Talmer Bancorp, Inc. reports fourth quarter 2015 net income of $13.1 million, representing $0.19 of earnings per diluted average common share

FDIC loss share agreements and warrant terminated resulting in an after-tax charge of approximately $13.9 million, or $0.20 per diluted common share

Talmer Bancorp, Inc. increases cash dividend on common stock to $0.05 from $0.01 per share

Jan 26, 2016, 07:40 ET from Talmer Bancorp, Inc.

TROY, Mich., Jan. 26, 2016 /PRNewswire/ -- Talmer Bancorp, Inc. (NASDAQ: TLMR) ("Talmer") today reported fourth quarter 2015 net income of $13.1 million, compared to $20.0 million for the third quarter of 2015 and $12.5 million for the fourth quarter of 2014.  Earnings per diluted common share were $0.19 for the fourth quarter of 2015, compared to $0.27 for the third quarter of 2015 and $0.16 for the fourth quarter of 2014.  In addition, on January 25, 2016, the Board of Directors of Talmer increased the quarterly cash dividend on its Class A common stock to $0.05 from $0.01 per share.  The dividend will be paid on February 18, 2016, to our Class A common shareholders of record as of February 4, 2016.

On December 28, 2015, Talmer Bank and Trust ("the Bank") entered into an early termination agreement with the Federal Deposit Insurance Corporation ("FDIC") that terminated the Bank's loss share agreements with the FDIC.  Also on December 28, 2015, Talmer entered into an agreement with the FDIC that terminated the FDIC's warrant to purchase 390,000 shares of our Class B non-voting common stock.  The early loss share and warrant termination resulted in a pre-tax charge of $20.4 million, or approximately $13.9 million, or $0.20 per diluted average share, after-tax.   As a result of the settlement, there was no negative accretion on the FDIC indemnification asset for the fourth quarter nor will there be any future expenses associated with the FDIC clawback liability or FDIC warrant. 

 

Quarterly Results Summary

(Dollars in thousands, except per share data)

4th Qtr 2015

3rd Qtr 2015

4th Qtr 2014

Earnings Summary

Net interest income

$

58,378

$

55,647

$

51,463

Total provision (benefit) for loan losses

(4,583)

700

2,994

Noninterest income

23,575

19,342

15,834

Noninterest expense

68,602

47,829

48,098

Income before income taxes

17,934

26,460

16,205

Income tax provision

4,821

6,425

3,703

Net income

13,113

20,035

12,502

Per Share Data

Diluted earnings per common share

$

0.19

$

0.27

$

0.16

Tangible book value per share (1)

10.72

10.55

10.61

Average diluted common shares (in thousands)

69,973

73,222

75,759

Performance and Capital Ratios

Return on average assets (annualized)

0.80

%

1.23

%

0.85

%

Return on average equity (annualized)

7.25

10.96

6.63

Net interest margin (fully taxable equivalent) (2)

3.89

3.76

3.89

Core efficiency ratio (1)

59.51

58.54

67.09

Tangible average equity to tangible average assets (1)

10.79

11.02

12.67

Common equity tier 1 capital (3)

11.95

12.12

N/A

Tier 1 leverage ratio (3)

10.21

10.21

11.56

Tier 1 risk-based capital (3)

11.95

12.12

15.20

Total risk-based capital (3)

12.96

13.20

16.44

Asset Quality Ratios

Net charge-offs (recoveries) to average loans (annualized)

(0.23)

%

(0.19)

%

0.34

%

Nonperforming assets as a percentage of total assets

1.30

1.33

1.78

Nonperforming loans as a percent of total loans

1.20

1.14

1.34

Allowance for loan losses as a percentage of period-end loans

1.12

1.19

1.30

(1)  Denotes a non-GAAP Financial Measure, see section entitled "Reconciliation of Non-GAAP Financial Measures." (2)  Presented on a tax equivalent basis using a 35% tax rate for all periods presented. (3)  Fourth quarter 2015 is estimated. Third and fourth quarters of 2015 are under Basel III transitional and fourth quarter 2014 is under Basel I.

Fourth Quarter 2015 Compared to Third Quarter 2015

  • Net income was $13.1 million, or $0.19 per diluted average common share, in the fourth quarter of 2015, compared to $20.0 million, or $0.27 per diluted average common share, for the third quarter of 2015.  The decrease in net income in the fourth quarter of 2015 was primarily due to the after-tax charge resulting from the early termination of the Bank's FDIC loss share agreements and the FDIC's warrant of approximately $13.9 million, or $0.20 per diluted average share.
  • Net loans increased during the fourth quarter of 2015 by $107.0 million, driven by strong growth in commercial and industrial lending, partially offset by acquired loan run-off.
  • Total deposits declined $110.9 million, to $5.0 billion as of December 31, 2015, compared to September 30, 2015, primarily due to a decline in brokered deposits of $106.6 million.
  • Net interest income increased to $58.4 million in the fourth quarter of 2015, compared to $55.6 million in the third quarter of 2015.  Net interest income growth was primarily due to the benefit provided by a $4.4 million reduction in negative accretion on the FDIC indemnification asset, partially offset by a $1.7 million decrease in interest on loans due significantly to the run-off of acquired, higher-yielding loans.  Our net interest margin increased 13 basis points to 3.89% in the fourth quarter of 2015, compared to 3.76% in the third quarter of 2015, due in large part to the removal of the negative yield on the FDIC indemnification asset.
  • Noninterest income increased $4.2 million to $23.6 million in the fourth quarter of 2015, compared to the third quarter of 2015.  Noninterest income was impacted by a benefit to earnings of $1.4 million due to the change in the fair value of loan servicing rights, compared to a detriment to earnings of $3.8 million in the third quarter of 2015, which is a key component of the $5.6 million increase in mortgage banking and other loan fees.  Fourth quarter of 2015 noninterest income also benefited from the Bank's early termination of the FDIC loss share agreements as we did not have to record a liability due to the FDIC for what would have been the FDIC's share of recoveries on covered loans recognized in the fourth quarter of 2015.
  • Noninterest expense increased $20.8 million, to $68.6 million in the fourth quarter of 2015, compared to the third quarter of 2015, primarily due to the $20.4 million net loss on the early termination of the Bank's FDIC loss share agreements and the FDIC's warrant. 
  • Total shareholder's equity of $725.2 million as of December 31, 2015, increased $10.4 million compared to September 30, 2015.  The increase is primarily the result of fourth quarter of 2015 net income of $13.1 million, partially offset by a decrease in accumulated other comprehensive income primarily due to a decrease in the fair value of our investment securities portfolio.

