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Form 8-K Entegra Financial Corp. For: Jul 21

July 21, 2016 9:40 AM EDT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 8-K

 

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

July 21, 2016

 

 

 

Entegra Financial Corp.

(Exact name of registrant as specified in its charter)

 

 

 

North Carolina   001-35302   45-2460660

(State or other jurisdiction of Incorporation)

 

(Commission File Number)

 

(IRS Employer Identification No.)

 

14 One Center Court, Franklin, North Carolina 28734

(Address of principal executive offices) (Zip Code)

 

(828) 524-7000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

Item 2.02.      Results of Operations and Financial Condition

 

On July 21, 2016, Entegra Financial Corp. (the “Company”), the holding company for Entegra Bank, issued a press release announcing its financial results for the three and six months ended June 30, 2016.

 

A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.

 

 
 

 

Item 9.01 Financial Statements and Exhibits

 

  (d)

Exhibits.

 

The following exhibit is filed herewith:  

 

Item

 

Description

   
99.1   Press Release dated July 21, 2016.

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

         
    ENTEGRA FINANCIAL CORP.
     
Date: July 21, 2016   By:  

/s/   David A. Bright

        David A. Bright
        Chief Financial Officer

 

 

Exhibit Index

 

99.1   Press Release dated July 21, 2016.

 

 

v

FOR IMMEDIATE RELEASE

 

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

 

 

ENTEGRA FINANCIAL CORP. ANNOUNCES

SECOND QUARTER 2016 RESULTS

 

 

Franklin, North Carolina, April 21, 2016 — 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 six months ended June 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 adjust for material non-recurring 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 June 30,
   (Dollars in thousands, except per share data)
   2016  2015
   GAAP  Core  GAAP  Core
Net income  $1,150   $2,301   $17,105   $850 
Net interest income  $8,748     N/A    $6,639     N/A  
Net interest margin   3.33%    N/A     3.06%    N/A  
Return on average assets   0.39%   0.79%   7.39%   0.37%
Return on average equity   3.43%   6.85%   61.45%   3.05%
Efficiency ratio   85.86%   69.53%   105.88%   83.07%
Diluted earnings per share  $0.18   $0.36   $2.61   $0.13 

 

   For the Six Months Ended June 30,
   (Dollars in thousands, except per share data)
   2016  2015
   GAAP  Core  GAAP  Core
Net income  $2,516   $3,761   $19,720   $1,692 
Net interest income  $16,372     N/A    $12,971     N/A  
Net interest margin   3.28%    N/A     3.05%    N/A  
Return on average assets   0.46%   0.68%   4.35%   0.37%
Return on average equity   3.76%   5.62%   35.97%   3.09%
Efficiency ratio   81.55%   72.13%   94.61%   83.31%
Diluted earnings per share  $0.39   $0.58   $3.01   $0.26 

 

 
 

 

   June 30, 2016  December 31, 2015
   (Dollars in thousands, except per share data)
Asset Quality:          
Non-performing loans  $9,436   $7,280 
Real estate owned  $5,413   $5,369 
Non-performing assets  $14,849   $12,649 
Non-performing loans to total loans   1.31%   1.17%
Non-performing assets to total assets   1.24%   1.23%
Allowance for loan losses to non-performing loans   94.74%   129.96%
Allowance for loan losses to total loans   1.24%   1.52%
           
Other Data:          
Tangible book value per share  $20.77   $19.88 
Closing market price per share  $17.49   $19.36 
Closing price-to-tangible book value ratio   84.21%   97.38%

 

Management Commentary

 

Roger D. Plemens, President and CEO of the Company reported, “Our second quarter results reflect another successful quarter for the Company as we continue to deploy our capital and position the Company for long-term independence. We are particularly pleased with the growth in our margin and fee income, both of which have increased significantly from the comparable periods in the prior year. Our focus on growing return on equity is evident in the significant quarter over quarter increase from the prior year. The recently completed acquisition of Old Town Bank has already provided accretion to our core earnings and is providing important access to the Haywood and Buncombe County markets. As previously disclosed, we have also recently invested in our mortgage banking business with the addition of a seasoned mortgage executive to lead this business.”

 

Old Town Bank Acquisition

 

The Company completed the acquisition of Old Town Bank on April 1, 2016. This transaction added approximately $111.4 million in assets, including $65.0 million in loans, $88.7 million in deposits and $1.7 million in goodwill and core deposit intangible. The purchase price of $13.5 million resulted in dilution of approximately $0.55 per share.

