CHEMICAL FINANCIAL CORPORATION 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.
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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, March 31, December 31, June 30,
2016 2016 (1) 2015 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, 1,674,615 1,604,940 1,547,799 1,531,049
respectively, measured at fair value) (2)
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, March 31, December 31, September 30, June 30,
2016 2016 2015 2015 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 $823 $384 $297 $196 $340
accounted for under ASC 310-30
(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 Average Balance Interest (1) Average Average Balance Interest (1) Average Rate
Rate (2) Rate (2) (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 225,555 600 1.07 186,516 468 1.01 152,593 269 0.71
investments
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 23,618 27,268 44,888
assets
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 Average Balance Interest (1) Average Rate
Rate (2) (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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