Atlantic Coast Financial : Reports Strong Third Quarter Results

Atlantic Coast Financial Corporation (NASDAQ: ACFC):

• Third Quarter 2015 Earnings More Than Double to $0.07 Per Diluted Share Compared with Third Quarter 2014
• Year-over-Year Portfolio Loan Growth Through September Reaches 28%
• Margin, Return on Assets, and Return on Equity All Increase in Third Quarter 2015

Atlantic Coast Financial Corporation (“Atlantic Coast” or the “Company,”) (NASDAQ: ACFC), the holding company for Atlantic Coast Bank (the “Bank”), today reported earnings per diluted share of $0.07 and $0.46, respectively, for the third quarter and first nine months of 2015, up from $0.03 and $0.06, respectively, for the third quarter and first nine months of 2014.

Commenting on the Company’s results for the third quarter and year-to-date period, John K. Stephens, Jr., President and Chief Executive Officer, said, “We are pleased to report continued growth in our portfolio loans, which have increased 28% over the past year to over $540 million. This growth reflects our ongoing efforts to extend the reach of our business while strengthening our existing customer relationships. At the same time, we continue to maintain a disciplined focus on credit quality and are pleased with the stability and performance of our portfolio. Additionally, during the third quarter, we experienced a significant improvement in interest spread and interest margin, as both measures benefited from reduced interest expense as a result of our wholesale debt restructuring transactions in the second quarter. Finally, the recent announcements of consolidation in Northeast Florida further enhance our opportunity to truly build the premier community bank in the markets we serve.”

Other significant highlights of the third quarter and first nine months of 2015 include:

• Net income for the first nine months of 2015 included the impact of the reversal of a valuation allowance against the Company’s deferred tax asset, which positively affected income taxes by $8.5 million. This was offset partially by penalties totaling $5.2 million, pre-tax, associated with the prepayment of some of the Company’s wholesale debt during June 2015. Together, these transactions added approximately $5.3 million, or $0.34 per diluted share, to net income for the first nine months of 2015. During the first nine months of 2015, core earnings, which is net income excluding the effect of the aforementioned transactions, more than doubled compared with those for the year-earlier period.
• Net interest spread and net interest margin improved to 3.16% and 3.24%, respectively, for the three months ended September 30, 2015, from 2.48% and 2.69%, respectively, for the same period last year, and improved to 2.75% and 2.89%, respectively, for the nine months ended September 30, 2015, from 2.37% and 2.57%, respectively, for the same period last year.
• Total loans (including portfolio loans, loans held-for-sale, and warehouse loans held-for-investment) increased 30% to $595.0 million at September 30, 2015, from $457.7 million at September 30, 2014, with contributions coming from all lines of business.
• Nonperforming assets, as a percentage of total assets, decreased to 0.92% at September 30, 2015, from 0.97% at June 30, 2015, and 1.31% at September 30, 2014.
• Total assets increased to $818.0 million at September 30, 2015, from $713.9 million at September 30, 2014, primarily due to an increase in loans during the 12-month period, which was primarily funded by deposits and Federal Home Loan Bank advances.
• The Company’s ratios of total risk-based capital to risk-weighted assets and Tier 1 (core) capital to adjusted total assets were 14.73% and 9.55%, respectively, at September 30, 2015, and each continued to exceed the levels – 10% and 5%, respectively – required for the Bank to be considered well-capitalized.

Tracy L. Keegan, Executive Vice President and Chief Financial Officer, added, “The Company turned in a very solid third quarter performance, characterized by net interest income growth of nearly 29% and net income growth of approximately 123% compared with the third quarter last year. We continue to strengthen our balance sheet in order to maximize our growth and income potential going forward.”

The decrease in capital ratios as of September 30, 2015, compared with those as of June 30, 2015, and September 30, 2014, was primarily due to an increase in assets, which resulted in an increase in risk-weighted assets and adjusted total assets, partially offset by an increase in capital.

