Actionable news
0
All posts from Actionable news
Actionable news in TLMR: TALMER BANCORP Inc,

Talmer Bancorp, Inc. reports first quarter 2016 net income of $19.7 million, representing $0.28 of earnings per diluted average common share

TROY, Mich., April 27, 2016 /PRNewswire/ -- Talmer Bancorp, Inc. TLMR, -0.26% ("Talmer") today reported first quarter 2016 net income of $19.7 million, compared to $13.1 million for the fourth quarter of 2015 and $9.4 million for the first quarter of 2015. Earnings per diluted common share were $0.28 for the first quarter of 2016, compared to $0.19 for the fourth quarter of 2015 and $0.12 for the first quarter of 2015. Core earnings per diluted average share, a non-GAAP financial measurement, was $0.31 per diluted average common share for the first quarter of 2016, compared to $0.38 and $0.20 per diluted average common share for the fourth quarter of 2015 and the first quarter of 2015, respectively. In addition, on April 27, 2016, the Board of Directors of Talmer declared a quarterly cash dividend on its Class A common stock of $0.05 per share. The dividend will be paid on May 25, 2016, to our Class A common shareholders of record as of May 11, 2016. Please see the section entitled "Reconciliation of Non-GAAP Financial Measures", for a discussion on the limitations of our core earnings per average diluted 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)


1st Qtr 2016


4th Qtr 2015


1st Qtr 2015

Earnings Summary







Net interest income


$

56,098



$

58,378



$

51,032


Total provision (benefit) for loan losses


(1,111)



(4,583)



1,993


Noninterest income


13,624



23,575



21,430


Noninterest expense


48,270



68,602



56,595


Income before income taxes


22,563



17,934



13,874


Income tax provision


2,880



4,821



4,441


Net income


19,683



13,113



9,433


Per Share Data







Diluted earnings per common share


$

0.28



$

0.19



$

0.12


Core earnings per common share (1)


0.31



0.38



0.20


Tangible book value per share (1)


10.97



10.72



10.37


Average diluted common shares (in thousands)


69,706



69,973



75,103


Performance and Capital Ratios







Return on average assets (annualized)


1.19

%


0.80

%


0.62

%

Return on average equity (annualized)


10.69



7.25



4.97


Net interest margin (fully taxable equivalent) (2)


3.73



3.89



3.80


Core efficiency ratio (1)


59.46



59.51



68.61


Tangible average equity to tangible average assets (1)


10.88



10.79



12.31


Common equity tier 1 capital (3)


12.15



11.99



13.87


Tier 1 leverage ratio (3)


10.30



10.21



11.65


Tier 1 risk-based capital (3)


12.15



11.99



13.87


Total risk-based capital (3)


13.13



13.00



14.97


Asset Quality Ratios







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


0.04

%


(0.23)

%


0.43

%

Nonperforming assets as a percentage of total assets


1.18



1.30



1.55


Nonperforming loans as a percent of total loans


1.08



1.20



1.25


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


1.06



1.12



1.17


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

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

(3) First quarter 2016 is estimated.

