Atlantic Coast Financial Corporation Reports Record Earnings

  • Second Quarter 2015 Earnings of $0.36 Per Diluted Share
  • Loan Growth near 20% During First Six Months of 2015
  • Margin, Return on Assets, and Return on Equity Expected to Increase Significantly in Future Quarters

JACKSONVILLE, Fla.--()--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 $0.36 and $0.39 for the second quarter and first six months of 2015, respectively, up from $0.02 and $0.03 for second quarter and first six months of 2014, respectively. This marked the sixth consecutive profitable quarter for the Company following its successful capital raise in December 2013.

Commenting on the second quarter and first half of 2015, John K. Stephens, Jr., President and Chief Executive Officer, said, “We are pleased to report another solid quarterly performance for Atlantic Coast, marked by attractive loan growth and sound credit quality, notable interest income growth, and continued improvement in our interest margin. Together, these factors contributed to ongoing profitability for our company and its shareholders. Atlantic Coast is now stronger than ever as a result of the hard work and dedication of our team members as we have pursued our ambitious goals, and I am particularly proud of what our team has accomplished over the past six months.”

Stephens added, “Additionally, we previously announced a transaction reversing an $8.5 million valuation allowance associated with our deferred tax asset during June. At the same time, we announced the prepayment or restructure of $166.3 million of our debt, and anticipated these transactions would result in a net gain of $3.4 million in the second quarter. However, one of our existing counterparties subsequently presented us with an alternative for short-term debt, which enabled us to restructure approximately $60.0 million of the debt that we had previously anticipated prepaying. Although the overall impact of the transaction remains the same, the initial gain is larger than anticipated at $5.3 million, with approximately $1.9 million in prepayment penalties, net of tax, deferred over the next 12 months.”

Significant highlights of the second quarter and first half of 2015 include:

  • Net income totaled $5.6 million, or $0.36 per diluted share, for the quarter ended June 30, 2015, compared to $0.2 million, or $0.02 per diluted share, for the quarter ended June 30, 2014. Net income improved to $6.0 million or $0.39 per diluted share for the first six months of 2015, compared with $0.4 million or $0.03 per diluted share for the first six months of 2014.
  • Net income for the second quarter and first half of 2015 included the positive impact of the reversal of a valuation allowance against the Company’s deferred tax asset, which affected the income tax benefit by $8.5 million for the second quarter and first six months of 2015. 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 the second quarter of 2015. Together, these transactions added approximately $5.3 million, or $0.34 per diluted share, to net income for the second quarter and first half of 2015.
  • Interest spread and interest margin improved to 2.68% and 2.81%, respectively, for the three months ended June 30, 2015, from 2.40% and 2.59%, respectively, for the same period last year, and improved to 2.52% and 2.72%, respectively, for the six months ended June 30, 2015, from 2.30% and 2.51%, respectively, for the same period last year. The Company’s successful efforts in June 2015 to lower the effective interest rate on its wholesale debt are expected to reduce interest expense going forward by approximately $2.2 million over the next 12 months and approximately $5.0 million annually thereafter (assuming interest rate stability), which will have a corresponding positive impact on net interest margin, reducing the weighted-average interest rate on the wholesale debt to approximately 1.95%, down from a weighted-average interest rate of approximately 4.05% prior to the debt restructuring.
  • Total loans (including portfolio loans, loans held-for-sale, and warehouse loans held-for-investment) increased to $583.3 million at June 30, 2015, from $488.1 million at December 31, 2014, with contributions coming from all lines of business.
  • Nonperforming assets, as a percentage of total assets, decreased to 0.97% at June 30, 2015 from 1.20% at December 31, 2014, and 1.33% at June 30, 2014.
  • Total assets increased to $810.4 million at June 30, 2015, compared with $706.5 million at December 31, 2014, primarily due to an increase in loans during the first six months of 2015, which was primarily funded by deposits and Federal Home Loan Bank (“FHLB”) advances.
  • The Company’s ratios of total risk-based capital to risk-weighted assets and Tier 1 (core) capital to adjusted total assets were 14.74% and 9.69%, respectively, at June 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, “Our results of operations for the second quarter and first six months of the year were ahead of year-earlier periods. Additionally, with our recent work to revise the terms of our outstanding wholesale debt to provide a significant reduction in future interest expense, as well as significant margin expansion, we are encouraged about the prospects of additional bottom-line growth going forward. With this work behind us, and with the recent restoration of our deferred tax asset, we enter the second half of 2015 with good momentum and are excited about the opportunities ahead. Balance sheet management, of course, will continue to be a critical step in achieving our strategic goals.”

