TLMR Talmer Bancorp, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of report (Date of earliest event reported): August 6, 2014

Talmer Bancorp, Inc.

(Exact name of registrant as specified in its charter)

(248) 498-2802

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02  Results of Operations and Financial Condition.

On August 6, 2014, Talmer Bancorp, Inc., holding company for Talmer Bank and Trust and Talmer West Bank, issued a press release announcing its financial results for the quarter ended June 30, 2014.  A copy of the press release is furnished with this Current Report on Form 8-K as Exhibit 99.1.

Item 8.01  Other Events.

On August 6, 2014, Talmer Bancorp, Inc. announced the signing of a definitive agreement to acquire First of Huron Corporation, the holding company for Signature Bank headquartered in Bad Axe, Michigan, for aggregate cash consideration of $13.4 million.  Signature Bank had total assets of $228.0 million as of June 30, 2014, including $172.3 million of net total loans.  The boards of Talmer Bancorp, Inc. and First of Huron Corporation unanimously approved the transaction which is subject to regulatory approval and customary closing conditions, including the approval by the shareholders of First of Huron Corporation.  A copy of the press release is attached as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.

Also on August 6, 2014, the Board of Directors of Talmer Bancorp, Inc. declared a quarterly dividend of $.01 per Class A common share to be paid on August 29, 2014 to shareholders of record of our Class A common stock as of August 18, 2014.

Item 9.01  Financial Statements and Exhibits.

(d)              Exhibits.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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Exhibit 99.1

Talmer Bancorp, Inc. reports second quarter 2014 net income of $20.6 million, representing $0.27 of earnings per diluted average common share

Talmer Bancorp, Inc. has reached a definitive agreement to acquire First of Huron Corporation

 Talmer Bancorp, Inc. declares cash dividend for common stock of $0.01 per share

TROY/August 6, 2014 — Talmer Bancorp, Inc. (NASDAQ: TLMR) (“Talmer”) today reported second quarter 2014 net income of $20.6 million, compared to $36.4 million for the first quarter of 2014 and $15.0 million for the second quarter of 2013.  Earnings per diluted common share were $0.27 for the second quarter 2014, compared to $0.50 for the first quarter of 2014 and $0.21 for the second quarter of 2013. In addition, the Board of Directors of Talmer today declared a cash dividend on its Class A common stock of $0.01 per share.  The dividend will be paid on August 29, 2014, to our Class A common shareholders of record as of August 18, 2014.

Talmer Bancorp President and CEO David Provost commented, “We are pleased with our core operating trends in the second quarter, including strong organic loan growth and incremental improvement in our operating efficiency. Overall, our net total loans grew by an annualized rate of 12.9% in the second quarter of 2014 compared to the first quarter of 2014.  Importantly, our loan pipeline has strengthened over the past couple of months, which supports our expectation of continued strong organic loan growth during the second half of the year.  Additionally, we are pleased to announce an additional acquisition opportunity consistent with our strategic focus of strengthening our concentration in our existing markets and creating more opportunities for improving our operating efficiency.  This cash transaction helps us better leverage our existing capital and strengthens our core funding for lending opportunities throughout our footprint.

“Second quarter results feature strong overall profit and growth trends and the further realization of value for our shareholders from previous acquisitions.  Our focus in the coming periods continues to be strengthening our core earnings and building our book value per share by increasing operating leverage through the combination of strong organic loan growth and the further realization of synergies from acquisitions.”

Pending acquisition of First of Huron Corporation

Talmer announced today that it has entered into a definitive agreement to acquire First of Huron Corporation, the holding company for Signature Bank headquartered in Bad Axe, Michigan, for aggregate cash consideration of $13.4 million.  Signature Bank had total assets of $228.0 million as of June 30, 2014, including $172.3 million of net total loans.  The consideration represents approximately 117% of First of Huron’s tangible book value as of June 30, 2014.  Talmer will acquire and simultaneously retire $3.5 million of outstanding subordinated debentures of First of Huron Corporation and assume its $5.2 million of trust preferred securities.  Talmer expects the acquisition to be immediately accretive to earnings per share exclusive of transaction and integration related expenses, and to yield a tangible book value earn back of less than 2.5 years.  The boards of Talmer and First of Huron Corporation unanimously approved the transaction which is subject to regulatory approval and customary closing conditions, including the approval by the shareholders of First of Huron Corporation, and is expected to close in the fourth quarter of 2014 or the first quarter of 2015.

