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CST: 08/05/2021 21:22:58   

Entegra Financial Corp. Announces First Quarter 2019 Results

744 Days ago

FRANKLIN, N.C., April 25, 2019 (GLOBE NEWSWIRE) -- Entegra Financial Corp. (the “Company”) (NASDAQ: ENFC), the holding company for Entegra Bank (the “Bank”), today announced earnings and related data as of and for the three months ended March 31, 2019.

Highlights 

The following tables highlight the trends that the Company believes are most relevant to understanding the performance of the Company.  As further detailed in Appendix A to this press release, adjusted results (which are non-U.S. generally accepted accounting principles, or non-GAAP, financial measures) reflect adjustments for investment gains and losses, equity securities gains and losses, legal settlements, and merger-related expenses.  See Appendix B to this press release for more information on our tax equivalent net interest margin. 

   
  For the Three Months Ended March 31,
  (Dollars in thousands, except per share data)
  2019
  2018
  Change (%)
  GAAP   Adjusted   GAAP   Adjusted   GAAP   Adjusted
Net income $ 3,815     $ 3,169     $ 3,582     $ 3,788     6.5 %   -16.3 %
Net interest income $ 11,953     N/A   $ 12,393     N/A   -3.6 %   N/A
Net interest margin (tax equivalent)   3.23 %   N/A     3.49 %   N/A   -7.4 %   N/A
Return on average assets   0.92 %     0.77 %     0.90 %     0.95 %   2.2 %   -18.9 %
Return on average equity   9.26 %     9.23 %     9.48 %     12.29 %   -2.3 %   -24.9 %
Efficiency ratio   68.59 %     69.61 %     66.07 %     64.36 %   3.8 %   -8.2 %
Diluted earnings per share $ 0.55     $ 0.46     $ 0.51     $ 0.54     7.8 %   -14.8 %
                       

 

    As of March 31,   As of December 31,
    2019
  2018
    (Dollars in thousands, except per share data)
Asset Quality:        
Non-performing loans   $ 4,906     $ 4,857  
Real estate owned   $ 2,256     $ 2,493  
Non-performing assets   $ 7,162     $ 7,350  
Non-performing loans to total loans     0.45 %     0.45 %
Non-performing assets to total assets     0.43 %     0.45 %
Net charge-offs   $ 58     $ 102  
Allowance for loan losses to non-performing loans     245.47 %     246.76 %
Allowance for loan losses to total loans     1.12 %     1.11 %
         
Other Data:        
Book value per share   $ 24.70     $ 23.54  
Tangible book value per share   $ 20.76     $ 19.57  
Closing market price per share   $ 22.45     $ 20.75  
Closing price-to-tangible book value ratio     108.14 %     106.03 %
Common Equity to assets ratio     10.24 %     9.95 %
Tangible common equity to tangible assets ratio     8.75 %     8.41 %
                 

Management Commentary

Roger D. Plemens, President and Chief Executive Officer of the Company, reported, “We are pleased with our increase in tangible book value per share which increased from $19.57 at December 31, 2018 to $20.76 at March 31, 2019, an increase of 6%.  While our earnings this quarter were heavily impacted by weather delays in our SBA construction portfolio, we expect many of these projects to close in the second and third quarters of 2019.  We also were pleased to announce that on March 31, 2019 we entered into a definitive settlement agreement with one of our former advisors pursuant to which the advisor agreed to pay Entegra $1.75 million.  We are looking forward to the proposed merger announced on April 24, 2019, and will work diligently with the First Citizens team over the next several months to ensure a successful integration.”

Recent Developments

On April 24, 2019, Entegra announced its entry into a definitive agreement (the “Merger Agreement”) to merge with and into First Citizens BancShares, Inc. (“First Citizens”). On April 23, 2019, in connection with Entegra’s entry into the Merger Agreement, First Citizens, on behalf of Entegra, paid SmartFinancial, Inc., a Tennessee corporation (“SmartFinancial”), a termination fee of $6.4 million as required by the terms of the Agreement and Plan of Merger between Entegra and SmartFinancial (the “SmartFinancial Merger Agreement”), and the SmartFinancial Merger Agreement was terminated.

