Market Overview

Talmer Bancorp, Inc. reports second quarter 2016 net income of $20.2 million, representing $0.28 of earnings per diluted average common share

Share:

Second quarter 2016 net loan growth of $125.2 million, or 10.3% on an annualized basis

TROY, Mich., July 27, 2016 /PRNewswire/ -- Talmer Bancorp, Inc. (NASDAQ: TLMR) ("Talmer") today reported second quarter 2016 net income of $20.2 million, compared to $21.2 million for the first quarter of 2016 and $17.5 million for the second quarter of 2015.  Earnings per diluted average common share were $0.28 for the second quarter of 2016, compared to $0.30 for the first quarter of 2016 and $0.23 for the second quarter of 2015.  Core earnings per diluted average common share, a non-GAAP financial measurement, were $0.28 for the second quarter of 2016, compared to $0.31 and $0.28 for the first quarter of 2016 and the second quarter of 2015, respectively.  Please see the section entitled "Reconciliation of Non-GAAP Financial Measures", for a discussion on the limitations of our core earnings per diluted average common share and a reconciliation of this non-GAAP financial measure to the most comparable GAAP measure.

 Talmer Bancorp, Inc. logo. (PRNewsFoto/Talmer Bancorp, Inc.)

Quarterly Results Summary

(Dollars in thousands, except per share data)


2nd Qtr 2016


1st Qtr 2016 (Revised) (1)


2nd Qtr 2015

Earnings Summary







Net interest income


$

57,394



$

56,098



$

49,609


Total provision (benefit) for loan losses


3,208



(1,111)



(7,313)


Noninterest income


17,240



13,624



22,098


Noninterest expense


45,929



48,270



53,293


Income before income taxes


25,497



22,563



25,727


Income tax provision


5,344



1,408



8,179


Net income


20,153



21,155



17,548


Per Share Data







Diluted earnings per average common share


$

0.28



$

0.30



$

0.23


Core earnings per average common share (2)


0.28



0.31



0.28


Book value per share


11.44



11.20



10.97


Tangible book value per share (2)


11.22



10.97



10.53


Average diluted common shares (in thousands)


70,026



69,706



74,900


Performance and Capital Ratios







Return on average assets (annualized)


1.19

%


1.27

%


1.11

%

Return on average equity (annualized)


10.62



11.49



9.26


Net interest margin (fully taxable equivalent) (3)


3.73



3.73



3.50


Efficiency ratio


61.54



69.23



74.32


Core efficiency ratio (2)


58.38



59.46



68.54


Tangible average equity to tangible average assets (2)


11.02



10.88



11.79


Common equity tier 1 capital (4)


12.35



12.15



13.90


Tier 1 leverage ratio (4)


10.55



10.30



11.50


Tier 1 risk-based capital (4)


12.35



12.15



13.90


Total risk-based capital (4)


13.30



13.13



14.97


Asset Quality Ratios







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


0.32

%


0.04

%


(0.69)

%

Nonperforming assets as a percentage of total assets


0.96



1.18



1.64


Nonperforming loans as a percent of total loans


0.91



1.08



1.32


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


1.02



1.06



1.17




(1)

First quarter 2016 information is revised to reflect the impact of the early adoption of ASU 2016-09, "Improvements to Employee Share-Based
Payment Accounting
".  The early adoption resulted in $1.5 million of excess tax benefits recognized within "Income tax provision" during the
three months ended March 31, 2016 rather than previously recognized directly into equity within "Additional paid-in-capital".

(2)

Denotes a non-GAAP Financial Measure, see section entitled "Reconciliation of Non-GAAP Financial Measures."

(3)

Presented on a tax equivalent basis using a 35% tax rate for all periods presented.

(4)

Second quarter 2016 is estimated.

 