Income Statement

Net Interest Income and Net Interest Margin

Net interest income for the fourth quarter of 2015 was $58.4 million, compared to $55.6 million in the prior quarter.  Our net interest margin was 3.89% in the fourth quarter of 2015, an increase of 13 basis points from 3.76% in the third quarter of 2015.  The increase in our net interest margin in the fourth quarter was due in large part to the removal of the negative yield on the FDIC indemnification asset as the Bank terminated its FDIC loss share agreements.

Our net interest margin benefits from discount accretion on our purchased credit impaired loan portfolio, a component of the accretable yield.  The accretable yield for purchased credit impaired loans includes both the expected coupon of the loan and the discount accretion, and is recognized as interest income over the expected remaining life of the loans.  For the fourth and third quarters of 2015, the yield on loans was 4.83% and 5.09%, respectively, while the yield generated using only the expected coupon would have been 4.17% and 4.34%, respectively.  The difference between the actual yield earned on total loans and the yield generated based on the contractual coupon (not including any interest income for loans in nonaccrual status) represents excess accretable yield.  Our net interest margin, prior to the fourth quarter of 2015, was also adversely impacted by the negative yield on the FDIC indemnification asset.  The combination of the excess accretable yield, offset by the negative yield on the FDIC indemnification asset in the third quarter of 2015, benefited net interest margin by 52 basis points in the fourth quarter of 2015 compared to 30 basis points in the third quarter of 2015.  Therefore, excluding the benefit of excess accretable yield and negative yield on the FDIC indemnification asset, our net interest margin in the fourth quarter of 2015 was 3.37% compared to 3.46% in the third quarter of 2015. The decline in our core net interest margin was due in large part to the decline in yield on our loan portfolio driven by run-off of higher yielding acquired loans being replaced with new loans with lower, current market-competitive rates. 

Noninterest Income

Noninterest income increased $4.2 million to $23.6 million in the fourth quarter of 2015, compared to the third quarter of 2015.  The most significant contributor to this increase was an increase in mortgage banking and other loan fees of $5.6 million.  The increase in mortgage banking and other loan fees was impacted by a benefit of $1.4 million due to the change in the fair value of loan servicing rights compared to a detriment to earnings of $3.8 million in the third quarter of 2015. The change in the fair value of loan servicing rights in the fourth quarter of 2015 was due mainly to upward movements in market interest rates during the period compared to the falling rate environment in the third quarter of 2015.  Fourth quarter of 2015 noninterest income also benefited from the termination of the Bank's FDIC loss share agreements.  FDIC loss share income was negative $2.7 million in the third quarter of 2015, representing the amounts due to the FDIC related to significant credit recoveries on covered loans.

As we have noted in prior quarters, we have chosen not to hedge our investment in loan servicing rights, though we may choose to do so in future periods.  Since our loan servicing rights are accounted for under the fair value measurement method, decreases in interest rates generally result in a detriment to earnings due to an anticipated increase in prepayments speeds, whereas increases in interest rates generally result in a benefit to earnings due to the opposite effect.  While there has been meaningful reported earnings volatility due to our decision not to hedge our loan servicing rights, the cumulative acquisition-to-date benefit to pre-tax earnings due to the changes in fair value has been $658 thousand since the majority of our servicing rights were acquired on January 1, 2013.

Noninterest Expense

Noninterest expense in the fourth quarter of 2015 increased $20.8 million, to $68.6 million, compared to the third quarter of 2015.  The increase in noninterest expense is primarily due to the pre-tax charge of $20.4 million taken in the fourth quarter of 2015 as a result of the early termination of the Bank's FDIC loss share agreements and the FDIC's warrant.

Our core efficiency ratio was 59.51% and 58.54%, for the fourth and third quarters of 2015, respectively.  The efficiency ratio is a measure of noninterest expense as a percent of net interest income and noninterest income.  The core efficiency ratio begins with the efficiency ratio and then excludes certain items deemed by management to not be related to regular operations.  The fourth quarter of 2015 core efficiency ratio excludes the $20.4 million charge we took to terminate the Bank's FDIC loss share agreements and the FDIC's warrant, the benefit received from the fair value adjustment to our loan servicing rights of $1.4 million and transaction and integration related costs of $328 thousand.  The third quarter of 2015 core efficiency ratio excludes the detriment received from the fair value adjustment to our loan servicing rights of $3.8 million, transaction and integration related costs of $113 thousand, and the FDIC loss sharing income, which was a detriment of $2.7 million.

Credit Quality

As a result of the early termination of the Bank's FDIC loss share agreements in the fourth quarter of 2015 all loans and allowance previously classified as covered were reclassified to uncovered.

