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Atlantic Coast Financial Corporation Reports Third Quarter 2012 Results



  Atlantic Coast Financial Corporation Reports Third Quarter 2012 Results

Business Wire

JACKSONVILLE, Fla. -- November 06, 2012

Atlantic Coast Financial Corporation (the "Company,")(NASDAQ: ACFC), the
holding company for Atlantic Coast Bank (the "Bank"), today reported financial
results for the third quarter and nine months ended September 30, 2012.

For the third quarter of 2012, the Company reported a net loss of $1.7 million
or $0.66 per diluted share compared with a net loss of $1.4 million or $0.55
per diluted share in the year-earlier quarter and a net loss of $3.0 million
or $1.20 per diluted share in the second quarter of 2012. For the first nine
months of 2012, the net loss totaled $6.4 million or $2.55 per diluted share
compared with a net loss in the year-earlier period of $6.3 million or $2.52
per diluted share.

Notable highlights of the third quarter included:

  * Net loss for the 2012 third quarter decreased compared with the linked
    quarter primarily due to a lower provision for loan losses and lower
    non-interest expense, as well as higher gains on investment security
    sales, which helped offset a decrease in net interest income. The
    quarterly net loss increased compared with the year-earlier quarter
    primarily due to lower net interest income and a lesser amount of gains
    from investment security sales, partially offset by lower provision for
    loan losses and non-interest expense.
  * Non-performing assets decreased 16.2% to $34.2 million, or 4.35% of total
    assets, at September 30, 2012, from $40.8 million on a linked-quarter
    basis at June 30, 2012, and 34.7% from $52.4 million at December 31, 2011.
  * Annualized net charge-offs to average loans decreased to 2.43% for the
    third quarter of 2012 from 3.69% in the second quarter of 2012, but
    increased from 1.99% for the year-earlier third quarter.
  * Total assets were $784.8 million at September 30, 2012, compared with
    $789.0 million and $792.4 million at December 31, 2011, and September 30,
    2011, respectively, as the Company has continued to manage asset size
    consistent with its overall capital management strategy.
  * In July 2012, the Company modified its agreement with one of the
    counterparties to its reverse repurchase agreement debt. The changes to
    the agreement significantly reduced the Company's exposure to the risk of
    loss by removing the counterparty's option to terminate the debt at market
    value in the event the Bank becomes less than adequately capitalized, or
    as occurred in August 2012, enters into a consent order with the Office of
    the Comptroller of the Currency (the "OCC").

Commenting on the third quarter results, G. Thomas Frankland, President and
Chief Executive Officer, said, "Following on the progress we made in the first
two quarters of the year, we are again pleased to report additional reductions
in our non-performing asset levels – now over a third less than the amounts at
the beginning of 2012. Our strategy to be opportunistic in dealing with
problem loans has proven effective. Also, our warehouse lending had a strong
quarter with the end-of-quarter balance increasing by 41% to $72 million from
the second quarter-end amount, and our retail banking team performed well with
their deposit retention and growth campaign. Like many banks, our net interest
income is softening given the extended low interest rate environment. However,
our tactics to reduce deposit costs and operating expenses have helped offset
what is proving to be an ongoing issue for the industry. Still, many
challenges remain ahead, including uncertainties about the economy in general,
regulatory issues and the conditions of the real estate market. While much of
this is beyond our control, we remain focused on activities within our
control, such as working through problem loans, achieving better expense
control, growing our core deposit base, and capitalizing on opportunities to
generate increased revenues from our warehouse and small business lending
platforms."

Capital Update

The Bank's Tier 1 leverage ratio, Tier 1 risk-based capital ratio and Total
risk-based capital ratio were 5.11%, 9.23%, and 10.50%, respectively, at
September 30, 2012.

Effective August 10, 2012, the Bank's Board of Directors consented to the
issuance of a Consent Order (the "Agreement") by the OCC. Among other things,
the Agreement calls for the Bank to achieve and maintain Tier 1 capital of 9%
of adjusted total assets and Total risk based capital of 13% of risk-weighted
assets by December 31, 2012. In accordance with the Agreement, the Board
established a Compliance Committee that is responsible for monitoring and
coordinating the Bank's adherence to the provisions of the Agreement. Having
completed the early steps required by the Agreement, the Compliance Committee
remains focused on meeting all of the requirements of the Agreement. The
Agreement does not affect the Bank's ability to continue to conduct its
banking business with customers in a normal fashion. The Company's Board of
Directors and management remain committed to meeting the capital requirements
of the Agreement through its ongoing strategic alternatives process.