Second Quarter 2016 Compared to First Quarter 2016

  • Net income was $20.2 million, or $0.28 per diluted average common share, in the second quarter of 2016, compared to $21.2 million, or $0.30 per diluted average common share, for the first quarter of 2016. Pre-tax, pre-provision for loan losses income of $28.7 million in the second quarter of 2016, increased by $7.3 million compared to the first quarter of 2016 significantly as a result of higher net interest income, higher fee income and operating efficiency improvements. The improvement in pre-tax, pre-provision for loan losses net income was more than offset by increases in provision for loan losses and income tax provision resulting in lower reported net income in the second quarter of 2016 compared to the prior quarter.
  • Core earnings per diluted average common share, a non-GAAP financial measurement, were $0.28 for the second quarter of 2016, compared to $0.31 for the first quarter of 2016. Second quarter of 2016 net income was impacted by three non-core items: a $3.5 million detriment to earnings due to the change in fair value of our loan servicing rights and $312 thousand of transaction and integration related expenses, offset by $2.6 million of excess tax benefit related to stock options exercised. First quarter of 2016 net income was impacted by four non-core items: a $6.6 million detriment to earnings due to the change in fair value of our loan servicing rights and $2.9 million of transaction and integration costs, partially offset by a $4.3 million benefit due to finalization of a settlement with the Internal Revenue Service and $1.5 million of excess tax benefit related to stock options exercised. There was no net impact to our earnings per diluted average common share for the second quarter of 2016 from these non-core items, compared to a net negative impact of $0.01 per diluted average common share for the first quarter of 2016. Please see the section entitled "Reconciliation of Non-GAAP Financial Measures," for a discussion on the limitations of our core earnings per diluted average common share and a reconciliation of this non-GAAP financial measure to the most comparable GAAP measure.
  • Net loans increased during the second quarter of 2016 by $125.2 million, driven by strong growth in residential real estate and commercial real estate lending, partially offset by acquired loan run-off.
  • Total deposits increased $114.4 million, to $5.3 billion as of June 30, 2016, compared to March 31, 2016, primarily driven by strong growth in core, demand deposit accounts. Reported brokered deposits grew during the second quarter of 2016 due primarily to a reclassification of certain time deposits that previously had not been classified as brokered deposits.
  • Net interest income increased $1.3 million to $57.4 million in the second quarter of 2016, compared to $56.1 million in the first quarter of 2016. The increase in net interest income was primarily due to a $1.6 million increase in interest on loans resulting from loan growth experienced during the first and second quarters of 2016. Our net interest margin was unchanged at 3.73% in both the second and first quarter of 2016.
  • Noninterest income increased $3.6 million to $17.2 million in the second quarter of 2016, compared to the first quarter of 2016. Net gain on sales of loans increased $2.4 million in the second quarter of 2016, compared to the first quarter of 2016 primarily due to an increase in loan production and improved margin on loan sales. In addition, noninterest income was impacted by a detriment to earnings of $3.5 million due to the change in the fair value of loan servicing rights, compared to a detriment to earnings of $6.6 million in the first quarter of 2016, which is a key component of the $1.5 million increase in mortgage banking and other loan fees.
  • Noninterest expense decreased $2.3 million, to $45.9 million in the second quarter of 2016, compared to the first quarter of 2016, primarily due to a decrease of $2.6 million in merger and acquisition expense.
  • Total shareholder's equity of $769.0 million as of June 30, 2016, increased $20.3 million compared to March 31, 2016. The increase is primarily the result of net income of $20.2 million in the second quarter of 2016.
  • Due to the early adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09") during the second quarter of 2016, all excess tax benefits or detriments realized during the year are recorded directly into "Income tax provision" whereas they were previously recorded directly into "Additional paid-in-capital" as a component of equity. The early adoption of ASU 2016-09 resulted in excess tax benefits recognized in the second and first quarter of 2016 of $2.6 million and $1.5 million, respectively. The effective tax rate, excluding the impact of excess tax benefits, for the second and first quarter of 2016 was 31.2% and 12.8%, respectively. First quarter of 2016 income tax expense also benefited from the finalization of a settlement 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 resulting in a benefit of $4.3 million. Talmer Bank and Trust, as successor to First Place Bank, was granted court approval to act as substitute agent for First Place Financial Corp. for the purpose of amending various returns, which ultimately impact the tax filings of Talmer Bank and Trust. Excluding the tax benefits from the early adoption of ASU 2016-09 and the benefits from the finalization of the First Place Bank tax matter, the effective tax rate would have been 31.8% for the first quarter of 2016.

Income Statement

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2016 was $57.4 million, compared to $56.1 million in the prior quarter.  Our net interest margin was 3.73% in the second quarter of 2016, unchanged compared to the first quarter of 2016. The increase in net interest income was significantly due to an increase in interest on loans resulting from the higher average balance of loans.  The detrimental impact to the net interest margin from the run-off of higher-yielding acquired loans was offset by the benefit provided by lower levels of nonaccrual loans and other yield increases on originated loans.

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 both the second and first quarters of 2016, the yield on loans was 4.66%, while the yield generated using only the expected coupon would have been 4.09% and 4.06%, for the second and first quarters of 2016, 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. The excess accretable yield benefited net interest margin by 45 basis points in the second quarter of 2016 compared to 48 basis points in the first quarter of 2016.  Therefore, excluding the benefit of excess accretable yield, our net interest margin in the second quarter of 2016 improved three basis points to 3.28% compared to 3.25% in the first quarter of 2016.

Noninterest Income

Noninterest income increased $3.6 million to $17.2 million in the second quarter of 2016, compared to the first quarter of 2016.  Noninterest income benefited from increases in net gain on sales of loans of $2.4 million and mortgage banking and other loan fees of $1.5 million in the second quarter of 2016, compared to the first quarter of 2016.  The increase in net gain on sales of loans was primarily due to an increase in loan production and improved margin on loan sales.  The increase in mortgage banking and other loan fees was impacted by a smaller detriment to earnings of $3.5 million due to the change in the fair value of loan servicing rights in the second quarter of 2016 compared to a detriment of $6.6 million in the first quarter of 2016. The change in the fair value of loan servicing rights in both the second and first quarters of 2016 was due mainly to downward movements in market interest rates during the period.

As we have noted in prior quarters, we have chosen not to hedge our 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.  The cumulative acquisition-to-date detriment to pre-tax earnings due to the changes in fair value has been $9.5 million since the majority of our servicing rights were acquired on January 1, 2013.