Bank Regulatory Capital     At

Key Capital Measures

June 30,

2015

  March 31,

2015

  Dec. 31,

2014

  Sept. 30,

2014

  June 30,

2014

Total risk-based capital ratio (to risk-weighted assets)

14.74 % 15.86 % 17.64 % 17.83 % 18.75 %
Common equity tier 1 (core) risk-based capital ratio (to risk-weighted assets) 13.48 % 14.61 % n/a n/a n/a

Tier 1 (core) risk-based capital ratio (to risk-weighted assets)

13.48 % 14.61 % 16.38 % 16.58 % 17.49 %

Tier 1 (core) capital ratio (to adjusted total assets) *

9.69 % 10.38 % 10.35 % 10.17 % 10.17 %

_________________________
* As a result of regulatory changes (Basel III), Tier 1 (core) capital to adjusted total assets was calculated using a period average based on balances as of June 30, 2015 and March 31, 2015. This ratio was calculated using a period end balance for all other periods presented.

 

The decrease in capital ratios as of June 30, 2015, compared with those as of June 30, 2014 and December 31, 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.

Credit Quality       At

June 30,

2015

   

March 31,

2015

   

Dec. 31,

2014

   

Sept. 30,

2014

   

June 30,

2014

(Dollars in millions)
Nonperforming loans $ 3.9 $ 4.4 $ 4.5 $ 4.1 $ 4.0
Nonperforming loans to total portfolio loans 0.82 % 0.94 % 1.00 % 0.95 % 0.98 %
Other real estate owned $ 3.9 $ 4.2 $ 3.9 $ 5.3 $ 5.4
Nonperforming assets $ 7.8 $ 8.6 $ 8.4 $ 9.4 $ 9.4
Nonperforming assets to total assets 0.97 % 1.16 % 1.20 % 1.31 % 1.33 %

Troubled debt restructurings performing for less than 12 months under terms of modification

$ 6.0 $ 14.1 $ 13.8 $ 13.3 $ 13.1

Total nonperforming assets and troubled debt restructurings performing for less than 12 months under terms of modification

$ 13.8 $ 22.7 $ 22.2 $ 22.7 $ 22.5

Troubled debt restructurings performing for more than 12 months under terms of modification

$ 28.9 $ 22.1 $ 21.0 $ 24.4 $ 23.4
 

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 June 30, 2015, compared with those at June 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. Nonperforming assets declined at June 30, 2015, compared with December 31, 2014, as the net reductions to nonperforming loans and disposition of OREO during the 12-month period exceeded net transfers to OREO during the same period.

Provision / Allowance for Loan Losses

      At and for the

Three Months Ended

    At and for the

Six Months Ended

June 30,

2015

   

March 31,

2015

   

June 30,

2014

June 30,

2015

   

