Talmer Bancorp, Inc. TLMR recently announced the early termination of its loss-sharing agreements as well as a warrant agreement with the Federal Deposit Insurance Corporation (“FDIC”). Notably, the company anticipates incurring a one-time charge of $13.9 million or 20 cents per diluted average share during the fourth quarter of 2015.
The company has reportedly shelled out a total of $16.2 million to the FDIC for prematurely ending the loss-share agreement ($11.7 million) and warrant agreement ($4.6 million). Additionally, subsequent write-off of the remaining FDIC indemnification asset and FDIC receivable is expected to lead to expenses of $33.2 million. However, both these charges are anticipated to be partially offset by reduced FDIC warrant payable and claw back liability, totaling $31.8 million as of Sep 30.
Talmer Bancorp entered into these loss-sharing agreements when it had acquired four failed banks, namely, CF Bancorp, First Banking Center, Peoples State Bank and Community Central Bank, from the FDIC in 2010 and 2011.
Effects of Termination of Loss-Sharing Agreement
The early termination will eliminate any negative accretion to the FDIC indemnification asset in the fourth quarter of 2015 and beyond. Negative accretion, which is recorded in the company’s income statement, amounted to $22.2 million for the first nine months of 2015.
This, along with reduced loss-sharing administration cost, is anticipated to offset the above-mentioned one-time charge of $13.9 million. Additionally, Talmer Bancorp’s “sound financial decision” will eliminate outstanding warrants from the company’s capital structure. Also, it will facilitate further transparency in the company’s financials, and enhance its comparability with that of Talmer Bancorp’s peers.
Further, given the expiration of its arrangement with the FDIC, the company is required to reclassify loans, previously recorded under the covered loans category, into the uncovered loans segment. Additionally, the bank is expected to fully recognize future gains, losses, charge-offs, recoveries and expenses stemming from such loans.
As of Sep 30, 2015, Talmer Bancorp held $186.6 million and $5.6 million in FDIC covered and covered other real estate loans, respectively. Further, as of the same date, the FDIC indemnification asset balance totaled $30.6 million. Of these, $16.5 million was expected to be collected from the FDIC, while the remaining amount was scheduled for amortization.
According to the company, “future earnings will be positively impacted by recovering amounts greater than the carrying value of the previously covered assets; such earnings could also be negatively impacted by the recognition of losses and expenses that would have otherwise been covered under the loss share agreements.”
Talmer Bancorp currently holds a Zacks Rank #2 (Buy).
Other favorably placed stocks in the banking space include TFS Financial Corp TFSL, sporting a Zacks Rank #1 (Strong Buy); and Charter Financial Corporation CHFN and Berkshire Hills Bancorp Inc. BHLB, both carrying the same Zacks Rank as Talmer Bancorp.
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