Noninterest Expense

Noninterest expense in the second quarter of 2016 decreased $2.3 million, to $45.9 million, compared to the first quarter of 2016.  The decrease in noninterest expense is primarily due to the decrease of $2.6 million in merger and acquisition expense.  Noninterest expense, excluding the decrease of $2.6 million in merger and acquisition expense, increased $221 thousand in the second quarter of 2016 primarily due to an increase in salary and employee benefits of $1.1 million resulting from an increase in commissions due to higher volumes of mortgage loan production during the second quarter of 2016, partially offset by declines in professional service fees, marketing expense and other employee expenses. 

The efficiency ratio is a measure of noninterest expense as a percentage of net interest income and noninterest income. Our efficiency ratio was 61.54% in the second quarter of 2016, compared to 69.23% in the first quarter of 2016. Our core efficiency ratio improved to 58.38% in the second quarter of 2016, compared to 59.46%, for the first quarter of 2016, primarily due to an increase in total revenue.  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 core efficiency ratio for the second quarter of 2016 excludes the detriment received from the fair value adjustment to our loan servicing rights of $3.5 million and transaction and integration related costs of $312 thousand.  The core efficiency ratio for the first quarter of 2016 excludes the detriment received from the fair value adjustment to our loan servicing rights of $6.6 million and transaction and integration related costs of $2.9 million.  Please see the section entitled "Reconciliation of Non-GAAP Financial Measures." for a discussion on the limitations of our core efficiency ratio and a reconciliation of this non-GAAP financial measure to the most comparable GAAP measure.

Credit Quality

The second quarter of 2016 resulted in a provision for loan losses of $3.2 million, compared to a benefit for loan losses of $1.1 million in the first quarter of 2016.  The increase in the provision for loan losses was primarily due to a reduction in credit recoveries on loans and an increase in provision expense related to the quarterly re-estimation of cash flow expectations for purchased credit impaired loans.  At June 30, 2016, the allowance for loan losses was $51.6 million, or 1.02% of total loans, compared to $52.4 million, or 1.06% of total loans, at March 31, 2016.  The decrease in both the allowance for loan losses and the allowance as a percentage of total loans for the quarter was primarily due to a reduction in the percentage of nonperforming loans to total loans, increases in collateral and cash flow expectations on loans individually evaluated for impairment and credit recoveries on acquired loans that were paid off, partially offset by a shift in the current economic outlook.

During both the second and first quarter of 2016, we completed re-estimations of cash flow expectations for purchased credit impaired loans acquired in each of our acquisitions.  For the re-estimations, changes in cash flow expectations on loans resulted in net loan loss provisions of $522 thousand for the second quarter of 2016 and net relief of loan loss provisions of $963 thousand for the first quarter of 2016.  The re-estimations also resulted in a $9.6 million improvement in the gross cash flow expectations for purchased credit impaired loans during the second quarter of 2016, 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 $199.0 million to $6.9 billion at June 30, 2016 compared to $6.7 billion at March 31, 2016.  The primary drivers of the increase in assets in the quarter ended June 30, 2016 were increases in net total loans of $125.2 million and cash and cash equivalents of $96.4 million, partially offset by a decrease in investment securities of $27.8 million

Net total loans at June 30, 2016 increased $125.2 million to $5.0 billion, compared to March 31, 2016.  Loan growth was primarily driven by growth in residential real estate and commercial real estate lending.  We continue to be focused on sourcing quality loan growth to overcome the run-off of higher-yielding acquired loans.  Acquired loans totaled $1.2 billion, or 24.7% of total loans, $1.3 billion, or 27.0% of total loans, and $1.6 billion, or 36.4% of total loans at June 30, 2016, March 31, 2016 and June 30, 2015, respectively.  Acquired loans 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 $6.1 billion at June 30, 2016, compared to $6.0 billion at March 31, 2016.  The $178.7 million increase in liabilities in the quarter ended June 30, 2016 was primarily due to increases in total deposits of $114.4 million and borrowings of $88.7 million.  The increase in total deposits was due to strong growth in demand deposits of $122.9 million.  The reported growth in brokered deposits of $166.6 million was significantly due to a reclassification of certain deposits that were previously reported as time deposits.

Total shareholders' equity of $769.0 million as of June 30, 2016 increased $20.3 million compared to March 31, 2016.  The increase is primarily the result of our net income of $20.2 million.  Our Tier 1 leverage ratio was estimated to be 10.55% at June 30, 2016, compared to 10.30% at March 31, 2016. 

Pending Merger

On January 26, 2016, the boards of directors of Chemical Financial Corporation (Nasdaq: CHFC), the holding company for Chemical Bank, and Talmer announced the execution of a definitive agreement for Chemical Financial Corporation to partner with Talmer in a cash and common stock merger transaction.  The merger has been approved by both Chemical Financial Corporation and Talmer shareholders.  The completion of the merger remains subject to receipt of regulatory approvals and satisfaction of other customary closing conditions.

Due to the pending merger, Talmer will not be holding a conference webcast to review the second quarter 2016 financial results.

