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Entegra Financial Corp. Announces Third Quarter 2017 Results

FRANKLIN, N.C., Oct. 19, 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 and nine months ended September 30, 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 losses, investment impairment, and merger and acquisition expenses.


For the Three Months Ended September 30,
(Dollars in thousands, except per share data)
2017 2016 Change (%)
GAAP Core GAAP Core GAAP Core
Net income $ 2,471 $ 2,562 $ 1,800 $ 1,605 37.3% 59.6%
Net interest income $ 10,323 N/A $ 8,897 N/A 16.0% N/A
Net interest margin 3.30% N/A 3.29% N/A 0.3% N/A
Return on average assets 0.71% 0.73% 0.60% 0.54% 18.3% 35.2%
Return on average equity 6.95% 7.72% 5.21% 4.75% 33.4% 62.5%
Efficiency ratio 66.62% 65.55% 71.53% 73.28% -6.9% -10.5%
Diluted earnings per share $ 0.38 $ 0.39 $ 0.28 $ 0.25 35.7% 56.0%


For the Nine Months Ended September 30,
(Dollars in thousands, except per share data)
2017 2016 Change (%)
GAAP Core GAAP Core GAAP Core
Net income $ 5,873 $ 6,948 $ 4,024 $ 4,621 45.9% 50.4%
Net interest income $ 30,163 N/A $ 25,269 N/A 19.4% N/A
Net interest margin 3.32% N/A 3.28% N/A 1.2% N/A
Return on average assets 0.57% 0.67% 0.47% 0.54% 21.3% 24.1%
Return on average equity 5.66% 7.12% 3.97% 4.65% 42.6% 53.1%
Efficiency ratio 73.01% 68.92% 78.04% 74.20% -6.4% -7.1%
Diluted earnings per share $ 0.90 $ 1.06 $ 0.62 $ 0.71 45.2% 49.3%


As of September 30, As of December 31,
2017 2016
(Dollars in thousands, except per share data)
Asset Quality:
Non-performing loans $ 5,604 $ 6,041
Real estate owned $ 2,437 $ 4,226
Non-performing assets $ 8,041 $ 10,267
Non-performing loans to total loans 0.69% 0.81%
Non-performing assets to total assets 0.57% 0.79%
Net charge-offs (9 and 12 months ended) $ 408 $ 430
Allowance for loan losses to non-performing loans 179.46% 154.03%
Allowance for loan losses to total loans 1.23% 1.25%
Other Data:
Book value per share $ 22.22 $ 20.57
Tangible book value per share $ 20.75 $ 20.10
Closing market price per share $ 24.95 $ 20.60
Closing price-to-tangible book value ratio 120.24% 102.49%


Management Commentary

Roger D. Plemens, President and CEO of the Company reported, “The third quarter represents another successful quarter for the Company as we continue to improve our earnings and utilize our capital. We are particularly pleased with the improvement in our efficiency ratio as we seek to be better and not simply larger. As previously disclosed, we closed on our acquisition of Chattahoochee Bank of Georgia on October 1, 2017 and are excited about increasing our lending presence in northern Georgia and the impact that will have on our earnings.”

Net Interest Income

Net interest income increased $1.4 million, or 16.0%, to $10.3 million for the three months ended September 30, 2017 compared to $8.9 million for the same period in 2016. Net interest income increased $4.9 million, or 19.4%, to $30.2 million for the nine months ended September 30, 2017 compared to $25.3 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 an increase in the yields earned on cash and investments. Net interest margin for the three and nine months ended September 30, 2017 improved slightly to 3.30% and 3.32%, respectively, compared to 3.29% and 3.28% for the same periods in 2016.

Provision for Loan Losses

The provision for loan losses was $0.5 million and $1.2 million for the three and nine months ended September 30, 2017, compared to a $0.1 million provision for loan losses for the same periods in 2016. The Company continues to experience modest levels of net charge-offs and non-performing loans.

