Talmer Ends Loss-Share Agreements with FDIC

TROY, Mich. – Talmer Bancorp Inc. announced Monday that its wholly owned subsidiary, Talmer Bank and Trust, has ended its shared-loss agreements with the Federal Deposit Insurance Corp.

Talmer acquired the assets of First Place Bank, Warren, Ohio, in bankruptcy court in January 2013, but those assets were not affected by the announcement.

The shared-loss agreements, which date to 2010 and 2011, are insurance policies Talmer took out with the FDIC to protect itself from unforeseen losses that could have resulted from its acquisition of the assets of four failed banks: CF Bancorp, Port Huron, Mich.; First Banking Center, Burlington, Wisc.; Peoples State Bank, Hamtramck, Mich.; and Community Central Bank, Mount Clemens, Mich.

The warrants issued, dated April 30, 2010, relate to First Michigan Bancorp Inc.

To end those agreements ahead of schedule, Talmer said it paid the FDIC $11.7 million plus another $4.6 million to acquire the warrants outstanding it issued the agency. The FDIC had the option of exercising those warrants to buy up to 390,000 shares of Talmer Class B nonvoting common stock.

The agreements will result in an after-tax charge of approximately $13.9 million, or 20 cents per diluted share, recognized this quarter, from the write-off off of the remaining FDIC indemnification asset and receivables, totaling $33.2 million at Sept. 30, the $16.2 million total payment to the FDIC, partially offset by the release of both the FDIC warrants payable and FDIC clawback liability, totaling $31.8 million at Sept. 30.

The early ending of the agreements, Talmer said, “eliminates further negative accretion on the FDIC indemnification assets, which totaled $26.4 million for the year ended Dec. 31, 2014, and $22.2 million for the nine months ended Sept. 30.”

Because the agreements were reached before the end of this quarter, Talmer said it won’t recognize any accretion expense of the FDIC indemnification asset in the income it reports for this quarter.

Third-quarter negative accretion was $4.4 million. In addition, the bank will reclassify loans the FDIC covered, which had a balance of $186.6 million at Sept. 30, to uncovered loans and reclassify covered other real estate (repossessed properties), which amounted to $5.6 million at Sept. 30, to uncovered other real estate.

“We view this transaction as a sound financial decision,” David T. Provost, president and CEO, said in a prepared statement, “[because] our one-time termination expenses will be offset by the elimination of both future negative accretion of the FDIC indemnification asset and loss share of administration costs, with an anticipated tangible book-value earn-back period of approximately five quarters and the elimination of outstanding warrants from our capital structure.

Warrants are financial instruments that allow the holder to buy shares of stock at an agreed on price before the expiration date the seller and holder agree upon. If the value of the shares rises, the holder can exercise those rights and make a profit by selling them at the market price.

Ending the shared loss agreements has no effect on the yield of the loans the FDIC guaranteed in some measure, Talmer said. Talmer alone will recognize any future charge-offs, recoveries, gains, losses or expenses related to the loans the FDIC guaranteed against loss.

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