Net Interest Income

Net interest income decreased $0.4 million, or 3.5%, to $12.0 million for the three months ended March 31, 2019, compared to $12.4 million for the same period in 2018.  The decrease in net interest income for the three months ended March 31, 2019 compared to the same period in 2018 was primarily due to increased costs of deposits and borrowings, partially offset by higher volumes in the loan portfolio, as well as an increase in the yields earned on cash and taxable investments. Tax equivalent net interest margin was 3.23% for the three months ended March 31, 2019, compared to 3.49% for the same period in 2018.

Provision for Loan Losses

The provision for loan losses was $0.1 million for the three months ended March 31, 2019, compared to $0.4 million for the same period in 2018.  The provisions for loan losses are mainly attributable to organic loan growth and net charge-offs.  The Company continues to experience modest levels of net charge-offs and non-performing loans.

Noninterest Income

Noninterest income increased $2.3 million, or 161.4%, to $3.7 million for the three months ended March 31, 2019, compared to $1.4 million for the same period in 2018, primarily as the result of the settlement of a legal dispute for $1.75 million and an increase of $0.5 million in equity security gains.  Gains from the sale of SBA loans were negatively impacted by weather-related delays during the first quarter of 2019.  Management expects the majority of the delayed closings to occur during the second and third quarters of 2019.

Noninterest Expense

Noninterest expense increased $1.6 million, or 17.7%, to $10.7 million for the three months ended March 31, 2019, compared to $9.1 million for the same period in 2018. The increase was primarily related to increased compensation and employee benefits and merger-related expenses, partially offset by reduced federal deposit insurance premiums.

Income Taxes

The effective tax rate for the three months ended March 31, 2019 was 20.5% compared to 17.2% for the same period in 2018.  The increase in the effective tax rate in 2019 is primarily attributable to higher disallowed interest expense deductions and state income taxes.  Income tax expense for both periods benefited from tax-exempt income related to municipal bond investments and bank-owned life insurance (“BOLI”). 

Balance Sheet

Total assets increased $32.7 million, or 2.0%, to $1.67 billion at March 31, 2019 from $1.64 billion at December 31, 2018. 

Cash and cash equivalents increased $29.2 million, or 42.2%, to $98.3 million at March 31, 2019 from $69.1 million at December 31, 2018, primarily as a result of merger-related restrictions which limited the use of excess cash.

Loans receivable increased $3.8 million, or an annualized rate of 1.4%, at March 31, 2019 from December 31, 2018.  Loan growth continues to be primarily concentrated in commercial real estate and commercial and industrial loans. 

Core deposits increased $33.6 million, or an annualized rate of 16.9%, to $828.9 million at March 31, 2019 from $795.3 million at December 31, 2018, primarily as a result of increased money market deposit balances.  Retail certificates of deposit decreased $10.0 million to $340.0 million at March 31, 2019 from $350.0 million at December 31, 2018.  Wholesale deposits increased $1.3 million to $77.3 million at March 31, 2019 from $76.0 million at December 31, 2018.  We continue to focus on gathering core deposits, which increased to 67% of the Company’s deposit portfolio at March 31, 2019 compared to 65% at December 31, 2018.

Total shareholders’ equity increased $8.0 million to $170.9 million at March 31, 2019, compared to $162.9 million at December 31, 2018. This increase was primarily attributable to $3.8 million of net income and $4.0 million of after-tax increase in the market value of investment securities available for sale.  Tangible book value per share, a non-GAAP measure, increased $1.19 to $20.76 at March 31, 2019 from $19.57 at December 31, 2018.  See Appendix A for a reconciliation of our tangible book value per share to the comparable GAAP measure.

Asset Quality

Non-performing loans to total loans were 0.45% at both March 31, 2019 and 2018.  Non-performing assets to total assets decreased to 0.43% at March 31, 2019, compared to 0.45% at December 31, 2018.  Net loan charge-offs continue to remain modest, totaling $0.1 million for the three months ended March 31, 2019.

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 adjusted noninterest expense, adjusted net income, adjusted diluted earnings per share, adjusted return on average assets, adjusted return on tangible average equity, adjusted efficiency ratio, tangible common equity, tangible assets and tangible book value per share, which are all 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, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. 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 of common stock trade on the NASDAQ Global Market under the symbol “ENFC.”