Noninterest Income

Noninterest income decreased $0.1 million to $2.0 million for the three months ended September 30, 2017 compared to $2.1 million for the same period in 2016. The slight decline was primarily related to reduced mortgage banking income and gains on sales of investments, partially offset by increases in gains on sale of SBA loans, service charges on deposit accounts, interchange fees, and bank-owned life insurance (BOLI).

Noninterest income decreased $1.0 million, or 16.8%, to $5.0 million for the nine months ended September 30, 2017 compared to $6.0 million for the same period in 2016. The decline was primarily related to other than temporary impairment of $0.7 million realized on one investment security as well as decreases in gains from the sale of SBA loans and investments, partially offset by increases in trading securities gains, interchange fees, and BOLI.

Noninterest Expense

Noninterest expense increased $0.4 million, or 4.8%, to $8.2 million for the three months ended September 30, 2017 compared to $7.8 million for the same period in 2016. Noninterest expense increased $1.3 million, or 5.1%, to $25.7 million for the nine months ended September 30, 2017 compared to $24.4 million for the same period in 2016. The three and nine month increases were primarily related to increased compensation and employee benefits and net occupancy expenses as the 2017 period included the full impact of the Oldtown Bank acquisition and the partial impact of the branches acquired from Stearns Bank.

Income Taxes

Income tax expense for the three and nine months ended September 30, 2017 was $1.1 million and $2.5 million, respectively, compared to $1.2 million and $2.8 million for the comparable periods in the prior year. The Company’s effective tax rates of 31.3% and 29.6% for the three and nine months ended September 30, 2017, respectively, improved from 40.4% and 40.6% from the same respective periods in 2016 primarily as the result of increased tax-exempt income related to municipal bond investments and BOLI income.

Balance Sheet

Total assets increased $126.9 million, or an annualized rate of 13.1%, to $1.42 billion at September 30, 2017 from $1.29 billion at December 31, 2016 as the Company continued to leverage its capital with earning assets.

Loans receivable increased $72.7 million, or an annualized rate of 13.0%, to $817.0 million at September 30, 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.

Core deposits increased $112.0 million, or 20.7%, to $652.8 million at September 30, 2017 from $540.8 million at December 31, 2016, including $79.6 million of core deposits assumed in the Stearns Bank branch acquisition. Certificates of deposits increased $62.8 million to $352.0 million at September 30, 2017 from $289.2 million at December 31, 2016, primarily as the result of certificates of deposit assumed from Stearns Bank. Core deposits remained unchanged at 65% of the Company’s deposit portfolio at September 30, 2017 and December 31, 2016.

Total equity increased $10.5 million, or 7.9%, to $143.5 million at September 30, 2017 compared to $133.1 million at December 31, 2016. This increase was primarily attributable to $5.9 million of net income, $0.7 million of stock-based compensation expense, and a $4.2 million improvement in the market value of investment securities, partially offset by $0.3 million of share repurchases. Tangible book value per share, a non-GAAP measure, increased $0.65 from $20.10 at December 31, 2016 to $20.75 at September 30, 2017 as a result of operating results for the period, partially offset by $1.01 per share dilution from the Stearns Bank branch acquisition.

Asset Quality

Non-performing assets decreased $2.2 million to $8.0 million at September 30, 2017 from $10.3 million at December 31, 2016 primarily as a result of the liquidation of several large real estate owned balances during the period. Net loan charge-offs continue to remain modest totaling $0.4 million for the nine months ended September 30, 2017.