Overall, the Company’s credit quality remains strong, as the number and balance of loans reclassified to nonperforming and other real estate owned (“OREO”) has stabilized. Nonperforming assets declined at September 30, 2015, compared with those at June 30, 2015, as dispositions of OREO more than offset a slight increase in nonperforming loans. Nonperforming assets declined at September 30, 2015, compared with those at September 30, 2014, as the disposition of OREO and net reductions to nonperforming loans during the 12-month period exceeded net transfers to OREO during the same period.

The decline in the provision for portfolio loan losses in the third quarter of 2015 compared with the third quarter of 2014 reflected improving economic conditions in the Company’s markets, which have led to lower net charge-offs over the past 12 months. The increase in the allowance for portfolio loan losses at September 30, 2015, from September 30, 2014, primarily was attributable to loan growth, which reflected an approximately equal mix of organic growth and loan purchases, partially offset by principal amortization and increased prepayments of one- to four-family residential mortgages and home equity loans. Management believes the allowance for portfolio loan losses as of September 30, 2015, is sufficient to absorb losses in portfolio loans as of the end of the period. The decline in net charge-offs for the first nine months of 2015 compared with the first nine months of 2014 primarily reflected a decrease in charge-offs in one- to four-family residential loans, home equity loans and collateral-dependent commercial real estate property.

The increase in net interest margin during the third quarter and first nine months of 2015 compared with the year-earlier periods was primarily due to the decrease in rates paid on borrowed funds, as the Company benefited from the prepayment and restructuring of some of its high-cost wholesale debt during the second quarter of 2015. Also contributing to the increase in net interest margin was an increase in higher-margin interest-earning assets outstanding, as the Company has continued to redeploy excess liquidity to grow its portfolio loans, loans held-for-sale, and warehouse loans held-for-investment.

The increase in noninterest income during the first nine months of 2015 compared with the same period in 2014 primarily reflected higher gains on loans held-for-sale. The increase in noninterest expense during the third quarter of 2015 compared with the same 2014 period primarily reflected the full salary impact of employees that were added in various areas of the Company throughout 2014, including branch operations and lending, to enhance customer service and promote loan and deposit growth. The increase in noninterest expense during the first nine months of 2015 compared with the same 2014 period primarily reflected penalties associated with the prepayment of some of the Company’s high-cost wholesale debt during the second quarter of 2015, as well as the full salary impact of employees that were added in various areas of the Company throughout 2014. The Company believes it is now appropriately staffed for its current business needs; however, the Bank may continue to add production employees to support its overall growth strategies.

About the Company

Atlantic Coast Financial Corporation is the holding company for Atlantic Coast Bank, a federally chartered and insured stock savings bank. It is a community-oriented financial institution serving northeastern Florida and southeastern Georgia markets. Investors may obtain additional information about Atlantic Coast Financial Corporation on the Internet at www.AtlanticCoastBank.net, under Investor Relations.

Forward-looking Statements

Statements in this press release that are not historical facts are forward-looking statements that reflect management’s current expectations, assumptions and estimates of future performance and economic conditions, and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. Such statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally are identifiable by the use of forward-looking terminology such as “believe,” “expects,” “may,” “will,” “should,” “plan,” “intend,” “on condition,” “target,” “estimates,” “preliminary,” or “anticipates” or the negative thereof or comparable terminology, or by discussion of strategy or goals or other future events, circumstances or effects. Moreover, forward-looking statements in this release include, but are not limited to, those relating to: the ability to explore additional growth opportunities; growth and income potential maximization; the allowance for portfolio loan losses being sufficient to absorb losses in respect of portfolio loans; expectations regarding being adequately staffed for current business needs; and the ability to make further additions to current employee headcount as necessary. The Company’s consolidated financial results and the forward-looking statements could be affected by many factors, including but not limited to: general economic trends and changes in interest rates; increased competition; changes in demand for financial services; the state of the banking industry generally; uncertainties associated with newly developed or acquired operations; market disruptions; and cyber-security risks. Further information relating to factors that may impact the Company’s results and forward-looking statements are disclosed in the Company’s filings with the Securities and Exchange Commission. The forward-looking statements contained in this release are made as of the date of this release, and the Company disclaims any intention or obligation, other than imposed by law, to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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