 

Net Interest Income

 

Net interest income increased $2.1 million, or 31.7%, to $8.7 million for the three months ended June 30, 2016 compared to $6.6 million for the same period in 2015. Net interest income increased $3.4 million, or 26.2%, to $16.4 million for the six months ended June 30, 2016 compared to $13.0 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 six months ended June 30, 2016 improved to 3.33% and 3.28%, respectively, compared to 3.06% and 3.05% for the same periods in 2015.

 

 
 

Provision for Loan Losses

 

We recorded no provision for loan losses for the three and six month periods ended June 30, 2016 compared to a provision for loan losses of $0 and $(1.5 million) in the comparable 2015 periods. The Company continues to experience a minimal level of net charge-offs and low levels of non-performing assets.

 

Noninterest Income

 

Noninterest income increased $1.0 million, or 93.0%, to $2.1 million for the three months ended June 30, 2016 compared to $1.1 million for the same period in 2015. Noninterest income increased $1.3 million, or 50.8%, to $4.0 million for the six months ended June 30, 2016 compared to $2.6 million for the same period in 2015. The improvement for the three months ended June 30, 2016 was primarily due to a $0.3 million increase in the gain on sale of SBA loans and a $0.3 million increase in the gain on sale of investments. Mortgage banking activities also contributed to the improved 2016 second quarter with an increase of $0.1 million in income over the same period in 2015.

 

The improvement for the six months ended June 30, 2016 compared to the same period in 2015 was primarily the result of increases of $0.4 million in the gain on sale of SBA loans, $0.4 million in the gain on sale of investments, $0.2 million in service charges, and $0.1 million in interchange fees. Trading revenue from securities held for the Rabbi Trust also increased $0.2 million for the six months ended June 30, 2016 compared to the same period of 2015.

 

The Company continues to make investments in growing its SBA lending and mortgage banking businesses and to replace its certificates of deposit balances with lower cost core deposits that generate fee income.

 

Noninterest Expense

 

Noninterest expense increased $1.1 million, or 13.9%, to $9.3 million for the three months ended June 30, 2016 compared to $8.2 million for the same period in 2015. Noninterest expense increased $1.8 million, or 12.3%, to $16.6 million for the six months ended June 30, 2016 compared to $14.8 million for the same period in 2015. The increase in the three and six month periods ended June 30, 2016 compared to the same periods in 2015 is primarily the result of merger-related expenses related to the Old Town Bank acquisition, as well as higher operating expenses resulting from the addition of 3 branches during the fourth quarter of 2015 and second quarter of 2016. We continue to focus on controlling our operating expenses and achieving efficiencies.

 

Income Taxes

 

Income tax expense for the three and six months ended June 30, 2016 was $0.4 million and $1.2 million, respectively. The Company reversed $17.6 million of the valuation allowance on its net deferred tax asset as of June 30, 2015, resulting in an income tax benefit for the three and six months ended June 30, 2015.

 

 
 

Balance Sheet

 

Total assets increased $161.5 million, or 15.7%, to $1.19 billion at June 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.

 

Loans increased $97.4 million, or 15.6%, to $721.5 million at June 30, 2016, which included $65.0 million of loans related to the Old Town Bank acquisition. Loan balances excluding those acquired in the Old Town Bank acquisition have grown at an annualized pace of 10.4% since December 31, 2015 and have been primarily concentrated in commercial real estate and consumer and industrial loans.

 

The Company also increased its investment portfolios by $42.2 million from December 31, 2015 to June 30, 2016 in order to better leverage its capital. FHLB advances, which increased $40.0 million, or 26.1%, from December 31, 2015 to June 30, 2016, were utilized to fund the investment purchases.

 

Core deposits increased $75.0 million, or 17.0%, to $515.5 million at June 30, 2016 from $440.5 million at December 31, 2015, including $40.6 million of core deposits related to the Old Town Bank acquisition. Retail and wholesale certificates of deposit increased $37.3 million, or 13.5%, to $313.4 million at June 30, 2016 from $276.1 million at December 31, 2015, primarily due to the acquisition of $48.1 million of time deposits in the Old Town acquisition. Core deposits now represent 62% of the Company’s deposit portfolio compared to 61% at December 31, 2015 and 55% at December 31, 2014.