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 tangible average equity, core efficiency ratio, and tangible book value per share, 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 now operates a total of 18 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 counties of Pickens and Hall. The Bank also operates loan production offices in Asheville, NC, Clemson, SC, and Duluth, GA. For further information, visit the Entegra’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 Company’s ability to implement aspects of its growth strategy; 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; and 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 (the “SEC”), 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,
2017 2016
Interest income $ 12,254 $ 10,444
Interest expense 1,931 1,547
Net interest income 10,323 8,897
Provision for loan losses 520 100
Net interest income after provision for loan losses 9,803 8,797
Servicing income, net 59 72
Mortgage banking 207 387
Gain on sale of SBA loans 290 124
Gain (loss) on sale of investments (24) 407
Trading securities gains 138 93
Service charges on deposit accounts 436 370
Interchange fees 484 385
Bank owned life insurance 208 110
Other 215 118
Total noninterest income 2,013 2,066
Compensation and employee benefits 4,937 4,471
Net occupancy 974 929
Federal deposit insurance 140 108
Professional and advisory 292 208
Data processsing 390 406
Marketing and advertising 253 309
Net cost of (income from ) operation of real estate owned (121) 167
Merger-related expenses 116 107
Other 1,237 1,137
Total noninterest expense 8,218 7,842
Income before taxes 3,598 3,021
Income tax expense 1,127 1,221
Net income $ 2,471 $ 1,800
Earnings per common share:
Basic $ 0.38 $ 0.28
Diluted $ 0.38 $ 0.28
Weighted average common shares outstanding:
Basic 6,458,679 6,466,375
Diluted 6,548,530 6,484,226

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands, except per share data)
Nine Months Ended September 30,
2017 2016
Interest income $ 35,621 $ 29,694
Interest expense 5,458 4,425
Net interest income 30,163 25,269
Provision for loan losses 1,160 100
Net interest income after provision for loan losses 29,003 25,169
Servicing income, net 312 263
Mortgage banking 771 747
Gain on sale of SBA loans 436 742
Gain on sale of investments 19 1,105
Trading securities gains 445 271
Other than temporary impairment on available-for-sale securities (700) -
Service charges on deposit accounts 1,239 1,151
Interchange fees 1,374 1,109
Bank owned life insurance 603 311
Other 527 341
Total noninterest income 5,026 6,040
Compensation and employee benefits 14,859 12,738
Net occupancy 2,851 2,580
Federal deposit insurance 379 468
Professional and advisory 929 713
Data processsing 1,215 1,157
Marketing and advertising 727 811
Net cost of operation of real estate owned 94 663
Merger-related expenses 972 2,023
Other 3,666 3,281
Total noninterest expense 25,692 24,434
Income before taxes 8,337 6,775
Income tax expense 2,464 2,751
Net income $ 5,873 $ 4,024
Earnings per common share:
Basic $ 0.91 $ 0.62
Diluted $ 0.90 $ 0.62
Weighted average common shares outstanding:
Basic 6,460,015 6,483,535
Diluted 6,542,261 6,500,198


ENTEGRA FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, 2017 December 31, 2016
(Unaudited) (Audited)
Assets
Cash and cash equivalents $ 94,498 $ 43,294
Investments - trading 5,840 5,211
Investments - available for sale 401,226 398,291
Other investments 12,633 15,261
Loans held for sale 3,818 4,584
Loans receivable 817,034 744,361
Allowance for loan losses (10,057) (9,305)
Real estate owned 2,437 4,226
Fixed assets, net 20,888 20,209
Bank owned life insurance 31,950 31,347
Net deferred tax asset 14,478 18,985
Goodwill 7,144 2,065
Core deposit intangibles, net 2,371 979
Other assets 15,573 13,369
Total assets $ 1,419,833 $ 1,292,877
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 1,004,839 $ 830,013
Federal Home Loan Bank advances 233,500 298,500
Junior subordinated notes 14,433 14,433
Post employment benefits 10,145 10,211
Other liabilities 13,391 6,652
Total liabilities $ 1,276,308 $ 1,159,809
Total shareholders' equity 143,525 133,068
Total liabilities and shareholders' equity $ 1,419,833 $ 1,292,877