The fourth quarter of 2015 resulted in a benefit for loan losses of $4.6 million, compared to a provision for loan losses of $700 thousand in the third quarter of 2015.  The increase to a benefit for loan losses was primarily due to increases in credit recoveries on acquired loans.  At December 31, 2015, the allowance for loan losses on loans was $54.0 million, or 1.12% of total loans, compared to $55.8 million, or 1.19% of total loans, at September 30, 2015.  The decrease in the allowance for loan losses for the quarter was primarily due to credit recoveries on acquired loans that were paid off and from payments received on loans previously carrying an allowance for loan loss.

During the fourth quarter of 2015, we completed re-estimations of cash flow expectations for purchased credit impaired loans acquired in each of our acquisitions.  For the re-estimations, loans with changes in cash flow expectations resulted in net additional loan loss provisions of $731 thousand.  The re-estimations also resulted in a $10.7 million improvement in the gross cash flow expectations for purchased credit impaired loans, which will be recognized prospectively as an increase in the accretable yield.

All of our acquired loan portfolios are continuing to perform significantly better than initially anticipated.

Balance Sheet and Capital Management

Total assets increased $91.9 million to $6.6 billion at December 31, 2015 compared to $6.5 billion at September 30, 2015.  The primary drivers of the increase in assets in the quarter ended December 31, 2015 were increases in net total loans of $107.0 million and cash and cash equivalents of $57.8 million, partially offset by a decrease in loans held for sale of $42.0 million and the elimination of the FDIC indemnification asset of $30.6 million and the FDIC receivable of $2.6 million.  The decrease in loans held for sale primarily reflects a reduction in the overall volume of residential loan originations.

Net total loans at December 31, 2015 increased $107.0 million to $4.8 billion, compared to September 30, 2015.  Loan growth was primarily driven by growth in commercial and industrial loans. We continue to be focused on sourcing quality loan growth to overcome the run-off of higher-yielding acquired loans.  Acquired loans, which total $1.4 billion, or 29.7% of total loans, at December 31, 2015 are reported on the balance sheet at the contractual balance, net of remaining discount resulting from acquisition accounting and charge-offs taken since acquisition. 

Total liabilities were $5.9 billion at December 31, 2015 compared to $5.8 billion at September 30, 2015.  The $81.4 million increase in liabilities in the quarter ended December 31, 2015 was primarily due to an increase in short-term borrowings of $246.9 million, partially offset by decreases in total deposits of $110.9 million and long-term debt of $20.9 million and the elimination of our FDIC clawback liability of $27.3 million and FDIC warrant payable of $4.5 million in the fourth quarter of 2015.  The decrease in total deposits was primarily due to decreases in brokered deposits of $106.6 million and noninterest-bearing demand deposits of $39.0 million, partially offset by growth in interest-bearing demand deposits of $36.0 million.

Total shareholders' equity of $725.2 million as of December 31, 2015 increased $10.4 million compared to September 30, 2015.  The increase is primarily the result of our net income of $13.1 million, partially offset by a decrease in accumulated other comprehensive income primarily due to a decrease in the fair value of our investment securities portfolio.  Our Tier 1 leverage ratio was estimated to be 10.21% at December 31, 2015, compared to 10.21% at September 30, 2015. 

Subsequent Event

In January 2016, a settlement was finalized with the Internal Revenue Service regarding First Place Financial Corp.'s utilization of bad debt expense incurred prior to Talmer's acquisition of First Place Bank involving several tax years.  The Bank, as successor to First Place Bank, was granted court approval to act as substitute agent for First Place Financial Corp. consolidated group for the purposes of amending various returns, which ultimately impact the tax filings of the Bank.  The benefit expected as a result of the amended filings is approximately $4.2 million that will be recorded in the first quarter of 2016 as an offset to the quarterly income tax expense.

We are in the process of re-examining the tax attributes associated with our prior acquisitions and we have identified information that may cause us to adjust our estimated deferred tax assets associated with our acquisition of Talmer West Bank on January 1, 2014.  While our analysis is not yet complete, it is possible that we may need to reduce the deferred tax assets associated with our acquisition of Talmer West Bank by approximately $16 million. If we make this adjustment, we would reduce our currently reported equity by a like amount, which we expect would have only an immaterial effect on our reported regulatory capital ratios, since a large majority of our deferred tax assets are disallowed from regulatory capital both before and after the adoption of Basel III.  If we conclude that an adjustment is necessary, we anticipate reducing the bargain purchase gain recorded as a result of our acquisition of Talmer West Bank in the first quarter of 2014.  A one-time adjustment of this nature would have no impact on our future earnings.  We are performing this analysis in consultation with our tax, legal and accounting experts. We plan to have the result of our analysis and a conclusion on this matter known before we file our Annual Report on Form 10-K due February 29, 2016.

As announced and further described in a separate press release issued by Talmer today, Talmer has entered into a merger agreement with Chemical Financial Corporation.

Conference Call and Webcast

In light of today's announcement that Talmer has entered into a merger agreement with Chemical Financial Corporation, Talmer has cancelled its live conference webcast to review fourth quarter 2015 financial results that was scheduled for 10:00 a.m. ET on Thursday, January 28, 2016.  Instead, Talmer and Chemical Financial Corporation will jointly host a live conference call today at 11:00 a.m. ET to discuss the merger and Talmer will also discuss its fourth quarter 2015 financial results.  Anyone interested may access the conference call on a live basis by dialing toll-free at 1-800-289-0459 and entering 430440 for the participant passcode. The call will also be broadcast live over the Internet hosted on Chemical Financial Corporation's website at www.chemicalbankmi.com under the "Investor Info" section.