                                  
Asset Quality                      At
                       Sept. 30,   June 30,   March 30,   Dec. 31,   Sept. 30,
                       2012        2012       2012        2011       2011
                       ($ in millions)
Non-performing loans   $  26.3     $ 33.1     $  41.8     $ 46.6     $  44.2
Non-performing loans      5.81 %     7.07 %      8.38 %     8.94 %      8.31 %
to total loans
Other real estate      $  7.9      $ 7.7      $  4.3      $ 5.8      $  7.1
owned
Non-performing         $  34.2     $ 40.8     $  46.1     $ 52.4     $  51.3
assets
Non-performing
assets to total           4.35 %     5.24 %      5.94 %     6.65 %      6.47 %
assets
Troubled debt
restructurings
performing for less
than 12 months under   $  18.5     $ 20.0     $  19.9     $ 19.3     $  15.9
terms of
modification

 
Total non-performing
assets and troubled
debt restructurings
performing for less
than 12 months under   $  52.7     $ 60.8     $  66.0     $ 71.7     $  67.2  
terms of
modification

 
Troubled debt
restructurings
performing for more
than 12 months under   $  12.5     $ 12.0     $  11.6     $ 12.7     $  18.2  
terms of
modification

 
                                                                      

  * The decrease in non-performing loans in the third quarter of 2012 compared
    with the linked quarter primarily reflected a transfer of $2.1 million of
    non-performing loans to other real estate owned, $2.8 million related to
    the sale of non-performing residential loans, and an additional $2.8
    million related to the disposal of other non-performing loans through
    short sales.
  * The increase in other real estate owned balances between September 30,
    2012, and June 30, 2012, resulted from the aforementioned transfer from
    non-performing loans, reduced by $1.7 million in foreclosed asset sales
    and $0.2 million in write-downs. The Bank recorded a gain on foreclosed
    asset sales of $0.2 million, net of expenses, during the third quarter.

                                                        
Provision /          At and for the                      At and for the
Allowance for Loan
Losses               Three Months Ended                  Nine Months Ended
                     Sept. 30,   June 30,    Sept. 30,   Sept. 30,   Sept. 30,
                     2012        2012        2011        2012        2011
                     ($ in millions)
Provision for loan   $ 3.5       $ 3.7       $ 4.4       $ 10.7      $ 10.2   
losses
Allowance for loan   $ 12.7      $ 12.3      $ 15.2      $ 12.7      $ 15.2   
losses
Allowance for loan
losses to total        2.82  %     2.64  %     2.85  %     2.82  %     2.85  %
loans
Allowance for loan
losses to              48.45 %     37.30 %     34.35 %     48.45 %     34.35 %
non-performing
loans
Net charge-offs      $ 3.1       $ 4.9       $ 2.9       $ 13.5      $ 8.3    
Net charge-offs to
average                2.43  %     3.69  %     1.99  %     3.36  %     1.89  %
outstanding loans
                                                                              

  * The decline in net charge-offs in the third quarter of 2012 compared with
    the linked quarter was primarily due to a $1.2 million charge-off in the
    second quarter of 2012 for the bulk sale of $4.0 million of non-performing
    residential loans, as well as a decrease in the amount of past due loans
    moving to non-accrual status. The loan sale closed in July 2012.
  * The decline in the provision for loan losses for the third quarter of 2012
    compared with the second quarter of 2012 primarily reflected lower one- to
    four-family and home equity loan losses, partially offset by higher land
    and multi-family loan charge-offs.

                                                        
Net Interest Income   Three Months Ended                 Nine Months Ended
                      Sept. 30,   June 30,   Sept. 30,   Sept. 30,   Sept. 30,
                      2012        2012       2011        2012        2011
                      ($ in millions)
Net interest income   $  4.7      $ 5.1      $  5.5      $  14.8     $  16.2  
Net interest margin      2.55 %     2.76 %      2.89 %      2.65 %      2.84 %
Yield on investment      1.89 %     2.32 %      3.17 %      2.22 %      3.23 %
securities
Yield on loans           5.73 %     5.80 %      5.77 %      5.71 %      5.76 %
Total cost of funds      1.92 %     1.96 %      2.20 %      1.97 %      2.27 %
Average cost of          0.76 %     0.80 %      1.18 %      0.85 %      1.25 %
deposits
Rates paid on            4.48 %     4.43 %      4.22 %      4.44 %      4.38 %
borrowed funds
                                                                              

