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Entegra Financial Corp. Announces Third Quarter 2016 Results

FRANKLIN, N.C., Oct. 20, 2016 (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 and nine months ended September 30, 2016.

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 FHLB advance prepayment penalties, negative provision for loan losses, merger and acquisition expenses, and the impact of abnormal tax rates and deferred tax asset valuation allowance reversals.

For the Three Months Ended September 30,
(Dollars in thousands, except per share data)
2016
2015
GAAP Core GAAP Core
Net income$ 1,800
$ 1,870
$ 2,165
$ 1,723
Net interest income$ 8,897
N/A $ 7,041
N/A
Net interest margin 3.29% N/A 3.13% N/A
Return on average assets 0.60% 0.63% 0.89% 0.70%
Return on average equity 5.21% 5.41% 6.66% 5.30%
Efficiency ratio 71.53% 70.56% 70.10% 70.10%
Diluted earnings per share$ 0.28
$ 0.29
$ 0.33
$ 0.26
For the Nine Months Ended September 30,
(Dollars in thousands, except per share data)
2016
2015
GAAP Core GAAP Core
Net income$ 4,024
$ 5,339
$ 21,885
$ 3,414
Net interest income$ 25,269
N/A $ 20,012
N/A
Net interest margin 3.28% N/A 3.08% N/A
Return on average assets 0.47% 0.63% 3.14% 0.49%
Return on average equity 3.97% 5.26% 25.07% 3.91%
Efficiency ratio 78.04% 71.58% 85.71% 78.50%
Diluted earnings per share$ 0.62
$ 0.82
$ 3.34
$ 0.52


September 30, 2016 December 31, 2015
(Dollars in thousands, except per share data)
Asset Quality:
Non-performing loans $7,503 $7,280
Real estate owned $4,624 $5,369
Non-performing assets $12,127 $12,649
Non-performing loans to total loans 1.03% 1.17%
Non-performing assets to total assets 1.00% 1.23%
Allowance for loan losses to non-performing loans 121.34% 129.96%
Allowance for loan losses to total loans 1.25% 1.52%
Other Data:
Book value per share $21.37 $20.08
Tangible book value per share $20.90 $19.88
Closing market price per share $18.38 $19.36
Closing price-to-tangible book value ratio 87.94% 97.38%

Management Commentary

Roger D. Plemens, President and CEO of the Company reported, “Our third quarter results reflect another successful quarter for the Company as we continue to deploy our capital and improve our return on equity. We remain focused on growing our margin income, which has increased significantly from the comparable periods in the prior year, while supplementing this growth with investments in our mortgage and SBA businesses. We will continue to seek opportunities to further leverage our capital and provide an appropriate return for our shareholders.”

Net Interest Income

Net interest income increased $1.9 million, or 26.4%, to $8.9 million for the three months ended September 30, 2016 compared to $7.0 million for the same period in 2015. Net interest income increased $5.3 million, or 26.3%, to $25.3 million for the nine months ended September 30, 2016 compared to $20.0 million for the same period in 2015. 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 rate paid on advances and deposits. Net interest margin for the three and nine months ended September 30, 2016 improved to 3.29% and 3.28%, respectively, compared to 3.13% and 3.08% for the same periods in 2015.

Provision for Loan Losses

The provision for loan losses was $0.1 million for the three and nine months ended September 30, 2016, compared to $0 and $(1.5) million in the comparable periods in 2015. The Company continues to experience a minimal level of net charge-offs and declining levels of non-performing loans.

Noninterest Income

Noninterest income increased $0.2 million, or 13.3%, to $2.1 million for the three months ended September 30, 2016 compared to $1.8 million for the same period in 2015. Noninterest income increased $1.6 million, or 36.8%, to $6.0 million for the nine months ended September 30, 2016 compared to $4.4 million for the same period in 2015. The improvement for both periods was generally due to continued growth in the Company’s mortgage and SBA business, increases in deposit service charges and interchange fees as a result of growth in the Company’s core deposit balances, as well as higher levels of investment gains.

Noninterest Expense

Noninterest expense increased $1.6 million, or 26.2%, to $7.8 million for the three months ended September 30, 2016 compared to $6.2 million for the same period in 2015. Noninterest expense increased $3.5 million, or 16.7%, to $24.4 million for the nine months ended September 30, 2016 compared to $20.9 million for the same period in 2015. The increases for both periods are generally due to higher compensation and benefits, occupancy, data processing and transaction expenses associated with the acquisition of two branches from Arthur State Bank and the whole bank acquisition of Old Town Bank.

Income Taxes

Income tax expense for the three and nine months ended September 30, 2016 was $1.2 million and $2.8 million, respectively, compared to $0.5 million and $(16.9) million in the comparable periods in the prior year. The Company reversed the valuation allowance on its net deferred tax asset as of June 30, 2015, resulting in an income tax benefit for the nine months ended September 30, 2015. The Company’s effective tax rate of approximately 40% for the three and nine months ended September 30, 2016 is unusually high as a result of a reduction in the North Carolina corporate income tax rate (resulting in a reduction of the net deferred tax asset) as well as the write-off of certain residual amounts recorded prior to the reversal of the valuation allowance on its net deferred tax asset.

