033		2,074		2,056
Core provider expense		3,034		3,132		3,007
Software support and other computer expense		2,875		2,554		2,092
Legal and professional fees		794		927		1,001
Audits and exams expense		637		726		653
Advertising and promotions		1,004		894		1,269
FDIC insurance premium expense		636		365		80
Other non-interest expense		2,755		2,902		3,212
Total non-interest expenses		42,966		40,281		39,598
Income before provision for income taxes		19,123		16,995		19,419
Provision for income taxes		3,488		2,785		3,347
Net income		15,635		14,210		16,072
Non-controlling interest - dividends on preferred stock of subsidiary		16		16		16
Net income available to common shareholders	$	15,619	$	14,194	$	16,056
Weighted average shares outstanding		4,345,665	4,363,539		4,429,952
Earnings per share	$	3.59	$	3.25	$	3.62

• December 31, 2021 results include a one-time gain of $1.3 million, net of tax, for the May 2021 sale of Visa Class B stock and one-time executive retirement benefit expenses in the amount of $1.1 million, net of tax.
• December 31, 2019 results include a one-time gain of $2.0 million, net of tax, on the January 2019 sale of the White Bluff office.

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F i r s t F a r m e r s & M e r c h a n t s C o r p o r a t i o n 2 0 2 1 A n n u a l R e p o r t

Financial Highlights

(dollars in thousands, except per share data)

Trust and Wealth Management Department Exceeds $6.3 Billion in Assets

Total Assets

Total assets reached a record $2.0 billion in 2021, a 43.4% increase since 2017. This continued growth highlights our success in building strong and trusted relationships throughout Middle Tennessee.

$2.00B	$1,375,819	$1,365,117	$1,403,670	$1,802,145	$1,972,738
$1.75B
$1.50B
$1.25B
$1.00B
$0.75B
$0.50B
$0.25B
$0
	'17	'18	'19	'20	'21

Net Interest Income

Net interest income, our largest source of earnings, continued to show steady growth with a 3.7% increase in 2021 and a 15.1% increase over the past five years.

$50,000		$41,721	$42,450	$43,529	$45,156
$40,000	$39,221
$30,000
$20,000
$10,000
$0
	'17	'18	'19	'20	'21

Non-Interest Income

Our efforts to diversify our revenue stream have been successful. Our non-interest income, which includes mortgage banking activities revenue, trust services fee income, and service fees on deposit accounts, has grown 37.1% since 2017.

$18,000		$13,819	$16,207	$14,447	$16,783
$15,000	$12,240
$12,000
$9,000
$6,000
$3,000
$0
	'17	'18	'19	'20	'21

As we take great pride in helping clients plan for their futures and achieve their goals, we entered 2021 eager to expand our capacity for meeting their needs while providing customized, integrated solutions unique to each individual's aspirations.

Excellent investment performance and our unwavering commitment to client service allowed us to experience robust growth in 2021 in trust assets under management, with the total administered assets reaching $6.3 billion, a 6.8% increase from the previous year. Additionally, we achieved an 11% increase in revenue from 2020 for a total of $4.0 million.

The growth experienced in 2021 provides stability in revenue moving into 2022. While key indicators predict a decline in trading revenue in the year ahead, only

financial planning, and estate planning. These efforts allowed us to equip clients in being actively involved with their financial planning.

We embrace new technology efforts to enhance the overall client experience, including a new wealth management software-Money Guide Pro. This platform allows us to aggregate clients' assets into one place and easily adjust their wealth management plan based on changing needs and aspirations.

Beyond asset management, we continue to explore user-friendly options for online tools and mobile capabilities. This allows us to reach the next generation with helpful financial resources and to expand our capacity for meeting clients where they're at in their financial journey.

Administered

Trust Assets

Trust assets under administration hit a record $6.3 billion while trust services income was also a record $4.0 million in 2021, up 11% from the prior year.

$7.0B	$4.7	$4.9	$5.4	$5.9	$6.3
$6.0B
$5.0B
$4.0B
$3.0B
$2.0B
$1.0B
$0
	'17	'18	'19	'20	'21

We are proud of ourteam's work to grow while remaining

First Farmers' asset quality remained

Stock Repurchases

Stock repurchases are an important part of our program to build long-term shareholder value. We repurchased 42,432 shares in 2021, up 111% from 2020 with 224,997 shares repurchased over the last five years.

Non-performing assets to total assets

We remain focused on the safety and soundness of First Farmers. Asset quality improved in 2021 with only $1.2 million in non- performing assets, or 0.06% of total assets.

committed to the community and serving ourclients with

excellence. Wecontinue to expand our technology for enhanced convenience as we deliver a personalized client service experience that's unparalleledin the industry. This approach has created exceptionalgrowth in our administered trust assets.

Dawn D.Moore

Chief Wealth Management Officer

strong in 2021 as highlighted by

our low level of non-performing assets.

We also continuedto build shareholder

value by returning over $5.3 million

to shareholders in 2021through

our cash dividend and stockrepurchase programs.

Robert E. Krimmel

Chief Financial Officer and Treasurer

80,000			71,576
70,000
60,000	48,448
50,000	42,408			42,432
40,000
30,000				20,133
20,000
10,000
0
	'17	'18	'19	'20	'21

0.30%	0.26%
0.25%		0.20%
0.20%
		0.12%	0.09%	0.06%
0.15%
0.10%
0.05%
0%
	'17	'18	'19	'20	'21

a small portion of our revenue relies on trading activity, ensuring we will continue to experience stable growth due to our managed asset-based business model.

In addition to experiencing record-growth in assets under management, our team dedicated significant time to building a Women and Wealth program, which helps women build financial confidence by educating them about investing,

As we continue implementing new technology, our team remains committed to serving our clients. Whether they prefer to visit in person, over the phone, or online, First Farmers will always serve as a friendly, dependable resource for our local communities. 

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