A slide-show presentation regarding the merger will be discussed on the call and will be available for download at www.talmerbank.com under the "Investor Relations" section, and at www.chemicalbankmi.com under the "Investor Info" section.

An audio replay of the call will be available after the event on Talmer's and Chemical Financial Corporation's websites for at least 14 days.

About Talmer Bancorp, Inc.

Headquartered in Troy, Michigan, Talmer Bancorp, Inc. is the holding company for Talmer Bank and Trust.  Talmer Bank and Trust operates branches and lending offices in Michigan, Ohio, Illinois, Indiana, Maryland and Nevada and offers a full suite of commercial and retail banking, mortgage banking, wealth management and trust services to small and medium-sized businesses and individuals.

This press release contains both financial measures based on accounting principles generally accepted in the United States (GAAP) and non-GAAP based financial measures, which are used where management believes it to be helpful in understanding Talmer Bancorp Inc.'s results of operations or financial position.  Where non-GAAP financial measures are used, the comparable GAAP financial measure, as well as reconciliation to the comparable GAAP financial measure, can be found in this press release. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Forward-looking Statements

Some of the statements in this press release and our conference call are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as:  "intend," "plan," "seek," "believe," "expect," "strategy," "future," "likely," "may," "should," "will" and similar references to future periods.  Examples of forward-looking statements, include, among others, statements related to the impact of interest rates on earnings, statements regarding the proposed merger with Chemical Financial Corporation and statements regarding the potential adjustment to our deferred tax assets related to our acquisition of Talmer West Bank, including whether an adjustment will be required, and if required, the timing, size and impact of any such adjustment.   Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions.  Because forward-looking statements relate to the future, they are subject to risks, uncertainties and other factors, such as a downturn in the economy, unanticipated losses related to the integration of, and accounting for, our acquisition transactions, access to funding sources, greater than expected noninterest expenses, volatile credit and financial markets both domestic and foreign, potential deterioration in real estate values, regulatory changes, excessive loan losses, and risks and uncertainties set forth in the joint press release issued by Talmer and Chemical Financial Corporation issued the date hereof with respect to the merger agreement entered into by Talmer and Chemical Financial Corporation, as well as additional risks and uncertainties contained in the "Risk Factors" and the forward-looking statement disclosure contained in our Annual Report on Form 10-K for the most recently ended fiscal year, any of which could cause actual results to differ materially from future results expressed or implied by those forward-looking statements.  All forward-looking statements speak only as of the date on which it is made.  We undertake no obligation to update or revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.

 

Talmer Bancorp, Inc.

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except per share data)

December 31,  2015

September 30,  2015

December 31,  2014

Assets

Cash and due from banks

$

74,734

$

82,822

$

86,185

Interest-bearing deposits with other banks

137,589

106,740

96,551

Federal funds sold and other short-term investments

175,000

140,000

71,000

Total cash and cash equivalents

387,323

329,562

253,736

Securities available-for-sale

890,770

880,705

740,819

Federal Home Loan Bank stock

29,621

25,416

20,212

Loans held for sale, at fair value

58,223

100,255

93,453

Loans:

Commercial real estate

1,568,097

1,561,529

1,497,600

Residential real estate (includes $22.2 million, $20.9 million, and $18.3 million, respectively, measured at fair value) (1)

1,547,799

1,542,661

1,534,238

Commercial and industrial

1,257,406

1,210,613

902,125

Real estate construction (includes $0, $0, and $1.2 million, respectively, measured at fair value) (1)

241,603

222,184

141,075

Consumer

191,795

164,601

174,089

Total loans

4,806,700

4,701,588

4,249,127

Less: Allowance for loan losses

(53,953)

(55,837)

(55,172)

Net total loans

4,752,747

4,645,751

4,193,955

Premises and equipment

43,570

44,133

48,389

Other real estate owned and repossessed assets

28,259

33,553

48,743

Loan servicing rights

58,113

55,786

70,598

Core deposit intangible

12,808

13,470

13,035

Goodwill

3,524

3,524

Company-owned life insurance

107,065

105,975

97,782

Income tax benefit

177,183

180,719

177,472

FDIC indemnification asset

30,551

67,026

FDIC receivable

2,618

6,062

Other assets

46,684

52,017

40,982

Total assets

$

6,595,890

$

6,504,035

$

5,872,264

Liabilities

Deposits:

Noninterest-bearing demand deposits

$

1,011,414

$

1,050,375

$

887,567

Interest-bearing demand deposits

849,599

813,609

660,697

Money market and savings deposits

1,314,909

1,314,798

1,170,236

Time deposits

1,609,895

1,611,315

1,188,178

Other brokered funds

228,764

335,354

642,185

Total deposits

5,014,581

5,125,451

4,548,863

Short-term borrowings

348,998

102,090

135,743

Long-term debt

464,057

484,981

353,972

FDIC clawback liability

27,269

26,905

FDIC warrants payable

4,513

4,633

Other liabilities

43,039

44,963

40,541

Total liabilities

5,870,675

5,789,267

5,110,657

Shareholders' equity

Preferred stock - $1.00 par value

Authorized - 20,000,000 shares at 12/31/2015, 9/30/2015 and 12/31/2014

Issued and outstanding - 0 shares at 12/31/2015, 9/30/2015 and 12/31/2014

Common stock:

Class A Voting Common Stock - $1.00 par value

Authorized - 198,000,000 shares at 12/31/2015, 9/30/2015, and 12/31/2014

Issued and outstanding - 66,114,798 shares at 12/31/2015, 66,127,598 shares at 9/30/2015 and 70,532,122 shares at 12/31/2014

66,115

66,128

70,532

Class B Non-Voting Common Stock - $1.00 par value

Authorized - 2,000,000 shares at 12/31/2015, 9/30/2015 and 12/31/2014

Issued and outstanding - 0 shares at 12/31/2015, 9/30/2015 and 12/31/2014

Additional paid-in-capital

316,571

316,160

405,436

Retained earnings

339,130

326,678

281,789

Accumulated other comprehensive income, net of tax

3,399

5,802

3,850

Total shareholders' equity

725,215

714,768

761,607

Total liabilities and shareholders' equity

$

6,595,890

$

6,504,035

$

5,872,264

(1)  Amounts represent loans for which the Company has elected the fair value option.