First Quarter 2016 Compared to Fourth Quarter 2015

  • Net income was $19.7 million, or $0.28 per diluted average common share, in the first quarter of 2016, compared to $13.1 million, or $0.19 per diluted average common share, for the fourth quarter of 2015. Core earnings per diluted average share, a non-GAAP financial measurement, was $0.31 per diluted average common share for the first quarter of 2016, compared to $0.38 for the fourth quarter of 2015. First quarter of 2016 net income was impacted by three non-core items: a $6.6 million detriment to earnings due to the change in fair value of our loan servicing rights, $2.9 million of transaction and integration related expenses and a $4.3 million benefit due to finalization of a settlement with the Internal Revenue Service discussed further below. Fourth quarter of 2015 net income was impacted by three non-core items: a $20.4 million charge resulting from the early termination of the Talmer Bank and Trust's FDIC loss share agreements and the FDIC's warrant, the $1.4 million benefit to earnings due to the change in fair value of our loan servicing rights and $328 thousand of transaction and integration costs. The net negative impact to our earnings per diluted common share for the first quarter of 2016 from these non-core items was approximately $0.03 per diluted share, compared to $0.19 per diluted common share for the fourth quarter of 2015. Please see the section entitled "Reconciliation of Non-GAAP Financial Measures", for a discussion on the limitations of our core earnings per average diluted share and a reconciliation of this non-GAAP financial measure to the most comparable GAAP measure.
  • Net loans increased during the first quarter of 2016 by $118.6 million, driven by strong growth in commercial real estate and residential real estate lending, partially offset by acquired loan run-off.
  • Total deposits increased $138.2 million, to $5.2 billion as of March 31, 2016, compared to December 31, 2015, primarily due to increases in time deposits and demand deposits, partially offset by a decline in money market and savings deposits.
  • Net interest income decreased to $56.1 million in the first quarter of 2016, compared to $58.4 million in the fourth quarter of 2015. The decline in net interest income was primarily due to a $2.0 million decrease in interest on loans due significantly to the run-off of acquired, higher-yielding loans and the impact of one less day in the quarter. Our net interest margin decreased 16 basis points to 3.73% in the first quarter of 2016, compared to 3.89% in the fourth quarter of 2015, also primarily due to the run-off of acquired, higher-yielding loans.
  • Noninterest income decreased $10.0 million to $13.6 million in the first quarter of 2016, compared to the fourth quarter of 2015. Noninterest income was impacted by a detriment to earnings of $6.6 million due to the change in the fair value of loan servicing rights, compared to a benefit to earnings of $1.4 million in the fourth quarter of 2015, which is a key component of the $7.7 million decrease in mortgage banking and other loan fees. In addition, accelerated discount on acquired loans decreased $2.5 million in the first quarter of 2016, compared to the fourth quarter of 2015.
  • Noninterest expense decreased $20.3 million, to $48.3 million in the first quarter of 2016, compared to the fourth quarter of 2015, primarily due to $20.4 million of net loss on the early termination of Talmer Bank and Trust's FDIC loss share agreements and the FDIC's warrant recognized in the fourth quarter of 2015, in addition to overall declines in core operating expenses, partially offset by an increase of $2.5 million in merger and acquisition expense. Excluding non-core expenses, noninterest expense declined by $2.5 million.
  • Total shareholder's equity of $748.7 million as of March 31, 2016, increased $23.5 million compared to December 31, 2015. The increase is primarily the result of net income of $19.7 million in the first quarter of 2016.
  • The income tax provision for the first quarter of 2016 was $2.9 million resulting in an effective tax rate of 12.8%, which is approximately $4.6 million lower than an assumed 33% normalized tax rate. The lower effective tax rate in the first quarter of 2016, compared to previous quarters, is primarily due to 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.

Income Statement

Net Interest Income and Net Interest Margin

Net interest income for the first quarter of 2016 was $56.1 million, compared to $58.4 million in the prior quarter. Our net interest margin was 3.73% in the first quarter of 2016, a decline of 16 basis points from 3.89% in the fourth quarter of 2015. The decreases in net interest income and net interest margin in the first quarter were due significantly to the run-off of acquired, higher-yielding loans. The decrease in net interest income was also impacted by one less day in the quarter.

Our net interest margin benefits from discount accretion on our purchased credit impaired loan portfolio, a component of the accretable yield. The accretable yield for purchased credit impaired loans includes both the expected coupon of the loan and the discount accretion, and is recognized as interest income over the expected remaining life of the loans. For the first quarter of 2016 and the fourth quarter of 2015, the yield on loans was 4.66% and 4.83%, respectively, while the yield generated using only the expected coupon would have been 4.06% and 4.17%, 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 48 basis points in the first quarter of 2016 compared to 52 basis points in the fourth quarter of 2015. Therefore, excluding the benefit of excess accretable yield, our net interest margin in the first quarter of 2016 was 3.25% compared to 3.37% in the fourth quarter of 2015.