APPENDIX A – RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(Dollars in thousands, except per share data)
Core Noninterest Expense
Noninterest expense (GAAP) $ 8,218 $ 7,842 $ 25,692 $ 24,434
Merger-related expenses (116) (107) (972) (2,023)
Core noninterest expense (Non-GAAP) $ 8,102 $ 7,735 $ 24,720 $ 22,411
Core Net Income
Net income (GAAP) $ 2,471 $ 1,800 $ 5,873 $ 4,024
Loss (gain) on sale of investments 16 (265) (12) (718)
Other than temporary impairment of investment securities available for sale - - 455 -
Merger-related expenses 76 70 632 1,315
Core net income (Non-GAAP) $ 2,562 $ 1,605 $ 6,948 $ 4,621
Core Diluted Earnings Per Share
Diluted earnings per share (GAAP) $ 0.38 0.28 0.90 0.62
Gain on sale of investments - (0.04) - (0.11)
Other than temporary impairment of investment securities available for sale - - 0.06 -
Merger-related expenses 0.01 0.01 0.10 0.20
Core diluted earnings per share (Non-GAAP) $ 0.39 $ 0.25 $ 1.06 $ 0.71
Core Return on Average Assets
Return on Average Assets (GAAP) 0.71% 0.60% 0.57% 0.47%
Gain on sale of investments - -0.09% - -
Other than temporary impairment of investment securities available for sale - - 0.04% -
Merger-related expenses 0.02% 0.03% 0.06% 0.16%
Core Return on Average Assets (Non-GAAP) 0.73% 0.54% 0.67% 0.63%
Core Return on Tangible Average Equity
Return on Average Equity (GAAP) 6.95% 5.21% 5.66% 3.97%
Loss (gain) on sale of investments 0.04% -0.77% -0.01% -0.71%
Other than temporary impairment of investment securities available for sale - - 0.43% -
Merger-related expenses 0.21% 0.20% 0.61% 1.30%
Effect of goodwill and intangibles 0.52% 0.10% 0.43% 0.09%
Core Return on Average Tangible Equity (Non-GAAP) 7.72% 4.75% 7.12% 4.65%
Core Efficiency Ratio
Efficiency ratio (GAAP) 66.62% 71.53% 73.01% 78.04%
Gain (loss) on sale of investments -0.19% 2.72% 0.05% 2.62%
Other than temporary impairment of investment securities available for sale - - -1.38% -
Merger-related expenses -0.88% -0.97% -2.76% -6.46%
Core Efficiency Ratio (Non-GAAP) 65.55% 73.28% 68.92% 74.20%
As Of
September 30, 2017 December 31, 2016
(Dollars in thousands, except share data)
Tangible Book Value Per Share
Book Value (GAAP) $ 143,525 $ 133,068
Goodwill and intangibles (9,516) (3,044)
Book Value (Tangible) $ 134,009 $ 130,024
Outstanding shares 6,458,679 6,467,550
Tangible Book Value Per Share $ 20.75 $ 20.10


APPENDIX B – TAX EQUIVALENT NET INTEREST MARGIN ANALYSIS (UNAUDITED)
For theThree Months Ended September 30,
2017 2016
Average Outstanding Balance Interest Yield/ Rate Average Outstanding Balance Interest Yield/ Rate
(Dollars in thousands)
Interest-earning assets:
Loans, including loans held for sale $ 788,021 $ 9,175 4.62% $ 714,665 $ 8,424 4.68%
Loans, tax exempt (1) 16,607 151 3.60% 16,232 152 3.72%
Investments - taxable 295,516 1,787 2.42% 248,171 1,294 2.09%
Investment tax exempt (1) 124,016 1,257 4.05% 71,323 664 3.73%
Interest earning deposits 63,262 216 1.35% 46,582 62 0.53%
Other investments, at cost 11,822 161 5.40% 10,415 132 5.03%
Total interest-earning assets 1,299,244 12,747 3.89% 1,107,388 10,728 3.84%
Noninterest-earning assets 100,731 86,098
Total assets $ 1,399,975 $ 1,193,486
Interest-bearing liabilities:
Savings accounts $ 49,146 $ 14 0.11% $ 37,847 $ 12 0.13%
Time deposits 358,327 796 0.88% 304,406 745 0.97%
Money market accounts 260,804 248 0.38% 238,923 217 0.36%
Interest bearing transaction accounts 174,945 56 0.13% 115,372 33 0.11%
Total interest bearing deposits 843,222 1,114 0.52% 696,548 1,007 0.57%
FHLB advances 223,826 641 1.14% 193,826 371 0.76%
Junior subordinated debentures 14,433 140 3.85% 14,433 140 3.85%
Other borrowings 3,652 36 3.91% 2,680 29 4.29%
Total interest-bearing liabilities 1,085,133 1,931 0.71% 907,487 1,547 0.68%
Noninterest-bearing deposits 157,870 133,268
Other non interest bearing liabilities 14,667 14,627
Total liabilities 1,257,670 1,055,382
Total equity 142,305 138,104
Total liabilities and equity $ 1,399,975 $ 1,193,486
Tax-equivalent net interest income $ 10,816 $ 9,181
Net interest-earning assets (2) $ 214,111 $ 199,901
Average interest-earning assets to interest-bearing liabilities 1.20% 1.22%
Tax-equivalent net interest rate spread (3) 3.19% 3.17%
Tax-equivalent net interest margin (4) 3.30% 3.29%
(1) Tax exempt loans and investments are calculated giving effect to a 35% federal tax rate.
(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3) Tax-equivalent net interest rate spread represents the difference between the tax equivalent yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Tax-equivalent net interest margin represents tax equivalent net interest income divided by average total interest-earning assets.