Quarterly Results Summary

(1) First quarter 2014 information is revised to reflect the impact to the financial statements from adjustments to the acquisition date fair value of certain assets and liabilities in the Talmer West Bank acquisition within the measurement period.  These adjustments increased first quarter 2014 net income and period end equity by $3.7 million compared to previously reported levels.

(2)  See section entitled “Reconciliation of Non-GAAP Financial Measures.”

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

(4) First and second quarter 2014 are estimated.

Second Quarter 2014 Compared to First Quarter 2014

·                  Net income was $20.6 million, or $0.27 per diluted average common share, in the second quarter of 2014, compared to $36.4 million, or $0.50 per diluted average common share, for the first quarter of 2014.  The $15.8 million decrease in net income was primarily due to the first quarter bargain purchase gain of $40.2 million resulting from our acquisition of Talmer West Bank, partially offset by a decrease in salary and employee benefits expense of $5.3 million and an increase to net interest income of $4.4 million.

·                  Net total loans increased during the second quarter of 2014 by $116.0 million compared to the first quarter of 2014, to $3.7 billion, resulting in annualized growth of 12.9%.  At June 30, 2014 net total loans included $499.8 million of loans from our acquisition of Talmer West Bank.  Excluding loans from our acquisition of Talmer West Bank, net total loans grew by $168.0 million, resulting in annualized growth of 22.2%, in the three months ended June 30, 2014.  During the second quarter of 2014, Talmer Bank and Trust experienced $201.3 million of net uncovered loan growth, partially offset by $33.3 million of net covered

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loan run-off (loans covered by loss share agreements with the FDIC).  Talmer West Bank experienced net loan run-off of $52.0 million in the second quarter of 2014, of which $22.3 million is due to transferring portfolio loans to loans held for sale as a result of the pending sale of the Albuquerque branch, which subsequently closed July 18, 2014.

·                  Total deposits decreased $89.8 million, to $4.3 billion as of June 30, 2014, compared to March 31, 2014, primarily reflecting expected run-off of deposits acquired in our acquisition of Talmer West Bank.

·                  Net interest income increased $4.4 million to $52.5 million in the second quarter of 2014, compared to the first quarter of 2014.  The increase in net interest income was primarily the result of a $3.5 million increase in interest and fees on loans and a $1.2 million decline in the negative accretion of the FDIC indemnification asset.  Our net interest margin also increased 40 basis points to 4.35% in the second quarter of 2014, compared to 3.95% in the first quarter of 2014.

·                  Noninterest income decreased by $42.3 million to $13.9 million in the second quarter of 2014 compared to the first quarter of 2014.  The decrease is primarily the result of the $40.2 million bargain purchase gain recognized in the first quarter of 2014 as a result of our acquisition of Talmer West Bank.  The bargain purchase gain increased $3.7 million from the previously recorded level due to adjustments of the acquisition date fair value of certain assets and liabilities in the Talmer West Bank acquisition within the measurement period.  In the second quarter of 2014, noninterest income was also negatively impacted by $4.2 million due to adjustments to fair valuation assumptions of loan servicing rights primarily as a result of declining residential mortgage interest rates.

·                  Noninterest expenses decreased $11.4 million, or 17.4%, to $54.2 million in the second quarter of 2014 compared to the first quarter of 2014.  The decline in noninterest expenses primarily reflected a reduction in transaction and integration related expenses.