Entegra Bank 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 a 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 press release and its appendices may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” and “estimate,” and similar expressions, are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking, including statements about the benefits to Entegra of the proposed Merger, Entegra’s future financial and operating results and its plans, objectives, and intentions. All forward-looking statements are subject to risks, uncertainties, and other factors that may cause the actual results, performance, or achievements of Entegra to differ materially from any results, performance, or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties, and other factors include, among others, (1) disruption from the proposed Merger, or recently completed mergers, with customer, supplier, or employee relationships, (2) uncertainties as to the timing of the Merger, (3) the risk that the proposed transactions may not be completed in a timely manner or at all, (4) the occurrence of any event, change, or other circumstances that could give rise to the termination of the Merger Agreement, including under circumstances that would require Entegra to pay a termination fee, (5) the failure to obtain necessary shareholder or regulatory approvals for the Merger, (6) the possibility that the amount of the costs, fees, expenses, and charges related to the merger may be greater than anticipated, including as a result of unexpected or unknown factors, events, or liabilities, (7) the failure of the conditions to the Merger to be satisfied, (8) reputational risk and the reaction of the parties’ customers to the merger, (9) the risk of potential litigation or regulatory action related to the merger, and (10) general competitive, economic, political, and market conditions. Additional factors which could affect the forward-looking statements can be found in Entegra’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, in each case filed with the Securities and Exchange Commission (the “SEC”) and available on the SEC’s website at http://www.sec.gov. Except as may be required by applicable law, Entegra disclaims any obligation to update or revise any forward-looking statements contained in this communication, which speak only as of the date hereof, whether as a result of new information, future events, or otherwise.

Additional Information about the Proposed Transaction and Where to Find It

This communication may be deemed to be solicitation material in respect of the proposed acquisition of Entegra by First Citizens. In connection with the proposed transaction, Entegra intends to file with the SEC and furnish to its stockholders a proxy statement and other relevant documents which will be mailed or otherwise disseminated to its stockholders when it becomes available.  BEFORE MAKING ANY VOTING DECISION, ENTEGRA’S SHAREHOLDERS ARE ADVISED TO READ THE PROXY STATEMENT (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) CAREFULLY BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER.  Investors and security holders may also want to review and consider each of Entegra’s public filings with the SEC, including but not limited to its Annual Reports on Form 10-K, its prior proxy statements, its Current Reports on Form 8-K, and its Quarterly Reports on Form 10-Q.

The documents filed by Entegra with the SEC may be obtained free of charge at Entegra’s Investor Relations website at www.snl.com/IRW/CorporateProfile/4290505 under the heading “SEC Filings.”  The documents filed by Entegra with the SEC can also be found at the SEC’s website at www.sec.gov. The Entegra documents may be obtained free of charge from Entegra by requesting them in writing to Entegra Financial Corp., 14 One Center Court, Franklin, North Carolina 28734, or by telephone at (828) 524-7000.

Participants in the Solicitation

Entegra and certain of its directors and executive officers may be deemed to be participants in the solicitation of proxies from Entegra shareholders in connection with the proposed transaction under the rules of the SEC. Information about the directors and executive officers of Entegra may be found in the definitive proxy statement for Entegra’s 2018 annual meeting of shareholders, filed by Entegra with the SEC on April 2, 2018.  Additional information regarding the interests of these participants will also be included in the proxy statement regarding the proposed transaction when it becomes available. Free copies of these documents may be obtained as described in the paragraph above.

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands, except share data)

  Three Months Ended March 31,
  2019   2018
Interest income $ 16,542   $ 14,842  
Interest expense   4,589     2,449  
       
Net interest income   11,953     12,393  
       
Provision for loan losses   116     361  
       
Net interest income after provision for loan losses   11,837     12,032  
       
Servicing income, net   89     94  
Mortgage banking   263     239  
Gain on sale of SBA loans   80     61  
Loss on sale of investments   -     (12 )
Equity securities gains (losses)   418     (53 )
Service charges on deposit accounts   398     431  
Interchange fees, net   246     248  
Bank owned life insurance   180     200  
Legal settlement   1,750     -  
Other   278     208  
Total noninterest income   3,702     1,416  
       
