Entegra Financial Corp. Announces First Quarter 2017 Results

FRANKLIN, N.C., April 20, 2017 (GLOBE NEWSWIRE) — Entegra Financial Corp. (the “Company”) (NASDAQ:ENFC), the holding company for Entegra Bank (the “Bank”), today announced earnings and related data for the three months ended March 31, 2017.

Highlights 

The following tables highlight the most important trends that the Company believes are relevant to understanding the performance of the Company.  As further detailed in Appendix A, core results (a non-GAAP measure) reflect adjustments for material items including investment gains and merger and acquisition expenses. 

  For the Three Months Ended March 31,
  (Dollars in thousands, except per share data)
    2017       2016     Change (%)
  GAAP   Core   GAAP   Core   GAAP   Core
Net income $ 1,741     $ 2,027     $ 1,366     $ 1,285     27.5%     57.7%  
Net interest income $ 9,618     N/A   $ 7,624     N/A   26.2%     N/A
Net interest margin   3.30%     N/A     3.22%     N/A   2.5%     N/A
Return on average assets   0.52%       0.61%       0.53%       0.50%     -1.9%     22.0%  
Return on average equity   5.18%       6.04%       4.10%       3.86%     26.3%     56.5%  
Efficiency ratio   75.49%       71.60%       76.63%       75.78%     -1.5%     -5.5%  
Diluted earnings per share $ 0.27     $ 0.31     $ 0.21     $ 0.19     28.6%     63.2%  

    As of March 31,   As of December 31,
      2017       2016  
    (Dollars in thousands, except per share data)
Asset Quality:        
Non-performing loans   $ 7,250     $ 6,041  
Real estate owned   $ 4,090     $ 4,226  
Non-performing assets   $ 11,340     $ 10,267  
Non-performing loans to total loans     0.96%       0.81%  
Non-performing assets to total assets     0.82%       0.79%  
Net charge-offs   $ 121     $ 430  
Allowance for loan losses to non-performing loans     131.01%       154.03%  
Allowance for loan losses to total loans     1.25%       1.25%  
         
Other Data:        
Book value per share   $ 20.97     $ 20.57  
Tangible book value per share   $ 19.47     $ 20.10  
Closing market price per share   $ 23.65     $ 20.60  

Management Commentary

Roger D. Plemens, President and CEO of the Company reported, “The first quarter represents another successful quarter for the Company as we continue to grow net income and improve return on equity. Although the first quarter is usually our slowest period, we are pleased with the significant improvement over the first quarter of 2016.  The market is beginning to recognize our intrinsic value with our stock trading above book value.  We successfully closed the previously announced acquisition of two branches in February expanding our footprint into northern Georgia which provides critical deposits to fund asset growth and increase net interest income.  We will continue to execute our strategy and look for opportunities for growth within our contiguous markets.”

Net Interest Income

Net interest income increased $2.0 million, or 26.2%, to $9.6 million for the three months ended March 31, 2017 compared to $7.6 million for the same period in 2016.   The increase in net interest income was primarily due to higher volumes in the loan and investment portfolios as well as a decrease in the interest rate paid on deposits.  Net interest margin for the quarter ended March 31, 2017 improved to 3.30% compared to 3.22% for the same period in 2016.

Provision for Loan Losses

The provision for loan losses was $0.3 million for the quarter ended March 31, 2017, compared to no provision for loan losses for the same period in 2016. The Company continues to experience a minimal level of net charge-offs and modest levels of non-performing loans.

Noninterest Income

Noninterest income decreased $0.1 million, or 4.9%, to $1.8 million for the three months ended March 31, 2017 compared to $1.9 million for the same period in 2016. The slight decline was primarily related to reduced gains on sales of investments and SBA loans partially offset by increases in mortgage banking income, interchange fees, and bank-owned life insurance (BOLI).

Noninterest Expense

Noninterest expense increased $1.3 million, or 18.2%, to $8.6 million for the three months ended March 31, 2017 compared to $7.3 million for the same period in 2016.  The increase was primarily related to increased compensation and employee benefits of $0.9 million, net occupancy of $0.1 million, and merger-related expenses of $0.3 million as the Company successfully grew its branch network during 2016 and 2017.

Income Taxes

Income tax expense for the quarter ended March 31, 2017 was $0.7 million compared to $0.9 million in the comparable period in the prior year.  The Company’s effective tax rate of 29.8% for the quarter ended March 31, 2017 improved from 38.5% for the same period in 2016 primarily as the result of increased tax-exempt income related to municipal bond investments and BOLI income.