Balance Sheet

Total assets increased $187.0 million, or 18.1%, to $1.22 billion at September 30, 2016 from $1.03 billion at December 31, 2015, primarily as a result of the addition of $111.4 million in assets related to the Old Town Bank acquisition in the second quarter of 2016. Excluding assets acquired from Old Town Bank, the Company experienced an annualized growth rate of $102.3 million, or 9.9%.

Loans increased $103.3 million, or 16.6%, to $727.4 million at September 30, 2016 from $624.1 million at December 31, 2015, including $65.0 million of loans acquired in the Old Town Bank acquisition. Loan balances, excluding those acquired in the Old Town Bank acquisition, have grown at an annualized pace of 8.2% since December 31, 2015 and have been primarily concentrated in commercial real estate and consumer and industrial loans.

The Company also increased its investment portfolio by $42.7 million from December 31, 2015 to September 30, 2016 in order to better leverage its capital. FHLB advances, which increased $55.0 million from December 31, 2015 to September 30, 2016, were utilized to fund the investment purchases. The Company’s held to maturity investment portfolio was transferred to available for sale during the third quarter of 2016 in order to provide the Company more flexibility managing its investment portfolio.

Core deposits increased $97.0 million, or 22.0%, to $537.5 million at September 30, 2016 from $440.5 million at December 31, 2015, including $40.6 million of core deposits acquired in the Old Town Bank acquisition. Excluding $48.1 million of certificates of deposit acquired from Old Town Bank, certificates of deposit decreased $24.5 million, or 8.9%, to $299.8 million at September 30, 2016. Core deposits now represent 64% of the Company’s deposit portfolio compared to 61% at December 31, 2015 and 55% at December 31, 2014.

Total equity increased $6.7 million to $138.2 million at September 30, 2016 compared to $131.5 million at December 31, 2015. This increase was primarily attributable to $4.0 million of net income, a $3.4 million improvement in the market value of investment securities, and $0.7 million of stock-based compensation partially offset by $1.4 million of share repurchases. Tangible book value per share increased $1.02, or 5.1%, from $19.88 at December 31, 2015 to $20.90 at September 30, 2016, even after the $0.55 per share dilution incurred from the acquisition of Old Town Bank.

Asset Quality

Non-performing loans increased 3.1% to $7.5 million at September 30, 2016 from $7.3 million at December 31, 2015. Real estate owned balances decreased $0.8 million to $4.6 million at September 30, 2016 compared to $5.4 million at December 31, 2015. The increase in non-performing loans was primarily due to the acquisition of non-performing loans from Old Town Bank, which were recorded at fair value using purchase accounting. Net loan charge-offs totaled $0.5 million for the nine months ended September 30, 2016 compared to net recoveries of $0.1 million for the nine months ended September 30, 2015.

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 15 branches located throughout the Western North Carolina counties of Cherokee, Haywood, Henderson, Jackson, Macon, Polk and Transylvania and Upstate South Carolina counties of Anderson, Greenville, and Spartanburg. The Company also operates loan production offices in Asheville, NC and Clemson, SC. For further information, visit the Company’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 September 30,
2016 2015
Interest income$10,444 $8,401
Interest expense 1,547 1,360
Net interest income 8,897 7,041
Provision for loan losses 100 -
Net interest income after provision for loan losses 8,797 7,041
Servicing income, net 72 128
Mortgage banking 387 284
Gain on sale of SBA loans 124 467
Gain on sale of investments 407 35
Service charges on deposit accounts 370 291
Interchange fees 385 339
Bank owned life insurance 110 115
Other 211 164
Total noninterest income 2,066 1,823
Compensation and employee benefits 4,471 3,527
Net occupancy 929 734
Federal deposit insurance 108 179
Professional and advisory 208 275
Data processing 406 310
Marketing and advertising 309 130
Net cost of operation of real estate owned 167 171
Transaction expenses 107 -
Other 1,137 888
Total noninterest expense 7,842 6,214
Income before taxes 3,021 2,650
Income tax expense 1,221 485
Net income$ 1,800 $ 2,165
Earnings per common share - basic and diluted$0.28 $ 0.33
Weighted average common shares outstanding:
Basic 6,466 6,546
Diluted 6,468 6,546


ENTEGRA FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share data)
Nine Months Ended September 30,
2016
2015
Interest income$29,694 $24,397
Interest expense 4,425 4,385
Net interest income 25,269 20,012
Provision for loan losses 100 (1,500)
Net interest income after provision for loan losses 25,169 21,512
Servicing income, net 263 233
Mortgage banking 747 624
Gain on sale of SBA loans 742 681
Gain on sale of investments 1,105 322
Service charges on deposit accounts 1,151 906
Interchange fees 1,109 939
Bank owned life insurance 311 343
Other 612 368
Total noninterest income 6,040 4,416
Compensation and employee benefits 12,738 11,007
Net occupancy 2,580 2,167
Federal deposit insurance 468 742
Professional and advisory 713 786
Data processing 1,157 872
Marketing and advertising 811 367
Net cost of operation of real estate owned 663 503
Federal Home Loan Bank prepayment penalty - 1,762
Transaction expenses 2,023 20
Other 3,281 2,711
Total noninterest expense 24,434 20,937
Income before taxes 6,775 4,991
Income tax expense (benefit) 2,751 (16,894)
Net income$4,024 $21,885
Earnings per common share - basic and diluted$0.62 $3.34
Weighted average common shares outstanding:
Basic 6,483 6,546
Diluted 6,499 6,546