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 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 regarding the proposed merger with Chemical Financial Corporation and statements regarding our continued focus on sourcing quality loan growth to overcome the run-off of higher-yielding acquired loans.  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 the inability to complete the merger transaction with Chemical Financial Corporation due to the failure to satisfy each party's respective conditions to completion, including the receipt of required regulatory approvals , the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement with Chemical Financial Corporation, 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, and excessive loan losses, 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)

June 30,
 2016


March 31,
2016 (1)


December 31,
 2015


June 30,
 2015

Assets








Cash and due from banks

$

86,571



$

88,727



$

74,734



$

79,357


Interest-bearing deposits with other banks

185,160



146,406



137,589



161,201


Federal funds sold and other short-term investments

188,503



128,682



175,000



170,000


Total cash and cash equivalents

460,234



363,815



387,323



410,558


Investment securities

920,432



948,221



892,448



847,011


Federal Home Loan Bank stock

29,621



29,621



29,621



25,418


Loans held for sale, at fair value

38,770



25,040



58,223



117,042


Loans:








Commercial real estate

1,661,790



1,616,801



1,568,097



1,539,681


Residential real estate (includes $23.6 million, $24.4 million, $22.2 million, and $20.9 million,
respectively, measured at fair value) (2)

1,674,615



1,604,940



1,547,799



1,531,049


Commercial and industrial

1,282,641



1,279,402



1,257,406



1,091,147


Real estate construction

257,111



235,007



241,603



182,618


Consumer

171,957



187,586



191,795



180,478


Total loans

5,048,114



4,923,736



4,806,700



4,524,973


Less: Allowance for loan losses

(51,586)



(52,378)



(53,953)



(52,906)


Net total loans

4,996,528



4,871,358



4,752,747



4,472,067


Premises and equipment

41,070



42,446



43,570



44,857


Other real estate owned and repossessed assets

20,563



26,536



28,259



46,373


Loan servicing rights

47,696



51,348



58,113



58,894


Core deposit intangible

11,593



12,196



12,808



14,131


Goodwill

3,524



3,524



3,524



3,524


Company-owned life insurance

109,984



108,958



107,065



104,972


Income tax benefit

165,948



173,596



177,183



188,755


FDIC indemnification asset







36,997


FDIC receivable







5,543


Other assets

66,759



57,030



45,006



41,481


Total assets

$

6,912,722



$

6,713,689



$

6,595,890



$

6,417,623


Liabilities








Deposits:








Noninterest-bearing demand deposits

$

1,148,558



$

1,040,950



$

1,011,414



$

1,002,053


Interest-bearing demand deposits

911,509



896,179



849,599



821,557


Money market and savings deposits

1,263,599



1,274,534



1,314,909



1,276,726


Time deposits

1,554,946



1,719,111



1,609,895



1,427,126


Other brokered funds

388,596



222,024



228,764



380,611


Total deposits

5,267,208



5,152,798



5,014,581



4,908,073


Short-term borrowings

525,960



334,480



348,998



253,945


Long-term debt

296,656



399,476



464,057



414,947


FDIC clawback liability







28,588


FDIC warrants payable







4,441


Other liabilities

53,923



78,265



43,039



41,223


Total liabilities

6,143,747



5,965,019



5,870,675



5,651,217


Shareholders' equity








Preferred stock - $1.00 par value








Authorized - 20,000,000 shares at 6/30/2016, 3/31/2016, 12/31/2015, and 6/30/2015








Issued and outstanding - 0 shares at 6/30/2016, 3/31/2016, 12/31/2015, and 6/30/2015








Common stock:








Class A Voting Common Stock - $1.00 par value








Authorized - 198,000,000 shares at 6/30/2016, 3/31/2016, 12/31/2015, and 6/30/2015








Issued and outstanding - 67,194,703 shares at 6/30/2016, 66,844,244 shares at 3/31/2016, 66,114,798 shares at 12/31/2015, and 71,128,894 shares at 6/30/2015

67,195



66,844



66,115



71,129


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








Authorized - 2,000,000 shares at 6/30/2016, 3/31/2016, 12/31/2015, and 6/30/2015








Issued and outstanding - 0 shares at 6/30/2016, 3/31/2016, 12/31/2015, and 6/30/2015








Additional paid-in-capital

316,616



317,735



316,571



385,686


Retained earnings

373,762



356,965



339,130



307,355


Accumulated other comprehensive income, net of tax

11,402



7,126



3,399



2,236


Total shareholders' equity

768,975



748,670



725,215



766,406


Total liabilities and shareholders' equity

$

6,912,722



$

6,713,689



$

6,595,890



$

6,417,623




(1)

First quarter 2016 information is revised to reflect the impact of the early adoption of ASU 2016-09 "Improvements to Employee Share-Based Payment Accounting".  The early adoption resulted
in $1.5 million of excess tax benefits recognized within "Income tax provision" during the three months ended March 31, 2016 rather than previously recognized directly into equity within
"Additional paid-in-capital".

(2)

Amounts represent loans for which Talmer has elected the fair value option.