·                  The income tax benefit in the second quarter of 2014 was primarily driven by the elimination of a $9.7 million valuation allowance on the deferred tax assets acquired in our acquisition of First Place Bank on January 1, 2013, resulting from a conclusion reached with the assistance of legal and tax accounting experts, regarding the calculation of the annual Section 382 of the Internal Revenue Code limitation related to the ownership change of First Place Bank.  Without the benefit from the reversal of the $9.7 million valuation allowance, our tax expense would have been $5.5 million, or an effective tax rate of 33.6%

Income Statement

Net Interest Income and Net Interest Margin

Net interest income for the second quarter of 2014 was $52.5 million, compared to $48.1 million in the prior quarter.  The $4.4 million increase in net interest income in the second quarter was primarily the result of a $3.5 million increase in interest and fees on loans and a $1.2 million decline in the negative accretion of the FDIC indemnification asset.

Our net interest margin was 4.35% in the second quarter of 2014, an increase of 40 basis points from 3.95% in the first quarter of 2014.  The increase in our net interest margin in the second quarter was due to a combination of several factors, the largest being an increase in the benefit received from discount accretion on our purchased credit impaired loan portfolios resulting from an increase in expected cash flows and payment speeds noted in our quarterly re-estimation of cash flows, the decline in negative accretion of the FDIC indemnification asset as the balance of the asset continues to decline and a substantial reduction in low yielding cash equivalent interest earning balances due to improved deployment of our liquidity.

Our net interest margin benefits from discount accretion on our purchased credit impaired loan portfolio, a component of the accretable yield.  The accretable yield represents the excess of the current net present value of expected future cash flows over the acquisition date fair value on our purchased credit impaired loans and includes both the expected coupon of the loan and the discount accretion.  The accretable yield is recognized as interest income over the expected remaining life of the purchased credit impaired loan portfolios.  For the second and first quarters of 2014, the

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yield on total loans was 6.12% and 5.80%, respectively, while the yield generated using only the expected coupon would have been 4.69% and 5.02%, respectively.  The difference in the yield generated using only the expected coupon was primarily due to the continued run-off of covered loans acquired with higher coupon rates.  The difference between the actual yield earned on total loans and the yield generated based on the expected coupon represents excess accretable yield.  The expected coupon of the loan considers the actual coupon rate of the loan and does not include any interest income for loans in nonaccrual status.  Our net interest margin is also adversely impacted by the negative yield on the FDIC indemnification asset.  Because our quarterly cash flow re-estimations have continuously resulted in improvements in the overall expected cash flows on covered loans, our expected payment from the FDIC under our loss share agreements has declined, resulting in a negative yield on the FDIC indemnification asset.  This negative yield on the FDIC indemnification asset partially offsets the benefits provided by the excess accretable yield.  This negative yield was 19.11% for the second quarter of 2014 and 21.29% for the first quarter of 2014.  The combination of the excess accretable yield and negative yield on the FDIC indemnification asset benefitted net interest margin by 63 basis points and five basis points in the second and first quarters or 2014, respectively.

Noninterest Income

Noninterest income decreased $42.3 million to $13.9 million in the second quarter of 2014, compared to $56.2 million for the first quarter of 2014.  The decrease was primarily due to the $40.2 million bargain purchase gain recognized in the first quarter of 2014 as a result of our acquisition of Talmer West Bank.  Activity in the second quarter of 2014 included a $2.6 million increase in net gain on sales of loans and decreases of $3.3 million in FDIC loss sharing income, $2.3 million in mortgage banking and other loan fees and $2.1 million in accelerated discount on acquired loans.  The increase in gain on sale of loans primarily reflects an increase in residential mortgage originations in the second quarter of 2014.  The decrease in FDIC loss sharing income primarily reflects a decrease in expected FDIC loss share claims given the $7.3 million provision release on covered loans during the quarter that resulted from cash flow expectation improvements and recoveries.  The decrease in mortgage banking and other loan fees was primarily due to the change in the fair value of loan servicing rights, which was a detriment to earnings of $4.2 million during the second quarter of 2014, compared to a detriment of $2.2 million during the first quarter of 2014 and due mainly to movements in interest rates during those periods.  Loan servicing rights totaled  $74.1 million as of June 30, 2014, compared to $77.9 million as of March 31, 2014.  The decrease in accelerated discount on acquired loans was primarily due to the write-off of a portion of the FDIC indemnification asset balance reflecting loan payments and payoffs on covered loans that were not previously expected.