  * The decline in net interest income for the third quarter of 2012 compared
    with the linked quarter and year-earlier quarter reflected primarily a
    reduction in loans outstanding, particularly portfolio loans, and the
    impact of lower interest rates on funds reinvested in investment
    securities and other interest-earning assets. Approximately one half of
    this impact on interest income has been offset by reduced interest expense
    for deposits. The reduction in portfolio loans is consistent with the
    Company's capital management strategy and its efforts to increase levels
    of primary liquidity due to reductions in sources of secondary liquidity.
    In addition, net interest margin continues to be under pressure as yields
    on interest-earning assets, particularly for shorter-term assets, have
    remained historically low, a trend that is expected to continue through
    2014.

                                                        
Non-Interest
Income /
                     Three Months Ended                  Nine Months Ended
Non-Interest
Expense
                     Sept. 30,   June 30,    Sept. 30,   Sept. 30,   Sept. 30,
                     2012        2012        2011        2012        2011
                     ($ in millions)
Non-interest         $ 2.7       $ 1.8       $ 4.7       $ 6.7       $ 9.1    
income
Non-interest         $ 5.6       $ 6.0       $ 7.1       $ 17.0      $ 21.5   
expense
Efficiency ratio       75.03 %     87.03 %     69.90 %     78.96 %     84.67 %
                                                                      

  * The increase in non-interest income for the third quarter of 2012 compared
    with the linked quarter primarily reflected increased gains of $1.0
    million on the sales of investment securities, partially offset by a
    decrease in gains on the sales of loans.
  * The decline in non-interest income for the third quarter of 2012 compared
    with the year-earlier quarter primarily reflected reductions in gains on
    the sales of investment securities from $3.1 million in 2011 to $1.0
    million in the third quarter of 2012.
  * The decrease in non-interest expense in the third quarter of 2012 compared
    with both the linked quarter and year-earlier quarter primarily reflected
    reduced compensation and benefit expenses along with professional and
    outside services expense, both due to expense-reduction initiatives, and
    lower expenses on foreclosed assets, partially offset by increased
    collection costs.

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 through 12 locations, with a focus on the
Jacksonville metropolitan area. Investors may obtain additional information
about Atlantic Coast Financial Corporation on the Internet at
www.AtlanticCoastBank.net, under Investor Information.

Forward-looking Statements

This news release contains forward-looking statements within the meaning of
the federal securities laws. Statements in this release that are not strictly
historical are forward-looking and are based upon current expectations that
may differ materially from actual results. These forward-looking statements,
identified by words such as "will," "expected," "believe," and "prospects,"
involve risks and uncertainties that could cause actual results to differ
materially from those anticipated by the statements made herein. These risks
and uncertainties involve general economic trends and changes in interest
rates, increased competition, changes in consumer demand for financial
services, the possibility of unforeseen events affecting the industry
generally, the uncertainties associated with newly developed or acquired
operations, and market disruptions and other effects of terrorist activities.
The Company undertakes no obligation to release revisions to these
forward-looking statements publicly to reflect events or circumstances after
the date hereof or to reflect the occurrence of unforeseen events, except as
required to be reported under the rules and regulations of the Securities and
Exchange Commission.

                                                                            
ATLANTIC COAST FINANCIAL CORPORATION

Unaudited Financial Highlights

(In thousands, except per share amounts)
                                                                              
                     Sept. 30,     June 30,      March 31,     Dec. 31,      Sept. 30,
                     2012          2012          2012          2011          2011
Total assets         $ 784,810     $ 778,534     $ 776,831     $ 788,967     $ 792,402
Cash and cash          63,840        64,772        47,117        41,017        15,323
equivalents
Securities             155,368       146,383       131,910       126,821       130,052
available-for-sale
                                                                              
Loans                  74,313        57,806        59,399        61,619        64,280
held-for-sale
Loans receivable,      452,120       467,819       498,921       521,233       532,174
gross
Allowance for loan     12,729        12,339        13,516        15,526        15,188   
losses
Loans receivable,      439,391       455,480       485,405       505,707       516,986  
net
                                                                              