 

Talmer Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)

Three months ended December 31,

Year ended December 31,

(Dollars in thousands, except per share data)

2015

2014

2015

2014

Interest income

Interest and fees on loans

$

58,400

$

58,271

$

236,735

$

226,674

Interest on investments

Taxable

3,234

2,263

10,663

8,509

Tax-exempt

1,933

1,610

7,079

6,232

Total interest on securities

5,167

3,873

17,742

14,741

Interest on interest-earning cash balances

77

94

387

640

Interest on federal funds and other short-term investments

383

126

1,159

527

Dividends on FHLB stock

275

177

1,029

867

FDIC indemnification asset

(7,539)

(22,164)

(26,426)

Total interest income

64,302

55,002

234,888

217,023

Interest Expense

Interest-bearing demand deposits

395

194

1,468

824

Money market and savings deposits

732

457

2,385

1,930

Time deposits

2,891

1,546

9,431

6,080

Other brokered funds

483

527

2,254

879

Interest on short-term borrowings

329

90

967

420

Interest on long-term debt

1,094

725

3,717

2,627

Total interest expense

5,924

3,539

20,222

12,760

Net interest income

58,378

51,463

214,666

204,263

Provision (benefit) for loan losses

(4,583)

2,994

(9,203)

4,327

Net interest income after provision for loan losses

62,961

48,469

223,869

199,936

Noninterest income

Deposit fee income

2,513

2,692

9,888

12,225

Mortgage banking and other loan fees

3,853

(865)

5,569

1,163

Net gain on sales of loans

5,404

4,939

29,585

17,747

Accelerated discount on acquired loans

7,556

3,742

32,689

18,197

Net gain (loss) on sales of securities

(2)

99

(2,066)

Company-owned life insurance

779

805

3,115

2,691

Net gain on sale of branches

14,410

Bargain purchase gain

41,977

FDIC loss sharing income

(244)

(9,692)

(6,211)

Other income

3,472

4,765

15,192

17,366

Total noninterest income

23,575

15,834

86,445

117,499

Noninterest expense

Salary and employee benefits

27,535

25,632

113,097

121,744

Occupancy and equipment expense

5,993

6,911

28,546

31,806

Data processing fees

1,603

789

6,618

6,399

Professional service fees

2,771

3,323

12,786

12,952

Bank acquisition and due diligence fees

328

329

2,272

3,765

Marketing expense

1,224

1,226

5,550

4,923

Other employee expense

943

658

3,425

2,674

Insurance expense

1,571

1,615

5,933

5,697

FDIC loss sharing expense

406

1,374

2,158

Net loss on early termination of FDIC loss share agreements and warrant

20,364

20,364

Other expense

6,270

7,209

26,354

26,762

Total noninterest expense

68,602

48,098

226,319

218,880

Income before income taxes

17,934

16,205

83,995

98,555

Income tax provision

4,821

3,703

23,866

7,705

Net income

$

13,113

$

12,502

$

60,129

$

90,850

Earnings per common share:

Basic

$

0.20

$

0.18

$

0.87

$

1.30

Diluted

$

0.19

$

0.16

$

0.81

$

1.21

Average common shares outstanding - basic

65,388

70,136

68,646

69,605

Average common shares outstanding - diluted

69,973

75,759

73,331

75,150

Total comprehensive income

$

10,710

$

14,265

$

59,678

$

102,696

 

Talmer Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)

2015

2014

(Dollars in thousands, except per share data)

4th Qtr

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

Interest income

Interest and fees on loans

$

58,400

$

60,078

$

58,319

$

59,938

$

58,271

Interest on investments

Taxable

3,234

2,731

2,375

2,323

2,263

Tax-exempt

1,933

1,873

1,658

1,615

1,610

Total interest on securities

5,167

4,604

4,033

3,938

3,873

Interest on interest-earning cash balances

77

107

117

86

94

Interest on federal funds and other short-term investments

383

342

269

165

126

Dividends on FHLB stock

275

285

224

245

177

FDIC indemnification asset

(4,366)

(8,548)

(9,250)

(7,539)

Total interest income

64,302

61,050

54,414

55,122

55,002

Interest Expense

Interest-bearing demand deposits

395

401

382

290

194

Money market and savings deposits

732

620

562

471

457

Time deposits

2,891

2,582

2,131

1,827

1,546

Other brokered funds

483

541

607

623

527

Interest on short-term borrowings

329

350

209

79

90

Interest on long-term debt

1,094

909

914

800

725

Total interest expense

5,924

5,403

4,805

4,090

3,539

Net interest income

58,378

55,647

49,609

51,032

51,463

Provision (benefit) for loan losses

(4,583)

700

(7,313)

1,993

2,994

Net interest income after provision for loan losses

62,961

54,947

56,922

49,039

48,469

Noninterest income

Deposit fee income

2,513

2,494

2,561

2,320

2,692

Mortgage banking and other loan fees

3,853

(1,721)

4,698

(1,261)

(865)

Net gain on sales of loans

5,404

6,815

8,748

8,618

4,939

FDIC loss sharing income

(2,696)

(5,928)

