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

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.

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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