Total deposits         507,906       500,481       498,010       508,411       507,938
Federal Home Loan      135,000       135,000       135,000       135,000       135,000
Bank advances
Securities sold
under agreements       92,800        92,800        92,800        92,800        92,800
to purchase
Stockholders'          43,080        43,990        45,315        46,294        50,697
equity
                                                                              
                                                                              
                     For the Three Months Ended
                     Sept. 30,     June 30,      March 31,     Dec. 31,      Sept. 30,
                     2012          2012          2012          2011          2011
Interest income      $ 8,213       $ 8,623       $ 8,749       $ 9,246       $ 9,610
Interest expense       3,497         3,519         3,766         3,963         4,098    
Net interest           4,716         5,104         4,983         5,283         5,512
income
Provision for loan     3,529         3,741         3,475         5,201         4,419    
losses
Net interest
income after           1,187         1,363         1,508         82            1,093
provision for loan
losses
Non-interest           2,734         1,799         2,155         2,134         4,654
income
Non-interest           5,590         6,008         5,372         6,629         7,106    
expense
Loss before income     (1,669  )     (2,846  )     (1,709  )     (4,413  )     (1,359  )
taxes
Income tax             --            (150    )     --            424           --       
(expense) benefit
Net loss             $ (1,669  )   $ (2,996  )   $ (1,709  )   $ (3,989  )   $ (1,359  )
                                                                              
Net loss per basic   $ (0.66   )   $ (1.20   )   $ (0.69   )   $ (1.61   )   $ (0.55   )
and diluted share
                                                                              
Basic and diluted
weighted average       2,498         2,497         2,494         2,483         2,484    
shares outstanding

                                                    
ATLANTIC COAST FINANCIAL CORPORATION

Selected Consolidated Financial Ratios and Other Data (Unaudited)

(Dollars in thousands)
                                                      
                         At and for the              At and for the
                         Three Months Ended          Nine Months Ended
                         Sept. 30,                   Sept. 30,
                         2012          2011          2012          2011
Interest rate
Net interest spread        2.40    %     2.72    %     2.49    %     2.69    %
Net interest margin        2.55    %     2.89    %     2.65    %     2.84    %
                                                                    
Average balances
Loans receivable         $ 517,173     $ 586,798     $ 537,044     $ 586,931
Total interest-earning     739,646       762,396       744,341       762,694
assets
Total assets               776,794       810,415       779,517       811,281
Deposits                   498,483       503,102       500,131       506,854
Total interest-bearing     685,649       711,435       688,839       712,957
liabilities
Total liabilities          732,485       755,952       733,724       756,778
Stockholders' equity       44,309        54,463        45,793        54,503
                                                                    
Performance ratios
(annualized)
Return on average          -0.86   %     -0.67   %     -1.06   %     -1.04   %
total assets
Return on average          -15.07  %     -9.98   %     -18.12  %     -15.41  %
stockholders' equity
Ratio of operating
expenses to average        2.88    %     3.51    %     2.90    %     3.53    %
total assets
Efficiency ratio           75.03   %     69.90   %     78.96   %     84.67   %
Ratio of average
interest-earning
assets to average          107.88  %     107.16  %     108.06  %     106.98  %
interest-bearing
liabilities
                                                                    
Asset quality ratios
Non-performing loans     $ 26,272      $ 44,209      $ 26,272      $ 44,209
Foreclosed assets          7,903         7,077         7,903         7,077
Impaired loans             40,201        46,823        40,201        46,823
Non-performing assets      4.35    %     6.47    %     4.35    %     6.47    %
to total assets
Non-performing loans       5.81    %     8.31    %     5.81    %     8.31    %
to total loans
Allowance for loan
losses to                  48.45   %     34.35   %     48.45   %     34.35   %
non-performing loans
Allowance for loan         2.82    %     2.85    %     2.82    %     2.85    %
losses to total loans
Net charge-offs to
average outstanding        2.43    %     1.99    %     3.36    %     1.89    %
loans (annualized)
                                                                    
Capital ratios
Stockholders' equity       5.49    %     6.40    %     5.49    %     6.40    %
to total assets
Average stockholders'
equity to average          5.70    %     6.72    %     5.87    %     6.72    %
total assets

Contact:

Atlantic Coast Financial Corporation
Thomas B. Wagers, Sr., 904-565-8570
Chief Financial Officer
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