Noninterest Expenses

Noninterest expenses in the second quarter of 2014 totaled $54.2 million, compared to $65.6 million in the first quarter of 2014.  The $11.4 million decrease in total noninterest expenses was primarily due to a decrease in transaction and integration related expenses of $10.0 million compared to the first quarter.  Net transaction and integration related expenses declined substantially to $837 thousand for the second quarter of 2014 compared to $10.8 million in the first quarter.  Outside of the decline in transaction and integration related expenses, we realized cost reduction improvements in other expenses (included within noninterest expense), salary and employee benefits due to a continued effort to rationalize staff that was muted by an increase in commission and incentives related to the increase in residential mortgage origination activity of $1.7 million and insurance expense, partially offset by an increase in occupancy and equipment expense due to improvements made to certain facilities.

We caution that earnings can be volatile given that such a large portion of our loan portfolio is comprised of purchased credit impaired loans and because of our on-going acquisition activities.  Income can be significantly impacted by the accounting requirement to periodically re-estimate the cash flows of purchased credit impaired loans and expenses associated with technology conversion and organization integration related activities.

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Credit Quality

We recorded our acquired loans at fair value at the date of acquisition with no separate allowance for loan losses, in accordance with United States generally accepted accounting principles.  At June 30, 2014, the allowance for loan losses on uncovered loans was $24.4 million, or 0.74% of total uncovered loans, compared to $22.8 million, or 0.72% of total uncovered loans, at March 31, 2014.  The increase in allowance for loan losses on uncovered loans for the quarter was primarily due to impairment resulting from our quarterly re-estimation of expected cash flows for our uncovered purchased credit impaired loans, partially offset by improvements in historical loss factors.  At June 30, 2014, the allowance for loan losses on covered loans was $32.7 million, or 7.13% of total covered loans, compared to $38.0 million, or 7.63% of total covered loans at March 31, 2014.  The decrease in allowance for loan losses on covered loans primarily reflects the relief of allowance resulting from payments received on loans not previously anticipated, improvements in historical loss factors and certain individually evaluated loans where changes in discounted cash flow projections and/or collateral values increased, partially offset by the additional allowance resulting from our quarterly re-estimation of expected cash flows for our covered purchased credit impaired loans.

During the second quarter of 2014, we completed re-estimations of cash flow expectations for purchased credit impaired loans acquired in each of our acquisitions.  For the re-estimations, loans with decreased cash flow expectations resulted in additional loan loss provisions of $5.3 million ($4.2 million uncovered and $1.1 million covered).  Provisions related to covered loans are partially offset by an increase in the FDIC indemnification asset.  The re-estimations also resulted in a $24.5 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.  The improvement in cash flows on covered loans will be partially offset by a continued reduction in the FDIC indemnification asset which will impact future earnings through negative accretion.

All of our acquired loan portfolios are continuing to perform significantly better than initially anticipated.  We believe improvements in performance are primarily due to improvements in the economy and the efforts made by our Special Assets team that manages our acquired loan portfolios.  Similar to the second quarter 2014 re-estimations, the prior re-estimations of cash flows have indicated better overall expected performance than originally anticipated at acquisition.

Balance Sheet and Capital Management

Total assets increased $186.2 million to $5.6 billion at June 30, 2014 compared to $5.4 billion at March 31, 2014.  The primary drivers of the increase in assets in the quarter ended June 30, 2014 were increases in net total loans of $116.0 million, securities available-for-sale of $99.7 million, loans held for sale of $60.2 million and Company-owned life insurance of $55.8 million, partially offset by a $127.9 million decrease in cash and cash equivalents.   The increases in securities available-for-sale and Company-owned life insurance reflect management’s plan to more fully deploy excess liquidity.  Loans held for sale increased in the second quarter of 2014 due to increases in residential mortgage loan originations and our transfer of $22.3 million of portfolio loans to loans held for sale as a result of the planned sale of the Albuquerque branch.