 

Total equity increased $5.8 million to $137.3 million at June 30, 2016 compared to $131.5 million at December 31, 2015. This increase was primarily attributable to $2.5 million of net income and a $4.2 million improvement in the market value of investment securities, offset by $1.4 million of share repurchases. The Company intends to selectively utilize share repurchases to supplement shareholder returns, but not at the expense of building long term value. Tangible book value per share increased $0.89, or 4.47%, from December 31, 2015 to June 30, 2016, even after the $0.55 of dilution incurred from the acquisition of Old Town Bank.

 

Asset Quality

 

Non-performing loans increased 28.8% to $9.4 million at March 31, 2016 from $7.3 million at December 31, 2015. Real estate owned balances remained steady at $5.4 million at both June 30, 2016 and 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 in purchase accounting. Net loan charge-offs totaled $0.5 million for the six months ended June 30, 2016 compared to $0.1 million for the six months ended June 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 news release and the accompanying tables discuss financial measures, such as core noninterest expense, core net income, 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”. In December 2014, the Company’s stock was added to the Russell Microcap Index and the ABA NASDAQ Community Bank Index.

 

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. 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 June 30,
   2016  2015
Interest income  $10,257   $8,112 
Interest expense   1,509    1,473 
           
Net interest income   8,748    6,639 
           
Provision for loan losses   —      —   
           
Net interest income after provision for loan losses   8,748    6,639 
           
Servicing income, net   75    19 
Mortgage banking   221    85 
Gain on sale of SBA loans   284    3 
Gain on sale of investments   429    123 
Service charges on deposit accounts   387    317 
Interchange fees   382    322 
Bank owned life insurance   94    133 
Other   228    86 
    2,100    1,088 
           
Compensation and employee benefits   4,257    3,817 
Net occupancy   835    731 
Federal deposit insurance   184    279 
Professional and advisory   293    261 
Data processing   400    282 
Marketing and advertising   302    205 
Net cost of operation of real estate owned   44    116 
Federal Home Loan Bank prepayment penalty   —      1,762 
Transaction expenses   1,771    —   
Other   1,228    728 
    9,314    8,181 
           
Income (loss) before taxes   1,534    (454)
           
Income tax expense (benefit)   384    (17,559)
           
Net income  $1,150   $17,105 
           
Earnings per common share - basic and diluted  $0.18   $2.61 
           
Weighted average common shares outstanding:          
Basic   6,467    6,546 
Diluted   6,482    6,546 

 

 
 

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

 

   Six Months Ended June 30,
   2016  2015
Interest income  $19,250   $15,996 
Interest expense   2,878    3,025 
           
Net interest income   16,372    12,971 
           
Provision for loan losses   —      (1,500)
           
Net interest income after provision for loan losses   16,372    14,471 
           
Servicing income, net   191    105 
Mortgage banking   360    340 
Gain on sale of SBA loans   618    214 
Gain on sale of investments   698    287 
Service charges on deposit accounts   781    615 
Interchange fees   724    600 
Bank owned life insurance   201    262 
Other   401    204 
    3,974    2,627 
           
Compensation and employee benefits   8,267    7,514 
Net occupancy   1,651    1,433 
Federal deposit insurance   359    563 
Professional and advisory   505    511 
Data processing   751    562 
Marketing and advertising   502    237 
Net cost of operation of real estate owned   330    331 
Federal Home Loan Bank prepayment penalty   —      1,762 
Transaction expenses   1,916    —   
Other   2,311    1,844 
    16,592    14,757 
           
Income before taxes   3,754    2,341 
           
Income tax expense (benefit)   1,238    (17,379)
           
Net income  $2,516   $19,720 
           
Earnings per common share - basic and diluted  $0.39   $3.01 
           
Weighted average common shares outstanding:          
Basic   6,492    6,546 
Diluted   6,507    6,546 

 

 
 

ENTEGRA FINANCIAL CORP. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

   June 30, 2016  December 31, 2015
   (Unaudited)  (Audited)
Assets          
           
Cash and cash equivalents  $57,945   $40,650 
Investments - trading   4,991    4,714 
Investments - available for sale   291,334    238,862 
Investments - held to maturity   30,907    41,164 
Other investments   10,798    8,834 
Loans held for sale   7,300    8,348 
Loans receivable   721,461    624,072 
Allowance for loan losses   (8,940)   (9,461)
Real estate owned   5,413    5,369 
Fixed assets, net   20,600    17,673 
Bank owned life insurance   21,059    20,858 
Net deferred tax asset   16,249    18,830 
Goodwill   1,872    711 
Core deposit intangibles, net   1,059    590 
Other assets   10,871    10,202 
           