Noninterest Income

Noninterest income decreased $10.0 million to $13.6 million in the first quarter of 2016, compared to the fourth quarter of 2015. The most significant contributor to this decline was a decrease in mortgage banking and other loan fees of $7.7 million. The decrease in mortgage banking and other loan fees was impacted by a detriment to earnings of $6.6 million due to the change in the fair value of loan servicing rights compared to a benefit of $1.4 million in the fourth quarter of 2015. The change in the fair value of loan servicing rights in the first quarter of 2016 was due mainly to downward movements in market interest rates during the period compared to the rising rate environment in the fourth quarter of 2015. First quarter of 2016 noninterest income was also impacted by a decrease in accelerated discount on acquired loans. Accelerated discount on acquired loans results from the accelerated recognition of a portion of the loan discount that would have been recognized over the expected life of the loan and occurs when a loan is paid in full or otherwise settled.

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 $6.0 million since the majority of our servicing rights were acquired on January 1, 2013.

Noninterest Expense

Noninterest expense in the first quarter of 2016 decreased $20.3 million, to $48.3 million, compared to the fourth quarter of 2015. The decrease in noninterest expense is primarily due to the $20.4 million net loss on the early termination of Talmer Bank and Trust's FDIC loss share agreements and the FDIC's warrant recognized in the fourth quarter of 2015, in addition to other declines in core operating expenses, partially offset by an increase of $2.5 million in merger and acquisition expense.

The efficiency ratio is a measure of noninterest expense as a percentage of net interest income and noninterest income. Our efficiency ratio was 69.23% in the first quarter of 2016, compared to 83.71% in the fourth quarter of 2015. Our core efficiency ratio was 59.46% and 59.51%, for the first quarter of 2016 and fourth quarter of 2015, respectively. 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 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. The core efficiency ratio for the fourth quarter of 2015 excludes the $20.4 million charge we took to terminate Talmer Bank and Trust's FDIC loss share agreements and the FDIC's warrant, the benefit received from the fair value adjustment to our loan servicing rights of $1.4 million and transaction and integration related costs of $328 thousand.

Credit Quality

The first quarter of 2016 resulted in a benefit for loan losses of $1.1 million, compared to a benefit for loan losses of $4.6 million in the fourth quarter of 2015. The decrease in the benefit for loan losses was primarily due to a decrease in net credit recoveries on loans. At March 31, 2016, the allowance for loan losses was $52.4 million, or 1.06% of total loans, compared to $54.0 million, or 1.12% of total loans, at December 31, 2015. 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 credit recoveries on acquired loans that were paid off, payments received on loans previously carrying an allowance for loan loss, continued reductions in the percentage of nonperforming loans to total loans, and to a lesser extent, increases in collateral and cash flow expectations on loans individually evaluated for impairment.

During the 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 relief of loan loss provisions of $963 thousand. The re-estimations also resulted in a $15.7 million improvement in the gross cash flow expectations for purchased credit impaired loans, which will be recognized prospectively as an increase in the accretable yield.

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

Balance Sheet and Capital Management

Total assets increased $117.8 million to $6.7 billion at March 31, 2016 compared to $6.6 billion at December 31, 2015. The primary drivers of the increase in assets in the quarter ended March 31, 2016 were increases in net total loans of $118.6 million and securities available-for-sale of $55.8 million, partially offset by decreases in loans held for sale of $33.2 million and cash and cash equivalents of $23.5 million.

Net total loans at March 31, 2016 increased $118.6 million to $4.9 billion, compared to December 31, 2015. Loan growth was primarily driven by growth in commercial real estate and residential 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 $1.3 billion, or 27.0% of total...


More