PDF ATTACHED: TLMR Update 12-29-15
“Market-Perform” / Price Target: $19 / HQ= Troy, MI / $1.2 Bil. Mkt. Cap.
On December 28th, TLMR announced an agreement with the FDIC to terminate its loss share agreements entered in 2010 and 2011. The Company also reached an agreement to terminate the warrant to purchase 390,000 shares of TLMR stock. While the timing was uncertain this announcement does not come as a surprise since the Company has been working on this for some time now.
As a result of this agreement TLMR will take a one-time charge of $13.9 million after-tax ($0.20/share) in 4Q15. The expected earn-back period is ~five quarters. Additionally, TLMR will no longer need to record negative accretion on the FDIC indemnification asset going forward (including 4Q15). The negative accretion recorded through interest income was $4.4 million and $22.2 million, respectively, for 3Q15 and YTD-3Q15. The Company will also reclassify $187 million in covered loans to uncovered loans.
Earnings impact: Taking the loss share termination into account we are adjusting our EPS estimates as follows: (a) for FY15 we are increasing our operating estimate by $0.03 to $0.89 and our 4Q15 estimate goes to $0.27 from $0.23. Our $0.27 operating estimate excludes the one-time charge of $0.20 related to the loss share termination; (b) for FY16 we are increasing our estimate by $0.12 to $1.22; and (c) for FY17 we are increasing our estimate by $0.10 to $1.30.
Thoughts on TLMR shares: We are maintaining our ‘Market-Perform’ rating on TLMR shares. That said we are increasing our price target by $1 to $19/share. This is driven by our higher earnings outlook going forward. Our $19 target assumes TLMR shares trade at 15-16x our FY16 EPS estimate and ~160% of forward TBV (1-year out). These multiples compare to our current FIG Bank peer group medians of ~15x and 175%, respectively.