 

 


Talmer Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)




Three months ended June 30,


Six months ended June 30,

(Dollars in thousands, except per share data)


2016


2015


2016


2015

Interest income









Interest and fees on loans


$

57,915



$

58,319



$

114,275



$

118,257


Interest on investments









Taxable


3,414



2,375



6,654



4,698


Tax-exempt


2,053



1,658



4,044



3,273


Total interest on securities


5,467



4,033



10,698



7,971


Interest on interest-earning cash balances


82



117



266



203


Interest on federal funds and other short-term investments


600



269



1,068



434


Dividends on FHLB stock


312



224



624



469


FDIC indemnification asset




(8,548)





(17,798)


Total interest income


64,376



54,414



126,931



109,536


Interest Expense









Interest-bearing demand deposits


675



382



1,076



672


Money market and savings deposits


650



562



1,317



1,033


Time deposits


3,296



2,131



6,410



3,958


Other brokered funds


841



607



1,459



1,230


Interest on short-term borrowings


678



209



1,335



288


Interest on long-term debt


842



914



1,842



1,714


Total interest expense


6,982



4,805



13,439



8,895


Net interest income


57,394



49,609



113,492



100,641


Provision (benefit) for loan losses


3,208



(7,313)



2,097



(5,320)


Net interest income after provision for loan losses


54,186



56,922



111,395



105,961


Noninterest income









Deposit fee income


2,420



2,561



4,817



4,881


Mortgage banking and other loan fees


(2,365)



4,698



(6,245)



3,437


Net gain on sales of loans


7,588



8,748



12,826



17,366


Accelerated discount on acquired loans


5,076



7,444



10,128



15,642


Net gain (loss) on sales of securities




6



333



(101)


Company-owned life insurance


795



856



1,545



1,596


FDIC loss share income




(5,928)





(6,996)


Other income


3,726



3,713



7,460



7,703


Total noninterest income


17,240



22,098



30,864



43,528


Noninterest expense









Salary and employee benefits


26,913



28,685



52,726



57,897


Occupancy and equipment expense


6,039



8,415



12,046



16,081


Data processing fees


1,909



1,805



3,652



3,659


Professional service fees


2,547



3,275



5,837



6,818


Merger and acquisition expense


312



419



3,186



1,831


Marketing expense


1,158



1,483



2,687



2,578


Other employee expense


579



826



1,387



1,760


Insurance expense


1,485



1,527



3,035



3,057


FDIC loss share expense




133





1,082


Other expense


4,987



6,725



9,643



15,125


Total noninterest expense


45,929



53,293



94,199



109,888


Income before income taxes


25,497



25,727



48,060



39,601


Income tax provision


5,344



8,179



6,752



12,620


Net income


$

20,153



$

17,548



$

41,308



$

26,981


Earnings per common share:









Basic


$

0.30



$

0.25



$

0.62



$

0.38


Diluted


$

0.28



$

0.23



$

0.58



$

0.36


Average common shares outstanding - basic


66,011



70,301



65,824



70,259


Average common shares outstanding - diluted


70,026



74,900



69,889



75,046


Total comprehensive income


$

24,429



$

13,144



$

49,311



$

25,367


 

 

Talmer Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)




2016


2015

(Dollars in thousands, except per share data)


2nd Qtr


1st Qtr (1)


4th Qtr


3rd Qtr


2nd Qtr

Interest income











Interest and fees on loans


$

57,915



$

56,360



$

58,400



$

60,078



$

58,319


Interest on investments











Taxable


3,414



3,240



3,234



2,731



2,375


Tax-exempt


2,053



1,991



1,933



1,873



1,658


Total interest on securities


5,467



5,231



5,167



4,604



4,033


Interest on interest-earning cash balances


82



184



77



107



117


Interest on federal funds and other short-term investments


600



468



383



342



269


Dividends on FHLB stock


312



312



275



285



224


FDIC indemnification asset








(4,366)



(8,548)


Total interest income


64,376



62,555



64,302



61,050



54,414


Interest Expense











Interest-bearing demand deposits


675



401



395



401



382


Money market and savings deposits


650



667



732



620



562


Time deposits


3,296



3,114



2,891



2,582



2,131


Other brokered funds


841



618



483



541



607


Interest on short-term borrowings


678



657



329



350



209


Interest on long-term debt


842



1,000



1,094



909



914


Total interest expense


6,982



6,457



5,924



5,403



4,805


Net interest income


57,394



56,098



58,378



55,647



49,609


Provision (benefit) for loan losses


3,208



(1,111)



(4,583)



700



(7,313)


Net interest income after provision for loan losses


54,186



57,209



62,961



54,947



56,922


Noninterest income











Deposit fee income


2,420



2,397



2,513



2,494



2,561


Mortgage banking and other loan fees


(2,365)



(3,880)



3,853



(1,721)



4,698


Net gain on sales of loans


7,588



5,238



5,404



6,815



8,748


Accelerated discount on acquired loans


5,076



5,052



7,556



9,491



7,444


Net gain (loss) on sales of securities




333



(2)



202



6


Company-owned life insurance


795



750



779



740



856


FDIC loss share income








(2,696)



(5,928)


Other income


3,726



3,734



3,472



4,017



3,713


Total noninterest income


17,240



13,624



23,575



19,342



22,098


Noninterest expense











Salary and employee benefits


26,913



25,813



27,535



27,665



28,685


Occupancy and equipment expense


6,039



6,007



5,993



6,472



8,415


Data processing fees


1,909



1,743



1,603



1,356



1,805


Professional service fees


2,547



3,290



2,771



3,197



3,275


Merger and acquisition expense


312



2,874



328



113



419


Marketing expense


1,158



1,529



1,224



1,748



1,483


Other employee expense


579



808



943



722



826


Insurance expense


1,485



1,550



1,571



1,305



1,527


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






20,364






FDIC loss share expense








292



133


Other expense


4,987



4,656



6,270



4,959



6,725


Total noninterest expense


45,929



48,270



68,602



47,829



53,293


Income before income taxes


25,497



22,563



17,934



26,460



25,727


Income tax provision


5,344



1,408



4,821



6,425



8,179


Net income


$

20,153



$

21,155



$

13,113



$

20,035



$

17,548


Earnings per common share:











Basic


$

0.30



$

0.32



$

0.20



$

0.29



$

0.25


Diluted


$

0.28



$

0.30



$

0.19



$

0.27



$

0.23


Average common shares outstanding - basic


66,011



65,636



65,388



68,731



70,301


Average common shares outstanding - diluted


70,026



69,706



69,973



73,222



74,900


Total comprehensive income


$

24,429



$

24,882



$

10,710



$

23,601



$

13,144




(1)

First quarter 2016 information is revised to reflect the impact of the early adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting".  The early adoption
resulted in  $1.5 million of excess tax benefits recognized within "Income tax provision" during the three months ended March 31, 2016 rather than previously recognized directly into
equity within "Additional paid-in-capital".

 

 

Talmer Bancorp, Inc.

Loan and Deposit Data

(Unaudited)


(Dollars in thousands)

June 30,
 2016


March 31,
 2016


December 31,
2015


September 30,
2015


June 30,
 2015

Loans










Commercial real estate










Non-owner occupied

$

1,080,132



$

1,056,937



$

1,039,305



$

1,029,412



$

1,010,063


Owner-occupied

554,950



534,903



503,814



504,278



499,541


Farmland

26,708



24,961



24,978



27,839



30,077


Total commercial real estate

1,661,790



1,616,801



1,568,097



1,561,529



1,539,681


Residential real estate

1,674,615



1,604,940



1,547,799



1,542,661



1,531,049


Commercial and industrial

1,282,641



1,279,402



1,257,406



1,210,613



1,091,147


Real estate construction

257,111



235,007



241,603



222,184



182,618


Consumer

171,957



187,586



191,795



164,601



180,478


Total loans

$

5,048,114



$

4,923,736



$

4,806,700



$

4,701,588



$

4,524,973












Deposits










Noninterest-bearing demand deposits

$

1,148,558



$

1,040,950



$

1,011,414



$

1,050,375



$

1,002,053


Interest-bearing demand deposits

911,509



896,179



849,599



813,609



821,557


Money market and savings deposits

1,263,599



1,274,534



1,314,909



1,314,798



1,276,726


Time deposits

1,554,946



1,719,111



1,609,895



1,611,315



1,427,126


Other brokered funds

388,596



222,024



228,764



355,354



380,611


Total deposits

$

5,267,208



$

5,152,798



$

5,014,581



$

5,145,451



$

4,908,073












 

 

Talmer Bancorp, Inc.

Impaired Assets

(Unaudited)



2016


2015

(Dollars in thousands)

2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

Nonperforming troubled debt restructurings










Commercial real estate

$

4,840



$

5,763



$

7,485



$

9,109



$

19,369


Residential real estate

5,090



4,548



5,485



6,218



5,970


Commercial and industrial

3,555



3,900



1,167



1,750



2,066


Real estate construction

172



175



187



345



538


Consumer

34



103



127



117



111


Total nonperforming troubled debt restructurings

13,691



14,489



14,451



17,539



28,054


Nonaccrual loans other than nonperforming troubled debt
restructurings










Commercial real estate

7,685



9,499



9,313



12,611



11,326


Residential real estate

10,756



12,391



12,905



13,354



16,234


Commercial and industrial

13,727



16,606



20,501



9,869



3,422


Real estate construction

31



57



226



224



265


Consumer

64



57



79



149



217


Total nonaccrual loans other than nonperforming troubled debt restructurings

32,263



38,610



43,024



36,207



31,464


Total nonaccrual loans

45,954



53,099



57,475



53,746



59,518


Other real estate owned and repossessed assets (1)

20,461



26,434



28,157



32,950



45,873


Total nonperforming assets

66,415



79,533



85,632



86,696



105,391


Performing troubled debt restructurings










Commercial real estate

19,102



16,350



15,340



15,682



6,796


Residential real estate

8,468



7,240



5,749



5,587



5,976


Commercial and industrial

3,319



3,777



3,438



3,637



3,166


Real estate construction

266



420



420



495



431


Consumer

318



250



242



235



240


Total performing troubled debt restructurings

31,473



28,037



25,189



25,636



16,609


Total impaired assets

$

97,888



$

107,570



$

110,821



$

112,332



$

122,000


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

$

823



$

384



$

297



$

196



$

340


(1)

Excludes closed branches and operating facilities.

 

 


Talmer Bancorp, Inc.