Net total loans at June 30, 2014 were $3.7 billion, which included $499.8 million of loans acquired in the Talmer West Bank acquisition, compared to $3.6 billion at March 31, 2014.  Excluding loans from our acquisition of Talmer West Bank, net total loans grew by $168.0 million, or 22.2% annualized, compared to March 31, 2014.  During the quarter, Talmer Bank and Trust experienced $201.3 million of net uncovered loan growth, partially offset by $33.3 million of net covered loan run-off.   Talmer West Bank experienced net loan run-off of $52.0 million in the second quarter of 2014, of which $22.3 million was due to transferring portfolio loans to loans held for sale as a result of the planned sale of the Albuquerque branch.  We continue to be focused on sourcing quality loan growth to overcome the run-off of higher yielding acquired loans.  A significant amount, $459.3 million, or 12.2%, of total loans, are covered by loss sharing agreement entered into with the FDIC.  Acquired loans are reported on the

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balance sheet at the contractual balance, net of remaining discount resulting from acquisition accounting and charge-offs taken since acquisition.

Total liabilities were $4.9 billion at June 30, 2014 compared to $4.7 billion at March 31, 2014.  The $161.3 million increase in liabilities in the quarter ended June 30, 2014 was primarily due to increases in short-term borrowings of $149.3 million and long-term debt of $88.9 million, partially offset by a decrease in total deposits of $89.8 million.  The increases in short-term borrowings and long-term debt primarily reflect Federal Home Loan Bank advances and additional securities sold under agreements to repurchase added during the second quarter of 2014.  The decrease in total deposits primarily reflects run-off of Talmer West Bank’s acquired deposit portfolio.

Total shareholders’ equity increased $24.9 million, or 3.6%, to $726.1 million at June 30, 2014, compared to $701.2 million as of March 31, 2014.  The increase in shareholders’ equity primarily reflects our second quarter 2014 net income of $20.6 million.

Key Performance Goals

Our near-term focus continues to be on driving quality loan growth and realizing significant operating synergies associated with the acquisitions of First Place Bank and Talmer West Bank.  This includes the consolidation of back office processes, personnel and facilities and the wind-down of third party expenses associated with meeting regulatory compliance and system enhancements.  Recent increases in the level of merger activity in our market area offer the potential for additional opportunities to further leverage our capital position; however, we strive to remain disciplined in our evaluation of the risks and challenges in each and every deal.  The effective integration of operations and culture from previous acquisitions and the ongoing investment in core growth provide momentum in our pursuit of delivering a sustainable 1%+ core return on assets.

Conference Call and Webcast

Talmer Bancorp, Inc. will host a live conference webcast to review second quarter 2014 financial results at 10:00 a.m. ET on Thursday, August 7, 2014. The webcast may be accessed through Talmer’s Investor Relations page at www.talmerbank.com where a link will be provided. Interested parties may also access the conference call by calling (888) 317-6003 (event ID No. 4734521) or internationally at (412) 317-6061.  A replay of the webcast will be available for approximately 90 days after the event on Talmer’s Investor Relations page at www.talmerbank.com.

About Talmer Bancorp, Inc.

Headquartered in Troy, Michigan, Talmer Bancorp, Inc. is the holding company for Talmer Bank and Trust and Talmer West Bank.  These banks, operating through branches and lending offices in Michigan, Ohio, Indiana, Wisconsin, Nevada and Illinois, offer 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.

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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 related to our future expectations, including all statements under the heading entitled “Key Performance Goals,” statements regarding expectations related to growth opportunities in our markets, our ability to deliver sustained growth through acquisition opportunities, strong organic loan growth and the realization of operating synergies from current and prior acquisitions, statements regarding our proposed acquisition of First of Huron Corporation, including our expectation that the acquisition will be immediately accretive to earnings, its anticipated yield on tangible book value and its expected internal rate of return, and our strategic plan.  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 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, excessive loan losses, and, with respect to the proposed acquisition, the inability to obtain the requisite regulatory and shareholder approvals and meet other closing terms and conditions, 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.

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Talmer Bancorp, Inc.

Consolidated Balance Sheets

(Unaudited )

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Talmer Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)

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Talmer Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)