(1,068)

(244)

Accelerated discount on acquired loans

7,556

9,491

7,444

8,198

3,742

Net gain (loss) on sales of securities

(2)

202

6

(107)

Company-owned life insurance

779

740

856

740

805

Other income

3,472

4,017

3,713

3,990

4,765

Total noninterest income

23,575

19,342

22,098

21,430

15,834

Noninterest expense

Salary and employee benefits

27,535

27,665

28,685

29,212

25,632

Occupancy and equipment expense

5,993

6,472

8,415

7,666

6,911

Data processing fees

1,603

1,356

1,805

1,854

789

Professional service fees

2,771

3,197

3,275

3,543

3,323

FDIC loss sharing expense

292

133

949

406

Bank acquisition and due diligence fees

328

113

419

1,412

329

Marketing expense

1,224

1,748

1,483

1,095

1,226

Other employee expense

943

722

826

934

658

Insurance expense

1,571

1,305

1,527

1,530

1,615

Net loss on early termination of FDIC loss share agreements and warrant

20,364

Other expense

6,270

4,959

6,725

8,400

7,209

Total noninterest expense

68,602

47,829

53,293

56,595

48,098

Income before income taxes

17,934

26,460

25,727

13,874

16,205

Income tax provision

4,821

6,425

8,179

4,441

3,703

Net income

$

13,113

$

20,035

$

17,548

$

9,433

$

12,502

Earnings per common share:

Basic

$

0.20

$

0.29

$

0.25

$

0.13

$

0.18

Diluted

$

0.19

$

0.27

$

0.23

$

0.12

$

0.16

Average common shares outstanding - basic

65,388

68,731

70,301

70,216

70,136

Average common shares outstanding - diluted

69,973

73,222

74,900

75,103

75,759

Total comprehensive income

$

10,710

$

23,601

$

13,144

$

12,227

$

14,265

 

Talmer Bancorp, Inc.

Loan Data

(Unaudited)

(Dollars in thousands)

December 31,  2015

September 30, 2015

June 30,  2015

March 31,  2015

December 31,  2014

Uncovered loans

Commercial real estate

Non-owner occupied

$

1,039,305

$

988,635

$

924,174

$

919,043

$

888,650

Owner-occupied

503,814

472,269

445,927

459,002

417,843

Farmland

24,978

23,517

25,682

26,617

4,445

Total commercial real estate

1,568,097

1,484,421

1,395,783

1,404,662

1,310,938

Residential real estate

1,547,799

1,452,290

1,434,678

1,474,025

1,426,012

Commercial and industrial

1,257,406

1,196,717

1,066,353

948,303

869,477

Real estate construction

241,603

217,035

175,192

140,705

131,686

Consumer

191,795

164,496

172,120

187,698

164,524

Total uncovered loans

4,806,700

4,514,959

4,244,126

4,155,393

3,902,637

Covered loans

Commercial real estate

Non-owner occupied

40,777

85,889

97,661

108,692

Owner-occupied

32,009

53,614

63,031

70,492

Farmland

4,322

4,395

6,684

7,478

Total commercial real estate

77,108

143,898

167,376

186,662

Residential real estate

90,371

96,371

103,429

108,226

Commercial and industrial

13,896

24,794

29,384

32,648

Real estate construction

5,149

7,426

8,443

9,389

Consumer

105

8,358

8,961

9,565

Total covered loans

186,629

280,847

317,593

346,490

Total loans

$

4,806,700

$

4,701,588

$

4,524,973

$

4,472,986

$

4,249,127

 

Talmer Bancorp, Inc.

Impaired Assets

(Unaudited)

2015

2014

(Dollars in thousands)

4th Qtr

3rd Qtr

2nd Qtr

1st Qtr

4th Qtr

Uncovered

Nonperforming troubled debt restructurings

Commercial real estate

$

7,485

$

5,519

$

4,652

$

4,031

$

2,644

Residential real estate

5,485

4,600

4,364

4,418

3,984

Commercial and industrial

1,167

705

414

43

180

Real estate construction

187

135

202

147

Consumer

127

115

91

89

83

Total nonperforming troubled debt restructurings

14,451

11,074

9,723

8,728

6,891

Nonaccrual loans other than nonperforming troubled debt restructurings

Commercial real estate

9,313

12,421

11,075

11,120

11,112

Residential real estate

12,905

12,962

15,769

13,683

13,390

Commercial and industrial

20,501

9,236

2,705

1,892

3,370

Real estate construction

226

198

236

174

Consumer

79

149

217

254

174

Total nonaccrual loans other than nonperforming troubled debt restructurings

43,024

34,966

30,002

26,949

28,220

Total nonaccrual loans

57,475

46,040

39,725

35,677

35,111

Other real estate owned and repossessed assets (1)

28,157

27,329

37,612

30,761

36,872

Total nonperforming assets

85,632

73,369

77,337

66,438

71,983

Performing troubled debt restructurings

Commercial real estate

15,340

13,973

3,741

2,625

3,785

Residential real estate

5,749

2,402

2,392

1,875

1,368

Commercial and industrial

3,438

3,433

2,597

2,171

840

Real estate construction

420

197

131

89

90

Consumer

242

235

233

220

234

Total performing troubled debt restructurings

25,189

20,240

9,094

6,980

6,317

Total uncovered impaired assets

$

110,821

$

93,609

$

86,431

$

73,418

$

78,300

Loans 90 days or more past due and still accruing, excluding loans accounted for under ASC 310-30