For the Nine Months Ended September 30,
2017 2016
Average Outstanding Balance Interest Yield/ Rate Average Outstanding Balance Interest Yield/ Rate
(Dollars in thousands)
Interest-earning assets:
Loans, including loans held for sale $ 765,810 $ 26,686 4.66% $ 683,879 $ 23,885 4.65%
Loans, tax exempt (1) 15,906 438 3.69% 12,855 372 3.86%
Investments - taxable 301,823 5,367 2.37% 256,299 4,174 2.17%
Investment tax exempt (1) 118,008 3,609 4.08% 47,264 1,355 3.82%
Interest earning deposits 58,067 459 1.06% 39,546 152 0.51%
Other investments, at cost 12,491 478 5.12% 9,514 359 5.03%
Total interest-earning assets 1,272,105 37,038 3.89% 1,049,357 30,297 3.85%
Noninterest-earning assets 100,321 83,071
Total assets $ 1,372,426 $ 1,132,428
Interest-bearing liabilities:
Savings accounts $ 46,835 $ 39 0.11% $ 37,077 $ 38 0.14%
Time deposits 349,381 2,335 0.89% 296,816 2,268 1.02%
Money market accounts 255,013 704 0.37% 221,956 548 0.33%
Interest bearing transaction accounts 159,377 149 0.12% 110,732 127 0.15%
Total interest bearing deposits 810,606 3,227 0.53% 666,581 2,981 0.60%
FHLB advances 240,551 1,713 0.95% 174,723 965 0.74%
Junior subordinated debentures 14,433 418 3.87% 14,433 394 3.64%
Other borrowings 3,165 100 4.22% 2,490 85 4.55%
Total interest-bearing liabilities 1,068,755 5,458 0.68% 858,227 4,425 0.69%
Noninterest-bearing deposits 151,174 125,120
Other non interest bearing liabilities 14,204 13,839
Total liabilities 1,234,133 997,186
Total equity 138,293 135,242
Total liabilities and equity $ 1,372,426 $ 1,132,428
Tax-equivalent net interest income $ 31,580 $ 25,872
Net interest-earning assets (2) $ 203,350 $ 191,130
Average interest-earning assets to interest-bearing liabilities 119.03% 122.27%
Tax-equivalent net interest rate spread (3) 3.21% 3.16%
Tax-equivalent net interest margin (4) 3.32% 3.28%
(1) Tax exempt loans and investments are calculated giving effect to a 35% federal tax rate.
(2) Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3) Tax-equivalent net interest rate spread represents the difference between the tax equivalent yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Tax-equivalent net interest margin represents tax equivalent net interest income divided by average total interest-earning assets.


Contact:

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


Source:Entegra Financial Corp.