Compensation and employee benefits   6,020     5,617  
Net occupancy   1,120     1,092  
Federal deposit insurance   142     279  
Professional and advisory   325     277  
Data processing   493     509  
Marketing and advertising   279     209  
Net cost of operation of real estate owned   7     50  
Merger-related expenses   1,350     196  
Other   1,002     894  
Total noninterest expense   10,738     9,123  
       
Income before taxes   4,801     4,325  
       
Income tax expense   986     743  
       
Net income $ 3,815   $ 3,582  
       
Earnings per common share:      
Basic $ 0.55   $ 0.52  
Diluted $ 0.55   $ 0.51  
       
Weighted average common shares outstanding:      
Basic   6,918,769     6,885,911  
Diluted   6,943,861     7,027,884  
       

 

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

    March 31, 2019       December 31, 2018  
    (Unaudited)       (Audited)  
Assets      
Cash and cash equivalents $ 98,285     $ 69,119  
Investments - equity securities   6,812       6,178  
Investments - available for sale   357,132       359,739  
Other investments, at cost   12,092       12,039  
Loans held for sale (includes $3,270 and $2,431 at fair value)   9,208       7,570  
Loans receivable   1,079,837       1,076,069  
Allowance for loan losses   (12,043 )     (11,985 )
Real estate owned   2,256       2,493  
Fixed assets, net   26,093       26,385  
Bank owned life insurance   32,087       32,886  
Net deferred tax asset   5,265       7,551  
Goodwill   23,903       23,903  
Core deposit intangibles, net   3,404       3,577  
Other assets   24,820       20,917  
       
Total assets $ 1,669,151     $ 1,636,441  
       
Liabilities and Shareholders' Equity      
       
Liabilities      
Core deposits $ 828,850     $ 795,261  
Retail certificates of deposit   340,047       349,971  
Wholesale deposits   77,322       76,008  
Federal Home Loan Bank advances   213,500       213,500  
Junior subordinated notes   14,433       14,433  
Holding company line of credit   5,000       5,000  
Post employment benefits   9,410       9,305  
Other liabilities   9,664       10,091  
Total liabilities $ 1,498,226     $ 1,473,569  
       
Total shareholders' equity   170,925       162,872  
       
Total liabilities and shareholders' equity $ 1,669,151     $ 1,636,441  
       

 APPENDIX A – RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (UNAUDITED) 

    Three Months Ended March 31,
    2019   2018
(Dollars in thousands, except per share data)        
         
Adjusted Noninterest Expense        
Noninterest expense (GAAP)   $ 10,738     $ 9,123  
Merger-related expenses     (1,350 )     (196 )
Adjusted noninterest expense (Non-GAAP)   $ 9,388     $ 8,927  
         
Adjusted Net Income        
Net income (GAAP)   $ 3,815     $ 3,582  
Loss on sale of investments     -       9  
Equity securities (gains) losses     (330 )     42  
Legal settlement     (1,383 )     -  
Merger-related expenses     1,067       155  
Adjusted net income (Non-GAAP)   $ 3,169     $ 3,788  
         
Adjusted Diluted Earnings Per Share        
Diluted earnings per share (GAAP)   $ 0.55     $ 0.51  
Loss on sale of investments     -       -  
Equity securities (gains) losses     (0.05 )     0.01  
Legal settlement     (0.20 )     -  
Merger-related expenses     0.16       0.02  
Adjusted diluted earnings per share (Non-GAAP)   $ 0.46     $ 0.54  
         
Adjusted Return on Average Assets        
Return on Average Assets (GAAP)     0.92 %     0.90 %
Loss on sale of investments     0.00 %     0.00 %
Equity securities (gains) losses     -0.08 %     0.01 %
Legal settlement     -0.33 %     0.00 %
Merger-related expenses     0.26 %     0.04 %
Adjusted Return on Average Assets (Non-GAAP)     0.77 %     0.95 %
         
Adjusted Return on Tangible Average Equity        
Return on Average Equity (GAAP)     9.26 %     9.48 %
Loss on sale of investments     0.00 %     0.03 %
Equity securities (gains) losses     -0.80 %     0.11 %
Legal settlement     -3.36 %     0.00 %
Merger-related expenses     2.59 %     0.41 %
Effect of goodwill and intangibles     1.54 %     2.26 %
Adjusted Return on Average Tangible Equity (Non-GAAP)     9.23 %     12.29 %
         