ENTEGRA FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, 2016 December 31, 2015
(Unaudited) (Audited)
Assets
Cash and cash equivalents$62,029 $40,650
Investments - trading 5,133 4,714
Investments - available for sale 322,710 238,862
Investments - held to maturity - 41,164
Other investments 11,436 8,834
Loans held for sale 8,428 8,348
Loans receivable 727,403 624,072
Allowance for loan losses (9,104) (9,461)
Real estate owned 4,624 5,369
Fixed assets, net 20,442 17,673
Bank owned life insurance 31,169 20,858
Net deferred tax asset 15,374 18,830
Goodwill 2,055 711
Core deposit intangibles, net 1,019 590
Other assets 15,654 10,202
Total assets$1,218,372 $1,031,416
Liabilities and Shareholders' Equity
Liabilities
Deposits$837,277 $716,617
Federal Home Loan Bank advances��208,500 153,500
Junior subordinated notes 14,433 14,433
Post employment benefits 10,249 10,224
Other liabilities 9,709 5,173
Total liabilities$1,080,168 $899,947
Total shareholders' equity 138,204 131,469
Total liabilities and shareholders' equity$1,218,372 $1,031,416


APPENDIX A – RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
2016
2015
2016
2015
(Dollars in thousands)
(Dollars in thousands)
Core Noninterest Expense
Noninterest expense (GAAP) $7,842 $6,214 $24,434 $20,937
FHLB prepayment penalty - - - (1,762)
Merger-related expenses (107) - (2,023) -
Core noninterest expense (Non-GAAP) $7,735 $6,214 $22,411 $19,175
Core Net Income
Net income (GAAP) $1,800 $2,165 $4,024 $21,885
FHLB prepayment penalty - - - 1,762
Negative provision for loan losses - - - (1,500)
Merger-related expenses 70 - 1,315 -
Adjust actual income tax benefit to 35% estimated effective tax rate (1) - (442) - (18,733)
Core net income (Non-GAAP) $1,870 $1,723 $5,339 $3,414
Core Diluted Earnings Per Share
Diluted earnings per share (GAAP) $0.28 $0.33 $0.62 $3.34
FHLB prepayment penalty - - - 0.27
Negative provision for loan losses - - - (0.23)
Merger-related expenses 0.01 - 0.20 -
Adjust actual income tax benefit to 35% estimated effective tax rate (1) - (0.07) - (2.86)
Core diluted earnings per share (Non-GAAP) $0.29 $0.26 $0.82 $0.52
Core Return on Average Assets
Return on Average Assets (GAAP) 0.60% 0.89% 0.47% 3.14%
FHLB prepayment penalty - - - 0.26%
Negative provision for loan losses - - - -0.22%
Merger-related expenses 0.03% - 0.16% -
Adjust actual income tax benefit to 35% estimated effective tax rate (1) - -0.19% - -2.69%
Core Return on Average Assets (Non-GAAP) 0.63% 0.70% 0.63% 0.49%
Core Return on Average Equity
Return on Average Equity (GAAP) 5.21% 6.66% 3.97% 25.07%
FHLB prepayment penalty - - - 2.02%
Negative provision for loan losses - - - -1.72%
Merger-related expenses 0.20% - 1.29% -
Adjust actual income tax benefit to 35% estimated effective tax rate (1) - -1.36% - -21.46%
Core Return on Average Equity (Non-GAAP) 5.41% 5.30% 5.26% 3.91%
Core Efficiency Ratio
Efficiency ratio 71.53% 70.10% 78.04% 85.71%
Merger-related expenses -0.97% - -6.46% -
Effect to adjust for FHLB prepayment penalty - - - -7.21%
Core Efficiency Ratio (Non-GAAP) 70.56% 70.10% 71.58% 78.50%
As Of
September 30, 2016 December 31, 2015
(Dollars in thousands, except share data)
Tangible Book Value Per Share
Book Value (GAAP) 138,204 131,469
Goodwill and intangibles (3,074) (1,301)
Book Value (Tangible) 135,130 130,168
Outstanding shares 6,466,375 6,546,375
Tangible Book Value Per Share 20.90 19.88
(1) - The Company maintained a valuation allowance on a portion of its net deferred tax asset during a portion of 2015 and therefore did not recognize a normal income tax provision. Core results have been adjusted to reflect income tax expense to an estimated 35% effective tax rate after the other adjustments have been applied.

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

Source:Entegra Financial Corp.