June 30,

2014

(Dollars in millions)
Provision for portfolio loan losses $ 0.2 $ 0.2 $ 0.3 $ 0.4 $ 0.8
Allowance for portfolio loan losses $ 7.4 $ 7.2 $ 7.0 $ 7.4 $ 7.0
Allowance for portfolio loan losses to total portfolio loans 1.53 % 1.53 % 1.69 % 1.53 % 1.69 %
Allowance for portfolio loan losses to nonperforming loans 187.82 % 162.98 % 173.20 % 187.82 % 173.20 %
Net charge-offs $ (0.1 ) $ 0.2 $ 0.3 $ 0.1 $ 0.8
Net charge-offs to average outstanding portfolio loans (0.04 )% 0.14 % 0.31 % 0.05 % 0.39 %
 

The decline in the provision for portfolio loan losses in the second quarter of 2015 compared with the second quarter of 2014 reflected improving economic conditions in the Company’s markets, which have led to a decline in net charge-offs over the past 12 months. The increase in the allowance for portfolio loan losses at June 30, 2015, from June 30, 2014, primarily reflected loan growth that was due to 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 June 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 second quarter of 2015 compared with the second quarter 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, which was partially offset by an increase in charge-offs related to manufactured home loans. The decline in net charge-offs for the first half of 2015 compared with the first half 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.

Net Interest Income       Three Months Ended     Six Months Ended

June 30,

2015

   

March 31,

2015

   

June 30,

2014

June 30,

2015

   

June 30,

2014

(Dollars in millions)
Net interest income $ 5.0 $ 4.4 $ 4.3 $ 9.4 $ 8.5
Net interest margin 2.81 % 2.62 % 2.59 % 2.72 % 2.51 %
Yield on investment securities 2.10 % 1.95 % 1.98 % 2.03 % 2.03 %
Yield on loans 4.87 % 4.94 % 5.53 % 4.90 % 5.67 %
Total cost of funds 1.40 % 1.56 % 1.64 % 1.48 % 1.68 %
Average cost of deposits 0.49 % 0.49 % 0.55 % 0.49 % 0.57 %
Rates paid on borrowed funds 3.42 % 4.04 % 4.43 % 3.70 % 4.46 %
 

The increase in net interest margin during the second quarter and first half of 2015 compared with the second quarter and first half of 2014 was primarily due to an increase in higher-margin interest-earning assets outstanding, as the Company has continued to redeploy excess liquidity to continue to grow its portfolio loans, loans held-for-sale, and warehouse loans held-for-investment. Additionally, the Company benefitted from an increase in noninterest-bearing deposits and the prepayment and restructuring of some of our high-cost FHLB advances during 2014, resulting in lower total cost of funds in the second quarter and first half of 2015 compared with the second quarter and first half of 2014. The Company believes net interest margin will continue to improve during the remainder of 2015 as a result of the prepayment and restructuring of some of its high-cost wholesale debt during the second quarter of 2015.

Noninterest Income /

Noninterest Expense

      Three Months Ended     Six Months Ended

June 30,

2015

   

March 31,

2015

   

June 30,

2014

June 30,

2015

   

June 30,

2014

(Dollars in millions)
Noninterest income $ 1.7 $ 1.8 $ 1.6 $ 3.4 $ 3.1
Noninterest expense $ 11.3 $ 5.5 $ 5.3 $ 16.8 $ 10.2
 

The increase in noninterest income during the second quarter and first six months of 2015 compared with the same periods in 2014 primarily reflected higher gains on loans held-for-sale. The increase in noninterest expense during the second quarter and first six months of 2015 compared with comparable 2014 periods 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, including branch operations and lending, to enhance customer service and promote loan and deposit growth. 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; expectations regarding reducing interest expense and increasing net income and net interest margin; 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; and market disruptions. 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.