Analysis of Allowance for Loan Losses

(Unaudited)



2016


2015

(Dollars in thousands)

2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

Balance at beginning of period

$

52,378



$

53,953



$

55,837



$

52,906



$

52,465


Loan charge-offs:










Commercial real estate

(2,393)



(2,174)



(3,581)



(1,725)



(3,706)


Residential real estate

(1,634)



(1,290)



(2,153)



(1,054)



(1,233)


Commercial and industrial

(3,067)



(978)



(2,689)



(767)



(2,009)


Real estate construction

(417)



(100)



(197)



(60)



(726)


Consumer

(385)



(510)



(552)



(631)



(263)


Total loan charge-offs

(7,896)



(5,052)



(9,172)



(4,237)



(7,937)


Recoveries of loans previously charged-off:










Commercial real estate

1,797



1,390



6,873



2,523



10,102


Residential real estate

1,174



2,244



977



1,986



1,259


Commercial and industrial

708



603



3,931



1,333



3,964


Real estate construction

146



267



23



403



254


Consumer

71



84



67



223



112


Total loan recoveries

3,896



4,588



11,871



6,468



15,691


Net (charge-offs) recoveries

(4,000)



(464)



2,699



2,231



7,754


Provision (benefit) for loan losses

3,208



(1,111)



(4,583)



700



(7,313)


Balance at end of period

51,586



52,378



53,953



55,837



52,906


 

 

Talmer Bancorp, Inc.

Net Interest Income and Net Interest Margin

(Unaudited)



For the three months ended


June 30, 2016


March 31, 2016


June 30, 2015

(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

$

77,778


$

82


0.42

%


$

143,092


$

184


0.52

%


$

195,874


$

117


0.24

%

Federal funds sold and other short-term
investments

225,555


600


1.07



186,516


468


1.01



152,593


269


0.71


Investment securities (3):












Taxable

618,994


3,414


2.22



606,907


3,240


2.15



527,632


2,375


1.81


Tax-exempt

296,355


2,053


3.64



283,325


1,991


3.71



250,765


1,658


3.52


Federal Home Loan Bank stock

29,621


312


4.23



29,621


312


4.24



20,380


224


4.40


Gross loans (4)

5,000,439


57,915


4.66



4,864,600


56,360


4.66



4,552,481


58,319


5.14


FDIC indemnification asset









46,971


(8,548)


(73.00)


Total earning assets

6,248,742


64,376


4.18

%


6,114,061


62,555


4.16

%


5,746,696


54,414


3.84

%

Non-earning assets:












Cash and due from banks

81,868





87,674





86,290




Allowance for loan losses

(51,471)





(54,878)





(51,033)




Premises and equipment

41,774





43,262





47,775




Core deposit intangible

11,886





12,519





14,465




Goodwill

3,524





3,524





3,524




Other real estate owned and repossessed
assets

23,618





27,268





44,888




Loan servicing rights

51,580





56,202





55,986




FDIC receivable









6,830




Company-owned life insurance

109,354





107,627





104,327




Other non-earning assets

243,381





242,344





236,881




Total assets

$

6,764,256





$

6,639,603





$

6,296,629




Interest-bearing liabilities:












Deposits:












Interest-bearing demand deposits

$

846,243


$

675


0.32

%


$

854,954


$

401


0.19

%


$

828,482


$

382


0.19

%

Money market and savings deposits

1,268,058


650


0.21



1,294,281


667


0.21



1,267,347


562


0.18


Time deposits

1,587,128


3,296


0.84



1,609,640


3,114


0.78



1,353,226


2,131


0.63


Other brokered funds

385,794


841


0.88



296,551


618


0.84



483,716


607


0.50


Short-term borrowings

423,149


678


0.64



345,929


657


0.76



75,819


209


1.10


Long-term debt

327,332


842


1.03



417,212


1,000


0.96



463,210


914


0.79


Total interest-bearing liabilities

4,837,704


6,982


0.58

%


4,818,567


6,457


0.54

%


4,471,800


4,805


0.43

%

Noninterest-bearing liabilities and shareholders' equity:










Noninterest-bearing demand deposits

1,111,039





1,026,597





976,044




FDIC clawback liability









28,087




Other liabilities

56,409





58,060





62,414




Shareholders' equity

759,104





736,379





758,284




Total liabilities and shareholders' equity

$

6,764,256





$

6,639,603





$

6,296,629




Net interest income


$

57,394





$

56,098





$

49,609



Interest spread



3.60

%




3.62

%




3.41

%

Tax equivalent effect



0.04

%




0.04

%




0.04

%

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

3.73

%




3.73

%




3.50

%



(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 $625 thousand, $619 thousand, and $540 thousand on tax-exempt securities for the three months ended
June 30, 2016, March 31, 2016, and June 30, 2015, 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 six months ended June 30,


2016


2015

(Dollars in thousands)

Average Balance

Interest (1)

Average Rate (2)


Average Balance

Interest (1)

Average Rate (2)

Earning assets:








Interest-earning balances

$

110,435


$

266


0.48

%


$

176,459


$

203


0.23

%

Federal funds sold and other short-term investments

206,035


1,068


1.04



125,159


434


0.70


Investment securities (3):








Taxable

612,951


6,654


2.18



510,948


4,698


1.85


Tax-exempt

289,840


4,044


3.67



243,657


3,273


3.54


Federal Home Loan Bank stock

29,621


624


4.24



20,529


469


4.61


Gross loans (4)

4,932,520


114,275


4.66



4,491,749


118,257


5.31


FDIC indemnification asset





54,685


(17,798)


(65.63)