Balance Sheet

Total assets increased $91.8 million, or 7.1%, to $1.38 billion at March 31, 2017 from $1.29 billion at December 31, 2016 as the Company continued to leverage its capital with earning assets.

Loans receivable increased $14.8 million, or 2.0%, to $759.2 million at March 31, 2017 from $744.4 million at December 31, 2016.  Loan growth continues to be primarily concentrated in commercial real estate and commercial and industrial loans. 

The Company also increased its investment portfolio by $34.1 million from December 31, 2016 to March 31, 2017 in order to better leverage its capital.  The Company utilized excess cash received from the February assumption of deposits to fund additional investment purchases. 

Core deposits increased $89.0 million, or 16.5%, to $629.8 million at March 31, 2017 from $540.8 million at December 31, 2016, including $79.6 million of core deposits assumed in the Stearns Bank branch acquisition.  Excluding $74.5 million of certificates of deposit assumed from Stearns Bank, certificates of deposit decreased $8.6 million, or 3.0%, to $280.6 million at March 31, 2017 compared to $289.2 million at December 31, 2016.  Core deposits remained relatively unchanged at 64% of the Company’s deposit portfolio compared to 65% at December 31, 2016.

Total equity increased $2.3 million to $135.4 million at March 31, 2017 compared to $133.1 million at December 31, 2016. This increase was primarily attributable to $1.7 million of net income, $0.2 million of stock-based compensation expense, and a $0.7 million improvement in the market value of investment securities partially offset by $0.3 million of share repurchases.  Tangible book value per share decreased $0.63, or 3.1%, from $20.10 at December 31, 2016 to $19.47 at March 31, 2017 as a result of $1.10 per share dilution from the Stearns Bank branch acquisition.

Asset Quality

Non-performing loans increased $1.3 million to $7.3 million at March 31, 2017 from $6.0 million at December 31, 2016 primarily as a result of one credit relationship totaling $0.9 million. Real estate owned balances decreased $0.1 million to $4.1 million at March 31, 2017 compared to $4.2 million at December 31, 2016.  Net loan charge-offs continue to remain low totaling $0.1 million for the quarter ended March 31, 2017 compared to net recoveries totaling $40,000 for the same period in 2016.

Non-GAAP Financial Measures

Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables in Appendix A, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. This press release and the accompanying tables discuss financial measures, such as core noninterest expense, core net income, core diluted earnings per share, core return on average assets, core return on average equity, and core efficiency ratio, which are non-GAAP measures. We believe that such non-GAAP measures are useful because they enhance the ability of investors and management to evaluate and compare the Company’s operating results from period to period in a meaningful manner. Non-GAAP measures should not be considered as an alternative to any measure of performance as promulgated under GAAP. Investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results or financial condition as reported under GAAP.

About Entegra Financial Corp. and Entegra Bank

Entegra Financial Corp. is the holding company of Entegra Bank. The Company’s shares began trading on the NASDAQ Global Market on October 1, 2014 under the symbol “ENFC”.

Entegra Bank operates a total of 17 branches located throughout the Western North Carolina counties of Cherokee, Haywood, Henderson, Jackson, Macon, Polk and Transylvania, the Upstate South Carolina counties of Anderson, Greenville, and Spartanburg and the northern Georgia county of Jasper.  The Bank also operates loan production offices in Asheville, NC and Clemson, SC.  For further information, visit the Bank’s website www.entegrabank.com.

Disclosures About Forward-Looking Statements

The discussions included in this document and its exhibits may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. For the purposes of these discussions, any statements that are not statements of historical fact may be deemed to be “forward-looking statements.” Such statements are often characterized by the use of qualifying words such as “expects,” “anticipates,” “believes,” “estimates,” “plans,” “projects,” or other statements concerning opinions or judgments of the Company and its management about future events. The accuracy of such forward looking statements could be affected by factors including, but not limited to, the financial success or changing conditions or strategies of the Company’s customers or vendors, fluctuations in interest rates, actions of government regulators, the availability of capital and personnel or general economic conditions. These forward looking statements express management’s current expectations, plans or forecasts of future events, results and condition, including financial and other estimates. Additional factors that could cause actual results to differ materially from those anticipated by forward looking statements are discussed in the Company’s filings with the Securities and Exchange Commission, including without limitation its annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The Company undertakes no obligation to revise or update these statements following the date of this press release.