 
 
 
 
 

ATLANTIC COAST FINANCIAL CORPORATION
Statements of Operations (Unaudited)
(In thousands, except per share amounts)

 
      Three Months Ended     Six Months Ended

June 30,

2015

   

March 31,

2015

   

June 30,

2014

June 30,

2015

   

June 30,

2014

Interest and dividend income:
Loans, including fees $ 6,647 $ 6,115 $ 5,901 $ 12,762 $ 11,780
Securities and interest-earning deposits in other financial institutions   775     756     1,030   1,531     2,076
Total interest and dividend income 7,422 6,871 6,931 14,293 13,856
 
Interest expense:
Deposits 578 550 629 1,128 1,291
Securities sold under agreements to repurchase 722 818 827 1,540 1,802
Federal Home Loan Bank advances   1,137     1,083     1,148   2,220     2,279
Total interest expense 2,437 2,451 2,604 4,888 5,372
 
Net interest income 4,985 4,420 4,327 9,405 8,484
Provision for portfolio loan losses   190     197     350   387     800
Net interest income after provision for portfolio loan losses 4,795 4,223 3,977 9,018 7,684
 
Noninterest income:
Service charges and fees 660 636 680 1,296 1,317
Gain on sale of loans held-for-sale 350 499 269 849 493

Gain on sale of securities available-for-sale

-- (9 ) 7 (9 ) 7
Bank owned life insurance earnings 120 118 119 238 209
Interchange fees 408 395 388 803 761
Other   138     123     118   261     254
Noninterest income   1,676     1,762     1,581   3,438     3,041
 
Noninterest expense:
Compensation and benefits 3,133 2,916 2,633 6,049 4,920
Occupancy and equipment 538 514 492 1,052 983
FDIC insurance premiums 154 195 358 349 742
Foreclosed assets, net 102 -- 13 102 19
Data processing 472 395 365 867 658
Outside professional services 554 532 405 1,086 788
Collection expense and repossessed asset losses 105 119 130 224 294
Securities sold under agreements to repurchase and Federal Home Loan Bank advances prepayment penalties 5,188 -- -- 5,188 --
Other   1,040     870     892   1,910     1,797
Noninterest expense   11,286     5,541     5,288   16,827     10,201
 
Income (loss) before income tax expense (4,815 ) 444 270 (4,371 ) 524
Income tax (benefit) expense   (10,440 )   48     45   (10,392 )   93
Net income (loss) $ 5,625   $ 396   $ 225 $ 6,021   $ 431
 
Net income (loss) per basic and diluted share $ 0.36   $ 0.03   $ 0.02 $ 0.39   $ 0.03
 

Basic and diluted weighted average shares outstanding

  15,398     15,398     15,392   15,398     15,391
 
 
 
 
 
 

ATLANTIC COAST FINANCIAL CORPORATION
Balance Sheets (Unaudited)
(Dollars in thousands)

 

 

     

June 30,

2015

   

Dec. 31,

2014

   

June 30,

2014

ASSETS
Cash and due from financial institutions $ 17,379 $ 2,974 $ 4,419
Short-term interest-earning deposits   21,166     19,424     28,292  
Total cash and cash equivalents 38,545 22,398 32,711
Investment securities:
Securities available-for-sale 110,285 118,699 179,552
Securities held-to-maturity   17,054     17,919     18,733  
Total investment securities 127,339 136,618 198,285
Portfolio loans, net of allowance of $7,400, $7,107 and $6,985, respectively 475,455 446,870 405,334
Other loans:
Loans held-for-sale 12,685 7,219 4,989
Warehouse loans held-for-investment   95,205     33,972     22,306  
Total other loans 107,890 41,191 27,295
 
Federal Home Loan Bank stock, at cost 9,999 6,257 6,287
Land, premises and equipment, net 14,746 14,505 14,292
Bank owned life insurance 16,827 16,590 16,353
Other real estate owned 3,886 3,908 5,418
Accrued interest receivable 1,959 1,924 1,951
Deferred tax assets, net 10,539 -- --
Other assets   3,242     16,237     2,162  
Total assets $ 810,427   $ 706,498   $ 710,088  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand $ 47,907 $ 41,283 $ 42,055
Interest-bearing demand 64,027 65,718 67,606
Savings and money markets 178,300 171,657 168,774
Time   210,861     162,122     165,511  
Total deposits   501,095     440,780     443,946  
Securities sold under agreements to purchase 10,000 66,300 66,300
Federal Home Loan Bank advances 217,371 123,667 125,000
Accrued expenses and other liabilities   3,881     3,415     4,475  
Total liabilities   732,347     634,162     639,721  
 