Total earning assets

6,181,402


126,931


4.17

%


5,623,186


109,536


3.96

%

Non-earning assets:








Cash and due from banks

84,771





88,729




Allowance for loan losses

(53,174)





(52,145)




Premises and equipment

42,518





48,074




Core deposit intangible

12,202





14,334




Goodwill

3,524





2,803




Other real estate owned and repossessed assets

25,443





46,715




Loan servicing rights

53,891





58,074




FDIC receivable





6,155




Company-owned life insurance

108,491





102,634




Other non-earning assets

242,862





235,798




Total assets

$

6,701,930





$

6,174,357




Interest-bearing liabilities:








Deposits:








Interest-bearing demand deposits

$

850,599


$

1,076


0.25

%


$

800,487


$

672


0.17

%

Money market and savings deposits

1,281,169


1,317


0.21



1,239,805


1,033


0.17


Time deposits

1,598,384


6,410


0.81



1,308,911


3,958


0.61


Other brokered funds

341,173


1,459


0.86



536,186


1,230


0.46


Short-term borrowings

384,539


1,335


0.70



62,900


288


0.92


Long-term debt

372,272


1,842


1.00



432,786


1,714


0.80


Total interest-bearing liabilities

4,828,136


13,439


0.56

%


4,381,075


8,895


0.41

%

Noninterest-bearing liabilities and shareholders' equity:







Noninterest-bearing demand deposits

1,068,818





948,856




FDIC clawback liability





27,600




Other liabilities

57,234





58,004




Shareholders' equity

747,742





758,822




Total liabilities and shareholders' equity

$

6,701,930





$

6,174,357




Net interest income


$

113,492





$

100,641



Interest spread



3.61

%




3.55

%

Tax equivalent effect



0.04

%




0.03

%

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

3.73

%




3.64

%



(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 $1.2 million and $1.0 million on tax-exempt securities
for the six months ended June 30, 2016 and 2015, 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)



2016


2015

(Dollars in thousands, except per share data)

2nd Qtr


1st Qtr


4th Qtr


3rd Qtr


2nd Qtr

Tangible shareholders' equity:










Total shareholders' equity

$

768,975



$

748,670



$

725,215



$

714,768



$

766,406


Less:










Core deposit intangibles

11,593



12,196



12,808



13,470



14,131


Goodwill

3,524



3,524



3,524



3,524



3,524


Tangible shareholders' equity

$

753,858



$

732,950



$

708,883



$

697,774



$

748,751


Tangible book value per share:










Shares outstanding

67,195



66,844



66,115



66,128



71,129


Book value per share

$

11.44



$

11.20



$

10.97



$

10.81



$

10.77


Tangible book value per share

11.22



10.97



10.72



10.55



10.53


Tangible average equity to tangible average assets:










Average assets

$

6,764,256



$

6,639,603



$

6,566,273



$

6,492,209



$

6,296,629


Average equity

759,104



736,379



723,423



731,040



758,284


Average core deposit intangibles

11,886



12,519



13,129



13,802



14,465


Average goodwill

3,524



3,524



3,524



3,524



3,524


Tangible average equity to tangible average assets

11.02

%


10.88

%


10.79

%


11.02

%


11.79

%

Core efficiency ratio:










Net interest income

$

57,394



$

56,098



$

58,378



$

55,647



$

49,609


Noninterest income

17,240



13,624



23,575



19,342



22,098


Total revenue

74,634



69,722



81,953



74,989



71,707


Less:










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

(3,499)



(6,625)



1,446



(3,831)



3,146


FDIC loss sharing income







(2,696)



(5,928)


Total core revenue

78,133



76,347



80,507



81,516



74,489


Total noninterest expense

45,929



48,270



68,602



47,829



53,293


Less:










Transaction and integration related costs

312



2,874



328



113



419


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





20,364






Property efficiency review









1,820


Total core noninterest expense

$

45,617



$

45,396



$

47,910



$

47,716



$

51,054


Efficiency ratio

61.54

%


69.23

%


83.71

%


63.78

%


74.32

%

Core efficiency ratio

58.38



59.46



59.51



58.54



68.54


Core earnings per diluted average share:










Diluted EPS available to common shareholders

$

0.28



$

0.30



$

0.19



$

0.27



$

0.23


Impact to pre-tax net income due to non-core items listed above

(3,811)



(9,499)



(19,246)



(6,640)



(5,021)


Estimated income tax impact of above non-core items

1,212



3,022



6,122



2,112



1,597


After-tax non-core items:










Excess tax benefit realized

2,612



1,472








Benefit due to finalization of a settlement with the Internal Revenue Service



4,306








After-tax impact of non-core items

13



(699)



(13,124)



(4,528)



(3,424)


Portion of non-core items allocated to participating securities



(21)



(146)



(47)



(34)


Impact of non-core items applicable to common shareholders

13



(720)



(13,270)



(4,575)



(3,458)


Weighted average common shares outstanding - diluted

70,026



69,706



69,973



73,222



74,900


Impact to diluted EPS of non-core items

$



$

(0.01)



$

(0.19)



$

(0.06)



$

(0.05)


Core diluted EPS applicable to common shareholders

0.28



0.31



0.38



0.33



0.28




(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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