Market Overview

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

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

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.

Talmer Bancorp, Inc. logo.

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.

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