$

297

$

196

$

340

$

72

$

53

Covered

Nonperforming troubled debt restructurings

Commercial real estate

3,590

14,717

13,617

14,343

Residential real estate

$

$

1,618

$

1,606

$

1,623

$

1,363

Commercial and industrial

1,045

1,652

1,476

2,043

Real estate construction

210

336

267

272

Consumer

2

20

28

13

Total nonperforming troubled debt restructurings

6,465

18,331

17,011

18,034

Nonaccrual loans other than nonperforming troubled debt restructurings

Commercial real estate

190

251

1,180

1,380

Residential real estate

392

465

441

485

Commercial and industrial

633

717

1,233

1,517

Real estate construction

26

29

451

441

Total nonaccrual loans other than nonperforming troubled debt restructurings

1,241

1,462

3,305

3,823

Total nonaccrual loans

7,706

19,793

20,316

21,857

Other real estate owned and repossessed assets

5,621

8,261

10,709

10,719

Total nonperforming assets

13,327

28,054

31,025

32,576

Performing troubled debt restructurings

Commercial real estate

1,709

3,055

8,923

9,017

Residential real estate

3,185

3,584

3,069

3,046

Commercial and industrial

204

569

993

1,137

Real estate construction

298

300

256

264

Consumer

7

Total performing troubled debt restructurings

5,396

7,515

13,241

13,464

Total covered impaired assets

$

$

18,723

$

35,569

$

44,266

$

46,040

Loans 90 days or more past due and still accruing, excluding loans accounted for under ASC 310-30

$

$

$

$

$

(1) Excludes closed branches and operating facilities.

 

Talmer Bancorp, Inc.

Net Interest Income and Net Interest Margin

(Unaudited)

For the three months ended

December 31, 2015

September 30, 2015

December 31, 2014

(Dollars in thousands)

Average Balance

Interest (1)

Average Rate (2)

Average Balance

Interest (1)

Average Rate (2)

Average Balance

Interest (1)

Average Rate (2)

Earning assets:

Interest-earning balances

$

113,284

$

77

0.27

%

$

172,781

$

107

0.24

%

$

147,713

$

94

0.25

%

Federal funds sold and other short-term investments

187,283

383

0.81

182,826

342

0.74

69,897

126

0.71

Investment securities (3):

Taxable

603,922

3,234

2.12

575,071

2,731

1.88

519,774

2,263

1.73

Tax-exempt

282,258

1,933

3.57

266,357

1,873

3.69

223,580

1,610

3.82

Federal Home Loan Bank stock

25,796

275

4.23

25,416

285

4.46

18,671

177

3.77

Gross loans (4)

4,800,952

58,400

4.83

4,682,709

60,078

5.09

4,243,329

58,271

5.45

FDIC indemnification asset

35,211

(4,366)

(49.20)

77,865

(7,539)

(38.41)

Total earning assets

6,013,495

64,302

4.28

%

5,940,371

61,050

4.12

%

5,300,829

55,002

4.16

%

Non-earning assets:

Cash and due from banks

89,269

91,225

101,884

Allowance for loan losses

(54,211)

(53,900)

(52,808)

Premises and equipment

44,017

44,552

50,130

Core deposit intangible

13,129

13,802

13,334

Goodwill

3,524

3,524

Other real estate owned and repossessed assets

31,813

43,420

48,983

Loan servicing rights

56,633

58,038

73,059

FDIC receivable

30,369

3,878

11,013

Company-owned life insurance

106,438

105,377

97,081

Other non-earning assets

231,797

241,922

223,685

Total assets

$

6,566,273

$

6,492,209

$

5,867,190

Interest-bearing liabilities:

Deposits:

Interest-bearing demand deposits

$

836,466

$

395

0.19

%

$

823,741

$

401

0.19

%

$

676,994

$

194

0.11

%

Money market and savings deposits

1,351,197

732

0.21

1,293,737

620

0.19

1,174,132

457

0.15

Time deposits

1,632,608

2,891

0.70

1,523,096

2,582

0.67

1,219,758

1,546

0.50

Other brokered funds

246,998

483

0.78

365,825

541

0.59

543,784

527

0.38

Short-term borrowings

142,894

329

0.91

219,663

350

0.63

165,515

90

0.22

Long-term debt

489,660

1,094

0.89

407,154

909

0.89

326,924

725

0.88

Total interest-bearing liabilities

4,699,823

5,924

0.50

%

4,633,216

5,403

0.46

%

4,107,107

3,539

0.34

%

Noninterest-bearing liabilities and shareholders' equity:

Noninterest-bearing demand deposits

1,067,500

1,051,400

934,143

FDIC clawback liability

28,774

25,923

Other liabilities

75,527

47,779

45,272

Shareholders' equity

723,423

731,040

754,745

Total liabilities and shareholders' equity

$

6,566,273

$

6,492,209

$

5,867,190

Net interest income

$

58,378

$

55,647

$

51,463

Interest spread

3.78

%

3.66

%

3.82

%

Net interest margin as a percentage of interest-earning assets

3.85

%

3.72

%

3.85

%

Tax equivalent effect

0.04

%

0.04

%

0.04

%

Net interest margin as a percentage of interest-earning assets (FTE)

3.89

%

3.76

%

3.89

%

(1) Interest income is shown on actual basis and does not include taxable equivalent adjustments. (2) Average rates are presented on an annual basis and include a taxable equivalent adjustment to interest income of $610 thousand, $604 thousand, and $542 thousand on tax-exempt securities for the three months ended December 31, 2015, September 30, 2015, and December 31, 2014, respectively, using the statutory tax rate of 35%. (3) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. (4) Includes nonaccrual loans.

 

Talmer Bancorp, Inc.