Total assets  $1,192,919   $1,031,416 
           
Liabilities and Shareholders’ Equity          
           
Liabilities          
Deposits  $828,874   $716,617 
Federal Home Loan Bank advances   193,500    153,500 
Junior subordinated notes   14,433    14,433 
Post employment benefits   10,253    10,224 
Other liabilities   8,593    5,173 
Total liabilities  $1,055,653   $899,947 
           
Total shareholders’ equity   137,266    131,469 
           
Total liabilities and shareholders’ equity  $1,192,919   $1,031,416 

 

 
 

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

 

   Three Months Ended June 30,  Six Months Ended June 30,
   2016  2015  2016  2015
   (Dollars in thousands)  (Dollars in thousands)
             
Core Noninterest Expense                    
Noninterest expense (GAAP)  $9,314   $8,181   $16,592   $14,757 
FHLB prepayment penalty   —      (1,762)   —      (1,762)
Merger-related expenses   (1,771)   —      (1,916)   —   
Core noninterest expense (Non-GAAP)  $7,543   $6,419   $14,676   $12,995 
                     
Core Net Income                    
Net income (GAAP)  $1,150   $17,105   $2,516   $19,720 
FHLB prepayment penalty   —      1,762    —      1,762 
Negative provision for loan losses   —      —      —      (1,500)
Merger-related expenses   1,151    —      1,245    —   
Adjust actual income tax benefit to 35% estimated effective tax rate (1)   —      (18,017)   —      (18,290)
Core net income (Non-GAAP)  $2,301   $850   $3,761   $1,692 
                     
Core Diluted Earnings Per Share                    
Diluted earnings per share (GAAP)  $0.18   $2.61   $0.39   $3.01 
FHLB prepayment penalty   —      0.27    —      0.27 
Negative provision for loan losses   —      —      —      (0.23)
Merger-related expenses   0.18    —      0.19    —   
Adjust actual income tax benefit to 35% estimated effective tax rate (1)   —      (2.75)   —      (2.79)
Core diluted earnings per share (Non-GAAP)  $0.36   $0.13   $0.58   $0.26 
                     
Core Return on Average Assets                    
Return on Average Assets (GAAP)   0.39%   7.39%   0.46%   4.35%
FHLB prepayment penalty   —      0.76%   —      0.39%
Negative provision for loan losses   —      —      —      -0.33%
Merger-related expenses   0.39%   —      0.23%   —   
Adjust actual income tax benefit to 35% estimated effective tax rate (1)   —      -7.78%   —      -4.04%
Core Return on Average Assets (Non-GAAP)   0.79%   0.37%   0.68%   0.37%
                     
Core Return on Average Equity                    
Return on Average Equity (GAAP)   3.43%   61.45%   3.76%   35.97%
FHLB prepayment penalty   —      6.33%   —      3.21%
Negative provision for loan losses   —      —      —      -2.74%
Merger-related expenses   3.43%   —      1.86%   —   
Adjust actual income tax benefit to 35% estimated effective tax rate (1)   —      -64.73%   —      -33.35%
Core Return on Average Equity (Non-GAAP)   6.85%   3.05%   5.62%   3.09%
                     
Core Efficiency Ratio                    
Efficiency ratio   85.86%   105.88%   81.55%   94.61%
Merger-related expenses   -16.33%   —      -9.42%   —   
Effect to adjust for FHLB prepayment penalty   —      -22.81%   —      -11.30%
Core Efficiency Ratio (Non-GAAP)   69.53%   83.07%   72.13%   83.31%

 

   As Of
   June 30, 2016  December 31, 2015
   (Dollars in thousands, except share data)
Tangible Book Value Per Share      
Book Value (GAAP)   137,266    131,469 
Goodwill and intangibles   (2,931)   (1,301)
Book Value (Tangible)   134,335    130,168 
Outstanding shares   6,466,375    6,546,375 
Tangible Book Value Per Share   20.77    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.

 

 



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