Adjusted Efficiency Ratio        
Efficiency ratio (GAAP)     68.59 %     66.07 %
Loss on sale of investments     0.00 %     -0.06 %
Equity securities gains (losses)     1.88 %     -0.25 %
Legal settlement     8.63 %     0.00 %
Merger-related expenses     -9.49 %     -1.40 %
Adjusted Efficiency Ratio (Non-GAAP)     69.61 %     64.36 %
         
    As Of
    March 31, 2019   December 31, 2018
(Dollars in thousands, except share data)        
Tangible Assets        
Total Assets   $ 1,669,151     $ 1,636,441  
Goodwill and Intangibles     (27,307 )     (27,480 )
Tangible Assets   $ 1,641,844     $ 1,608,961  
         
Tangible Book Value Per Share        
Book Value (GAAP)   $ 170,925     $ 162,872  
Goodwill and intangibles     (27,307 )     (27,480 )
Book Value (Tangible)   $ 143,618     $ 135,392  
Outstanding shares     6,919,212       6,917,703  
Tangible Book Value Per Share   $ 20.76     $ 19.57  
         

APPENDIX B – TAX EQUIVALENT NET INTEREST MARGIN ANALYSIS (UNAUDITED)  

    For the Three Months Ended March 31,
    2019
  2018
    Average
Outstanding
Balance
  Interest   Yield/ Rate   Average
Outstanding
Balance
  Interest   Yield/ Rate
     
    (Dollars in thousands)
Interest-earning assets:                        
Loans, including loans held for sale   $ 1,069,700     $ 12,916   4.90 %   $ 1,008,074     $ 11,892   4.78 %
Loans, tax exempt (1)     17,246       137   3.21 %     15,792       116   2.99 %
Investments - taxable     255,539       2,082   3.26 %     261,970       1,789   2.73 %
Investment tax exempt (1)     102,427       962   3.76 %     76,129       696   3.66 %
Interest-earning deposits     72,538       472   2.64 %     86,644       349   1.63 %
Other investments, at cost     12,045       204   6.87 %     12,391       171   5.60 %
                         
Total interest-earning assets     1,529,495       16,773   4.45 %     1,461,000       15,013   4.17 %
                         
Noninterest-earning assets     122,582               124,753          
                         
Total assets   $ 1,652,077             $ 1,585,753          
                         
Interest-bearing liabilities:                        
Savings accounts   $ 50,522     $ 14   0.11 %   $ 51,123     $ 15   0.12 %
Time deposits     419,097       1,676   1.62 %     403,284       914   0.92 %
Money market accounts     375,676       1,138   1.23 %     319,351       366   0.46 %
Interest bearing transaction accounts     200,654       98   0.20 %     212,366       87   0.17 %
Total interest bearing deposits     1,045,949       2,926   1.13 %     986,124       1,382   0.57 %
                         
FHLB advances     213,500       1,396   2.62 %     223,500       820   1.47 %
Junior subordinated debentures     14,433       139   3.85 %     14,433       138   3.82 %
Other borrowings     9,368       128   5.54 %     8,763       109   5.04 %
                         
Total interest-bearing liabilities     1,283,250       4,589   1.45 %     1,232,820       2,449   0.81 %
                         
Non interest bearing deposits     189,511               183,071          
                         
Other non interest bearing liabilities     14,526               18,773          
                         
Total liabilities     1,487,287               1,434,664          
Total equity     164,790               151,089          
                         
Total liabilities and equity   $ 1,652,077             $ 1,585,753          
                         
                         
Tax-equivalent net interest income       $ 12,184           $ 12,565    
                         
                         
Net interest-earning assets (2)   $ 246,245             $ 228,180          
                         
Average interest-earning assets to interest-bearing liabilities     119.19 %             118.51 %        
                         
Tax-equivalent net interest rate spread (3)           3.00 %           3.36 %
Tax-equivalent net interest margin (4)           3.23 %           3.49 %
                         
(1) Tax exempt loans and investments are calculated giving effect to a 21% 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

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