 
ENTEGRA FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share data)
 
  Three Months Ended March 31,
    2017     2016
Interest income $ 11,343   $ 8,993
Interest expense   1,725     1,369
       
Net interest income   9,618     7,624
       
Provision for loan losses   315    
       
Net interest income after provision for loan losses   9,303     7,624
       
Servicing income, net   95     116
Mortgage banking   220     140
Gain on sale of SBA loans   142     334
Gain on sale of investments   7     269
Service charges on deposit accounts   391     394
Interchange fees   410     342
Bank owned life insurance   181     107
Other   337     173
Total noninterest income   1,783     1,875
       
Compensation and employee benefits   4,836     4,010
Net occupancy   951     817
Federal deposit insurance     104       176
Professional and advisory   274     212
Data processing   401     351
Marketing and advertising   248     200
Net cost of operation of real estate owned   134     286
Merger-related expenses   448     145
Other   1,211     1,082
Total noninterest expense   8,607     7,279
       
Income before taxes   2,479     2,220
       
Income tax expense   738     854
       
Net income $ 1,741   $ 1,366
       
Earnings per common share:      
Basic $ 0.27   $ 0.21
Diluted $ 0.27   $ 0.21
       
Weighted average common shares outstanding:      
Basic   6,464,861     6,517,753
Diluted   6,521,298     6,517,753
       

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
   March 31, 2017    December 31, 2016
   (Unaudited)    (Audited)
Assets      
       
Cash and cash equivalents $ 84,217     $ 43,294  
Investments – trading   5,499       5,211  
Investments – available for sale   432,358       398,291  
Other investments   12,208       15,261  
Loans held for sale   2,309       4,584  
Loans receivable   759,150       744,361  
Allowance for loan losses   (9,498 )     (9,305 )
Real estate owned   4,090       4,226  
Fixed assets, net   21,245       20,209  
Bank owned life insurance   31,528       31,347  
Net deferred tax asset   18,029       18,985  
Goodwill   7,144       2,065  
Core deposit intangibles, net   2,569       979  
Other assets   13,848       13,369  
       
Total assets $ 1,384,696     $ 1,292,877  
       
Liabilities and Shareholders’ Equity      
       
Liabilities      
Deposits $ 987,991     $ 830,013  
Federal Home Loan Bank advances   223,500       298,500  
Junior subordinated notes   14,433       14,433  
Post employment benefits   10,209       10,211  
Other liabilities   13,168       6,652  
Total liabilities $ 1,249,301     $ 1,159,809  
       
Total shareholders’ equity   135,395       133,068  
       
Total liabilities and shareholders’ equity $ 1,384,696     $ 1,292,877  
       

APPENDIX A – RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)  
   
    Three Months Ended March 31,  
      2017       2016    
                   
    (Dollars in thousands)
 
           
Core Noninterest Expense          
Noninterest expense (GAAP)   $ 8,607     $ 7,279    
Merger-related expenses     (448 )     (145 )  
Core noninterest expense (Non-GAAP)   $ 8,159     $ 7,134    
           
Core Net Income          
Net income (GAAP)   $ 1,741     $ 1,366    
Gain on sale of investments     (5 )     (175 )  
Merger-related expenses     291       94    
Core net income (Non-GAAP)   $ 2,027     $ 1,285    
           
Core Diluted Earnings Per Share          
Diluted earnings per share (GAAP)   $ 0.27     $ 0.21    
Gain on sale of investments     0.00       (0.03 )  
Merger-related expenses     0.04       0.01    
Core diluted earnings per share (Non-GAAP)   $ 0.31     $ 0.19    
           
Core Return on Average Assets          
Return on Average Assets (GAAP)     0.52%       0.53%    
Gain on sale of investments     0.00%       -0.07%    
Merger-related expenses     0.09%       0.04%    
Core Return on Average Assets (Non-GAAP)     0.61%       0.50%    
           
Core Return on Average Equity          
Return on Average Equity (GAAP)     5.18%       4.10%    
Gain on sale of investments     -0.01%       -0.52%    
Merger-related expenses     0.87%       0.28%    
Core Return on Average Equity (Non-GAAP)     6.04%       3.86%    
           
Core Efficiency Ratio          
Efficiency ratio     75.49%       76.63%    
Gain on sale of investments     0.04%       -1.84%    
Merger-related expenses     -3.93%       0.99%    
Core Efficiency Ratio (Non-GAAP)     71.60%       75.78%    
           
           
    As Of  
    March 31, 2017   December 31, 2016  
                   
    (Dollars in thousands, except share data)
 
Tangible Book Value Per Share          
Book Value (GAAP)   $ 135,395     $ 133,068    
Goodwill and intangibles     (9,713 )     (3,044 )  
Book Value (Tangible)   $ 125,682     $ 130,024    
Outstanding shares     6,455,145       6,467,550    
Tangible Book Value Per Share   $ 19.47     $ 20.10    
           

 

CONTACT: Contact:
Roger D. Plemens
President and Chief Executive Officer
(828) 524-7000