Net Interest Income and Net Interest Margin

(Unaudited)

For the year ended December 31,

2015

2014

(Dollars in thousands)

Average Balance

Interest (1)

Average Rate (2)

Average Balance

Interest (1)

Average Rate (2)

Earning assets:

Interest-earning balances

$

162,391

$

387

0.24

%

$

265,155

$

640

0.24

%

Federal funds sold and other short-term investments

155,353

1,159

0.75

73,453

527

0.72

Investment securities (3):

Taxable

550,701

10,663

1.94

505,754

8,509

1.68

Tax-exempt

259,414

7,079

3.61

197,786

6,232

4.22

Federal Home Loan Bank stock

23,089

1,029

4.46

17,841

867

4.86

Gross loans (4)

4,618,639

236,735

5.13

3,925,198

226,674

5.77

FDIC indemnification asset

35,993

(22,164)

(61.58)

105,034

(26,426)

(25.16)

Total earning assets

5,805,580

234,888

4.09

%

5,090,221

217,023

4.31

%

Non-earning assets:

Cash and due from banks

89,657

97,935

Allowance for loan losses

(53,067)

(56,094)

Premises and equipment

46,163

55,125

Core deposit intangible

13,898

15,055

Goodwill

3,167

Other real estate owned and repossessed assets

42,199

53,513

Loan servicing rights

57,702

75,863

FDIC receivable

11,684

7,592

Company-owned life insurance

104,284

81,245

Other non-earning assets

237,047

225,793

Total assets

$

6,358,314

$

5,646,248

Interest-bearing liabilities:

Deposits:

Interest-bearing demand deposits

$

815,528

$

1,468

0.18

%

$

689,225

$

824

0.12

%

Money market and savings deposits

1,281,622

2,385

0.19

1,289,388

1,930

0.15

Time deposits

1,444,631

9,431

0.65

1,247,907

6,080

0.49

Other brokered funds

420,354

2,254

0.54

268,080

879

0.33

Short-term borrowings

121,408

967

0.80

153,951

420

0.27

Long-term debt

440,660

3,717

0.84

257,487

2,627

1.02

Total interest-bearing liabilities

4,524,203

20,222

0.45

%

3,906,038

12,760

0.33

%

Noninterest-bearing liabilities and shareholders' equity:

Noninterest-bearing demand deposits

1,005,905

943,321

FDIC clawback liability

20,939

25,823

Other liabilities

59,843

39,300

Shareholders' equity

747,424

731,766

Total liabilities and shareholders' equity

$

6,358,314

$

5,646,248

Net interest income

$

214,666

$

204,263

Interest spread

3.64

%

3.98

%

Net interest margin as a percentage of interest-earning assets

3.70

%

4.01

%

Tax equivalent effect

0.03

%

0.03

%

Net interest margin as a percentage of interest-earning assets (FTE)

3.73

%

4.04

%

(1) Interest income is shown on actual basis and does not include taxable equivalent adjustments. (2) Average rates are presented on an annual basis and include a taxable equivalent adjustment to interest income of $2.3 million and $2.1 million on tax-exempt securities for the years ended December 31, 2015 and 2014, respectively, using the statutory tax rate of 35%. (3) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. (4) Includes nonaccrual loans.

 

Talmer Bancorp, Inc.

Reconciliation of Non-GAAP Financial Measures (1)

(Unaudited)

2015

2014

(Dollars in thousands, except per share data)

4th Quarter

3rd Quarter

2nd Quarter

1st Quarter

4th Quarter

Tangible shareholders' equity:

Total shareholders' equity

$

725,215

$

714,768

$

766,406

$

753,849

$

761,607

Less:

Core deposit intangibles

12,808

13,470

14,131

14,796

13,035

Goodwill

3,524

3,524

3,524

3,524

Tangible shareholders' equity

$

708,883

$

697,774

$

748,751

$

735,529

$

748,572

Tangible book value per share:

Shares outstanding

66,115

66,128

71,129

70,938

70,532

Tangible book value per share

$

10.72

$

10.55

$

10.53

$

10.37

$

10.61

Tangible average equity to tangible average assets:

Average assets

$

6,566,273

$

6,492,209

$

6,296,629

$

6,050,721

$

5,865,624

Average equity

723,423

731,040

758,284

759,365

754,722

Average core deposit intangibles

13,129

13,802

14,465

14,201

13,334

Average goodwill

3,524

3,524

3,524

2,075

Tangible average equity to tangible average assets

10.79

%

11.02

%

11.79

%

12.31

%

12.67

%

Core efficiency ratio:

Net interest income

$

58,378

$

55,647

$

49,609

$

51,032

$

51,463

Noninterest income

23,575

19,342

22,098

21,430

15,834

Total revenue

81,953

74,989

71,707

72,462

67,297

Less:

(Expense)/benefit due to change in the fair value of loan servicing rights

1,446

(3,831)

3,146

(4,084)

(3,656)

FDIC loss sharing income

(2,696)

(5,928)

(1,068)

(244)

Total core revenue

80,507

81,516

74,489

77,614

71,197

Total noninterest expense

68,602

47,829

53,293

56,595

48,098

Less:

Transaction and integration related costs

328

113

419

3,347

329

Net loss on early termination of FDIC loss share and warrant agreements

20,364

Property efficiency review

1,820

Total core noninterest expense

$

47,910

$

47,716

$

51,054

$

53,248

$

47,769

Core efficiency ratio

59.51

%

58.54

%

68.54

%

68.61

%

67.09

%

(1) Management believes these non-GAAP financial measures provide useful information to both management and investors that is supplementary to our financial condition and results of operations in accordance with GAAP; however, we do acknowledge that our non-GAAP financial measures have a number of limitations.  As such, you should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use.

 

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SOURCE Talmer Bancorp, Inc.