Common stock, additional paid-in capital, retained deficit, and other equity

80,379 74,345 73,426
Accumulated other comprehensive income (loss)   (2,299 )   (2,009 )   (3,059 )
Total stockholders' equity   78,080     72,336     70,367  
Total liabilities and stockholders' equity $ 810,427   $ 706,498   $ 710,088  
 
 
 
 
 
 

ATLANTIC COAST FINANCIAL CORPORATION
Selected Consolidated Financial Ratios and Other Data (Unaudited)
(Dollars in thousands)

 
   

At and for the

Three Months Ended

June 30,

 

At and for the

Six Months Ended

June 30,

2015   2014 2015   2014
Interest rate
Net interest spread 2.68 % 2.40 % 2.52 % 2.30 %
Net interest margin 2.81 % 2.59 % 2.72 % 2.51 %
 
 
Average balances
Portfolio loans receivable, net $ 473,693 $ 400,542 $ 461,247 $ 390,479
Total interest-earning assets 709,441 668,099 692,685 684,993
Total assets 766,316 706,426 738,368 713,335
Deposits 470,945 453,796 457,833 456,341
Total interest-bearing liabilities 639,961 590,312 613,902 599,285
Total liabilities 691,522 636,480 663,954 644,494
Stockholders' equity 74,794 69,946 74,414 68,841
 
Performance ratios (annualized)
Return on average total assets 2.94 % 0.13 % 1.63 % 0.12 %
Return on average stockholders' equity 30.08 % 1.29 % 16.18 % 1.25 %
Ratio of operating expenses to average total assets 5.89 % 2.99 % 4.56 % 2.86 %
 
Credit and liquidity ratios
Nonperforming loans $ 3,940 $ 4,033 $ 3,940 $ 4,033
Foreclosed assets 3,886 5,418 3,886 5,418
Impaired loans 36,256 37,642 36,256 37,642
Nonperforming assets to total assets 0.97 % 1.33 % 0.97 % 1.33 %
Nonperforming loans to total portfolio loans 0.82 % 0.98 % 0.82 % 0.98 %
Allowance for loan losses to nonperforming loans 187.82 % 173.20 % 187.82 % 173.20 %
Allowance for loan losses to total portfolio loans 1.53 % 1.69 % 1.53 % 1.69 %
Net charge-offs to average outstanding portfolio loans (annualized) (0.04 )% 0.31 % 0.05 % 0.39 %
Ratio of gross portfolio loans to total deposits 96.36 % 92.88 % 96.36 % 92.88 %
 
Capital ratios
Tangible stockholders' equity to tangible assets* 9.63 % 9.91 % 9.63 % 9.91 %
Average stockholders' equity to average total assets 9.76 % 9.90 % 10.08 % 9.65 %
 
Other Data
Tangible book value per share* $ 5.03 $ 4.54 $ 5.03 $ 4.54
Stock price per share 4.45 4.06 4.45 4.06
Stock price per share to tangible book value per share* 88.39 % 89.48 % 88.39 % 89.48 %

_________________________
* Non-GAAP financial measure. Because the Company does not currently have any intangible assets, tangible stockholders' equity is equal to stockholders' equity, tangible assets is equal to assets, and tangible book value is equal to book value. Accordingly, no reconciliations are required for these measures.

 
 

Contacts

Atlantic Coast Financial Corporation
Tracy L. Keegan, 904-998-5501
Executive Vice President and Chief Financial Officer

Contacts

Atlantic Coast Financial Corporation
Tracy L. Keegan, 904-998-5501
Executive Vice President and Chief Financial Officer